China in Africa

10. China's Infrastructure Footprint in Africa

China is presently involved in infrastructure project in 35 African countries. A concentration of projects is to be found in Angola, Nigeria and the Sudan. However, China is planning a new range of projects in other countries, especially in the DRC. The country’s activities have been divided fairly evenly among two main sectors: power generation (especially hydropower), and transport (especially railroads), followed by ICT sector (mainly equipment supply). Water projects attracted the least amount of activity.

A more extensive profile of Chinese funded projects in each of the major infrastructure sectors is provided below.

10.1. China’s Growing Competitiveness

One way of gauging the international competitiveness of the Chinese construction Industry is to look at the performance of Chinese firms under open tenders. Multilateral Agencies, such as the World Bank and it affiliated African Development Bank (ADB), require unrestricted International Competitive Bidding (ICB) to take place on all significant contracts that they finance. The procurement data from these agencies is publicly available and can be used to calculate the share of contract value going to Chinese firms bidding for projects in different segments of the market. This in turn provides an objective indication of the competitiveness of Chinese construction firms.

In the case of the World Bank, it was possible to establish that since 1999 Chinese Contractors’ have been winning a significant share (10-20 percent) of African infrastructure contracts awarded by the International Development Association (IDA). The accumulated contract value won by Chinese contractors was US$738 million over the period 2001–06. While substantial, this figure is much lower than the value of Chinese commitments to infrastructure finance over the same period, which are estimated at more than US$12 billion.

Looking at more recent data from both the World Bank and the ADB, it is evident that the success of Chinese firms has been largely confined to the area of civil works. The presence of Chinese firms is almost non-existent in the area of consulting services, and minimal in the area of equipment supply where they capture a mere 3 percent of the market. However, in the area of civil works Chinese firms accounted for 31 percent of total contract value over the period of 2004-2006.

With the exception of France, which has been winning around 12 percent of the World Bank’s civil works contracts, no other country has won more than a 5 percent share. These figures illustrate the competitiveness of Chinese contractors in this market. The World Bank procurement data also provides (partial) information on the nationality of the second most highly ranked bidder for each contract. This shows that in as many as 20 percent of the total number of contracts won by Chinese firms, the second most highly ranked bidder is also a Chinese firm.

Chinese firms have also tended to capture the larger civil works contracts. The average size of a civil works contract awarded to a Chinese contractor was US$6 million in the case of the African Development Fund (an ADB affiliated structure) and US$11 million in the case of the International Development Association arm of the World Bank, compared to more typical contract values of US$3 to 4 million.

Overall, about 70 percent of the value of contracts won by Chinese firms under multilateral projects was accounted for by just four countries: Ethiopia, Mozambique, Tanzania, and the DRC. Once again, this is quite different from the geographical spread under Chinese funded projects, where more than 55 percent of the contract value is accounted for by Angola, Sudan, and Nigeria. This indicates that Chinese contractors have significant presence and experience in a number of countries that have not yet featured prominently in Chinese financing deals.

Looking sectorally at China’s footprint in Africa’s infrastructure development path, the following picture emerges:

Dams

Most dam projects undertaken by Chinese companies have a hydro-power dimension to them (see under “Power” section). In October 2008, SinoHydro concluded a loan agreement with the Ghanaian government for US$562 million. The loan is earmarked for the construction of the Bui Dam in Ghana’s Brong Ahafo region. The dam is expected to improve water storage and irrigation along the Black Volta River. The project is expected to be completed in five years.

Power

The sector attracting the largest amount of Chinese financing has been the power sector with more than US$5.3 billion in cumulative commitments at present. Much of this effort has been concentrated in hydroelectric schemes. As of the end of 2007, the Chinese were involved in financing 10 major dams in 9 different African countries. The total cost of these projects is estimated to be more than US$5 billion, of which the Chinese were financing over US$3,3 billion. The combined generating capacity of these plants amounts to more than 6 000 MW of electricity, a significant fraction of the 17 000 MW of hydropower generating capacity that exists today in Africa. Indeed, four of these projects will more than double the total electricity generating capacity within the host countries where they are located.

