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Kenya in china’s pocket

By - Morris Aron and Jevans Nyabiage | October 2nd 2012 at 00:00:00 GMT +0300

By Morris Aron and Jevans Nyabiage

 At every groundbreaking 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 question that comes to the mind is; Has Kenya auctioned herself to China? Or is the current relationship a good thing?

What is bothering a number of analysts is whether the association is a symbiotic one.

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In awarding the contracts without addressing the security concerns of some of the sensitive projects like the e-government, there is concern among analysts that the country could have unnecessarily exposed herself and compromised on national security, all on the promise of a loan.

With such a deal, it is possible that the Chinese government can have access to confidential information. This is a dangerous trend as in the event of a dispute, contracts that are not watertight can allow foreign agencies to take control of the network during a hostile situation through embedded software, or use it to snoop on Kenya.

Last week the Germany government complained to Kenya over what it termed as undue advantage accorded to Chinese companies in the award of contracts. None other than Hillary Clinton, US secretary of State captured this on her recent 10-day visit to Africa.

Responsible powers

Clinton told a university audience in Senegal in August that African leaders should embrace democracy and partnerships with ‘responsible foreign powers’ as a means of improving their living standards and addressing the root causes of extremism on the continent.

Likewise, the strong presence of Chinese traders has also evoked worries among the locals, a scenario analysts warn could degenerate into Sino phobia.

Africa’s growth means Chinese officials are unlikely to stop their people heading to the continent to make their fortune.

At the official level, Beijing and its foreign envoys insist that Chinese nationals and businesses should comply with domestic laws in each African country.

“If Chinese traders engage in activities that violate your laws, we would not seek to shield them. We would not protect Chinese citizens’ illegal behaviour,” said Zhong Jianhua, China’s Special Representative on African Affairs. “We just hope the relevant parties can handle the situation justly.”

But the small private Chinese merchants flocking to Africa from areas such as Fujian, a traditional source of migrant labour, are not high on Beijing’s list of priorities.

“There’s a disconnect between the official Chinese, who are frequently from Beijing, and the likes of the Fujianese,” said Yoon Jung Park, a China-Africa researcher affiliated to Australia’s Monash University.

“Quite frankly they are embarrassed by them, but there’s nothing they can do to stem the tide when the word gets out that there are opportunities and money to be made.”

That means there are likely to be more demonstrations like the one in Nairobi last month, when Kenyan traders blew whistles and plastic trumpets, waved placards and chanted “Chinese must go.” Many Kenyan traders resent the thousands of Chinese who arrive on tourist visas and hawk everything from milk to clothes to electronics.

If the sentiments by German ambassador Margit Hellwig-Botte and Clinton are anything to go by, the growing influence of the Asian economic tiger is sending shivers down the spine of many westerners.

“Beijing is no longer just an actor in Africa’s resources sector but is broadening the scope of its commercial foray into Africa. African governments need to respond accordingly and be more agile in their policy making vis-à-vis China’s engagement,” said Martyn Davies, chief executive officer of Frontier Advisory.

Analysts attribute China’s success to cheap finance, especially offered to state-backed companies eyeing businesses abroad. This has enabled such companies to compete for huge foreign asset bids, beating rivals from other countries mainly in the West that face more expensive funding options. Official Chinese government lending to Kenya stands at Sh109 billion.

Among the projects financed by Chinese lenders include part of the Nairobi-Thika Highway and the Olkaria geothermal field production and several projects from railways to housing to telecommunications, the Chinese are here --and in a very loud way.

China’s drive

China’s rise to the world’s second largest economy in the past decade has left it with surplus cash reserves, which it has used to exert influence on developing countries, including Kenya.

Firmly established, the concern now is that China is in it for her own good—driven purely by commercial reasons, the Kenya could be the loser her.

Way back in October 2000, China launched this new policy towards Africa. The policy is no longer framed by ideology and politics but driven by pragmatic commercial interest.

China set out three-year engagement plans that it has implemented in Africa—which are reviewed periodically.

Then there is the rapidity and scale of this implementation - though multi-billion dollar transactions and political summits – has resulted in the continent inclining toward China’s commercial sphere of influence.

