The Second Scramble for Africa
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Targeted are the large African economies such as Nigeria, Ghana, Ethiopia, and Kenya. The last two economies are the largest in East Africa and are growing robustly. In fact, Ethiopia is among the top ten fast-growing economies in the fast-growing region. Kenya is the more dynamic of the two, with a well- established entrepreneurial culture.
The next difference is the drivers of the scramble. In the first scramble, the pathfinders- discoverers if you wish- were Missionaries and explorers. These have been replaced by Government officials and businessmen. This is not a contest for African resources among European countries. It is between the West and China, the second-largest economy in the world. In fact, it’s a battle to fold back China’s presence in Africa!
And unlike the first scramble for Africa, there’s no likelihood of a Berlin conference to partition Africa. The gun has been replaced with “charm offensive and personal touch” exemplified by high-level visits to or out of Africa by Heads of State. They strengthen diplomatic relations with African governments, throw in some aid, and let the private sector scramble for business.
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China wormed its way into the top perch of Africa’s development partnerships in the last decade through its “contract-oriented, low-cost, low-interest model of doing business,” says a French diplomat quoted by Reuters. Now, the West, whose grip on Africa is slipping, is plotting to upstage China’s model.
The accompanying political rhetoric is a pointer to the real goal. China is being branded a “predator Partner, disrespectful of the sovereignty of Africa countries, and whose investments do not create jobs in Africa. The west is promising to be the opposite of all these “ills.”
The US and France are leading the charge and have changed their business model for Africa. China, through “contract-oriented, low-cost, low-interest model of doing business,” enforced by its Exim Bank, has funded Chinese contractors building infrastructure in Africa. Now China finances 50 percent of all infrastructure projects in Africa. Also Read http://eaers.blogspot.com/2018/09/african-market-entices-the-beast-and.html
The West’s business model is slightly different. Its “personal relations” with the leaders approach is meant to pave the way for the Private sector in the West to gain a foothold in the “Rising Continent” which boasts of a growth rate higher than the West. According to African Development Bank, the continent will post a growth rate of 4.2 percent this year, almost double the rate in the West. For this reason, the West is salivating for a piece of the action in Africa. The US enacted the Build Act which raises investment into Africa to US$ 60 billion, the same amount China has committed to Africa’s infrastructure development. The US has also created a state agency to spearhead the scramble for business in Africa. Also Read: http://eaers.blogspot.com/2018/10/usa-hastens-pace-for-african-market.htm
And France has hit the road running, striking deals in East Africa for French companies. In Kenya two weeks ago, France struck deals worth $3.3 billion for French builders.
The West has woken up to the reality that Africa is the place to be and they have to get there fast. That means a change in their “Enter Africa Business Model.” In the past, bilateral aid and NGOs funded development in Africa. But this failed. In fact, this model paved the way for Chinese entry into Africa for it was bureaucratic, inefficient, and out of sync with African development needs.
Africa thus turned to China for development finance and China did not disappoint. Within a decade, the West was elbowed out of Africa.
Seven years ago, we accurately diagnosed the cause of the West’s cirrhotic development record in Africa: Bureaucracy, activism, lack of finances and politics of NGOs. These characteristics frustrated African governments that needed urgent funds to develop infrastructure. They thus turned to China which responded with loans and contractors to do the job. The Chinese were efficient!
To remove public sector inefficiencies that frustrated Africans in the past, the West has the Private sector playing a major role in Africa’s development. Public-Private Sector- Partnerships are becoming the norm in the West’s business model for Africa, the last frontier for economic development.
The new model also is a reflection of realities in the West; they do not have the public funds necessary to invest in Africa and challenge Chinese dominance. But the Private Sector can mobilize resources with a bankable business model for an infrastructure project. There are an estimated 100 trillion US dollars in savings across the world that can be harnessed for Africa’s infrastructure development, says the African Development Bank, AfDB.
And that is why fund managers are joining contractors in consortia to bid African Infrastructure. The French firms seeking PPP concessions in Africa for instance comes in consortia that incorporate fund managers. The French Consortia seeking to upgrade the Nairobi- Mau summit highway have incorporated Fund managers. This is for the purposes of mobilizing funds for bankable projects.
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So determined are the firms for a piece of the African pie that they are going for each other’s throat. There is a fierce fight over the award of the bid for the construction of the Nairobi- Mau Summit highway. The losing bidder, a consortium involving the African Infrastructure Investment Fund 3 Partnership, (Aiim), Egis, Mota-Engil and Orascom is challenging the winning bidder, a consortium led by led Vinci Highways SAS, Meridian Infrastructure Africa Fund and Vinci Concessions SAS as the preferred bidder for the project.
This is not surprising: East Africa is the fastest-growing region in Africa posting robust growth rates in the upwards of 5 percent. Kenya and Ethiopia are the two largest economies in the region that are attracting the interest of the West. However, Kenya, the most dynamic economy in East Africa, is the business hub of the region and it is where prospects for business deals are easily available and mouthwatering. Any firm winning a bid in Kenya will have struck gold- and a chance to win more bids
The heavily motorized Northern Corridor, which connects landlocked countries in the region to the Mombasa Port is attracting a lot of PPP interest. The US Construction firm, Betchel Executive, has bagged the bid for the 473 Kilometer long Mombasa- Nairobi Section, which plans to build a six-lane Expressway on PPP basis. The French are pitching for Nairobi- Mau summit section on the same corridor. Both are eyeing a 25-year concession during which they will collect tolls from motorists to pay themselves off.
However, there is the downside of the West’s model. A number of contractors that found their way into Kenya through “personal charm” have disappointed. The Spanish Construction firm, Grupo Isolux went under before completing its contract to build a 428 km 400 kV power line worth US$208 million in Kenya. The line was meant to transmit electricity from a 310 MW wind power plant.
Also in Kenya, the Italian firm CMC di Ravenna Itinera has filed for Bankruptcy at home after winning two EPC bids to construct Dams in Kenya worth US$690 million. The same firm has also not completed another Dam in Kenya.
These bankruptcies could red flag Western firms as potential defaulters, paving the way for further Chinese entrenchment in Africa.
Despite these dangers, the renewed interest of the West in Africa is a plus. It will strengthen Africa’s hands while negotiating Chinese loans. It will also scare the Chinese forcing them to tone down their “predatory “ lending approach in Africa.
The scramble for Africa will be decided, not in a Berlin conference, but by efficient delivery of contractual obligations.
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