Category Archives: China

How can the US engage in Africa, and go around China?

.. Extracts from “Deconstructing the Dragon: China’s Commercial Expansion in Africa,” a recent report by Aubrey Hruby that postulates what the United States can do to reposition its influence in Africa whose governments have received extensive assistance from China, mainly in terms of infrastructure projects.

The looks at the nature of infrastructure deals that have come to be dominated by China state-owned enterprises through a combination of feasibility studies, negotiations financing through Chinese loans, and eventually mobilization to start construction. Quick-decision making is a factor and McKinsey found that over half of investment decisions for Chinese construction and real estate companies were made in under a month.

The US can counter to these mainly be through US government to African business initiatives, while contracts with China’s “government to government programs.

Recommendations include:

  • Niche infrastructure that fall within the US competitive advantage like renewable energy, oil exploration and urban/smarter city solutions. However on the last one, the report points out that China has made significant inroads in media, telecommunications and security services.
  • Push for anti-corruption agenda, as this will level the playing field for US companies. This can be through supporting African government efforts to investigate and prosecute corruption cases.
  • Generate a pipeline of projects, data, and trade links to assist US businesses to invest in Africa. This can be through sponsoring competitions and investor trips.
  • Support the creativity and education sectors. There is an opportunity in the entertainment spaces as recent deals involving Netflix, Mavin Records and the National Basketball Association have shown. Also a quarter of African children (66 million) could be studying in private schools by 2021.
  • US financial institutions can work towards providing working capital, which remains a great challenge for individuals and small businesses in Africa.

It also notes that more US intuitional investors have opened up to putting more funding to African venture. These include the New York State Common Retirement Fund, which has allocated $6 billion to investments in Africa and the Chicago Teachers Pension Fund that have invested in two African private equity funds.

EDIT: A story in the Africa Report shows how a new US Development Finance Corporation (DFC), which combines the Overseas Private Investment Corporation (OPIC) and the Credit Authority of the U.S. Agency for International Development’s (USAID) is part of the broader economic and trade battle led by the USA against China.  

The new organization has more latitude than its predecessors in that, it will be able to make equity investment in private firms (previously they were restricted to debt) and a restriction that OPIC could only support projects with “a significant link with the American private sector” has been removed.

Africa Netpreneur Prize Initiative (ANPI) 2019 finale set for Accra

The Africa Netpreneur Prize Initiative (ANPI) series for 2019, will conclude with an “Africa Business Heroes” televised gala in Accra, Ghana in November where ten finalist entrepreneurs will pitch Alibaba founder Jack Ma, Strive Masiyiwa and other judges.

The overall Netpreneur winner will get a grant prize of $250,000, the second place one receives  $150,000, with $100,000 to the third place one. These are among the largest financial prizes offered to African entrepreneurs and the other finalists will also receive financial grants.

Applications for this year’s ANPI opened on March 27 and over 10,000 entries were received from entrepreneur applicants. These were narrowed down by different evaluators through a vetting process and this week twenty finalists, drawn from across Africa, are doing interviews with,  a panel of expert judges at the Nailab in Nairobi. Bethlehem Tilahun Alemu, Fatoumata Ba, Fred Swaniker, Hasan Haider, Marième Diop, Peter Orth, and René Parker form the semi-finalist judging panel for this year’s ANPI. 

This all comes two years after Jack Ma’s first visit to Africa as a UN special advisor for youth entrepreneurship and small business. Dr Mukhisa Kituyi suggested that he visits Kenya as one of the countries he toured and he became inspired by a team of entrepreneurs he met at the Nailab. He then decided to support African entrepreneurs through his Jack Ma Foundation.

This is the Foundation’s first project outside of China the Prize has a mission to shine a spotlight on African entrepreneurs to be leaders of their societies in the future. It is especially focused on traditional, informal and agricultural industries and sectors, and encourages women to participate. This is a deviation from other sectors like digital, fintech, and mobile  that have attracted a lot of attention and funding on the continent. ANPI hopes to find and support 100 entrepreneurs over the next decade to be leaders across Africa.  