Some of these projects include the following:

  • The largest hydropower project on this list is the 2 600 MW Mambilla scheme in Nigeria, implementation of which is now uncertain.
  • The largest power project completed to date is the massive 1 250 MW Merowe dam in Sudan, which was opened earlier this year.
  • November 2008 - China’s Shenzen Energy Group announced that it was planning to go into partnership with the First National Bank of Nigeria PLC, to build a 3 000 MW power plant in Nigeria. The estimated cost of the project is US$2,5 billion, with a commencement date for early in 2009. Nigeria’s total installed capacity is 3 500 MW but frequent power disruptions sees power generating capacity collapse to just 1 000 MW on occasions due to poor maintenance its aged power stations, corruption and mismanagement.
  • October 2008 - Kenya awarded a US$65 million contract to Sinohydro Corporation to build a new 20MW hydroelectric power plant (HEP) in Western Kenya. The new HEP, Sangoro plant, will be located 5km downstream from Sondu Miriu HEP. The project is expected to be completed within three years.
  • October 2008 - China’s International Cooperation Group (CHIC O) has been awarded a US$45 million contract by Mozambique to construct a supply system in the central province of Manica. The project will include the construction of a new water treatment station at Chicamba Dam and six water storage tanks.
  • March 2009 - it was announced that China’s Sinohydro Corporation will undertake construction of a US$400 million power plant on the Kariba North Bank in Zambia. China’s Export and Import Bank is providing 85 percent of the funding, while the Development Bank of South Africa (DBSA) is providing the remaining 15 percent. Zambia intends to develop a number of power projects in alignment with its vision for the 2030 development plan.
  • Finally, the Poubara hydropower dam in Gabon is to be built by Sinohydro as part of the US$ 3 billion Belinga Iron Ore project; however, the amount of Chinese financing committed into the project is not known.

Natural resources are being used to secure some of the financing. The Congo River Dam in the Republic of Congo and Bui Dam in Ghana, which are currently under construction, are being financed by the China Ex-Im Bank loans backed by guarantees of crude oil in case of the Congo River Dam, and cocoa, in case of Bui Dam. The loan for the Souapiti Dam in Guinea will be linked to mining (Bauxite) revenues.

Outside of hydropower, China has also been active in building thermal power stations, the most significant of which have been in Sudan and Nigeria. In 2005, the Shandong Electric Power Construction Corp. agreed to build three separate thermal power stations in Sudan: a 500 MW coal fired power plant in Port Sudan, a 300 MW gas fired power plant in Al- Fūlah and a 320 MW gas fired power plant in Rabak. Earlier, the Harbin Power Equipment Company had agreed to build the E1-Gaili Combined Cycle Power Plant.

In Nigeria, the federal government is constructing, with the help of credit line from China Ex-Im Bank, three gas-fired power stations: Papalanto (335 MW) in Ogun state developed by Chinese group Sepco, Omotosho (335 MW) in Ondo, developed by China National Machinery & Equipment Import & Export Corp. (CMEC), and Geregu (138 MW) in Kogi state developed by Siemens. Other than electricity generation, Chinese companies CMEC and China Machine- Building International Corporation (CMIC) have occasionally got involved in electricity transmission through major projects in Tanzania and Luanda (Angola), respectively. Thus, at present, China’s central focus is on the construction of large hydropower projects. Given the current power supply crisis in Africa, and the fact that the region has barely developed 5 percent of its identified hydro potential, these schemes are critical for Africa’s economic development. In that sense, the emergence of China as a major financier of hydro schemes is a trend of great strategic importance for the African power sector.

Reports emerged earlier this year that Shenzhen Energy Investment Co., partly owned by Huaneng Power International Inc., and the fund may build a 1,03 billion-yuan ($151 million) gas-fired plant in Ghana.

Standard Bank and the Industrial and Commercial Bank of China (ICBC) is to finance the expansion of a coal power station in Botswana for over US$800 million. An amount of US$140 million, as bridging finance, will be provided for Morupule B Power Station in eastern Botswana. The deal is backed by financial guarantees from Botswana’s ministry of finance.