This trend has been accelerated by the Western financial and economic crisis as the African economies are reorienting toward the emerging rather than developed world. 

Financial Analyst Aly Khan Satchu is, however, convinced that the Chinese are practicing ‘Dollar Diplomacy’.

“Who has the dollars? Hu (Hu Jintao, the Chinese president) does. The financing terms are typically not disclosed fully and the concern remains that plenty is off Balance sheet,” says Satchu, Nairobi-based independent analyst.

Satchu says that China’s engagement with Africa is driven by the fact that Africa provides a great deal of the fuel for the Chinese locomotive and most flows from that.

“Without infrastructure you cannot extract the ‘fuel,” he adds.  To improve on these contracts, Satchu says they need to be transparent and open to scrutiny.

“Africa’s recent last decade acceleration is highly correlated to the China-Africa engagement. However, it is now time that Africa climbed up the value chain in its dealings with China,” he says.

Then there the way the financing structures are wired.

While on the surface it appears that the Chinese loan Kenya—and other countries, a deeper analysis of the contracts points to the reverse being true.

While some comments can be taken with a pinch of salt, some contracts seem to be bearing the favour sentiments.

In July Huawei, a Chinese telecommunication firm secured an exclusive tender to build a Sh6 billion national fibre optic infrastructure and e-government projects. The Chinese firm will be the sole contractor of the multibillion-shilling project that will link Nairobi with other towns through Wide Area Network (WAN). 

China is set to provide a loan of Sh6 billion whose conditions include awarding the contract to Huawei. Though, the restrictions seem not to sit well with rival companies, especially those from the West, notably Alcatel Lucent, Nokia Siemens and Ericsson, such arrangements is common in Chinese-funded projects.

This is second IT contract that has be reserved exclusively to a Chinese firm after government revived part of the controversial Anglo Leasing projects in a tied aid deal with China, that saw firms from the West barred from bidding. The tender for security contract states that only Chinese companies are eligible for the Kenya Police Services telecoms project whose deadline and opening of bids was February 20. The increased Chinese interest matches with President Mwai Kibaki’s administration shift towards the East, as opposed to the West. Since coming to power in 2003, Kenya-China diplomatic and economic relationship has continued to blossom. This has seen Chinese firms snapping up lucrative infrastructure projects.

The firms have won major contracts in oil exploration, communication, infrastructure, and military projects at the expense of previously dominant Western-based multinationals. Analysts say European companies have to a large extent lost competiveness by virtue of their being too expensive.

“I believe that China’s Africa policy is increasingly becoming fused with that of the management of its own economy,” said Davies.

Beijing’s Desire

China’s resource intensive growth model – propelled by heavy infrastructure spending and its manufacturing machine – requires large amount of commodity inputs.

In addition, underpinning Beijing’s engagement of Africa has been a desire to secure a number of strategic commodity supplies, in particular oil, iron ore and copper.

“In the mind of the Chinese Government, its own growth model will become increasingly dependent upon Africa’s ability and willingness to provide these resources.”

A politically welcoming environment amongst African governments is of paramount importance for Chinese capital.

In Europe, the US and recently Australia, there have been government attempts to block Chinese investors from acquiring local assets – in telecoms, in computer hardware and in mining. In Africa there has yet to be a political obstruction to a Chinese investment in Africa.

This is as opposed to massive opportunity cost lost considering few resource-rich (solid minerals) African states have fully comprehended and taken full advantage of the so-called commodity super-cycle driven by China’s insatiable demand for commodities.

XN Iraki, an economist at the University of Nairobi reckons that while the contracts are shrouded in secrecy, the contracts are above board.

“All the Chinese are doing is using the State to pursue economic interests as we keep shouting: Government has no business in business,” said Dr Iraki.

But while the debate continues, there have been instances where the Chinese contracts have raised eyebrows.

In the multi-billion Airport expansions tender, the two firms that won got support from Chinese banks and government.

Anhui Construction Engineering Group and Chinese Construction Engineering Group mobilised state resources to meet the tender requirements.

Kenya China Zhong Jianhua Chinese government Aly Khan Satchu
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