How many Chinese factories are there in Africa
China's construction companies in Africa and their procurements
Chinese projects in Africa have long aroused the interest of German companies: It would be too nice to get at least a small piece of the huge cake. Actual business, however, is the exception, and anyone in the German business community who inquires about this clientele will encounter perplexity everywhere.
So it's time to pay a visit to the Chinese in Africa themselves. The answers of Chinese purchasing managers and company bosses in Kenya can certainly not cover all questions and certainly do not claim to be complete or even "correct". However, your information, together with the experience of foreign sales people and the impressions of a Chinese construction site in Kenya, do provide some pointers: How Chinese construction companies work, who makes procurement decisions there - and how a provider could set up their sales for them.
For a German supplier of construction machinery or material, with all reservations and restrictions, the following picture emerges:
Chinese construction companies in Africa source their machines and equipment predominantly in China. So if you want to sell to them, you have to do it in Beijing or Shanghai. Sometimes, however, the Chinese managers in Africa - who have little to report at their corporate headquarters at home - also procure in their host countries. Especially when things have to be done quickly. Construction companies in Chinese provinces that are also active in Africa seem to buy more locally, even more so by private Chinese companies. But above all they build inexpensive houses and do not afford expensive German products.
Chinese construction companies generally buy material locally, but it is also predominantly made in China. One reason for this is that all over Africa they encounter and are familiar with Chinese traders selling products from home. Western brands, on the other hand, are weak in terms of sales. Chinese procurement managers definitely want a broader range, including non-Chinese ones. If you get short delivery times and good service and if the other sales factors are right, you can use your decision-making freedom more and are happy to procure products from western manufacturers. Suppliers from Germany therefore need to be more present and clean clinics.
Type and activity of Chinese construction companies in Africa
Are Chinese construction companies important potential customers for German companies?
Yes. "They run the show here," says Amrik Singh, sales manager at the German chemical company BASF in Nairobi, which also produces construction chemicals at its plant in the Kenyan capital. Rudy Myburgh immediately points out the big horse's foot that history has from the point of view of German suppliers: "It may be that they buy 90 percent or more of their equipment at home," says the salesman in the South African branch of the German concrete pump manufacturer Putzmeister . "But the rest is still so much with the extent of your African activities that it would be stupid to ignore it."
If a construction project for ten or twenty million dollars is planned in Kenya, then half of the applicants for the construction are currently from Chinese companies, estimates a Chinese contractor. For larger infrastructure projects it is still a third. European diplomats in Nairobi are also observing - and complaining - this development.
Which Chinese construction companies are active in Africa?
State and private. A total of over 200 state-owned Chinese construction companies are active in Africa, and 50 to 80 in Kenya, estimates Huang Zhengli, who researches China's influence on Africa's infrastructure development and examines Chinese state-owned companies on the continent. The large conglomerates of the central government are well known and usually have one or more "Cs" in their names. Examples are the China State Construction Engineering Corporation, the China Communications Construction Company (CCCC) with its subsidiary China Road and Bridge (CRB) or the China Civil Engineering Construction Corporation (CCECC). The provincial state construction companies are less familiar. Probably the largest in Kenya is called China Wuyi and is the international arm of the Fujian Construction Engineering Group. Private Chinese construction companies are also active in Africa, Erdemann is one of the largest in Kenya.
What are these construction companies doing in Kenya?
State-owned companies are practically the only ones involved in major transport infrastructure projects. They tend to benefit from generous project financing from the Chinese state or are otherwise supported by it. This enables them to tackle large projects and several plans at the same time. You can get over it when, as happens again and again, payments don't flow as agreed.
Private Chinese construction companies, on the other hand, build almost only residential buildings in Nairobi, and those of the inexpensive kind. If they build roads or bridges, then it is a matter of projects in the low single-digit million range or measures to connect their own construction sites. "Private Chinese construction companies do not have the cash flow to handle a large infrastructure project," said the representative of a state-owned Chinese construction company. In return, the private sector is quicker to make decisions.
Are the Chinese construction companies competing for projects among themselves?
