Japan, China rivalry leaves Kenya with contract billions

Cooperation with China has been crucial in the building of many roads in Kenya. Photo/FILE
Cooperation with China has been crucial in the building of many roads in Kenya. Photo/FILE  

Kenya has become the latest beneficiary of the battle heating up between Japan and China for control of Africa’s economic landscape, raking in billions of shillings in new project finance and grant funds in the past two years.

Though China has been the more brazen hunter of opportunities in the country’s vast infrastructure and natural resources sectors, the scales have been tilting in favour of Japan in recent months as the Asian economic powerhouse unleashed its corporate giants for pieces of the action.

With the support of their government, Japanese firms are making few but high strategic entries into East Africa, targeting the expected windfall in mineral extraction and consumer goods markets.

Japan has for decades defined its presence in Kenya through aid, but is now widening its scope to the private sector— a move that places it in a head-to-head battle with China.

“There is some kind of soft competition emerging between China and Japan, not just in Kenya but across Africa,” said Gerishon Ikiara, a lecturer at University of Nairobi’s Institute of International Relations.


“It’s a fight that involves both economic and political dominance. Japan has been here for long, but is now stepping up its efforts upon realisation that China is fast increasing its influence in key economies such as Kenya,” he added.

Both embassies declined to comment.

Japan’s profile in Kenya has been gradually diminishing in the past decade as an increasingly assertive China clinched multi-million infrastructure deals and doubled its development aid to the country.

Japan’s recent actions indicate that it is keen on replicating the Chinese model as it plays the catch up game. Its main goal is to encourage private investments through loans from its state-controlled banks and to scale up its lending to government.

Tokyo is targeting infrastructure projects, agribusiness and natural resources, notably oil exploration in Southern Sudan, Uganda and Kenya.

In recent months, Japanese corporate executives and leaders have been making whirlwind tours of Africa with Kenya as a regular item on their itinerary.

Japan’s Crown Prince Naruhito on his first trip to Sub Saharan Africa was in Kenya early this month after visiting Ghana as part of plans to boost Japanese profile on the continent.

Last week, Toyota Tsusho, the carmaker’s trading arm, announced plans to build a $1.5 billion (Sh112 billion) oil pipeline from South Sudan to the Kenyan coast, complete with an oil export terminal.

China also has interests in Lamu project, which includes rail and port facilities, and it remains to be seen how the bidding for the project between the Asian rivals plays out.

Both countries have interests in Southern Sudan where they have been granted rights to explore oil and China has struck a deal to put swathes of land in the region under food crop production, in what has come to be commonly known as Africa’s land grab.

Toyota Tsusho has expressed interests to enter the lucrative electricity market by constructing mega geothermal power generation plants.

It is also set to put up an assembly plant for its Toyota brand of vehicles in Kenya with the East Africa common market a key driver of the expected capital flows.

The integration will create a market of about 126 million persons and allow for free movement of factors of production, goods and services among the five East Africa Community member states.

The enlarged market is expected to act as catalysts for fresh investments in the region with Japanese multinationals that shunned it due to the small size of fragmented markets show interests.

Sources at the Japanese embassy reckon that the discovery of oil in western Uganda and positive talk from Chinese firms exploring oil in Northern Kenya has sparked enquiries from oil executives in Japan.

Japan Bank for International Co-operation CEO Mr Hiroshi Watanabe was quoted in international media saying that his bank would readily finance Japanese private firms that are keen to invest in Kenya.

Chinese state-owned firms led by China National Offshore Company (CNOOC) have of late been major players in the oil exploration business in Kenya.

The current momentum of oil exploration started with a visit to China in 2004 by President Mwai Kibaki.

The increased presence of China in Kenya fits in well with Kibaki’s government policy to look East for investments and aid as traditional partners like Western Europe and US become more tight-fisted.

China has signed deals with Chinese firms ranging from oil exploration to mining and infrastructure developments.

Kenya has also opened its markets to Chinese goods as shown by mushrooming of China products in Kenya’s major urban centres.

And Japan is said to play the same card of cultivating rapport with the top political establishment, which is best captured by high profile visits between Nairobi and Tokyo in recent weeks.

Last month, Japan hosted a Kenyan delegation led by the Prime Minister Raila Odinga in Tokyo with the intention of forging closer business ties between the two nations.

Japan also extended a soft loan of $375 million to Kenya following the prime minister’s visit.

Analysts reckon that Japan has in recent days also softened on its tough conditions when disbursing loans to Kenya.

Aid provision

“Japan was known for the tough aid conditions employed by the west but appears to be loosening up,” said Mr Ikiara.

Japan has applied strict criteria for aid provision to developing countries in Asia, Africa and elsewhere in the world with its focus on democracy and human rights records.

China, on the other hand, has ignored political, environmental and humanitarian considerations.

Dennis Awuori, a former Kenyan ambassador to Japan and now chairman of Toyota East Africa, says that Japanese government was less enthusiastic in pushing the private sector to invest in Africa until 2008 when its strategy to prop up private investments was drawn.

The fresh push comes at a time when the presence of Japanese firms such as Sharp, Sony and Konoike is fading away despite being dominant in the 1980’S and early 1990’s.

In 2006, the value of Chinese imports overtook those of Japan to stand at Sh64.4 billion in 2008 compared to Sh44.8 billion of Beijing.

In 2008, Tokyo set the twin goals of doubling its development aid to Africa and helping Japanese companies to double their own investment in the continent to $3.4bn by 2012.

Japanese interest in Kenya is part of the wider plan to exert its influence in Africa, especially on the diplomatic and economic front at the global stage.

Tokyo has counted on the support of the continent’s 53 countries for its bid for a permanent United Nations Security Council seat.

China has been on a charm offensive in the continent over the past decade stretching its growing clout from Asia to Africa to its advantage on the global stage.

For instance, Beijing managed to scupper a deal in Copenhagen by refusing to agree to emissions cut and is currently pushing, with increasing success, for the Yuan to be recognized as an international currency and be at par with the US dollar.

It is such clout that Japan is seeking by stepping up its engagement with countries such as Kenya.