China builds powerful presence in Africa

Buildings Brics: By becoming established at the onset of the African building boom, Chinese construction firms have blazed an impressive trail for their counterparts in the Gulf.

A Chinese contractor supervises construction of a new bridge on on the Nairobi-Thika highway project. Thomas Mukoya / Reuters

As the last athletes were packing their bags at the close of the Beijing 2008 Olympics, Chinese construction crews were also preparing to leave and head for Africa, where a building boom was just beginning.

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It is a salutary lesson for UAE construction firms, which found themselves struggling to keep working in the post-boom era. Africa now represents one of the fastest-growing building sectors in the world. The continent is therefore likely to extend a warm welcome to companies from the Emirates, which have sought-after experience in managing large-scale projects.

The Chinese have been building in Africa for many years. During the Maoist era China sent legions of engineers to help build everything from stadiums where post-colonial dictators could preen in front of supporters, to major projects such as the Zambia-Tanzania railroad.

But the increasing presence of Chinese construction firms over the past decade turned into a flood after Olympic-related projects dried up.

Over the past four years they have come to own a larger share of Africa's construction market than the more traditional players US, France and the UK combined, according to Standard Bank of South Africa, the continent's largest bank.

From vast housing tracts in Mozambique to dams in Ghana, the Chinese are changing the face of Africa. The World Bank estimates the continent needs to spend US$40 billion (Dh146.92bn) a year just to maintain its dismally low-level infrastructure, let alone build for the future. Lack of roads, harbours, railway lines and power are frequently cited as the key impediment preventing African states from breaking out of poverty.

The price Africa pays for its poor roads, railways and ports is huge. Transport costs of goods and products to markets are two to four times higher per kilometre than they are in the US, "and travel times along key export corridors are two to three times as high as those in Asia", according to the World Bank.

But with new-found wealth in the form of oil, iron and other commodities, many of the 53 African nations are ready to begin rolling out projects.

Western firms have also been eager to take advantage of the boom, but the Chinese possess a number of advantages that leave their rivals in the dust.

Ready finance is China's major ace in the hole. With cash-strapped London, Paris and New York reluctant to lend, Beijing has stepped in with an open wallet. China's state-owned Exim Bank now rivals the World Bank and IMF as Africa's largest lender, having disbursed more than $12.5bn for construction projects over the past 10 years.

Because this finance is tied to a contract being awarded to a Chinese company, foreign firms without a friendly banker have little hope of competing. And having gained a foothold in the country, a winning Chinese bidder will then be able to compete for other projects, including those funded by the World Bank and other grant-giving organisations.

It's hard not to see a potential parallel here between the sovereign funds that are the guardians of the UAE's wealth on the one hand, and Emirati construction companies, both private and state-owned, that have access to oil-backed financing on the other.

China's stunning advancement in African building is largely because it is quite happy to be paid in kind, instead of cash.

Angola, which struggles to raise money on international markets, in part because of dubious governance, routinely pays for construction with oil. It began with a $2bn loan in 2004, used to build energy plants, roads, rail and airports, and has been steadily expanded ever since.

So successful is the arrangement that Angola has become China's model for further such deals across Africa. This so-called "concessional financing" has been taken up by a number of countries that have been shown the door by more traditional financiers. These include Equatorial Guinea, Congo-Brazzaville, Ethiopia, Guinea, Nigeria, Sudan and Zimbabwe.

The UAE hardly needs more oil, but few countries are better placed to store, transport and trade with it. Oil can be rapidly transformed into dollars, stored for later use or traded for other commodities. Africa also has an abundance of other commodities the UAE is less blessed with, such as land and agricultural products, all of which could be traded for construction loans.

In the meantime, Chinese construction continues to power ahead across the continent. It has signed multibillion-dollar deals to build more than 3,200km of road and railway in the Democratic Republic of the Congo, and lay a fibre-optic network in Ethiopia. Within a decade, a third of all hydroelectric dams in Africa are forecast to be Chinese-built.

Beijing has laid down a challenge to its global competitors in the rush to share Africa's wealth. The Gulf oil states are in a better position than most to take it up.

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