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Work in progress

Updated: 2013-01-11 15:17
By Andrew Moody and Zhong Nan ( China Daily)

Work in progress

Work in progress 

Clockwise from above: The construction site of Bui Dam, which is part of Sinohydro Corp Ltd's Bui hydroelectric project in Ghana; An auxiliary dam under construction for Bui project; Chu Shuntang, chief representative of China-Africa Development Fund in Ghana. Zhong Nan / China Daily

Work in progress

 Work in progress

Clockwise from above: Wale Shonibare, managing director of UBA Capital in Lagos; Li Xiaohai, chairman of Sunon Asogli Power; Feng Nian, managing director of China Geo-Engineering Company's Ghana branch. Feng Yongbin / China Daily

Chinese companies playing major role in African infrastructure development despite tough conditions

Over the past five years, anyone visiting any major road building project or power station construction site in Africa could not have failed to notice the presence of some of China's leading companies. These companies are playing a key role in changing the face of the continent.

Some 70 percent of Chinese aid to Africa comes in the form of infrastructure investment, according to Chinese estimates.

Apart from roads and power stations, such investment includes dam projects, railways, ports and telecommunications networks.

These schemes are addressing Africa's crippling infrastructure deficit, which is overwhelmingly the continent's major economic problem. Lack of modern infrastructure is estimated to wipe as much as between 1 and 3 percent off the GDP of the continent every year, according to most estimates.

To begin reducing the deficit, Africa has to spend some 12 percent of its GDP or $75 billion each year but only manages around half of that, according to the World Bank.

Chinese companies are uniquely placed to come to Africa's aid and plug this gap because many of them have been performing a similar role in the development of their own country.

About 30 years ago much of the infrastructure in China was not the high-speed trains and super highways of today but resembled that of many parts of Africa now.

The investment is far from just aid but also good business for many Chinese state-owned enterprises, which are often on their own learning curve and making their own tentative steps into overseas markets.

Chinese companies have proven themselves attractive contractors to African governments and municipal authorities.

Not only do they tend to deliver projects speedily and efficiently, often before the deadline, but they come with their own funding model.

They often arrange finance for a project through Chinese institutions such as the Export-Import Bank of China or China Development Bank with little of the red tape associated with Western aid projects. They also do not generally seek sovereign guarantees when working with local partners.

Anthony Sykes is one who believes the impact of Chinese infrastructure investment is very clear to see.

The deputy general manager of Sumitomo Mitsui Banking Corporation Europe and a leading expert on infrastructure investment was speaking after addressing an investment conference in Accra.

"At least with China things happen. There is a lot of criticism levelled against the Chinese and the way they do business but at least assets are created. China gets on with it," he says.

"The West is generally transfixed by other factors such as social upliftment, transparency and methodological issues. As a result, they sit around talking about it for years before anything happens."

Wale Shonibare, managing director of UBA Capital, part of the United Bank for Africa banking group based in Lagos, Nigeria, who was at the same conference, argues the Chinese have brought simplicity to the table.

"The Chinese approach is to say that we will come and build and at the same time there might be certain rights to minerals and other resources for us," he says.

"The problem generally is that it takes a significant amount of time to attract other foreign investment from the West and elsewhere, particularly commercial investment for such projects, and to be able to structure them. The Chinese have this significant expertise in developing infrastructure because that is what they have been doing in their own country."

According to the World Bank, 30 percent of the African population have no access to basic electricity.

One Chinese company that is addressing this problem is Sunon Asogli Power, a subsidiary of Shenzhen Energy, a publicly listed state-owned enterprise in China.

It is making use of the $5 billion China-Africa Development Fund that was unveiled by President Hu Jintao during the Forum on China-Africa Cooperation in Beijing in 2006.

The Shenzhen company formed a joint venture with the fund to build a $200 million natural gas power station at Tema, a remote location about 30 kilometers from the center of Accra.

The power station now supplies some 10 percent of Ghana's electricity. It employs 90 Chinese staff, many of whom live in dormitory accommodation, and 200 Africans.

It is not only Shenzhen Energy's first project in Ghana but its first abroad.

Li Xiaohai, chairman of Sunon Asogli Power, who previously worked for the company for 20 years in China, spoke with enthusiasm about the project over much-needed cold soft drinks in a portable building that doubled as a conference room.

It is a tough environment for him and many of his workers. He has been struck down by malaria and there are frequently two or three cases on a daily basis.

"You have to make yourself physically fit here so you don't succumb. I don't think people from Western countries would put up with some of the conditions."

Li insists, however, the project is very much a commercial venture and not just an aid project.

"We were seeking to go into overseas markets at the time and thinking of making investments abroad. The Chinese government had introduced new policies to encourage Chinese enterprises to go abroad, particularly to Africa," he says.

Li, whose company is to embark on phase 2 of the project to add a further 360 megawatt capacity to the existing 200 megawatts, says the investment has generally been well received by the local community.

"They like our project because it is helping them solve their power crisis. They have a huge demand for power because the local economy is growing more than 10 percent a year and we are using our technology to help them."

Chu Shuntang, chief representative of the China-Africa Development Fund in Ghana and who works closely with Li, says there is a definite fit between what Chinese companies have to offer and what Africa needs.

"Today's Africa is a bit like China 30 or 40 years ago, and there is abundant evidence that many of China's development models are suitable for African nations," he says.

He is currently on the lookout for other infrastructure projects to be involved in, not just in Ghana but in West Africa generally.

