Role of Chinese Construction Firms in the Infrastructural Development of Africa

The Case of Cameroon


Research Paper (postgraduate), 2013
24 Pages, Grade: noe

Excerpt

Abstract

Embedded in the Addis Ababa Action Plan formulated by China and Africa is the commitment to infrastructural development. Through many of its state-owned enterprises (SOEs) and construction firms, China has built over 20 demonstration centers for agricultural technology, about 30 hospitals, 30 malaria centers and over 150 schools all over Africa. In Cameroon, Chinese construction firms within the past decade under took several construction projects aimed at improving the infrastructural situation of the country. In fact, their presence is obvious in almost all spheres of life: from the construction of road network and stadia through the construction of hospitals, schools, improvement of communication network and the provision of affordable housing, to the construction of dams for electricity supply and the provision of portable drinking water. China through these firms has truly improved the infrastructural situation of Africa in general (both proponents and critics agree on this) ad Cameroon in particular, and has thus propelled the country for economic growth and development. The contribution of Chinese construction firms to the infrastructural development of Africa has been reported in literature. However, this paper examines the presence of these firms in Cameroon not only to highlight the diversity of their operations but to participate in the ongoing debate on the motives behind their quest so as to echo the impact of their contributions on all sectors of the Cameroonian economy; and most importantly on the lives of the citizenry.

Key words: Africa-China, construction firms, State owned enterprises, Infrastructure, Chinese Firms

1. Introduction

State-owned enterprises (SOEs) commenced in China after the Communists party assumed leadership of the People's Republic of China (PRC)[1][2]. After the creation of the PRC in 1949, special attention was directed towards the rebuilding of priority infrastructure such as heavy industries, hydro-electric systems, bridges, roads and water resources[3]. The government implemented strategic plans coupled with the commitment, zeal and entrepreneurial skills of the citizenry, the country witnessed rise to the top in world economy[4]. The SOEs went through many changes and reforms aimed at making them competitive so as to rival foreign firms. According to Yang, Wang and others, these SOEs evolved through developmental phases reflecting the commitments of the government in enhancing their performance 1, 2. After joining the World Trade Organization (WTO) in 2001, the government of China opened the country for competition between private, foreign and SOEs in areas of telecommunication, manufacturing, insurance and banking. There are about 305,000 SOEs, including 118,000 industrials firms; representing about 50% of all firms excluding smaller local ones[5]. Previously, these SOEs were limited to and solely responsible for the infrastructural, transportation, energy and telecommunication services in China. Today, Chinese construction firms constitute the largest construction market in the world due partly to China’s rapid economic rise and the commitment to exploring other developing and emerging markets. The commitment of China to the construction and infrastructural sectors of Africa is demonstrated by the establishment of effective relations with African governments. Consequently, substantial number of Chinese private and SOEs made strategic quest into the construction and infrastructural sector in many African markets[6]. Cameroon is one of the Sub-Saharan African countries that has enjoyed relative stability since its independence in 1960. It is the major economic leader in Central Africa due to its developed infrastructure in the agriculture, railways, roads and petroleum industries. Its economy is dominated by agricultural (due to favourable conditions) with modest oil resources[7]. The first Chinese company established in Cameroon was in 1982 but Chinese participation in major works in Cameroon increased astronomically during the last decade. They are involved in the construction of ports, health and energy facilities, roads and railways as well as in agriculture and trade[8]. According to the Chinese ministry of commerce, bilateral trade between China and Cameroon amounted to about US$ 850 million with cumulative direct investment (of Chinese enterprises) totaling US$ 630 million[9] with over 30,000 Chinese expatriate workers in Cameroon[10]. Therefore, the contribution of Chinese construction firms to the infrastructural development of Africa has been reported in literature[11],[12],[13],[14]. However, herein, we examine their presence in Cameroon not only to highlight the diversity of their operations but to also echo the impact of their contributions on all sectors of the Cameroonian economy, and most importantly on the lives of the citizenry.

2. Diversity of firms

From a humble beginning, China is currently the world sixth largest engineering and construction export country. In 2005, Chinese construction firms secured 49 external contracts worth over US$ 100 billion, each with a national turnover of about US$ 21.76 billion[15]. In 2006 (from January to August), China secured about US$ 17.1 billion overseas contracts, an increase of about 45.5% year-on; and for the first time two Chinese construction firms made it among the top 10 global contractor list and five more among the top 50 13. The African construction market, consequently, became a traditional territory for Chinese firms 21,[16], particularly after the timely and successful construction of the Tanzam railway and with the recent constructions of many stadia and governmental buildings throughout Africa; financed by China through China Eximbank. The Bank is responsible for the vast majority of infrastructural financing arrangements in Africa, and (as a worldwide export credit agency) provides export (sellers and buyers) credits to support the trade of Chinese goods 40,[17]. Within the past decade, Chinese firms have under taken numerous construction projects in Cameroon. In fact, their presence is obvious in almost all spheres of life: from the construction of road network, stadia and dams through to the construction of hospitals, schools, improvement of communication and the provision of affordable housing and portable drinking water (see Table 2).

