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Arusha was first settled in the 1830s by the agro-pastoral Arusha Maasai, who traded grains, honey, beer, and tobacco with the pastoral Kisongo Maasai in exchange for livestock, milk, meat, and skins.

Demand for Arusha's foodstuffs increased substantially during the 1860s when the Pangani Valley Arab trade route was extended through Old Moshi, Arusha, and ultimately to western Kenya.

Arusha was conquered by the Germans in 1896 and they established a permanent presence in 1900 when a military fort (a boma) was built and soldiers were garrisoned there. Many Africans were forcibly displaced from their ancestral lands by the Germans and forced to dig lime or carry stones to construct the fort. Business opened up for Indian traders during this time.

The British took Arusha from the Germans in 1916 during World War German officials fled the area, the British deported the remaining German missionaries and settlers, and only a skeletal military administration of the town remained. During the 1920s, civilian administration was implemented, missionaries from the United States arrived, British and Greek settlers reoccupied the former German farms, and the town grew. More Khoja traders established themselves at this time.

The extension of the railroad from Moshi to Arusha in 1928-29 greatly increased commerce. The prominent Natha Hirji family set up in Arusha during this period. See Mohamedali Natha Hirji

The Great Depression thereafter, however, squelched commerce, and Arusha in 1940 had less than 2,000 residents. Growth resumed during World War II and by 1948, the population had increased to more than 5,000.

In the 1960s, parts of the movie Hatari! with John Wayne were filmed at Momella Game Lodge, later owned by the famed businessman, Akber M. Rajpar, also known as "Lord Rajpar".

Arusha is the headquarters of the East African community, host to the International Crime Tribunal for Rwanda and the African Court on Human Rights.