Lindi a tough nut to crack

Cashew processor in less-developed southern Tanzania works to solve problems that have kept out most foreign competitors

"Iam probably the only Chinese businessman in Lindi right now," said Hao Feihua, vice-general manager of China-Africa Industry and Trade Group Co.

Most Chinese investors pouring into Africa have chosen to steer clear of Lindi, a small city in southern Tanzania, because local infrastructure is so poor.

With a staff of more than 50 local workers, China-Africa Industry and Trade Group Co is expected to produce about 100 tons of CNSL oil a month. Photos provided to China Daily

"I cannot export my products back to China through the nearest port because of the lack of cargo ships there, and I can't find enough trucks to transport all of it in a timely way to Dar es Salaam," says Hao, who was in the country's commercial capital to resolve the delayed shipment of two containers.

But Hao says both the verdant forest of cashew trees that blankets local mountains and the rocketing prices of cashew shell oil are what persuaded him to venture into a promising land that his fellow countrymen have yet to find.

Hao's company began to build a factory to produce cashew nut shell liquid, also called CNSL oil, in Lindi two years ago.

Cashews are an economically important cash crop for many rural households in Tanzania. The Tanzanian government is eager to boost local and foreign investment in the country's cashew nut production.

"We encourage people to invest in this sub-sector which is crucial for the country's development. We are ready to help them," says Juliet Kairuki, executive director of the Tanzania Investment Center, speaking at a cashew nut stakeholders' meeting in Dar es Salaam last year.

Cashew nut kernels, processed using the superior standards required by top food companies, are growing in popularity among consumers all over the world, making cashew nuts increasingly profitable.

Yet, instead of rushing to compete with local and global traders that have dominated that business for many years, Hao's company has focused on tapping into the huge opportunities in the processing of CNSL oil, a versatile byproduct of the cashew industry.

The cashew nut has a shell nearly a third of a centimeter thick, inside which is a soft honeycomb structure containing a dark, reddish brown viscous liquid, the raw material for CNSL oil. The oil has a broad range of applications, such as friction linings, paints, laminating resins, rubber compounding resins, foundry chemicals and intermediate substances for the chemical industry. It also has a lot of potential for the development of other tailor-made polymers.

Vietnam is the major exporter of CNSL oil to China. Bumpy bilateral relations as well as China's soaring demand have recently sent the price of the oil from $360 a metric ton to $650 a metric ton.

"It even exceeded $900 a ton for a moment," says Hao.

The Tanzanian government's commitment to encourage investment in the cashew industry provides a good opportunity for the growth of Hao's company. But Hao has apprehensions about whether local mechanisms will ensure that all parties get paid as promised in a timely fashion.

One of the problems that hampers the purchase of cashew nut shells is the failure of local associations that control the market to pay farmers on time. Processing enterprises are forbidden from purchasing cashews directly from farmers, meaning the local associations act as middlemen. But their frequent delays in collecting payment from some processing enterprises often result in overdue payments to farmers.

"It would be OK for us if the government were to open the sector to all enterprises," says Hao, whose company is ready to expand.

With a staff of more than 50 local workers, Hao's factory is expected to produce about 100 tons of CNSL oil per month. But five of the factory's 12 processing machines have been lying idle lately.

"It used to be a shortage of electricity or orders that prevented the factory from running at full capacity," says Hao. "But now it is the bottleneck of road transportation."

Infrastructure in northern Tanzania is better than in southern areas because of both its proximity to Kenya, the economic powerhouse of East Africa, and its rising attraction as a world famous tourist spot.

"But since Lindi is close to the newly found natural gas field in southern Tanzania, its power supply should be better guaranteed than Dar es Salaam's, where a huge investment boom is likely to outgrow electricity supply," says Hao.

To overcome the shortage of light trucks to transport raw materials and processed CNSL oil, Hao is considering building a transportation fleet while his company is helping a Chinese automaker boost local sales.

"You just cannot wait for the improvement of local infrastructure before laying a solid foundation for your company's expansion in this promising African market," says Hao.

On the one hand, no one can predict exactly when the country's infrastructure construction will reach such a level that can satisfy all investors' demands. On the other hand, once it is done, there will be even more competitors.

"It is important for you to begin your business here while the country is undergoing massive infrastructure construction," says Hao, "so you take time to adjust your company to local conditions."

zhuqiwen@chinadaily.com.cn

(China Daily Africa Weekly 11/21/2014 page22)