The mechanics of China’s African expansion

By Simon Allison 14 September 2011

The success of Chinese companies in Africa has little to do with their cost effectiveness, meeting deadlines or ultimate quality. Reminiscent of dubious US-led funding projects in Central American countries in the last century, Chinese expansion in Africa has everything to do with the funding guarantees they bring - as a new deal in Kenya demonstrates. By SIMON ALLISON.

The “secret” memorandum of understanding between Kenya and the Great Wall Drilling Company was splashed across the pages of Kenya’s influential weekly the East African. The deal was worth $400 million (nearly R3 billion), and will see the Chinese construction company build 80 new geothermal wells in Kenya. The newspaper raised a very pertinent question. Why are Chinese companies being commissioned, in secret, for projects that local companies can complete at half the cost?

The answer is, of course, money, and Chinese companies’ ability to virtually guarantee funding and timescales for Chinese-led projects. Although the agreement stipulates the Kenyan government will seek its own funding, there’s a tacit understanding that when Kenya asks the Chinese Export-Import Bank for a loan, it will be granted, without too many questions asked. It’s happened before – the Great Wall Drilling Company is currently drilling 26 geothermal wells in Kenya, financed with a $96 million loan from the same bank.

Organising a normal bidding process involving local and international companies, would be ultimately cheaper for the government, but would give it the significant headache of finding funding from international banks or institutions, and having to deal with all the strings often attached to such loans – strings which raise questions of democracy, human rights and timely payback.

But there’s no such thing as a free geothermal well, and China will have to be paid back at some time or another. This might end up being more expensive – financially or politically – than just doing the process domestically from the outset. DM

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