UK embroiled in Tanzania row

Dar es Salaam airport may get a new air traffic system

The UK has become embroiled in a row over the sale of a $40m air traffic control system to the Tanzanian government.

Tanzania is set to buy the system, the cost of which equals about half the money it receives in debt relief, from the UK's BAE Systems.

The International Monetary Fund (IMF) and the World Bank argue that Tanzania should not borrow more money to fund a defence system it does not need, according to a report in the Financial Times.

The ball now rests in the UK government's court, as it must now decide whether to grant an export licence to BAE Systems.

Government criticism

The UK government could face criticism either for jeopardising export interests or for ignoring IMF and World Bank advice.

The multilateral agencies argue that it is an inappropriate use of funds for Tanzania, which is receiving up to $100m a year on top of $1bn of general aid.

Britain is one of Tanzania's principal foreign aid donors.

The World Bank has said that in principle it supports the upgrading of Tanzania's air traffic control system, but it has asked the government to explain exactly why it needs such a sophisticated and expensive system with a military capability.

These agencies frequently object to projects undertaken by developing countries, David Cowan, of the Economist Intelligence Unit said.

It is however unlikely that they would stop lending to Tanzania because of their purchase of this system, he said.

Debt star

The case highlights the issue that while some countries may be benefiting from debt reduction policies, there is nothing in place to stop them building up fresh debts.

"It is currently one of the stars of the Heavily Indebted Poor Countries debt initiative (HIPC). There has been a concerted effort to reduce the debt burden, to add to it is strange," he told BBC's World Business Report.

"It probably does not need such a sophisticated system, there is no doubt about it."

But it is unclear what conditions the World Bank could impose on the deal.

"I doubt if it would be stopped...The idea is they would go back to the drawing board and think about whether it is a suitable system," the EIU's Cowan said.

Last resort?

As a last resort, the World Bank could decide to set the specifications of the the new air traffic control system as one of the conditions for its financial support.

However, it is thought unlikely that the World Bank will do that as it rarely attaches conditions to single issues.

It has previously stepped in and said that the conditions attached to a power supply contract between the Lagos state government and Enron were unfavourable to Nigeria.