Chinese contractors have become the dominant force in African construction over the past decade, but new competitors could bring even lower costs and improved quality.
The symbols of Africa’s growth dynamic, from Algiers’ Great Mosque to the headquarters of the African Union in Addis Ababa, have been or are being built by Chinese contractors. In late May, Uganda’s National Social Security Fund announced the shortlist of construction companies to build the Pension Towers: the China Civil Engineering Construction Corporation East Africa, China National Aero-Technical International Engineering Corporation and Sinohydro Corporation. At 25 storeys, Uganda’s tallest building will be built by a Chinese construction company.
Chinese companies have made strong headway over the past decade. Backed by national policy banks, companies such as Sino-hydro and China Railway Construction Corporation are now the most active firms in African infrastructure, bringing China’s share of Africa’s construction market to 36.6% in 2010, according to Engineering News Review.
The largest share of Chinese construction contracts has been in large state-to-state deals, be it mines for infrastructure in Angola and the Democratic Republic of Congo or road, stadium and dam projects in Cameroon and Malawi. The competition to build Uganda’s tallest building and hundreds of other tenders show that Chinese contractors can beat their international rivals. Trouble in the US and European economies has created more room for emerging-market competition in construction.
Americans and Europeans pull back
Chinese companies tend to favour Chinese state-backed projects, for an important reason: many African governments struggle to pay contractors on time. In May, several Chinese road projects ground to a halt over unpaid arrears. In Botswana, Sinohydro stopped working on the 115km Kang-Hukuntsi road with about 40km left to complete. The 20 odd construction companies represented by the Chinese International Contractors Association in Tanzania have been lobbying the government to make payments on some of the TSh400bn ($254m) in debt that started accumulating in 2009. Chinese firms are paving about two-thirds of all roadworks currently under construction in Tanzania, representing about 2,400km.
North American and European financiers have pulled back from dam financing, which means that almost all recent dam contracts have been awarded to Chinese firms. Sinohydro is working on the Memve’ele and Lom Pangar dams in Cameroon, Grand Poubara in Gabon and Félou in Mali. Peter Bosshard of the non-governmental organisation International Rivers, which has worked with Sinohydro to establish an environmental policy framework, says that there has been a steep learning curve for Chinese companies in Africa but that environmental and social practices are improving. “Big state-owned enterprises have often adopted their own standards, while smaller companies may still try to maximise short-term profits without regard for their long-term perspectives and China’s reputation,” says Bosshard.
Mirroring the technology-transfer practices that have enabled Chinese cities to host high-tech manufacturing plants, Chinese dam builders learned from the contractors on the Three Gorges Dam and are taking that know-how to Africa. The same skill-building for Chinese companies goes on in Africa, too. The $684m, 300MW gas-fired power plant at Mnazi Bay in Tanzania is being financed by China Export-Import Bank. It is being built by China Machinery Engineering Corporation and Germany’s Siemens. African governments have not yet insisted that Chinese and other partners transfer their knowledge and skills to local players.
As the years pass, Chinese companies are taking on more complex projects. The China-Africa Development Fund’s first project, the Asogli gas-fired power plant in Ghana, is a combined cycle plant, meaning that its power-generation mechanism runs off both the gas being burned and the steam created as a by-product.
China-Africa researcher Lucy Corkin notes that while state-owned enterprises take up the main contracting work, “smaller private Chinese companies fill in the value chain in terms of service providers. Chinese companies have successfully bid for World Bank projects and other non- Chinese tenders, but there has in some cases been some resistance, notably from the European Association of Construction Contractors.”
Just as the influx of cheap and counterfeit Chinese goods has raised concerns among consumer advocates, cracks in the wall of a newly built hospital in Luanda and a washed-out road in Zambia have added to criticisms about the quality of Chinese construction. Corkin explains that Chinese construction projects in Africa face other problems: “Two issues that are of huge importance are maintenance and compatibility, as often the standards, components, voltage and plug sockets are imported wholesale from China without any regard for local requirements.”
The arrival of competition from other emerging markets should force all players to improve their performance. In 2011 Turkish company Kolin Insaat Turizm Sanayii Ve Ticaret won the contract to tarmac the Hoima-Kaiso-Tonya road in Uganda, and Summa completed the African Union Summit Convention Centre in Equatorial Guinea. Turkey’s Export-Import Bank announced $750m in new financing for construction projects in Libya and Tunisia in January 2012. Brazil’s Odebrecht is working on several projects in Angola and plans to set up an office in South Africa this year.