Is China in Africa been a free lunch for Africa or is Africa the main course
Though China’s development assistance has been a boon to many African economies some local construction industry players feel that China in Africa hasn’t meant a free lunch as many would believe.
Continuous trade growth between Africa and China has accelerated the Peoples Republic of China’s influence in the continent. The jump of total Sino-African trade from US$55 billion in 2006 to US$163.9 billion in 2012 has seen an estimated 800 Chinese corporations set camp in Africa. Most of these companies are investing in the infrastructure, energy and banking sectors. China’s low credit rates have taken the place of the more restricted and conditional Western loans.
Between 2009 and 2010, China Development Bank (CDB) and Exim bank publicly offered around US$110 billion worth of loans to emerging markets beating the World Bank’s record of offering just over US$100 billion between 2008 and 2010. Moreover, since 2000, more than US$10billion in debt owed by African nations to China has been canceled. In addition, CDB has invested at least US$2.4billion in African infrastructure and commercial projects with the projects estimated to bring at least a further US$10billion of Chinese investments into Africa.
In the construction industry China has largely followed a well trodden path first set up in the post-colonial era when European governments gave assistance for the construction of projects but ensured that projects were undertaken by their construction firms and supplies were sourced from their countries.
Today the large construction firms from Europe that were household names because of the hydro-electric dams and road projects they built have long since departed and in their place are firms with distinctive Chinese characters riding the second wave in Africa’s growth. This growth has been brought on by a burgeoning population, brisk GDP growth and emergence of a middle class that has raised demand for products and services that is rare in a world recovering from economic collapse.
[pull_quote_left]According to a Deloitte Report there are about 322 megaprojects going on in Africa with a total value of US$222.7billion with a majority of project funding coming from China.[/pull_quote_left]
But what has brought on this huge interest in Africa? According to a DFID report commissioned in 2006, China’s inroads into Africa has increased due to a need for raw materials and energy sources. In addition, funding of large projects gives added influence to the Chinese on the continental and access to these resources.
The Chinese have been lauded for their lower bidding price, cheap capital and low cost of skilled labour. Their capacity to carry out large scale projects has also won them many projects along with their policy of not interfering in local politics.
The Deloitte report further points out that China has provided project funding to the tune of US$43.6billionn and has focused on doing fewer but larger projects such as the 8 lane 30 kilometer Thika Highway in Kenya and the electric railway from Addis Ababa to Djibouti.
Timely completion of projects, high quality work, ‘freebies’, coupled with strong financial muscle has seen the Chinese contractors take a large chunk of the African construction industry.
Their strategy of offering full solution to construction projects has also seen them score big. A case in point being the controversial US$4 billion Kenyan Standard Gauge Railway project where the China Road and Bridge Corporation is doing the design, feasibility study, costing and procurement of finance.
Quality of work
Industry players who spoke to Construction Review have been on both ends of the divide when it comes to an assessment of the quality of the work done by Chinese contractors. What seems to be apparent is that while some of the contractors do good work others don’t but this has been a direct result of the level of supervision and accountability involved in each project.
Take for instance in Ghana where Builder Martins Kwasi Nnuro, the President of the Association of Building and Civil Engineering Contractors of Ghana (ABCECG) says there have been some complaints about the Chinese work not being the best in terms of quality.
“I have come into contact with their work and in fact some of their work is of low standards, I have experienced one in the Volta region, as well as one in the eastern region, and as a leader of the association I hear complaints from our members about their work, some work well alright but some of them do not work well,” Nnuro says.
Some of the projects mostly have to do with roads which develop pot holes quickly after completion while buildings develop cracks upon completion. The experts say the solution lies in good supervision, but in these instances the Chinese are left on their own leading to undesirable works. Nnuro supports the argument that the Chinese need greater accountability which would be possible if they were members of a local association such as a building and construction, roads association and so forth .
Kenya Federation of Master Builders National Chairman, Moses N Muihia, says the Chinese complete their projects on time and their work ethics is better compared with locals. Pointing out that the standard is as good as the specifications; Muihia says the standard of their roads, compared with other international projects, is debatable.
