Why Chinese firms are elbowing out foreign rivals in road construction

Section of Shauri Yako road in Eldoret town- which is being expanded to reduce death cases experienced for the past years. Residents say the area is a black spot and had claimed many lives due to poor state of the road. 24.09.2015. Pictures By Peter Ochieng

The Kenya National Highway Authority (KeNHA) has in the last five years awarded seven of 11 major road construction contracts to Chinese contractors.

The firms will pocket a cool Sh63 billion of a possible Sh90.6 billion when they complete the projects. The balance will be shared between three European contractors and one Indian contractor.

Kenya will have the crumbs that are maintenance and supervision. And, even those are not guaranteed.

This year when the Government advertised for construction of three roads, China Wu Yi Co Ltd - was awarded all the contracts worth Sh23.3 billion. The deal will see the firm build Molo-Olenguruone Road, Gichuru-Rironi and Tala Kenol roads.

Interestingly, all the projects funded by the Government were awarded to Chinese firms. The same was with projects jointly funded by the Government and the African Development Bank (ADB).

This is despite the fact that the Jubilee administration has drafted a policy that makes it mandatory for at least 30 per cent of all Government tenders to be given to locals. The 30 per cent, it seems, does not include massive infrastructural projects.

Local contractors that we spoke to but declined to be named for fear of victimisation during the award of future contracts, complain that they have been left out as Chinese firms take the lion’s share. They say it’s a matter of time before local contractors exit the scene.

From KeNHA’s list, all projects funded by the European Union (EU) and the Government went to EU-based contractors including Gulsaan Insaat of Turkey and Impressa Maltauro of Italy.

Do not have the muscle

As China’s presence is felt in the country, the Anglo-American presence is slowly but surely being obliterated. But, chillingly, even Kenyan presence is being swept to the spectators’ line.

According to KeNHA, although it would have been desirable for Kenyan contractors to undertake the multi-billion shilling projects, they simply do not have the muscle.

KeNHA corporate affairs manager Charles Njogu, says most local contractors do not have the financial and technical muscle to complete such extensive projects. But he is quick to add that local firms are given the maintenance contracts.

Moreover, major project implementation has been overseen by local resident engineers, adds Mr Njogu.

“All our projects are subjected to competitive tendering as per Public Procurement Oversight Authority guidelines. Whereas foreign contractors may have had an edge over local contractors in some aspects like capital outlays, machinery and technical experience, local contractors have on the other hand won most of the maintenance contracts,” says Njogu.

But, the main obstacle to local contractors involvement in some of these projects is the “special condition” in most of the donor funded projects that contractor be on the approved contractor list of funding agencies, says the Kenha official.

Gerrishon Ikiara, an economics lecturer at the University of Nairobi says one of the pre-conditions for the donor-funded projects is that they be advertised internationally so that they can attract qualified contractors.

Kenyan contractors might have limited capacity to undertake some of these projects-true.

But is it a coincidence that mostly Chinese-related firms won first, all the government-funded projects, and two, Government/ADB funded projects even as European Union firms won all the EU-funded projects?

Mr Ikiara agrees that most Kenyan contractors have limited capacity and cites the road between Processional way and State-House Road in Nairobi which allegedly took a local firm four years to complete. “You can imagine if they were doing a bigger project like the Thika-Nairobi Superhighway?” he posed.

Ikiara clarifies that he is not opposed to protection of local investors but, all over Africa infant firms have been doing shoddy jobs. He estimates that it would take Kenyan firms about 30 years before they rise up to the level of the Chinese firms.

Dr XN Iraki, senior lecturer from University of Nairobi School of Business says: “The Chinese could be winning contracts because they are the funders, not very much unlike western funded projects.”

There has been dramatic growth in Kenya’s external debt stock from China. External debt from China has contributed in large part to the bulge in Kenya’s overall debt which stood at Sh2.2 trillion as at December last year, according to the Economic Survey 2015.

Kenya’s external debt from China which stood at Sh14.4 billion in 2010 has exponentially risen by a whopping 462 per cent to stand at Sh80.8 billion as 2014.

But there is another reason. Chinese firms, unlike the American firms have not set pre-conditions for investing in Africa. Most of them have not insisted on transparency and accountability as conditions for funding these projects.

According to Dr Emanuel Manyase, an Economics lecturer at Kenyatta University, the West’s emphasis on transparency has seen Kenyan firms jump into China’s unconditional embrace.

He says that Kenya has hardly attempted to build local capacity so that Kenyan firms can begin taking charge of the huge infrastructural projects. “Building capacity is not coincidental. You have to sit down, plan and develop. But that has not been done,” said Dr Manyase.

Manyase says the only time Kenya attempted to build local capacity is when it gave contracts to some Indians. “And this was because they could pay bribes,” he says adding that the country then advanced to giving the contracts to cow-boy contractors who were only interested in the money but in essence did nothing.

He regrets that we are giving all our contracts to the Chinese. “We are not just mortgaging the country, we are also hurting the economy because we are paying in foreign currency,” he says noting that this weakens the domestic currency.

But Manyase says that devolution and such initiatives as Kenya Rural Roads Authority give us hope.

Kenyan firms can also partner with foreign firms to participate in these projects. Ikiara cites investment firm Centum which has been able to participate in some of these huge projects.