How the West Lost Africa to China

Over the last seven years, I have attended several investor conferences in Kenya in which, western and Chinese investors among others, were invited. One thing stood out that explains the growing Chinese presence in Africa. Africa urgently needs investment in infrastructure (roads, rail roads, oil pipelines, Hydro-electric dams, name them) and other economic resources-be they mines or factories.

Western investors do not appreciate this urgency. Many want ideal conditions that perhaps do not exist elsewhere. Others are plainly cynical. In a 2004  investor conference in Nairobi sponsored by Financial Times, European investors could not believe that the Nairobi stock exchange in Kenya, can raise US$100 million in three-weeks.

Roads under construction in Kenya by Chinese contractors.
 We  shall assess Chinese workmanship a year down the road

Yet the bourse had just two months earlier mobilized US$300 million in just the same period for the local electricity generator, Ken gen. It is noteworthy that this bond was oversubscribed by 200 per cent. Therefore 67 percent of the Money was refunded to eager investors.

Shown that some roads can be concessioned as PPP projects, some were cynical about the EIRR 25%. Way higher than anywhere else. Many would not believe that the vehicle population in Nairobi exceeded 500,000. A majority wondered whether the Laws currently in place can protect their investments-even the old constitution protected the right to property. They still called for more political and legal reforms before they could sink their investment in Kenya.

This song was repeated in all the three conferences I attended. At one point, an irritated Cabinet Minister plainly told the Europeans: “By the time the laws are in place, there will be nothing for you to invest in. All will have been taken.” The local media treated such statement as reckless. But the Minister was right: Laws are promulgated to protect that which already exists. They do not protect nothing.

While Europeans were busy asking for reforms, the Chinese were seriously asking for details about certain projects.  And they went ahead and bid for them. For some reason, they have opted to do the projects as bilateral aid not as commercial projects. Since 2005 the Chinese have build several roads in and around Nairobi, Kenya’s capital city.  A majority of them are no more than three months to completion. That is a total of nearly 500KM or road. The Chinese business model, unlike the West’s model is focused and efficient.

Africa is in a hurry for investors because of the lost decade of 1990s. During this period the West held sway in Africa. And they assumed too much. In the 1990s, the cry in Africa, from east to west, was that “western governments and their donor agencies were adept at shifting goals.” Such shifting of goals, called “donor conditions” frustrated development programming in Africa since, the fulfilling of one condition opened the way for another not development funds. Infrastructure on the other hand was yawning for funds to improve, add or maintain. It was deteriorating.

This hardened Africans who wanted development not fantasies. At the Horizon, China was emerging as an economic super Power. It was also eyeing African resources and Markets. So it chose a different business model to enter the market. While the west was harping on democratic reforms, good governance and respect for human rights, China chose the opposite route. Its model, fitted well with Africa’s urgent need for Investment in its economy. It was focused and efficient in delivering investment funds to the continent.

Poverty, disease, insecurity, lack of markets  and seclusion are as much human rights issues as democratic and political rights. The Chinese, who in 2009 alone invested, US$56.5 billion in Africa have built hundreds of hospitals and thousands of kilometers of roads, as well as government buildings, railway lines and football stadiums, reported the German online publication, www. Spiegel.de.  It added  "If it weren't for this aid, many African countries would be significantly worse off than they currently are.”

 “Inefficiency and confusion” is what is driving the west out of Africa. For instance, for three-years, the World Bank advised and trudged along with a consortium of European contractors bidding for a 49 Km road by-passing Nairobi, Kenya. The process went up to the construction stage when the World Bank withdrew from the deal in late 2010, saying one of the partners in the consortium was tainted with corruption.

This raised eyebrows in Nairobi as analysts wondered whether the bank did not do a due diligence on the contractors until the last minute. Or did it know all along that one of the parties in the consortium was tainted? Why then, did it not withdraw earlier? A year later, China has approved funding for the same project to start in January 2012

Five years earlier, the Bank’s private sector lending arm, the International Finance Corporation, IFC, treated East Africa to a similar charade. IFC was contracted as the consultant in the consessioning of Kenya-Uganda railways. Being the consultant and transaction advisor, IFC, recommended a South African firm.

Just as the concession was to change hands, IFC withdrew, throwing the whole process into disarray.  Both Kenya and Uganda have yet to gain from the concession. Instead they are always working to try and rescue the white elephant.  Africa is dotted with such white elephants arising from wrong advice by Western experts.

In Uganda, President Yoweri Museveni, frustrated by the West’s shifting of goals over its decision to build a second hydro dam at Bujjagali, imposed a tax on fuel to help build the source from domestic sources. In Parliament, he bluntly told western diplomats to keep off the bujjagali project. Within a month the World Bank had approved US$320 million loan for Uganda to build the same project.

In addition to the entry of China, Africa also posted impressive growth in the 2000s. This coupled with good house keeping has significantly reduced donor dependency giving African countries some elbow room.

This means that some countries, among them, Kenya,could now decide what to buy, from whom and at how much. In 2002/03, Kenya for instance equipped its Police Force and the military with Japanese Vehicles instead of the traditional European sources- Britain and Germany.

Western diplomats based in Nairobi were unhappy.  Led by the British High Commissioner, William Clay, and his Germany Counterpart, Bernt Murtzelburg, the diplomats began accusing the new government of being corrupt. Making independent business decisions that did not favour Britain and the west became corrupt!

To sum up, the west lost Africa to China because of their condescending attitude towards Africa.  Africa paid them back by looking elsewhere for technology transfers and foreign aid. 

Are Chinese angels? Definitely Not! Is the “romance” sustainable? Countries have permanent interests; not permanent friends. China’s business Model may be in sync with Africa’s interest.  Africa must define and cling to its interests. We must  protect family jewels by ensuring that we get the fair- value for our Jewels regardless of the customer’s business model. That means we must put the greater good ahead of the personal good.