African competition heats up

A project manager from the East Africa branch of Sinohydro talks with Kenyan officials at the site of the Nairobi-Thika Road. Provided to China Daily

As China encourages more enterprises to go abroad, project contractors in Africa find themselves competing not just against their Western counterparts but also their peers

"I can't sit without a project for five years, even though we are a state-owned enterprise," Wang Xiaoming says in his office in Nairobi.

Wang is the chief financial officer of the East African branch of China Overseas Engineering Group Co Ltd, a subsidiary of China Railway Group Ltd, which entered Kenya in 1984. Business originally focused on foreign aid and residential construction. It expanded to large infrastructure construction projects in 2007, with a model of tendering for projects and subcontracting them to construction companies.

Gong Changyin, deputy regional manager of the East Africa branch of Sinohydro Corp Ltd, says that Africa is a large and promising market.

"As long as African countries are determined to develop, they need to build infrastructure such as roads, railways and ports. We had very few competitors when getting into the Kenyan market in 1997, but now companies from Turkey, India and Western countries all are our competitors," he says.

In addition, competition among Chinese companies is becoming fierce as companies from different provinces, including Jiangsu, Fujian and Sichuan, eye the market, following the lead of state-owned enterprises, Gong says. This has influenced Chinese project contracts in Kenya as provincial enterprises are flexible in management and mechanism, he says.

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Wang adds that more than 90 Chinese project contracting or construction companies are registered in Kenya, a market with a limited size but a key springboard to tapping business opportunities in neighboring countries. And a typical construction project can easily attract more than 10 Chinese bidders, with seven or eight still in the fray after the first round of reviews.

"Chinese companies are seeing cutthroat competition. Some offer prices that are unable to support the project, as they seek to seize the market with a short-term loss," Wang says.

"Prices and costs are the top concern of Kenyan employers, followed by factors like design," Gong says. "Having lower prices than our Western peers was our traditional advantage as we import equipment and employ managers from China. But the renminbi appreciation and rising prices of equipment and materials at home have been eroding the advantage and our bidding prices are almost the same as Western companies."

Hiring local employees, which has doubled since 2007, also erodes profits, and more efforts must be made to control costs and enhance efficiency, Gong says.