"They have to be projects that have an effect on people's living standards. They have to be win-win projects," he says.

Win-win is a philosophy underpinning much of Chinese involvement in infrastructure projects in Africa.

Deborah Brautigam, an expert on the China-Africa relationship and author of The Dragon's Gift: The Real Story of China in Africa, says it is a simple but effective approach.

"It (Chinese aid) is much less complicated. The Chinese with their aid basically finance infrastructure, such as a road, bridge, a power plant, telecommunications or rail electrification. They also supply medical teams and operate small-scale agricultural projects," she says.

"Some of this is aid but it might be financed in other ways. Aid, however, doesn't mean that it is a grant; it just means it is concessional loan."

Where Chinese investment in infrastructure has been particularly effective has been in countries where Western companies fear to tread.

One such is Liberia, which has been devastated by two civil wars, the last one ending in 2003. Most of its 900 kilometers of road are potholed, and power is non-existent in many parts of the country, resulting in it having some of the most expensive electricity costs per kilowatt hour on the continent.

Chinese companies began moving in there in 2006 and have played a role in improving the country's infrastructure.

China Henan International Cooperation Group of Companies Limited (CHICO), which has been working on road contracts and China Chongqing International Construction Company, which signed a 10-year contract in January last year to build the new Paynesville-Ganta Highway, have been working on World Bank-funded projects.

The Chinese do not always operate in isolation in Africa, as many assume, but work on a lot of internationally-funded projects.

Samuel B. Nagbe Jr, assistant minister in the Ministry of Public Works, based in Monrovia, says that although some of the findings might come from Washington institutions it is the Chinese companies that have done the work on the ground.

"The Chinese were able to take a lot of risks in Liberia when nobody wanted to come here," he says.

His disappointment, however, is that a lack of competition means that the Chinese players in the market can charge higher prices.

"There is not enough competition on big projects because there are few international companies that have a presence in Liberia right now. We would like more choice but for now, we don't have it."

Back in Ghana, some 75 km from Accra in another remote location, a Chinese company is also engaged in building a major infrastructure facility.

China Gezhouba Group is constructing a $273-million water treatment plant and pipeline at Kpone that will deliver clean drinking water to people in Accra. Some 95 percent of the funding is through the China Export-Import Bank.

For Zhang Deliang, managing director of the group's Ghana operation, it is not the first time working in Africa. He previously worked on another project in Equatorial Guinea.

The company itself has completed 21 projects in Africa and its expertise in this area is unrivalled, having done a large part of the work on the Three Gorges Dam, which now straddles China's Yangtze River.

"This is a pretty tough location for us but we are in a better position than some other Chinese companies since we are relatively close to Accra. We still have to buy local meat and vegetables, which we cook in the Chinese way," says Zhang.

Zhang has previously worked in Iran but says that Africa offers more challenges.

"The infrastructure in Iran is much better than here and so we have to cope with that."

The company is playing a leading role in helping Ghana achieve its Millennium Development Goals that 78 percent of its population have clean drinking water by 2015. In 2010, that was just 62 percent.

It also sees itself as having a wider role in assisting the local community.

"We are not only doing a construction project but we also take full CSR (corporate social responsibility) role in this country," says Zhang.

"We are keen to help the locals have a better life. We have given money for a local school and ensure that Ghanaian people who work for us get trained. Previously this area didn't have a road and we have built a 10 km one for free," he says.

Feng Nian, managing director of China Geo-Engineering Company's Ghana Branch and head of China Enterprises Chamber of Commerce in Ghana, has also played a major role in developing the country's infrastructure.

He has been in the country since 2005 and has built the business up to more than 800 local employees and 160 Chinese, working on $50m of contracts every year.

It has moved out from drilling wells to other water projects, building roads and also hospitals.

"When I first came here I thought drilling wells was not really enough for us to do and so I wanted to diversify our market strategy into road and bridge construction and other areas," he says.

He pulls no punches about the importance of providing pure water.

"In sub-Saharan Africa water cannot be drunk untreated. It is infected by worms and if drunk when these worms mature they can cause blindness and they also grow out of your skin, which is very scary," he says.

"Typhoid also is still very much a problem. People also spend a great deal of time fetching and carrying water which could be better used doing other things."

There have been issues as to whether some of the Chinese infrastructure installations, be they roads or ports, will look so impressive if they are not maintained properly.

Sykes at Sumitomo Mitsui Banking Corporation Europe says there is often too much of a focus on construction and not on maintaining assets over a lifetime and he would like to see more PPP (Public-private Partnership) contracts as in the West which deal with long-term upkeep.

"I would like to see a combination of China's dynamism and pragmatism with some of the PPP orthodoxy. I think then we would have a very interesting model," he says.

Shonibare at UBA Capital in Lagos says that is now down to the Chinese but to individual African countries to deal with.

"This can be done by African governments tendering separate maintenance contracts," he says.

Meanwhile, the face of the continent is being transformed and at an unprecedented pace with the Chinese taking a significant role.

"You have only got to go to Angola, as I did in the mid-1990s, and contrast the situation with now," says Chris Alden, a senior lecturer in international relations at the London School of Economics and author of China in Africa.

"For all the problems the country still has, you can get around the city now. There is housing and the roads have been reworked so you can get goods to the market in Rwanda. The place has been rehabilitated. All these are China-led initiatives, by and large. Not exclusively but the main impulse has come from China."

(China Daily 01/11/2013 page4)

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