Ports

On 13 January 2009, China agreed to begin a US$280 million expansion contract to extend the port at Nouakchott, by more than 900 meters, adding significantly to the port’s current capacity of 500 000 tons of cargo per annum.

Rail

China’s foray into Africa really began in large part due to the construction of the Tanzania- Zambia railway in the 1970s, which became to symbolize China’s contribution to African economic development.

In recent years, China has made a major comeback in the African rail sector, with financing commitments on the order of US$4 billion for this sector. They include rehabilitation of more than 1 350 kilometers of existing railway lines and the construction of more than 1 600 kilometers of new railroad. To put this in perspective, the entire African railroad network amounts to around 50 000 kilometers.

The largest deals have been in Nigeria, Gabon, and Mauritania.In Nigeria, the Chinese have committed to financing a construction of the Abuja Rail Mass Transit System; and to the rehabilitation of 1 315 kilometers of the Lagos-Kano line under the first phase of Nigeria’s railway modernization programme. The total cost of the Lagos-Kano rail project is estimated to be US$8,3 billion, of which the Chinese were to cover US$2,5 billion through a line of credit part of which would be also be allocated for supporting power projects.

However, In October 2008, the Chinese rail projects were put on hold pending a review of the agreements after a period of tensions linked to allegations by Nigeria that China was not delivering on its investment promises. [Note: Nigeria suspended the rail contract with the China Civil Engineering Compan y (CCECC) last year, saying the cost was inflated and the government did not have enough funds to modernise the country’s century-old rail system. Former Nigerian President Olusegun Obasanjo awarded the contract to the Chinese company in 2006 and promised the firm an oil block in return as an incentive. China facilitated the deal wit h an initial offer of a US$2 billion loan.]

In 2007, work started on the rehabilitation of the 1302 km Benguela Railway line in Central Angola at a cost of US$300 million, However, in February 2008 rehabilitation work was suspended owing to delayed disbursements from the credit line of the Hong Kong-based China International Fund (CIF). Over 1000 route-km of the Benguela need rebuilding. Besides apparent funding problems, the process was being hampered by the presence of land mines and the need to reconstruct 50 bridges. The completion of restoration of the railway to the border with the DRC is not expected to be completed before 2012 China Ex-Im Bank is preparing to finance the 560-km Belinga-Santa Clara railway in Gabon, which, together with Poubara hydropower dam, and deepwater port at Santa Clara, is part of the already mentioned Belinga Iron Ore project. The China Ex-Im Bank’s loan for the project is to be repaid via sales of iron ore to China.

In January 2009, the China Civil Engineering Corporation signed a US$805 million contract with the Libyan government to build to build 172 kilometres of railway lines in the North African country.

The most recent railways project was the commitment to finance a 430-km railroad linking Nouakchott to phosphate-rich Bofal in Mauritania, which was agreed upon in 2007. The project is financed by a US$ 620 million China Ex-Im Bank loan and will be implemented by Chinese Transtech Engineering Corporation.

Roads

The Chinese have been active in building roads across Africa. World Bank data recorded more than 18 projects involving Chinese commitments for construction and rehabilitation of more than 1 400 kilometers of road. However, the aggregate value of finance for confirmed projects at around US$550 million is substantially below that reported for the other sectors.

The road projects that Chinese firms have undertaken have been relatively small compared to average project sizes in other sectors, and many of them are financed by grants from the Ministry of Commerce. Indeed, the database recorded only two road projects financed by Chinese sources were larger than US$100 million in size, both of which were in Angola and part of the Ex-Im Bank line of credit provided in 2004. Road building has been an especially important activity in Angola, Botswana and Ethiopia. By far the most active Chinese road construction firm was the China Road and Bridge Corporation (CRBC).

Sudan has granted China’s Sinohydro corporation a US$300 million contract to construct 486 kilometres of roads in the country. The construction is expected to make a significant contribution to improving Sudan’s road transport network in the northern and central parts of the country.