That is to be assumed. In Panama, a Chinese consortium won the billion-dollar construction of the fourth bridge over the Panama Canal in 2018 - whereupon a defeated Chinese consortium joined a lawsuit against this award.
Is it true that the Chinese construction companies bring along all the workers from China in addition to the machines?
No, at least this cannot be confirmed by discussions with Chinese construction managers in Nairobi, not even a visit to a Chinese construction site there. However, the Chinese bring significantly more workers with them than a European company would: According to a senior manager, the state-owned construction companies aim for a ratio of around one to ten in their workforce between Chinese and local employees.
During the construction of the Mombasa-Nairobi railway line, and its subsidiary CRB, they said they employed 3,000 Chinese and 40,000 Kenyans at peak times, while the ratio of the recently inaugurated Nairobi-Naivasha railway line was 2,000 to 20,000. According to the company, 25 Chinese and 900 Kenyans were working for the executing CCECC during the first construction phase of the Mombasa Bypass bypass.
The provincial construction company China Wuyi is planning to build the administration building of the Trade & Development Bank in Nairobi, which Wuyi claims will cost around US $ 20 million, at peak times with 100 temporary and 70 permanent Kenyans, including seven engineers. Wuyi puts the number of Chinese employees at eight. The sister company Wuyi Precast currently employs 23 Chinese and 120 Kenyans in its Kenyan precast concrete plant (planned at full capacity: 500). According to its own information, the private Chinese construction company Erdemann currently has 20 Chinese and 2,000 Kenyans on its payroll. In a building construction project in Zambia's capital Lusaka, 350 Zambians and 20 Chinese are employed by the Chinese construction company, according to information from the management.
Can Chinese employees in Africa speak English?
Most of the senior managers surveyed in Kenya spoke good or very good English. At CCECC in Kenya, according to company information, all managers can speak English, but the foremen can only speak enough English to communicate with their subordinates. At CCCC it is said that of the 40 Chinese at Nairobi's corporate headquarters all spoke "more or less" English, and around one in five spoke the language well. Some could also use Swahili. In the precast concrete parts factory of Wuyi Precast near Nairobi, according to information from the management, almost half of the 23 Chinese can also communicate externally in English. For the rest, it is enough for an exchange with the local workers.
What kind of people work in the management of Chinese state-owned construction companies in Africa?
A widespread type of nomad seems to be among the managers: They move from project to project and from country to country, but mostly stay in Africa. The main incentive is the higher salary. All of the Chinese managers surveyed stated that they earn around two to three times as much as they do at home.
The low age of the managers is striking. The majority of construction site and company managers are in their early thirties, the boss of a large construction company made it to this position in his mid-twenties. Most of the managers surveyed went to Africa for their current employer shortly after completing their studies. There they quickly got into positions of responsibility and had the opportunity to advance quickly; the learning curve is steep.
The manager of a state-owned construction company in Kenya noted a high level of performance among his engineers from China: In principle, good people in this professional group in China are also willing to go to Africa. This is less the case with foremen, who normally would not have studied and who on average are older and less mobile. According to a state-owned construction company, the Chinese remain loyal to their employers in Africa. You might go to other countries, but always for the same company. This was also the case with the managers surveyed. Hong Kong or Taiwanese are usually not to be found in African projects, unlike in the textile industry.
Do Chinese state construction companies in Africa have a strong position compared to their corporate headquarters in China?
There is evidence that this is not the case. The scientist Huang Zhengli writes that the African subsidiaries have not suffered very well with the employees in the corporate headquarters. The managers in Africa have fallen a bit out of the network of relationships at home due to their long absence from headquarters, says a long-time close observer of Chinese state-owned companies in Kenya. In China there is no longer any place in the group for these people, at least not in a comparable position. Your special skills are not in demand there, country know-how or language skills for example. Such interesting and well-paid positions, like those the managers have in Africa, have long been filled in China. There the industry has large excess capacities, with long and tough growth paths, especially in the current times of a certain economic slowdown.
Financing and delivery commitment
How are infrastructure projects with Chinese participation usually financed?
"In terms of value, less than a quarter of the infrastructure projects that state-owned Chinese construction companies are working on in Africa are financed from Chinese sources," estimates Huang Zhengli. The other part comes from national authorities, private domestic and foreign financing organizations and international donors such as the World Bank, the African Development Bank or national development banks such as the German KfW.
