Thika Highway, Outering Road and the Standard Gauge Railway: What do they have in common? They were all built by Chinese contractors.
Kenya has made significant progress in infrastructure development in recent years eliciting interests from foreign Engineering, Procurement, and Construction (EPC) firms based oversees. It had the highest number of mega infrastructure projects in East Africa in 2016, according to Deloitte thus maintaining its lead as the regional powerhouse.
The mega infrastructure projects initiated by the government have been largely financed by loans. It comes as no surprise that the country’s largest infrastructure project since independence, the Standard Gauge Railway was built by a Chinese contractor.
The growing dominance of Chinese firms including Sinohydro Corporation Limited, China Wu Yi and China Roads and Bridges Construction Company can be traced back to then President Mwai Kibaki’s policy shift to the Asian giant nearly a decade and a half ago.
The shift opened aid taps for construction of roads and upgrade of airports, but it also came with strings attached, with State agencies required to only contract Chinese firms for Chinese-funded projects.
China’s allure has been its detachment from local politics and its massive resources that allows it to finance mega projects built by its multinationals, with Kenya repaying the loans over lengthy periods.
Kenyan construction firms have cited delayed payments by the government as a major factor for breaching loan terms, revealing an operational reality that favors Chinese firms.While local firms take loans from local banks at double-digit interest rates, their Chinese rivals have large cash reserves besides an option to access subsidized credit from the state-owned China Export-Import (EXIM) Bank.
This well-oiled machine is what helps Chinese firms to complete their projects relatively faster, enhancing their reputation in public and private sector contracts. The ability of Chinese firms to arrange financing for their projects and complete them on time has seen many of them pre-qualified to build 2,000 kilometres of roads across the country.
To get a piece of the mega projects during these times when the Chinese presence looms large, local contractors have had to team up with conglomerates from markets like Europe in consortia where they are junior partners.
Many local contractors such as Kirinyaga Construction Company, which thrived under former president Daniel Moi’s regime, were confined to undertaking small projects in rural areas. Others like H Young and Intex Construction have since resorted to forming consortia with European and Indian conglomerates when bidding for government tenders, where Chinese firms enjoy pre-qualification status tied to the funding of the projects.
While the government prefers Chinese firms for their ability to finance projects, this has been criticised for promoting short-term contracts at the expense of long-term investments. Chinese firms, which often build projects single-handedly, are not open to working with local companies.That Chinese companies import labor from China rather than hire locally is a criticism echoed across Africa, but particularly strong in Kenya where youth unemployment is the highest in the region.
Some Chinese contractors have, however, started making local investments, encouraged by the growth potential in the country’s construction sector. China Wu Yi, for instance, is building a Sh10 billion housing materials plant in Athi River for its own use and sale to other construction firms.The factory, which will produce precast construction materials, is the company’s first such facility outside China.
Source: Why Chinese firms are elbowing out foreign rivals in road construction