3. Forum on China-Africa co-operation (FOCAC)

FOCAC is a platform for fostering economic and political relations between China and Africa. Implemented in 2000, it aims at deepening the relationship through ministerial conferences and meetings of officials[18]. The Addis Ababa Action Plan, related to multilateral cooperation, peace and security, social and economic development evolved from such meetings where China promised to participate actively in the development of Africa particularly to deepen cooperation in telecommunication, energy, transportation, electricity, provision of portable drinking water and most importantly in infrastructure[19] ; for Africa has the most under developed and weakest infrastructure in the world[20],[21] most of which were built during the colonial era and many are currently destroyed by civil wars. Yet, many reports have highlighted the importance and impact of developed infrastructure on economic growth[22],[23]. Therefore, Africa very much needs to improve its infrastructure if meaningful and sustained development is to be realized[24]. Accordingly, the African Union (AU) and the New Partnership for Africa’s Development (NEPAD) are currently advocating, pursuing and championing the course for improved infrastructure in Africa for sustained economic development. To this end, NEPAD identified and earmarked Water and Sanitation, Transportation, Energy and ICT as priority targets[25], 48 and the 12th AU summit in 2009 was themed "Infrastructure Development in Africa" to promote and accelerate the development of infrastructure in Africa[26]. As enshrined in The Addis Ababa Action Plan, China responded with massive infrastructural developments all over Africa 48. Cameroon is one of the many African countries that has befitted immensely from China. Dotted all over the country are projects (see Table 2); testimony and living proof of the tremendous contribution of China towards the upliftment of the infrastructural situation of Cameroon.

3.1 Infrastructure under FOCAC

China and Africa made substantial achievements in infrastructural cooperation in the past decades 48. China provided aid for the construction of schools, hospitals, clinics, conference halls, dams, roads, railways and housing for medium-and-low-income families[27]. Jean Ping the then Chair for the Commission of AU is reported to have admitted that ‘China played fundamental role in improving infrastructure across Africa’[28]. Infrastructure constitutes an integral part of economic development; preparing and most importantly laying the foundation for socio-economic take-off. Africa is currently the second largest overseas market for Chinese construction firms offering China recognition in the international community as an active player in the infrastructural development of Africa; solidifying further, its strategic partnership with the continent[29]. As part of its policy of "Going Out" the Chinese government encourages Chinese enterprises to compete internationally and globally. Consequently, a lot of Chinese firms under the auspices of FOCAC invested heavily in Africa with significant achievements. For instance, by the end of 2007, Sinohydro Corporation (a SOE) had more than 80 construction projects valued at more than US$ 30 b with regional branches in 15 countries and with staff strength of 5000 in Africa[30].

4. Mode of operation of Chinese state owned enterprises (SOEs)

Time and budget are two of the essential variables in any developmental and competitive undertakings. Conscious of this fact perhaps, is the strength of Chinese firms in the global infrastructural industry. They are known for executing jobs timely and effectively within budget limits. According to a global ranking of construction firms, 39 Chinese companies made it among the top 225 (Table 1).

4.1 Role of Chinese government

Chinese SOEs dominate China’s construction market and are present everywhere in Africa 40,[31]. The Chinese government commissions these SOEs for infrastructural aid projects by providing them access to capital at extremely low interest rates through Chinese central banks 11. For aid projects, the Ministry of Finance (or China Exim Bank) provides concessional loans while the Ministry of Commerce deals with domestic tender procedures as well as project effectuation. The commercial and economic affairs units within the Chinese Embassies in various African states regulates the behavior and conduct of registered Chinese companies (through meetings and briefs) and also provide support and investment guidance (trough incentive packages) for interested investors 40.

4.2 Strategy (Low-cost, low-profit)

Chinese construction firms are well-known for low bidding costs. They adopt low-profit-margin strategy using lower profits, transaction and bidding costs to beat competitors. Their belief is that smaller profits result in bigger turnovers that eventually increase overall net profits 11, 40,[32],[33]. Another strategy adopted by the Chinese SOEs is the utilization of cheaper Chinese labour. According to Chen et al, about 91% of the management labour force of all Chinese construction firms operating in Africa are Chinese, 8% Africans and 1% from a third country. They revealed, for example, that Chinese managers in Africa (e.g. Ethiopia) earn US$ 700 per month compared to US$ 200–400 per month by their counterparts in China whereas American managers working in Africa receive over US$ 10,000 per month 13. A further strategy is the utilization of the supply and importation of cheap Chinese materials and machinery into host nations; reducing cost of materials, equipment and doing business so as to increase profit margin 56, 57.

With these strategies, they are able to penetrate into almost all sectors of host nations and once they are firmly established, they seek and expand the scope of their operations geographically across neighbouring countries with targeted projects as demand increases 40,[34]. Through personal networks or groups, individual Chinese entrepreneurs and sub-contractors also seek and establish small enterprises and plants in Africa 40, 55, 54. These small-scale groups contributed to the accessibility and availability of previously scarce and expensive products and services on the African market 54. This flexibility in operations facilitated the booming of Chinese firms on the continent 40.