What is the main Chinese source of funding for Africa?
The state-run China Export-Import Bank (Eximbank), according to data from the China-Africa Research Initiative (CARI) at Johns Hopkins University. From 2000 to 2015, the bank granted 67 percent of Chinese loans to African governments. The China Development Bank acquired 13 percent, with the remaining 20 percent being held by Chinese commercial banks, contractors and other Chinese sources. Of the 125 billion US $ in the period from 2000 to 2016, 31 percent went to infrastructure, 24 percent to the energy sector and 15 percent to mining, according to CARI.
What influence does the financing have on tenders and the selection of general contractors?
The place and guidelines for the tendering of projects differ: The construction of the US $ 3 billion railway Mombasa-Nairobi, which, according to press reports, was financed 85 percent by Eximbank, was put out to tender in China, with the award to CRB and its mother CCCC. The Mombasa Southern Bypass, on the other hand, a road largely financed by the Japanese development bank JICA, was tendered internationally in three lots. Lot 1, which was completed in mid-2018 and costing around US $ 110 million, was awarded to CCECC. In lot 2, CCECC claims to be the partner of the main contractor Fujita / Mitsubishi.
Moritz Rudolf generally sees strong motives for the government in Beijing in major Chinese foreign projects. As an example, the founder of the Berlin consultancy Eurasia Bridges cites ten "agricultural demonstration zones", which China announced in mid-2017, five of them in Africa. "This is a purely domestic process that is a vehicle for promoting Chinese state-owned companies."
Are the Chinese financiers stipulating that the Chinese state-owned companies have a delivery commitment for their procurement of material and equipment?
Yes. However, the information on this subject is vague and inconsistent. "The Eximbank usually finances up to 85 percent of the project value and stipulates that 70 percent of this share should be put out to tender in China," says Huang Zhengli. The bank officially has a mandate to support Chinese companies. "Eximbank-funded projects are not very attractive opportunities for non-Chinese companies to compete," said Huang. Most of the other Chinese financial institutions also demanded certain parts of the supply from China for "their projects".
CARI director Deborah Brautigam is more reserved. The official policy of Eximbank for loans with preferential conditions (concessional loans) set a Chinese supply share of 50 percent years ago, and there are no known changes in this regard. The bride-to-be also has no knowledge of official guidelines for other Eximbank loans. According to the researcher, the China Development Bank (CDB) works more like a commercial bank with more negotiable terms. An older CARI publication mentions a contract between Ghana and the CDB, which demanded a 60 percent share for Chinese contractors.
A former CARI employee refers to the bride's groom book "The Dragon's Gift" from 2011. According to this, it was the Chinese construction companies that were looking for or applying for projects in Africa first. Eximbank only comes into play later, after having received a funding application from the company and the African client. The bank is therefore not proactively trying to obtain such financing. With the obvious result that the project award goes to the Chinese construction companies.
How do Chinese prime contractors procure with delivery ties to China?
You seem to be sticking to the delivery schedule. According to a source in the construction company, the state-owned Chinese general contractor bought 80 percent of the equipment from Chinese suppliers to build an approximately US $ 100 million property in Zambia's capital Lusaka, which was 85 percent financed by a Chinese commercial bank. The state-owned construction companies also seem to be procuring financing from non-Chinese sources in China: For the construction of the Japanese-financed Mombasa Bypass, lot 1 general contractor CCECC had all the equipment come from China.
But there is obviously also a certain flexibility in the other direction. The state-owned Chinese company Wuyi Precast financed its US $ 100 million construction of a factory for precast concrete parts with Eximbank. The equipment, most of which comes from Europe, cost US $ 20 million. These expenditures alone reach almost the volume of the 30 percent that Eximbank releases for its financing share as not bound to delivery, according to Huang Zhengli.
Can German companies benefit from African local content regulations, according to which a certain percentage has to be procured locally?
