Ideas & Debate

China firms in Kenya increasing despite hurdles in labour laws, skills shortage

The Standard Gauge Railway being built by China Road and Bridge Corporation. PHOTO | FILE
The Standard Gauge Railway being built by China Road and Bridge Corporation. PHOTO | FILE 

There are more than 400 Chinese companies in Kenya and a Chinese population of around 50,000 people.

It may sound exaggerated but when you look at the standard gauge railway being built by China Road and Bridge Corporation, the Thika Road constructed by China Wu Yi Co Ltd and the recent China Trade Week hosting 16,000 visitors, the figures become real.

What does this mean to local Kenyan businesses? With the limited interaction between the new Chinese community and local businesses, the Chinese presence is perceived by many as a threat and there are many myths about them.

As researchers, we interviewed 75 Chinese companies in Kenya, which indicated that there is indeed a market for them locally.

We asked Chinese companies about the challenges they are facing in doing business in Kenya and published a report, Business Perception Index: Survey on Chinese Companies’ Perception of Doing Business in Kenya. The report discusses issues of workforce, security and legal struggles as they relate to the companies.

The recurring theme about Chinese companies is that they bring Chinese workers from home and never give jobs to locals. Statistics, however, contradict the popular assumption.

In Kenya, 93 per cent of Chinese companies hire local workers and the remaining seven per cent are mainly micro companies with less than five employees.

Up to 78 per cent of full-time employees in Kenya-based Chinese companies and 95 per cent of their part-time employees are Kenyans.

From the research, Chinese companies complain about the lack of some skills in Africa, which forces them to bear the high costs of bringing Chinese workers, which costs them 7-8 times more than they would pay locals.

According to data collected from nine large construction companies in Kenya, a demand gap of more than 800 skilled labour cannot be fulfilled in a single month (June 2016).

Skills needed vary from trades requiring 2-3 year training such as bulldozer driving, to more common trades such as bricklaying and steel fixing.

Apart from technical skills, Chinese employers are particularly concerned with the lack of soft skills and work ethic in local talents with many workers not being punctual, being in need of close supervision, often absent after pay days and many lacking sound financial and management skills.

The reality is that there is an underexplored market for human-resource or micro-project sub-contractors.

As solution providers, African companies can source quality talent based on their local networks and knowledge, provide trainings according to employer requirements and manage the workforce to complete tasks assigned by the companies, or simply contract them out to companies.

Thus, local human resource providers will be able to capture good profits by saving Chinese companies painful human resource management work and related expenses.

“Once someone dies from any accident here, the country director [of the Chinese firm] will never get promoted again for the rest of his life,” said a businessman who has lived in Africa for more than 20 years referring to one of the unspoken rules in Chinese companies especially those owned by the State.

Chinese companies seem more susceptible to theft, robbery, vandalism and on-site arson compared to an average company in Kenya.

Sixty per cent of the Chinese companies reported losses as a result of the criminal activities during the fiscal year 2013/14, while only 29 per cent of all Kenya-based companies claimed such, according to the World Bank Enterprise Survey 2014 in Kenya.

Security is the top concern of Chinese companies in Africa due to its social and political sensitivity.

Should a local employee employed by a Chinese company here die for any reason even outside the work place, the companies faces not only a huge amount of compensation expenses, but also internal turmoil stirred by the victim’s family and blame from the Chinese embassy for harming the harmonious bilateral relations between the two countries.

In response, Chinese companies usually confine the employees to their apartments and offices with few holidays and prohibit individual outings.

However, Chinese companies actually spend less on security, including equipment, personnel and professional security services than average Kenyan companies.

Seventy-one per cent of Chinese companies, compared to 82 per cent of Kenyan companies, incur security-related expenses.

For those who spend on security, security expenses on average account for only 1.27 per cent of their annual sales while general Kenyan companies pay 4.5 per cent out of their pocket.

For one thing, Chinese companies do not yet possess sufficient security awareness and knowledge to perform as well as Kenyan companies.

New to the country, Chinese companies often found Kenyan laws and regulations confusing. For example, tax administration is the fifth significant challenge reported by Chinese companies.

They receive on average 3.1 times of visits by tax officials compared to 2.2 times every year for all companies in Kenya.

Thirty-one per cent of Chinese companies perceive tax administration as a significant obstacle while only 13.3 per cent of all companies in Kenya think so.

Furthermore, due to the increasing competition in the contractor’s market, some large Chinese companies are turning to property investment, which inevitably leads them to get involved in property transactions.

In addition, labour laws and regulations are also pain points in their operation in Kenya. Many companies learn by making mistakes and solving disputes. What kinds of reasons are valid when firing an employee?

What type of insurance are required to purchase for employees? And how to compensate employees for working during holidays?

Local legal service providers can craft the way to approach this huge market desperately in need of legal advice.

The writer is a researcher at the Nairobi office of Sino-Africa Centre of Excellence.