Water and sanitation

Water and sanitation account for a relatively small share of China’s total financial commitments to African infrastructure development. Participation in confirmed projects was about US$120 million, and another estimated US$200 million went into Angola’s water sector as part of the China Ex-Im Bank credit line of 2004. In 2005 a series of water projects for Nigeria was announced.

Most of these projects were smaller scale in nature and more focused on meeting immediate social needs. China’s water supply projects include a number of smaller dams that are not related to hydropower but directly to water supply, in Cape Verde and Mozambique.

10.2. Some Country Case Studies

Angola

China’s involvement in infrastructure finance in Angola began in 2002 – following the conclusion of the civil war – with a series of relatively small projects involving the rehabilitation of rail and power transmission infrastructure and the installation of a new fiber optic link.

It was in 2004 that China substantially scaled up its involvement in Angola with the agreement of a China Ex-Im Bank line of credit to allow the government to repair infrastructure damaged in the country’s 27-year civil war that formally ended in 2002.

The overall size of the line of credit was US$2 billion, however only half of it went toward infrastructure (electricity, roads, water, telecom, and public works), with the other half dedicated to health, education, and fisheries This line of credit was disbursed in two equal installments over the 2004-06 period.

The US$2 billion loan was backed by an agreement to supply China with 10 000 barrels of Angolan crude per day for a period of 17 years. Indeed, this type of natural resourcebacked financing deal (of which this was the first major example) has come to be known as “Angola mode” (Chen, 2007b). The Centre for Chinese Studies at Stellenbosch University indicates that the interest on the loan has been lowered to 0.25 percent from an initial level of over 1 percent, and that the loan has a 3-year grace period and 15-year repayment term (Stellenbosch University 2006).

Tied to the Chinese loan was the agreement that the public tenders for the construction and civil engineering contracts would be awarded primarily (70 percent) to Chinese stateowned enterprises approved by the Chinese government. In response, the China Ex-Im Bank compiled a list of 35 Chinese companies approved by both the bank and the Chinese authorities to tender in Angola.

In September 2007, China Ex-Im bank issued another US$2 billion loan reportedly devoted all to infrastructure needs.

In 2006, Angola also agreed a loan of US$2,9 billion from the China International Fund (CIF) covering general infrastructure development. This has been run under the office of President Dos Santos in what is known as the “Reconstruction Ministry” headed by General Helder Viera “Kopelipa”)

Today over 100 Chinese companies are now active in Angola, with approximately 60 000 Chinese workers employed on different projects there.

Some projects include the following:

  • The China Road and Bridge Corporation (CRBC) has begun rebuilding the national road that links the Angolan city of Uige to Maquela do Zombo. The project, estimated to cost around US$80 million is expected to be completed next year.

Nigeria

China’s engagement in Nigeria amounts to total financing commitments of US$5,4 billion. The initiation of activities dates back to 2002 with the agreement on the first phase of the National Rural Telephony Project (NRPT), when China’s two telecom giants ZTE and Huawei began actively pursuing equipment supply and network rollout projects for both fixed and wireless services in the country.

In March 2002, China Machinery and Equipment Import and Export Company (CMEC) and Shandong Power Construction Company agreed to a $390 million deal with the Nigerian Ministry of Power and Steel to build two gas-fired power plants with a total capacity of 670 megawatts. CMEC President Li Shuzhi said the plants would help ease the electricity shortage in Nigeria and promote economic and trade cooperation between the two countries.

Nigeria’s first loan from the China Ex-Im Bank came in 2005 to support construction of power stations at Papalanto (335 MW), Omotosho (335 MW), and Geregu (138 MW) in Ogun, Ondo,and Kogi states. The construction of Papalanto plant, financing commitments to which we were able to confirm via Chinese sources, was undertaken by Sepco of China while the China Ex-Im Bank agreed to finance US$300 million of the estimated US$400 million construction costs. The deal was oil-backed such that in return CNPC (or PetroChina, which is CNPC’s listed arm) secured a deal to purchase 30 000 barrels of crude oil a day from the Nigerian National Petroleum Corporation (NNPC) for a period of one year, renewable.