Rather not. None of the Chinese construction managers surveyed identified such quotas as a problem. The companies usually procure bulk goods such as cement and structural steel in the country itself anyway. This means that they can already achieve a good portion of the share that is specified as local content in the host country. According to Huang Zhengli, the Eximbank, for example, came up with its 70 percent delivery commitment as a remaining variable: by adding up the value of such bulk goods. Most of the labor costs also belong to the local content. Chinese companies would also, according to the unverified claim of a Western businessman, set up "local" companies to supply and thereby help meet the local content quota.
Decision-making processes in state-owned Chinese construction companies in Kenya
Who decides on the procurement of equipment at the large state-owned construction companies?
At CCECC, the local management creates a plan of the required materials and equipment based on the project data. "On this basis, the corporate headquarters in Beijing decides on the purchase of all equipment and then procures it," says CCECC in Nairobi."Equipment" includes all machines, electrotechnical systems, etc., only shovels and other simple tools are not included. According to information from the company, all purchases over US $ 50,000 will be decided at the corporate headquarters in Beijing at CRB / CCCC.
And about the procurement of material?
There seem to be differences. At CRB, according to the management in Nairobi, the limit of US $ 50,000 applies not only to equipment but also to the material: Beijing therefore not only decides on items that are expensive per se, such as steel or cement, but also on things like shovels and nails, provided that an item is more than $ 50,000. Nevertheless, most of the tools are procured in Kenya. Local purchases of building materials were usually made through tenders. According to the manager, CCECC principally buys material in Kenya. Only important or safety-relevant parts, for example in bridge construction, can be procured in China; Incidentally, this is what all state-owned Chinese construction companies in Kenya would do. The mostly smaller construction companies in Chinese provinces are likely to procure a little more in the country.
Can the local offshoots of the state-owned construction company offshoots influence procurement decisions?
Limited. "We only give the headquarters in China the technical specifications, but we can already influence them", says CRB in Nairobi. CCECC in Kenya's capital can also make wishes in Beijing and occasionally enforce them. In general, however, the central management decides there according to its own criteria.
Who is involved in procurement at the state-owned Chinese construction companies in Africa, the headquarters in the capital or the people on the construction site?
At CCECC, the decision is made to procure materials - which are done in the country - up to a value of less than around US $ 100,000 on the construction site. This limit, in turn, is determined by the national headquarters in Nairobi. Other state-owned construction companies have different limits for this, but work according to the same pattern. The CCECC regional headquarters may combine various orders for individual projects in order to achieve better conditions. With this approach, the companies are apparently constantly striving to find a balance between speed / flexibility (through decisions on the construction site) and control (which the state headquarters must ensure).
Awarding of contracts for "Chinese" projects
Who awards contracts to whom in projects with Chinese participation in Africa?
As long as there is no Chinese funding involved, this will continue as is customary internationally. The CCECC involved cites the Japanese-financed Mombasa Bypass as an example: The Kenya National Highways Authority (KeNHA), as the client, first selected an engineering company. This consultant worked out the planning and prepared the tender for the selection of the general contractor. The KeNHA then selected the general contractor, as well as the consultant for environmental reports and building supervision. It was similar with the construction of the administration building for the Trade & Development Bank in Nairobi, which is significantly cheaper at $ 20 million: the bank, as the project owner, appointed the building supervision and the architect, who in turn prepared the tender for the general contractor.
In Chinese-funded projects, Chinese companies obviously have better cards per se. For the construction of the Mombasa-Nairobi railway line, the general contractor CRB selected the consultant for the planning, according to information from the CRB parent company CCCC. The order for signaling technology and rolling stock was placed in Beijing on the basis of this information. It went to the China Railway Signal and Communication Corporation, which in turn used technology from Siemens.
As usual, the Zambian project owner appointed the consultant for the Chinese financed commercial property in Zambia's capital Lusaka, which in turn selected the general contractor. However, according to market information, the consultant invited companies "from the environment" of the financing bank. Which, like the bank, evidently came from China; A Chinese construction company became the general contractor.
Do German engineering offices take part in "Chinese" Africa projects as customers of Chinese construction companies?