Through the program, they offer training at the Alibaba headquarters in Hangzhou, China, free of charge and several entrepreneurs, through the Nailab, have made that trip there. The ANPI competition remains to open to entrepreneurs in all 54 African countries, including Northern African and Western (Francophone regions). Jack Ma is expected to continue his philanthropic efforts, through the foundation, even after he steps down from being Alibaba’s Executive Chairman in October 2019.

China and Africa’s Infrastructure Developments

Excerpts from a piece by Andrew Alli, the former Africa Finance Corp (AFC) CEO, in his debut column for Quartz Africa on separating myths and realities of the role of China in Africa’s infrastructure developments.

China firms funded, built and operate Kenya’s new railway.

  • China’s was the fourth largest foreign investor in Africa spending about $40 billion in 2016, according to UNCTAD’s World Investment 2018 report, behind the US ($57 billion), the UK ($55 billion), and France ($49 billion).
  • Construction contracts are backed by Chinese financial institutions—like China Export -Import Bank and Sinosure – looking to support the exports or sales of Chinese products and services. The mission of these financing entities is to support jobs and income generation in China, as well as to support more strategic objectives of the Chinese government.
  • Chinese companies are surprisingly risk-averse when it comes to Africa – most Chinese financiers will not consider a project without insurance from Sinosure, the Chinese government-owned political risk insurer, or other similar institutions. In turn, Sinosure often requires a guarantee from the government of the country in which the project is located. (e.g. – with Kenya’s Standard Gauge Railway construction, the contracts specify that there will be insurance cover of 6.93% of the commercial loan – done by a Chinese firm, SinoSure, to take care of nonpayment). Sinosure insurance and other financing costs do not come cheap, which leads to the point that Chinese firms are not necessarily cheaper than firms from other countries – and while the bare construction costs of certain projects may seem cheaper, even after equalizing for quality, there are other costs that may apply including the insurance and other financing costs mentioned before, and costs associated with local content. 
  • It is true Chinese firms prefer to use all-Chinese inputs. If you want local workers and contractors, you will have to make that a negotiating point.
  • While some work done by Chinese firms can indeed be shoddy,  this doesn’t have to be the case.  For example, while a Western firm may tell you a bridge will cost you, say, $300 million. A Chinese firm may tell you that you can have a $300 million bridge, or a $250 million one.- and things that may be taken for granted in other parts of the world can be negotiable when dealing with a Chinese firm. You have to be careful to specify the quality that you want and the standards that you would like the project to be built to. You also need to be very specific about the environmental and social standards you want the project to adhere to.
  • For too long the number of firms willing to engage in, and finance, projects in Africa has been very limited, meaning that competition has also been limited leading to high prices and a lack of innovation. The increase in interest by Chinese firms has increased the amount of competition, forcing prices down overall and improving quality. The bleating of companies being forced out of cozy monopolies is probably one cause of the constant refrain we hear about the “dangers” of Chinese interest in Africa. We shaved the costs of that project in Ghana by over 20% from initial quotes by running a competitive process involving a Chinese firm.
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Ethiopia privatization window opens

Several weeks of rapid news has seen Ethiopia privatization of state enterprises proposed as one of several changes to sustain what has been one of Africa’s fastest-growing economies. This all comes in the wake of a new era under Ethiopia’s new prime minister, Dr. Abiy Ahmed Ali, who is leading change within the country and outside, such as on his recent visit to Kenya.

In the last few days the Ethiopian government has lifted a state of emergency, signaled an effective cease-fire with Eritrea, released long-jailed political prisoners, reshuffled security leaders, launched e-visa’s for all international arrivals with a view to dropping visa requirements for all other African nationals, and opened the Menelik palace to tourists among other changes, which have drawn comparisons or Abiy to Mikhail Gorbachev in Russia in the 1980’s.

