China bets big on Kenya

At every ground breaking ceremony of a Chinese-backed project in Kenya, the dragon dance is part of the entertainment. Sneaking its way among the guests, it has become a familiar scene just like their projects.

The onslaught of the Chinese in Kenya is evident through their commitment to funding and the zeal with which they go about the projects.

“The continent is turning East and in many regards, it is clear that policies and trade with Beijing is now of more importance to us than those in Washington,” says Nairobi Stock Exchange data vendor Aly-Khan Satchu.

Experts say Chinese have taken a longer-term approach and this has in turn allowed the continent to lock in longer term cash flows and unlocked a great deal of development type capital.

As its economy booms, China is intent on getting the resources needed to sustain its rapid growth, and is taking its quest to lock down sources of oil and other necessary raw materials across the globe.

Kenya does not have mineral resources that have attracted Chinese firms elsewhere. But China has extensive oil interests in Sudan, it is an important lender to Ethiopia and Chinese contractors are gaining a dominant position in public works in Kenya.

It is estimated that more than 50 per cent of construction activities in Nairobi both private and public have been captured by Chinese construction firms usually preferred for projects ranging from roads, water systems, power generation and hospitals.

Kenya and China are mulling a huge project to develop a port on the Kenyan coast and a corridor creating a new export route for China’s oil in Sudan’s secessionist south.

China’s involvement would come as an alternative to a project floated last year in which Qatar would have invested $3.5 billion in the port in exchange for a lease on a huge tract of land to grow crops.

State controlled China National Offshore Oil Corporation is sinking a $26 million oil well in Boghal in Isiolo, in a move designed to keep Africa’s natural resources flowing to China.

Oil experts estimate that up to $300 billion has so far been sunk in oil and gas exploration projects in Africa. Kenya last week sent a delegation at the second ministerial conference on Forum on China Africa Co-operation in Sharm El Sheikh, Egypt, from November 5-8, at which more deals could be sealed.

“The continent used to face an egregious demand side to its equation. They have balanced the demand side which was previously in disequilibrium. Before their arrival, the continent was in a ‘hand to mouth’ situation in that the west typically entered into very short duration contracts and this resulted in the continent finding itself very much in a boom bust cycle, says Mr Satchu.

“One serious advantage the Chinese have is that they do not carry any colonial baggage. In fact, their experience is a great deal closer to ours.”

While China is often characterised as a monolithic actor in Africa, experts say Chinese trade with Africa has diversified beyond state-directed enterprises in recent years.

Mr Martyn Davies of Frontier Advisory, a South Africa-based consultancy for investors in emerging African markets, says China has eclipsed the US as the continent’s biggest trading partner.

“The balance of commercial power has shifted. This is not something new – it’s just been accelerated by the economic crisis. It’s towards inter-emerging market trade, rather than the traditional north-south trade,” Mr Davies says.

Trade between China and Africa in 2000 stood at $10.5 billion, compared to $106.8 billion in 2008, up 45.1 per cent on 2007. For Kenya, it is skewed in China’s favour. In 2007, China exported goods and services worth $980 million while Kenya exported to China goods and services worth $38 million.

Prof Abdul Kasozi, the Executive Director of the National Council for Higher Education in Uganda says with the exception of Nigeria, no sub-Saharan producer of oil is a member of OPEC, which has negotiated favourable terms for its members. African countries negotiate on their own and cannot extract the best terms.

New oil wealth countries rarely have people with the experience, capacity or political strength to negotiate good terms for their nations. Prof Kasozi says Africa had no choice to sell its goods to the highest bidder. However, he says, the granting of political independence and the coming of other traders to Africa should help the African producer to sell his products at competitive prices.

Africa trade curve

Mr Satchu says: “The Chinese have been in Africa for very long . I come from Mombasa and if you care to potter through the Museum at Fort Jesus you will find centuries old Chinese Porcelain. Whilst the last decade has seen a super growth China Africa trade curve, they have not come out of nowhere. So I do see the continent as being a winner in this relationship.”

Chinese construction firms have been preferred against local ones given their comparatively low bidding prices, a fact that Mr Ashu Sharma, director at Spencon, a construction company, says is working against local firms.

Another reason for Chinese interest, analysts say is that the Chinese government buys hard currency earned by Chinese contractors overseas at preferential rates.

Mr Joseph Schwartzman the managing director H Young says “Chinese companies’ presence in Kenya is not beneficial to the country.  Their presence has only one purpose: transfer of hard currency back to China.

China is among the a few countries that have a separate fully-supportive Economic and Commercial Counsels in Kenya.

“What was noticeable when the crisis hit, there was beneath the Chinese State, an entrepreneurial class that was less well endowed and these fellows hit the eject button very quickly. Look at the copper mines in Zambia. I think the Chinese Government need to better integrate their entrepreneurial class because the backlash whilst contained was significant,” Mr Satchu says.

Chinese firms have won massive bids for power projects in Kenya. The Chinese contractor won an international tender for capacity enhancement of the Nairobi-Eldoret Pipeline System in 2007.

China Road and Bridge Corporation and Wu Yi are currently undertaking major infrastructure projects in Kenya including the Sh10 billion expansions of the Jomo Kenyatta International Airport (JKIA) and construction of Thika-Nairobi highway.

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