No, at least nothing of this is known. Indeed, project planning and construction supervision also go to companies such as Gauff Engineering or Fichtner Water & Transportation. These engineering service providers come into such projects as representatives of the client, for example a national transport ministry. And not as a customer of a Chinese construction company, as Ulf Meyer-Scharenberg from Fichtner Water & Transportation confirms: "Personally, I am also not aware that one of the other well-known engineering firms there has received an order from a Chinese construction company."
Do Chinese general contractors subcontract orders?
Yes, but there is little tendency. According to its own statements, CCECC Kenya has practically no subcontractors other than consultants. "As a rule, we do 95 percent of the order value ourselves," says a CCECC representative. In road construction projects you have the know-how for almost all tasks - except for very difficult and special things, but "that happens very rarely in Africa". One of the exceptions to the construction of roads is the lighting, and on another project a subcontractor was hired for certain drilling work.
CRB does the "essential" work itself and otherwise decides whether to subcontract the work after weighing up the costs. On the Mombasa-Nairobi railway line, orders were placed with the Australian construction company John Holland, which has been part of the CRB parent company CCCC since the end of 2014.
In his project for the Trade & Development Bank in Nairobi, general contractor China Wuyi puts his share at around two thirds of the project value. The construction of the US $ 200 million road A 104 from Nairobi to Naivasha is 100 percent.
Do the Chinese state-owned construction companies contract out services?
Yes. CCECC has its own planning department, but often employs other consultants or plans together with the consultants. Environmental reports are given to companies based in the country that are more familiar with the localities.
Can Chinese general contractors influence the selection of other project participants?
Apparently yes, beyond their function as a client of their own subcontractors: In the case of the - not Chinese-financed - construction of the Trade & Development Bank in Nairobi, the general contractor China Wuyi says that a total of around 90 percent of the funding is determined, although the own contract value is only two Achieve third: Wuyi put in a strong word for the consultant who selects other participants in the project - and advocates companies with which they have already worked well. However, these companies themselves then decided on the procurement of their material and equipment.
What is your experience of working with Chinese construction companies?
For some of the Western businessmen surveyed, Chinese companies come off badly. "Those are the very worst," says one person. A tendency to stretch payments ("they hold you up") is mentioned more often. This coincides with statements made by Chinese construction managers to insist on "flexible financing". The Chinese are sometimes assumed to be particularly smooth dealing with corruption customary in the country ("they always get in with their money at the top, while we move normally on the business level", "they are only popular with the upper class"). It remains to be seen to what extent this is true and whether the frustration of not being as successful as Chinese companies plays a role among those who have quoted.
Do norms play a role?
According to the Chinese building materials representative Jimmy Chu, Chinese construction companies in Kenya generally do not procure their building materials in China if they work according to US or European standards. The reason is that Chinese material manufacturers often do not follow these standards. According to the information, international standards often apply to government infrastructure projects in Africa. The Mombasa-Nairobi railway line, which is almost exclusively financed by China, was built according to Chinese technical standards. "China can supply practically all the products and inputs it needs," says the general contractor's headquarters. This applies in particular to the expensive items of rolling stock and signaling technology. In the construction itself there was very little need for special products that had to be procured from manufacturers outside of China. This included some laboratory equipment and controls, as well as certain rubber tubing that CCCC sourced from Italy. For the actual construction work, standards were irrelevant, because you always need the same equipment.
According to information from China Wuyi, Kenya's building construction is primarily based on British standards, followed by EU and US standards. The architects decided which ones actually apply.
Sales to Chinese construction companies in Africa
How can you do business with Chinese construction companies in Africa?
Through visits and intensive marketing. The Kenyan CCECC head office in Nairobi keeps a list of potential suppliers for any possible procurement - which is usually only about material. If purchases are pending, you choose from this list. "If you are not on this list, you do not exist for us," the CCECC says. At the beginning of the operations in one country, this list is empty, the management fills it up gradually: With experience from the headquarters in China, and even more with those from the immediate neighboring countries such as Tanzania and Uganda; South Africa is already too far away for that. The list would also include companies that would convincingly present a suitable offer in Kenya - even if there are now enough providers on the list for all requirements.
State-owned Chinese construction companies usually buy their machines and equipment in China - so it is not worth selling them in Africa?
