Economy

Will Chinese firms deliver as they gain influence in Kenya’s economic scene?

Models hold a newly launched Huawei u8220 Android mobile phone. Photo/FREDRICK ONYANGO
Models hold a newly launched Huawei u8220 Android mobile phone. Photo/FREDRICK ONYANGO 

As commuters meander through road diversions, Chinese workers are seen everywhere busy supervising construction, as buyers look through shops for consumer goods like phones, curtains, behind the counters are Chinese workers or the products are from China.

Don’t be mistaken... this is not China, this is Kenya where Chinese firms have set base.

They have taken over construction of roads in Kenya from the Thika Highway to North Airport Road and firming their grip on key economic sectors.

The China Wu Yi (Kenya) Corporation is the contractor for Nairobi-Thika highway.

The road contractor reflects just a tiny part of China’s new interest in Kenya.

This year alone many bigger names than the company have come visiting.

In the telecoms sector, China-based firms such as Huawei and ZTE Technologies have been gaining ground in the infrastructure market and are now moving to the retail segment with low-cost smart phones and Internet modems.

They are gaining markets share in the retail segment that has remained the domain of European-based brands such as Nokia, Motorola and Samsung, firms that are finding it difficult to match the Chinese brands on pricing.

Huawei began positioning itself as a key player in the gadget manufacturing space, riding on key partnerships with mobile service providers such as Safaricom to provide cheaper alternatives to established brands.

The firm is now moving deep into products that target the mid and high income earners with gadgets such as modems and smart phones, in a strategy that is attracting both retail and corporate clients.

In mining, a state-owned Chinese mining conglomerate Jinchuan acquired a controlling stake in Tiomin Kenya Limited, renewing hope that the Kwale titanium mining project that has been in limbo for more than 10 years will finally start.

This is how aggressive Chinese have gotten as they position themselves to do business with African countries, and Kenya in particular.

Standing on the balcony of a hotel, which is located at the city centre of Kenya’s capital, you will see the Nairobi River, passes through the city and flows into the jungle.

It seems like it is not just flowing away, but listening to the footstep of the city’s development which Chinese are behind.

With the economic growth and strengthen of national power, Kenya has started expanding its urban roads, communication networks and other infrastructure , and construction sites can be seen nearly everywhere in whole country, key economic sectors are also growing. And these sectors are where Chinese are showing interest.

Roads will expand people’s lives

For Kenyan commuters, the new roads will come with a sigh of relief.

The long traffic jams have slowed the economy and for some lead to waste of money on road maintenance and high fuel prices.

They are optimistic the long traffic jams will soon be a thing of the past, thanks to Chinese.

A 36-year-old taxi driver, Paul, on Thika Highway said: “The traffic jam consumes large amounts of my income since the oil price is so high.”

Pointing at a flyover construction site near him he says: “When these bridges and roads built by Chinese companies finished, the traffic jam may disappear in Nairobi, and our jobs will be easier.”

“New roads and bridges will sort of expand people’s lives here,” he said.

Commuters take two or more hours driving from Nairobi to Thika in traffic jams, but they are optimistic that would be 40 minutes after the highway is finished.

“The time we use to drive for one trip now may be for two or three trips after this new road is ready. Moreover, the maintaining fees for cars will be lower since the road will be new with no potholes, and then we will have much money in our pockets,” he says.

The Thika Highway construction site initially called “Global Rotary Island”, connects the downtown of Nairobi, Jomo Kenyatta International Airport and a road leads to Thika, a town to the north of the capital. It is a very important transport junction for the city.

But since Nairobi’s growing population is adding number of vehicles, the rotary island could not suit for its role anymore, so it officially “resigned” at the early of this year. And soon, it turned into a construction site for a new bridge.

In last few years, Kenyan government has invested billions of shillings on infrastructure, such as the Nairobi-Thika Highway.

However, the new roads and bridges will be not come without challenges. “I think drivers like me will go back to driving schools to learn traffic regulations once again since they are ready.” Paul said.

As a driver, Paul has driven on nearly every main roads of the whole Kenya and he has seen lots of Chinese companies and their projects in Kenya.

He speaks highly of Chinese companies building roads with fast speed and high quality.

“Welcome Chinese companies to build more roads in Kenya,” he says.

He is not the only one, the entry of Chinese phones in the Kenyan market was at first met with resistance and many talked of low quality.

But analysts say, 10 years back African countries were uneasy about China ‘mass production’ concept which they attributed to low quality.

However, China has become much more sophisticated. It now has a strategy and has studied extremely well on the continent.

It knows the demographics, market and purchasing power on Africa, where it is eyeing to grow its investments.

“The perception that Chinese made products were of poor quality is fast fading,” says Vincent Mutavi, a telecom analysts. “Besides being low cost, firms like Huawei are matching if not surpassing European firms on quality, giving them an edge in price sensitive markets such as Kenya,” Mr Mutavi said.

Confidence in Chinese firms is growing. A Chinese company is feted for construction of a road that the British did not dare to construct after 30 years of studies, according to the AFP.

It took a Chinese company only three years to complete a road project in Ethiopia that British companies never launched despite 30 years of research.

Kenya’s capital Nairobi is located on a plateau with a flat topography, which has made Museum Hill near the city centre more prominent.

There is a road under construction called the Nairobi-Thika highway that extends to the northeastern part of the city.

As Kenya’s largest infrastructure project since the founding of the nation, the Nairobi-Thika highway has investments totalling Sh30 billion and is also the most important part of the Kenyan northern corridor.

