Has China’s “infrastructure Diplomacy” in Africa won?

The Loiyagalan-Suswa High voltage transmission line:
Salvaged by Chinese 

The delivery of stillborn construction projects in Kenya by CMC Di Ravenna, Grupo Isolux Corsan, and Bechtel Engineering raises the question; why?  Why are Western Civil Engineering companies failing in East Africa? Why Is China succeeding?

We eschew the propaganda and focus on Economics and attitude toward Africa for these are the elephant in the house.  Chinese and Western infrastructure investment Models differ. Even their attitude towards Africa is far apart. 

In Chinese and Western European models, the public, through the government invests in infrastructure. The US on the other hand, allows the private sector, state governments, and the federal government to invest in infrastructure. This diffusion of responsibility is the reason why the US is suffering a severe case of rotting infrastructure.

Although the Chinese and European Models are similar, how much we invest in Infrastructure year-on-year matters. Here, China is the leader in infrastructure investment and is slated to remain at the pole position until 2040, spending 5.1 percent of its GDP on infrastructure.

The Chinese believe that Investment in infrastructure is a catalyst for robust economic growth- and they are right. Their economy has posted a robust growth rate in the last 40 years commensurate with large investments in infrastructure. Her GDP doubled every eight years catapulting her to the second-largest economy in the world after the US.

Europe’s investment in infrastructure, on the other hand, peaked around the 1980s. New infrastructure takes some time -say 10 to 20 years- to deteriorate to the level of replacement or expansion. This means that to keep civil engineering firms at work, new infrastructure development must be continuous. The peak in Europe meant 10 to 20 years of redundancy for the firms.

Redundancy, coupled with the West’s condescending attitude towards Africa, spelled doom for them.  The West deemed Africa to be an “aid destination,” “a useless Continent,” said the Economist in 1995. This narrative blinded them to the growing demand for infrastructure in Africa and the business opportunities therein.

China saw a business opportunity in Africa’s infrastructure sector and grabbed it- lending, building, and completing infrastructure projects on time and on budget. For the last decade or so, China was the only investor in Africa’s infrastructure market.  Their Civil Engineering firms did roaring business while their Western counterparts were idle, yawning and teetering on bankruptcy.

Southern bypass Nairobi:
Also salvaged by Chinese
 
 Initially, China was salvaging infrastructure projects rejected by Western financiers, such as the Tanzania- Zambia Railway (TAZARA). In Kenya, China salvaged the 29 KM southern bypass in Nairobi reducing the travel time on this stretch by two-and-a-half hours. The Chinese work ethic and quality of work won them more business. Now China controls 42 percent of all EPCs in Africa.  

The emergence of China as an investor in Africa gave birth to the “Chinese Infrastructure diplomacy,” phenomenon, which was a game-changer. There was a new bull snorting it in the pen- and it was serious!   

The West, after years of spreading anti-Chinese propaganda, has finally adopted the phrase “if you can’t beat them, join them.” This month alone, America’s “build back better” got a huge boost when the US Congress voted for a $1.2 trillion infrastructure bill. Then Europe launched its $340 billion seven-year “Global Gateway Initiative” to finance infrastructure at home and abroad.

 This is an admission that their Civil Engineering firms cannot compete in Africa without their governments taking the lead.  The US Initiative will only benefit domestic firms for it is a purely domestic-focused law.  As for taking a shot at the African market, GGI such firms as, CMC Di Ravenna, Grupo Isolux Corsan, are too little too late for their credibility to be zero.  While the first two went bust during the tenancy of the contracts in Kenya, Bechtel simply walked out.

A report by Kenya’s Parliamentary Budget Office, PBO, gave a hint regarding Bechtel’s departure from the Kenyan project. It was a breach of contract! Bechtel’s contract was for the construction of the US$3 billion, six-lane Nairobi- Mombasa Expressway on a PPP contract.

Instead, it turned into consultancy, evaluating the project and coming up with a lower price tag of $1.8 billion. It even recommended a change of the financing plan from a toll road to a toll- free- road, advising the government to borrow the funds and contract Bechtel to execute.  

The only potential beneficiary of Europe’s new $340 billion “Global Gateway initiative” launched by the European Union, this week, is the French firm, Vinci Highways SA. Vinci is successful in PPP projects across the world.

 Vinci, which won the contract to build the $1.6 billion Rironi- Nakuru- Mau summit highway project in Kenya on PPP terms, is quite adept at crafting alliances that pool talents and resources. In Kenya, it tagged along Meridian Infrastructure Fund, Vinci Concessions SAS, and Sogea-Satim Kenya as partners bidding under the Rift Valley Highway consortium. Meridian is a fund of CDC group of the British Government that invests in hard infrastructure in Africa, the Caribbean, and the Pacific. 

According to the profile in its webpage, https://www.vinci-concessions.com  Vinci has, together with local partners, a portfolio of some 4000km of roads on PPP terms in West Europe, East Europe, Canada, and the US.  

Its stake in a large portfolio of the projects hardly exceeds 50 percent. Her partners in the projects, who are largely local Civil Engineering firms and investment funds, control the rest.

Kenya's SGR: funded and built by Chinese

Although there still is room for these firms to compete in Africa, their success market will largely depend on their attitude. If the West continues to dictate to Africa what projects it needs, GGI will fail. If on the other hand, they accept African projects proposals as presented, they could win some.

There is one area it could make a dent in “Chinese infrastructure diplomacy” though: It could offer competition for business that would force China to review its lending terms to Africa.

Price will be key here. If European firms continue to be pricey, the Chinese will outcompete them and shut them out permanently.  Does China really jerk up prices for its projects in Africa? Evidence to support this theory is hard to come by.

A comparative analysis of the cost of building the Standard Gauge Railway in Africa debunks the myth of expensive Chinese contracts. It does not reveal any significant cost variation between the West and the East. The Chinese build SGRs in Kenya and Ethiopia cost between US$3.89 and $4.57 million per kilometer respectively.

 This is the same range in the Tanzanian project contracted to Yapi Merkezi, and Mota-Engill, a Turkish-Portuguese consortium. The 300-kilometer section between Dar es Salaam and Morogoro cost $4.2 million per kilometer without locos and rolling stock, while the 442 KM Morogoro - Matukupora section will cost $4.59 million a kilometer. We hasten to add that the other lines are a lower standard compared to the Northern Corridor, SGR in Kenya.

Well then, has Chinese Infrastructure diplomacy won?. It remains to be seen whether the West will eventually dent Chinese investment in Africa’s infrastructure construction sector

Comments

Popular posts from this blog

Bulls unleashed on Kenya's economy?

Coming soon: Railway Cities in Kenya

Construction of Tanzania’s” bridge over the sea” begins