There are opportunities, but they are difficult to assess. With some customers, the procurement managers obviously have leeway. As a salesperson, you basically have to try it. Like Rudy Myburgh, who from South Africa sells Putzmeister concrete pumps in Anglophone Africa. To do this, he rattles around potential Chinese customers and their construction sites and has sold two systems to a project in Zambia's capital Lusaka. On the phone, Mybergh's customer mentions the delivery time as an important reason for this: The Putzmeister concrete pumps from South Africa were available more quickly and the competition had nothing in stock. The general contractor CCECC in Nairobi specifies the planning deadline for projects: the shorter it is, the sooner it is possible to procure locally. With early planning, however, procurement in China is more efficient and cheaper.
Chinese procurement managers also buy predominantly Chinese products on site. Is the increased presence of representatives of Chinese companies a reason for this?
Yes. "Here in Zambia, Chinese products are simply available much better and faster," says the Chinese procurement manager in Lusaka. "Including spare parts and service." Countless Chinese traders are active all over Africa - and most of them have local goods on offer. Chinese buyers are definitely interested in a larger range of Western brands, adds Putzmeister's Myburgh in South Africa. The western offer is particularly weak in countries of the "second tier" such as Malawi or even Zambia. In Nairobi, the regional center of East Africa, the CCECC says: Perhaps almost half of all sales people who contact CCECC are Chinese. Around 80 percent of the representatives have non-Chinese brands on offer; this proportion is lower for Chinese representatives.
Are there any other reasons for this?
"When it comes to machines, it is easier for us to service Chinese products," says the Chinese manager in Lusaka, "we know our way around." One out of 20 Chinese in his project is responsible for maintaining the machines - and it is understood that he occasionally has problems. In addition, Chinese providers are more flexible in terms of financing. "Representatives of non-Chinese brands give us a payment term of maybe a month, which is often not enough."
Why should vendors be flexible in their sales strategy?
The Chinese customers of material agent Jimmy Chu pay a lot of attention to the price. In order to get an order, Chu already combines materials from his partner BASF with cheaper competing products from China. With the approval of the local BASF management: "If we insisted on exclusivity, we would often not get an order at all," says BASF sales manager Amrik Singh.
Now, unlike building materials, a service-intensive branded capital good can be sold less easily via the "vendor's tray" of a local agent. Nevertheless, a representative of the leading private Chinese construction company Erdemann in Kenya names the local branches of three - Chinese - companies as the most important sources of supply for construction machinery. One of them also sells Japanese products "out of line" or procures such products on request.
Who is now involved in the procurement for Chinese construction sites in Africa?
In the case of large construction machines, non-Chinese providers appear to be quite often. "Excavators of a Japanese brand are perhaps just 10 percent more expensive in China than their Chinese competitors, because they have to import a lot of parts for production," says CCCC in Nairobi. Of the big machines, only the dump trucks and bulldozers come from Chinese manufacturers. However, this could change in the foreseeable future: Ulrich Reichert refers to changes in the Chinese market for excavators, "that has shifted towards Chinese suppliers in the last two years". Specifically, the China boss of the German construction machinery supplier Wirtgen names the two manufacturers XCMG with the Xugong and Sany brands.
According to the company, CRB in Kenya takes all of its rollers from German manufacturers because their costs are lower in the long term. According to the information, Bomag 20 (made in China according to CRB) and the Wirtgen subsidiary Hamm supplied over 40 units of the large rollers, which cost six figures. Of the roughly 250 excavators for the construction of the Mombasa-Nairobi railway line, CRB said it received 200 from Komatsu and almost 50 from Liebherr. CRB imports its construction site pick-ups from Toyota from Dubai. The upper management drives heavy Toyota SUVs or even a VW Touareg. Nevertheless, according to CRB estimates, 90 percent of the equipment used in the railway project is made in China, especially since non-Chinese manufacturers often deliver from their Chinese plants.
The representative of the construction company CCECC in Kenya says that the large construction machines for the first construction phase of the Mombasa Southern Bypass were "80 percent Caterpillar". The US brand is cheaper in the longer term. Only the dump trucks for which there is a sufficient Chinese supply come from Chinese brands. According to the information, all machines in construction phase 1 were new.
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