Apart from soon easing Kenya long traffic jams, the Chinese road contractors have implemented the localisation strategy since they entered the Kenyan market in 2000, and registered a wholly-owned subsidiary with more than 3,000 local Kenyan employees.

“The average monthly wage of workers and mechanical personnel in the company is about Sh15,000 and the average monthly wage of skilled labour can reach Sh30,000 ,” said a Kenyan employee who has worked in the company for nine years.

For a country with a 30 per cent unemployment rate, the Chinese has helped many households.

Among Wu Yi’s achievements is the building the A2 road linking Kenya to Ethiopia three years ago.

The construction work was difficult and drought was the biggest obstacle because a large amount of water was needed to lay a solid roadbed.

Qiu Liangxin, general manager of China’s Wu Yi Company, said although the water consumed for the project was enough to fill up an entire lake, they won the support from the villagers along the road.

Kenya’s President Mwai Kibaki praised the high quality and environmental protection concept of the “China Road,” and named it as a “model road.”

The A109 road was constructed by the China Road and Bridge Corporation.

It connects Kenya’s largest port Mombasa and Kenya’s capital Nairobi and leads to Uganda passing through the A104 national road to the northwest and East African countries, such as Ethiopia, passing through the A2 national road to the north.

It is a transport lifeline connecting the Indian Ocean and the African hinterland.

Artery road

The China Road and Bridge Corporation set a roadside sign with the abbreviation of the company name, China Road, in order to mark the position of the Chinese workers’ camp during road construction.

Although the sign is already gone, the name “China Road” spread across the country by drivers passing by.

The important artery road, the “China Road” has withstood the test of dry and high temperatures, as well as the grind of thousands of heavy trucks.

The Kenyan government commemorating the “China Road” in 2003 to mark the 40th anniversary of diplomatic relations between China and Kenya and this high-standard road.

Li Changgui, vice general manager of the Office at Nairobi of the China Road and Bridge Corporation, said the road has become synonymous with all the roads undertaken by China and high-quality projects.

Apart from road construction, the Chinese are involved in CSR projects.

“Mr. Shoes” is the name local teachers and students call Xu Chengrong, general manager of Zhongxing Telecom Equipment Corporation’s subsidiary in Kenya (ZTE), which helped construct two local primary schools.

Xu received an e-mail saying that two schools near Mount Kenya needed help for reconstruction.

After driving several hundred kilometres to the area, they found that the two schools were destroyed by mountain torrents, and the children had to walk for several hours to attend classes at other schools available.

Xu and his colleagues donated more than $10,000 to reconstruct the two schools.

They were invited to attend an inauguration ceremony after one school was built.

The school head accidentally pronounced “Xu” as “Shoe,” and called Xu “Mr. Shoes,”.

Mr Xu brought some shoes for the children who had to walk to school barefoot.

In the telecoms sectors, Chinese companies have helped many poor Kenyans access cheap phones.

Numerous mobile phone stores are available on the streets of Nairobi.

A resident in Nairobi said that many of the mobile phones there come from China and are cheap. Owning a mobile phone has made his life more convenient.

Chinese companies have increased investments in Kenya in recent years along with the deepening of the “Go Out” policy and achieved good results.

China invested a total of $130 million in Kenya by the end of April 2010.

The Beiqi Foton Motor Company Limited just invested $50 million in Kenya for the construction of its production base in East Africa in April 2011.

“The Chinese auto manufacturer chose Kenya as its production base to benefit the people of Kenya. This is one of the concrete manifestations of the win-win situation in China-Kenya economic and trade cooperation,” said Kenya’s vice-president Kalonzo Musyoka during the cornerstone laying ceremony of Beiqi Foton’s production base in East Africa.

“Kenya’s economy has developed rapidly in recent years. The government is striving to achieve its Vision 2030 plans and hopes to further improve infrastructure in traffic, telecommunications, energy and tourism. Foreign companies will obtain a lot of opportunities in Kenya,” an official from the Kenya Investment Authority said.

Foton said it is setting up the plant to avoid paying a 25 per cent import duty on cars to allow in its low cost products putting it in a head-to-head battle with Japanese and European brands such as Mercedes, Iveco, Mitsubishi, and Nissan.

The “Go Out” Chinese companies launched win-win cooperation with local partners to contribute to the rapid development in Africa.

Trade with China

On the trade front, Chinese exports to Kenya grew steadily in the at the expense of the US and India, reflecting the shift in trade ties behind America’s rising concern over China’s growing power in East Africa’s largest economy as recently revealed in leaked diplomatic cables.

The near tripling of Beijing’s imports to Kenya compared to those of the US is expected to heighten discomfort in Washington, where China’s rising influence in Africa is closely being monitored.

“Chinese products are competitive on three fronts, cost quality and delivery compared to those from the US,” said Vimal Shah, the managing director at Bidco.

“As China makes all efforts to dominate Kenya’s trade, this should be a wake-up call that it is taking advantage of the high cost of production in Kenya which has made our goods less competitive,” said Mr Shah.

Liu Guangyuan, Chinese ambassador to Kenya, said that Kenya has shown a rapid development momentum during recent years and expects this year’s growth rate in GDP to reach six per cent.

The Kenyan government has formulated the “Vision 2030” plans, seeking to become a middle-income country by 2030.

China is optimistic about Kenya’s great geographic location and rosy economic development prospect and will encourage more Chinese enterprises to invest in Kenya.

People’s Daily Online