Uganda National Association of Building and Civil Engineering Contractors (UNABCEC) Chairman, Jonathan N. Wanzira concurs that in Uganda, the Chinese have embarked on great projects that they have done and completed. He is however quick to point out that this doesn’t rule out the fact that some of these companies are bad and are responsible for some poorly done works in Uganda. He says in Uganda they have had incidences of collapsing buildings and this is because some of the companies are not doing the good job they are paid for.
In Kenya however a different story emerges where the Chinese are being lauded for their speed and quality. They have built a name for themselves in the local industry as reliable contractors though the more indigenous contractors have only themselves to blame given their largely poor track record in the past. One local developer commented that he would rather work with a Chinese contractor any day because he felt they had more integrity.
“The Chinese perform their works diligently. I envy their workmanship,” argues Jedida W Muchoki, MD Linear Cost Consultants Ltd a Quantity Surveying firm in Kenya. She further notes that for the Chinese artisanship is a serious business as opposed to local artisans who do not want to soil their hands but rather supervise.
The UNABCEC Chairman dismisses the belief that the Chinese offer cheaper services than the locals adding that there are times when locals offer cheaper services, but the Chinese beat them on a higher prices service. He advices African contractors to be frugal. “Like Asians, for any business to grow, some personal sacrifices have to be made and that calls for financial discipline. One can forego a luxury if that asset will cost him or her much more than they can afford” the UNABCEC Chairman advices, referring to the tendency to misdirect capital to luxury items.
With most local contractors known for biting more than they can chew, he further urges local contractors to embark on projects they can manage to undertake, do well and complete. “Some local firms will bid for a job and fail to deliver what they promised to do. When a project is too big to handle, I would advice not to go for it, because when you fail to do as promised, you are staining the company’s reputation” he says.
Skills transfer
Besides agreeing that language barrier is a major challenge encountered when working with the Chinese, the consensus is that the Chinese are more experienced and have significant resources in terms of finances, equipment and technical personnel and are therefore able to undertake large construction contracts as opposed to the local contractors.
However, Engineer Brian Barr, a civil engineer with over 40 years of civil engineering experience working in the UK, Eastern Europe, Africa, Caribbean and the Far East, points out that he has worked with both African and Chinese contractors and even though some Chinese contractors are extremely experienced others are not so experienced. He points out contract administration as one area where the Chinese contractor sometimes has less experience than their local counterpart.
Perhaps what attracts the greatest ire is that the Chinese use limited local labor preferring to employ Chinese to carry out many menial tasks which cannot be considered specialised. The UNABCEC Chairman points out that unlike other foreign companies that offer special training and workshops to local professionals in the Construction Industry, the Chinese don’t, they come with expatriates, do the job and go and he says this is unhealthy for the construction industry. He notes that for the local firms to grow, there needs to be a professional relationship that would benefit both the locals and the investors.
Hon. Moses N Muihia concurs that the Chinese do not transfer technology. He points out that Africa must appreciate that no country can succeed by relying on foreigners to develop and sustain its economic growth.
He calls on the governments to commit themselves to promoting their citizens in infrastructure development by continuous capacity development; avail affordable financing to contractors in the same way the Chinese government does to its own; paying them on time for work done and fight corruption in tender awards.
Hon. Muihia further stresses that the middle level technical training institutions should be revamped to develop skilled construction workers for the construction industry. He concludes that local infrastructure engineers and other professionals must be held accountable for any shoddy work under their supervision.
In support of the Chinese however, Jedida W Muchoki says the Chinese have made it possible for the local experts to learn better ways of expediting works adding that the Chinese have brought exposure to Africa and one doesn’t need to tour China to see it all.
Engineer Leo Grutters, co-founder of the Kenyan consultancy GibConsult who do project, contract and claims management, argues that infrastructure is needed in Africa and therefore, whoever brings it is welcome. However, he points out that there is need to carefully balance infrastructure delivery and development of your own country in terms of training and expertise. He adds that the continent’s concern should be a quality build in time and within budget.