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5. Competition in Cameroon

European and American Companies had hitherto dominated the construction industry of Africa and Cameroon for that matter. Yet, a recent World Bank study on the infrastructural situation in Africa hints that there is an annual US$ 22 billion infrastructural backlog on the continent[35]. Consequently, creating opportunities for newcomers and actors in the industry is of supreme importance. Therefore, the advent of Chinese construction firms on the continent brings the appropriate and the much needed competition into the industry. The Cameroonian government considers these Chinese firms an alternative choice especially in the construction industry and accordingly welcomes their participation, as the competitive advantages of these Chinese firms have become prominent and obvious. They offer comparable quality standards and most importantly for Cameroon and in fact Africa, lower costs with in-time execution and delivering of projects 59. As expected, the competing companies (mostly Western), failing to win majority of contracts, accuse China and the Cameroonian authority of manipulations and corruption in the bidding processes. For instance, the Chairman of the Movement of French companies (MEDEF)[36] clearly and unambiguously expressed resentment for Chinese companies in Cameroon[37]. Concerned with this situation, the European Union and the United States headed by France sent special envoys to the President of Cameroon arguing and seeking alternative cooperation between China, Cameroon and the West, in an effort to reverse the trend. So far, the Cameroonian authority seem to care little about this situation as it continues to demonstrate absolute trust and confidence in its deals with China. In fact, it appears to believe and rely on the ability of China to adequately deal with and transform the poor infrastructural situation of Cameroon. This is reflected in the recent statements attributed to two key ministers of the country. Mr. Ngako Michael Tomdio (Minister of Energy and Water resources) expressed confidence in the ‘right-on-time’ execution of infrastructural projects by Chinese firms. His colleague, Minister of Economic Planning and land Management (Mr. Motaze Louis Paul) shares his view but added that the situation is vital because the growth of a country is positively correlated with the level of its infrastructural development[38].

6. Chinese infrastructural projects in Cameroon

Dictionary

Since the establishment of diplomatic relations between China and Cameroon in January 1971, bilateral relations between them have been smooth and productive. Exchanges and cooperation in political, economic and social fields have been frequent and fruitful[39], 62. The accession of Mr. Paul Biya to the Presidency of Cameroon (in 1982) witnessed the acceleration of this relationship with both countries committing to expand cooperation to other fields. They share common views and as such support each other on major international issues. Trade agreements between them was first signed in 1972 and subsequently renewed in 2002, flourishing ever since. The exact value of Chinese investments in Cameroon is very difficult to obtain due to the lack of concise and up to date official data[40], 63. However, literature estimates that the volume of trade was about US$ 2.84 million in 1973 which increased astronomically in 2009 to about US$ 813, 54 million with that of 2002 amounting to about US$ 158.628 million with Chinese exports to Cameroon at about US$ 43.971 million; an increase of about 50% over the previous year 64. Committed to meeting the targets set in the Addis Ababa Action Plan, China through Chinese construction firms, under took numerous infrastructural projects in Africa especially in Cameroon in communication, transportation, health, education, energy, sports, accommodation, trade and commerce (see Table 2).

6.1 Impact on the development of Cameroon

To encourage Chinese private enterprises to find their "way to Africa" the Chinese government established trade centers in several African states (Nigeria, Ghana, Tanzania, Mozambique and Kenya) including Cameroon to provide strategic and holistic support for Chinese companies intending to invest in Africa. It financed several infrastructural projects in Cameroon through many of its SOEs; hence impacting positively in almost all areas of life.

6.1.1. Health. China provided funds for the construction of the Mbalmayo and the Guider Hospitals with resident Chinese doctors. Other health related projects undertaken under the auspices of the Chinese government are the renovation and conversion of the Gynecology, the pediatrics and the obstetric centers at the Yaounde and Douala Hospitals from their dilapidated form to state-of-the-art units. Furthermore, China sent technical and managerial missions to maintain equipment in the Yaounde and Doula hospitals after sending medical missions to train nurses and other paramedics such as pharmacists, laboratory technicians and equipment managers for effective health delivery[41]. Health is the basic ingredient that gives meaning and value to human existence 36. Deaths (including maternal and infant mortalities), and diseases as a result of less endowed health delivery facilities affect the prospects for economic empowerment of countries. Therefore, the combination of reproductive health, neonatal and disease control activities by the provision of hospitals, clinics and relevant units China does not only enhances the quality of life and economic growth but provides a platform for reduced fertility and consequently population growth; a key ingredient for sustained socio-economic development[42].

[...]


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Details

Title
Role of Chinese Construction Firms in the Infrastructural Development of Africa
Subtitle
The Case of Cameroon
Course
China-Africa Relations
Grade
noe
Author
Year
2013
Pages
24
Catalog Number
V232379
ISBN (eBook)
9783656506768
ISBN (Book)
9783656506980
File size
624 KB
Language
English
Tags
role, chinese, construction, firms, infrastructural, development, africa, case, cameroon
Quote paper
Babette Zoumara (Author), 2013, Role of Chinese Construction Firms in the Infrastructural Development of Africa, Munich, GRIN Verlag, https://www.grin.com/document/232379

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