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Why Chinese Companies Are Successful in Africa

         Date: 2012-10-08

           Tag: China, Africa, company, sucess

Summary: China's construction industry as a key catalyst in Africa's infrastructure development.

Chinese companies now dominate the African construction sector, with a market share larger than those of France, Italy and US combined. This strength of Chinese firms in Africa's construction sector has continued to grow over the past few years despite the global construction market taking a downturn in the aftermath of the credit crunch.

China Export-Import Bank (China Exim Bank) disburses Chinese government concessional loans. According to World Bank estimates, China Exim Bank has disbursed over US$12.5-billion to support infrastructural projects in sub-Saharan Africa; most of the funds went into Angola, Nigeria, Zimbabwe and Sudan.

Often tied to the Chinese loan was the agreement that the public tenders for the construction and civil engineering contracts would be awarded primarily to Chinese state-owned enterprises approved by the Chinese government, furthermore, no less than 50% of the procurement in terms of equipment, materials, technology or services must come from China.

Thus the Chinese state-owned financial institutions such as China Exim Bank and China Development Bank (CDB) have become large-scale lenders in Africa, rivalling the World Bank and the International Monetary Fund in terms of development finance outreach.

Chinese funding appears to be tied to Africa's oil resources, with more than 55% of contracts by value accounted for by Angola, Sudan and Nigeria. Chinese funding of infrastructure looks set to continue, with the frequent state visits between China and African countries in recent years an indication of favourable China-Africa foreign policy.

Africa contracts undertaken by Chinese construction firms may be funded through Chinese government loans or other institutions. China-funded projects are restricted to Chinese construction companies, making it impossible for foreign companies to compete. These projects provide a way into a market for the construction company.

Once established in the local market, the Chinese construction company will compete for projects financed through international institutions such as the World Bank, African Development Bank and domestic sources, with competitiveness often aided by the low labour costs of Chinese expatriate workers.

It is clear that the China-Africa relationship has gained huge momentum in recent years, supporting construction, infrastructure, health, agriculture and other projects across Africa. Africa has become an important destination in terms of its investment opportunities and ways for China to secure future resources.

With infrastructure identified as a priority, we will continue to see a strong demand in the power and infrastructure sectors inAfrica, and Chinese construction companies are firmly positioned to take advantage of this coming wave. As such, we see China’s construction industry as a key catalyst in Africa’s infrastructure development.

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