In terms of skills development, Engineer Grutters says Africa should not force China to impart because they are never going to, but rather copy what they do adding that China became a developed country in a short space of time by bringing overseas contractors to its borders and simply copied what they did. “Why doesn’t Africa do the same?” he poses.
Wayne Derksen, President of the Lephalale Chamber of Commerce in South Africa also argues the benefits of the Chinese factor and argues that the Chinese influx in the African construction industry is beneficial as it comes with skills and investment. Mr. Derksen adds that the level of training needs to be given to people at all levels and not only to specific groups as this creates only certain people being able to reach their potential resulting in rich and poor communities.
Engineer Barr argues that for the local industry to grow, training, particularly in construction administration and modern, up-to-date construction techniques is necessary.
Joint ventures
Hon. Muihia says the Chinese contractors have of late delved into real estate and small projects and they don’t encourage joint ventures or sub-contracting for the benefit of local contractors; threatening the existence of local contractors further. The other interviewed expatriates concur that this limits local growth and they all agree that joint venturing should be encouraged as it is the best way of ensuring a win-win between Chinese and African contractors.
Engineer Barr echoes their sentiments by saying the influx of Chinese contractors provides an ideal opportunity for local contractors to become involved on many levels such as sub-contracting, joint ventures, consortia etc. He however points out that low tendered rates by Chinese contractors may lead to high financial restraints when attempting any joint operation.
Legislation
In the wake of numerous accusations that the Chinese are taking up most of the continent’s construction work, there have been calls for proper laws to ensure no contractor is treading on the other’s toes.
UNABCEC Chairman, Jonathan N. Wanzira, argues that the Chinese will not only stop at bidding for huge projects, they will also go for small ones, which is not good for the local construction firms’ growth. He says legislation should be clear on what the Chinese can do or not adding that this leaves space for healthy competition. Mr. Wanzira points out that UNABCEC is embarking on legislation in parliament so that some amendments can be done to favour the local construction firm’s growth.
Kenya’s National Construction Authority (NCA) executive director, Daniel Manduku, says they have come up with a regulation that provides for joint ventures. The ratio of ownership of a joint venture for construction works between local and foreign firm shall be at least 30 percent for the local firm, except in cases where there is a mutual agreement between GoK and a development partner.
Project financing
Unlike traditional overseas development aid, Chinese financing is not given through a development agency but rather through government institution, Chinese Exim Bank, whose key mandate is to promote trade.
Hon. Muihia notes that the Chinese firms are supported financially by the Exim bank of China while local contractors are only reimbursed, in arrears, for work done with money borrowed from local banks at extremely high interest rates. He adds that the locals effectively become the financiers of government projects and have no chance to compete with the Chinese contractors.
However, Muihia points out that one should not forget the fact that while the Chinese government dictates the interest rates on their loans, African government contribute part of the project funds and the Chinese contractors eventually take away all accrued project profits from these loans back to china.
UNABCEC Chairman concurs and points out that unlike Europeans or American companies whose expatriate staff will sleep in hotels and buy food, Chinese will pack their own food from home, build boarding houses on the site so they won’t have to spend money in the host country. He further says all the construction industries in Uganda are privately owned, and financing comes from banks that will have to incur interests’ loans. As a result he says the situation can never be compared with that of the Chinese companies that are financed by their government and interests are minimal. “There should be adequate financial assistance given to the local firms by the government for the benefits of the local companies,” he concludes.
While other sectors of the economy laud the benefits of China’s development agenda for Africa, local contractors feel they are being pushed into a corner with little room to grow given their Chinese counterparts greater capacity and financial muscle.
The local contractors have few sympathizers however given their own poor track records in the past where projects were shoddily done or abandoned altogether. Their plight however has received the attention in some countries where legislation is being tabled in order to ensure joint ventures are established and transfer of skills is incorporated. Only time will tell the eventual benefits of the Chinese influx into Africa but if lessons can be learnt from the past then it would be wise to set clear policies of engagement that protect indigenous firms to safeguard local capacity.