In March 2005, the PRC agreed to construct 598 boreholes in 18 of the 37 Nigerian states - including the capital, Abuja – to support the country’s water supply programme. The aim of the free-aid water project was to provide “clean drinkable water to ordinary Nigerians living in out-of-the-way areas.” Nigeria also accepted another offer from the PRC for the construction and rehabilitation of small and large dams currently slated for the National Water Supply Programme and irrigation.

In 2006, there was a substantial scale-up in China Ex-Im Bank financing with almost US$5 billion of projects agreed. These included contributions of US$2,5 billion to a major Lagos- Kano railway upgrading project, contribution of US$1 billion to Abuja Rail Mass Transit project, which involves the construction of a high speed rail link between Lagos and Abuja, as well as a light railway system connecting Murtala Mohammed International Airport and Nmandi Azikwe International Airport with the Lagos and Abuja city centers respectively.

Sudan

Since 2001, China has provided US$1,3 billion to the finance of infrastructure projects in Sudan. The early infrastructure projects were all related to the power sector, beginning with construction of the El Gaili Combined Cycle Power Plant in 2001, and the QarreI thermal station in 2002 (financing for which, however, was not confirmed by Chinese sources). China later financed three substantial thermal generation projects for coal-fired and gas-fired station in Port Sudan, Al-Fulah, and Rabak. Thus, a total of more than 2 200 MW of new thermal generating capacity are being added with Chinese support.

By far the highest-profile power sector project has been the recent completion of the 1 250 MW Merowe dam that began in early 2004. This massive US$1,2 billion hydropower project was the largest international project that China had ever participated in at the time the contracts were signed (although it has now been superseded by the Mambilla hydropower project in Nigeria, which will be more than twice the size).

Financers of the project included the China Ex-Im Bank (US$400 million), the Saudi Fund (US$150 million), BADEA (US$100 million), the Kuwait Fund for Arab Economic Development (US$100 million), and the Abu Dhabi Fund (US$100 million). Chinese company Sinohydro was involved in the construction of the plant, while, Harbin Power Engineering Company and Jilin Province Transmission and Substation Project Company took over the construction of the 1 776 kilometers of transmission lines within the same project.

The government in Khartoum announced that part of the benefits of this dam would be a major increase in the country's electrification rate following much needed investments in distribution. The project has entailed the resettlement of 55 000 to 70 000 residents away from the fertile agricultural areas surrounding the River Nile.

In December 2008, developmental contracts to the value of US$1,5 billion were concluded between Sudan and China. The projects comprise the building of the Al-Fulah 405-MW power station at a cost of US$680 million, construction of the Dongola-Halfa pipeline at a cost of US$120 million and building the Dibaybat-Malakal road at a cost of US$100 million.

10.3. Impact of the Global Recession

China has not entirely escaped the impact of the global recession. It has slashed demand for Chinese exports, resulting in a drop in domestic electricity use and prompting generators such as China Datang to look overseas for expansion.

Large scale industrial projects have been put on hold or abandoned. China’s Sinoma International, for example, recently reached agreement with the Nigerian Dangote Group to suspend a cement project worth US$1,45 billion and cut the size of another in Nigeria by nearly two-thirds. The suspended project involves six cement assembly lines, and the other project involving seven lines was cut from US$1,81 billion to US$ 689,5 million.

Chinese mining projects have been badly affected. Ambitious plans for Guinea Conakry have been put on hold. Plans to develop aluminium mines in Guinea Conakry in exchange for the construction of dams, roads and bridges has been held up by a change in the global economy and a coup in December 2008 which has created political instability and uncertainty.

Wide-scale retrenchments have also taken place at Chinese run mines in countries such as Zambia and DRC due to the slump in cobalt and copper prices.

Chinese investors are delaying plans to conclude a US$3 billion investment in Gabon’s Belinga iron ore deposit. Given the fall in Chinese exports to the US and the EU, major new Chinese investments are under closer scrutiny.

On the positive side for China, declining asset base values of foreign companies have spurred ambitious buyouts of such companies especially in the mining and petroleum sectors. Reports have been received that in exchange for cash injections by Chinese companies – foreign companies have to relinquish part or all their mining concession licenses to the investors.