The surprise was statements about plans for the massive Ethiopia privatization program in which the government would sell minority stakes in roads, logistics, shipping, and prime assets like Ethiopian Airlines, which just took delivery of its 100th aircraft, a Boeing 787, and which is the centrepiece of a logistical, tourism and business hub plan for the country. The program would also extend to two sectors that have been off-limits to foreign investors up to now;  banking and telecommunications.

For comparison, a 2012 list of Eastern Africa’s largest banks had the Commerical Bank of Ethiopia as the largest in the region followed by National Bank of Mauritius and KCB in Kenya, and at last measure (2017) had about  $17 billion of assets, 1,250 branches, and 16 million customers. And in telecommunications, Ethio Telecom, a government-owned monopoly has about 20 million customers in a country with a population of 107 million (many of them children), but still a low penetration rate. 

Ethiopia privatization of state enterprises is not a new item, but it is one which the government has put side as it pursued an industrialization model that has seen the building of new infrastructure, new factories, industrial parks, agro-processors, leather parks, vehicles manufacturers etc. but which has not been equally felt by the country’s large and young population – and this has seen wide-spread protests and a state of emergency that ushered in a new leadership with a new prime minister (Abiy). 

It also came after a lengthy story in the FT – Financial Times on the state of Ethiopia’s economy which cited the fatigue that China has with large investments and some projects that are operating below capacity coupled with the high government debt and shortage of foreign currency  – Two investors said that Sinosure, China’s main state-owned export and credit insurance company, was no longer extending credit insurance to Chinese banks for projects in Ethiopia as willingly as it used to. It notes that imports into the country are four times that of exports from  Ethiopia leading to the shortage of foreign currency.

The changes in Ethiopia could also be a warning to other African counties that have been moulded in a similar way to Ethiopia model, with heavy borrowing from China and building infrastructure and mega-projects for the future.  When the Ethiopia privatization program starts it’s unclear who will benefit and if Chinese companies will be given priority given that they have invested for a long period in Ethiopia compared to other new companies, such as Vodacom and MTN, who are excited about the prospects that are now opening up

S&P ranks top banks in MEA (Middle East & Africa)

Qatar National Bank (QNB) with $229 billion of assets is the largest bank in the Middle East and Africa (MEA) zone according to S&P Global Market Intelligence. It is followed by First Abu Dhabi with  $182 billion and then the top African bank, which is the Standard Bank of South Africa (Stanbic) with $164 billion of assets. Fourth and fifth are banks from Israel which S&P notes rose on the list due to the appreciation of the country’s Shekel currency versus the US dollar.

S&P MEA top bank origins

South Africa has the most African banks on the list with First Rand (ranked 8), Barclays Africa with $94 billion of assets and which is rebranding to Absa is ninth, while Nedbank and Investec are in 13th and 27th place respectively on the S&P list.

Other African banks are the National Bank of Egypt (14)  and Attijariwafa of Morocco (23 ). QNB, which has been publishing quarterly results in Kenyan newspapers alongside other commercial banks, is also the second largest shareholder of Ecobank of Togo, but there are no Nigeria banks or any Sub-Saharan ones from the East or West blocks of the continent on the MEA list. Kenya’s largest bank group – KCB has about $6.5 billion of assets.

QNB and the banks on the MEA list are ranked according to IFRS accounting principles but certain banks use local accounting measures e.g Israeli GAAP, Eqyptian GAAP and Qatari GAAP.

The MEA banks are a sub-set of S&P’s list ranking the largest banks in the world. The list was topped by four banks from China, led by the Industrial & Commercial Bank of China with $4 trillion of assets, followed by China Construction Bank, Agricultural Bank of China and the Bank of China. There is more diversity after that with Mitsubishi UFJ of Japan in 5th place with $2.8 trillion of assets, followed by  JPMorgan Chase (USA), the UK’s HSBC and in 8th place is BNP Paribas of France with $2.3 trillion of assets. Eighteen of the top 100 banks are from China, with $24 trillion of assets, the US had eleven banks and Japan has eight banks, but none from the MEA.