Saturday, January 23, 2010

China’s march in Kenya upsets local firms

Officials of a Chinese company on site of a road construction project near Isiolo town in July 2008.  The road will join Isiolo town and Ethiopia. Photo/FILE

Officials of a Chinese company on site of a road construction project near Isiolo town in July 2008. The road will join Isiolo town and Ethiopia. Photo/FILE 

By DAVID OKWEMBAH

Days after a visit by the Chinese Foreign minister Yang Jiechi, the Moi International Sports Centre, Kasarani in Nairobi was closed down for a Sh1 billion renovation.

Shengli Engineering, a Chinese firm, was awarded the lucrative tender to refurbish the country’s biggest stadium that was built by the Chinese government for the All Africa Games in 1987.

It also transpired that the Chinese official had confirmed his country’s support for plans to build a multi-billion dollar sea port in Lamu.

Once constructed, the port would serve as a key entry into southern Sudan, Ethiopia and Rwanda via a new rail network.

While the government is receiving the windfall from the China, many local companies are questioning the easy way in which Chinese firms seem to access major capital projects and key sectors of the Kenyan economy.

Major projects

Cheap and often sub-standard Chinese goods have also found their way onto the shelves of Kenyan supermarkets and kiosks.

From 44 companies in 2001, the presence of Chinese firms has increased to more than 200 operating as trading companies, restaurants and clinics.

The Cninese Embassy in Nairobi says there are 12 major Chinese companies in Kenya, including Huawei Telecommunications, Sinohydro Corporation, China Road and Bridge and Shengli Engineering.

Also in the country is China National Offshore Oil Corporation (CNOOC), which is involved in the exploration for oil in northern Kenya.

Chinese companies are already involved in various other sectors in Kenya, including telecommunications, infrastructure and energy.

The projects in different parts of the country run into billions of shillings.

The construction sector – housing and roads – has attracted the highest number of Chinese companies with key roads in the country under rehabilitation or construction by them.

Among the major projects undertaken by the Chinese firms are the expansion of the Kisumu airport, rehabilitation of the Moi International Sports Centre, expansion of Thika-Nairobi highway, the Sondu Miriu power plant interface and oil exploration in northern Kenya.

The acting permanent secretary in the ministry of Roads, Hyslop Ipu, defended the award of tenders to Chinese firms saying most of the tender had been floated internationally while others had restricted conditions for the bidders.

But local traders and firms involved in construction are questioning the rationale of shifting towards China when the balance of trade is tilted towards the Chinese.

While none of the local companies is questioning the quality of the Chinese projects, they are concerned that many of them may be forced to close down or lay off staff due to unfair competition.

Roads minister Franklin Bett is on record as praising the Chinese firms for their quality and timely completion of projects.

According to last year’s Economic Survey, Kenya’s exports to China stood at Sh2 billion while imports from China were at an all-time high of Sh63 billion.

A report by 14 universities in Africa under the aegis of the African Economic Research Consortium (AERC) released two months ago warned that increasing investment, foreign aid and diplomatic ties with China would hurt Kenya.

“Fears have been raised about threats to engineering talent and skills and the collapse of local construction companies due to invasion of Chinese construction firms,” says the report.

The researchers feel that Chinese firms are undercutting local companies and that the latter may collapse.

They estimate that more than 50 per cent of construction activities in Nairobi, both private and state-sponsored, have been captured by Chinese construction firms usually preferred for projects ranging from roads, water systems, power generation and hospitals.

“Increasingly, the structure of employment is changing, with an increasing proportion of foreign employees in Chinese enterprises,” says the report by the University of Nairobi’s Institute for Development Studies.

However, these findings are disputed by the Chinese press attaché in Kenya Liu Bo and Mr Ipu.

Mr Bo told the Sunday Nation that Chinese were not involved in any underhanded deals to get the lucrative tenders.

“We strictly adhere to all tender regulations, but it is because of the workmanship that Chinese companies are awarded the tenders,” Mr Bo said.

While agreeing that some tenders were restricted, the press attaché said most tenders were advertised internationally and open to all companies including those in Kenya.

Quality of products

He also defended the quality of products imported from China, saying his country was very strict about standards.

“There is low quality and counterfeit. Kenyans should separate the two because China does not encourage counterfeit while we have quality standards for all our goods for export,” he added.

Mr Ipu defended Chinese companies, saying Kenyan firms could benefit from technology transfer from their Chinese counterparts.

“We are building the capacity of local firms so that they can compete with other international firms,” the acting Roads PS said.

But a leading local contractor in the road sector, who can’t be named without jeopardising his business, accused the government of favouring Chinese firms.

He said while the government gave local firms 10 per cent of the total cost of the project when it was awarded a contract, the Chinese were paid 50 per cent.

On signing the contract, the Chinese contractors are given a further 40 per cent of the total cost, but nothing is extended to local firms, he said.

“How do you expect us to compete when the ground is not level?” the contractor asked.

Barely surviving

While the Chinese make their money, Kenyan firms claim to be barely surviving on small projects awarded by local authorities and the Constituency Development Funds (CDF).

Peter Musango, managing director of Kirinyaga Construction, one of the leading road contractors in the country, was not available for comment as fortunes of the firm are said to have dwindled due to the stiff competition from Chinese firms.

At one time the company owned by the Mathira MP Ephraim Maina controlled major contracts in the road sector as well as construction.

Mr Ipu said Kenyan firms might be losing out on some of the major capital projects because of the conditions set by donors that blocked local firms.

The latest edition of London-based African Confidential cautions African countries, Kenya included, to tread carefully when dealing with China.

“For now, because of their richness in natural resources and as a nod to South-South solidarity, African countries may at times punch above their weight in China’s strategic considerations.

Yet China’s relations with Africa are just a small piece of its foreign policy when seen in a global context, and African countries would do well to remember that,” the magazine notes.

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