GPPN Conference Proposal

Below find our abstract for the Global Public Policy Network Conference, held December 1st-4th in Singapore. More information about the conference can be found here.

Question: What role can Asian nations play in the changing global order?


It’s Not Aid, It’s Business! A case study of Chinese businesses in Kenya

China does not give aid to Africa; at least not more than other countries and a lot less than most. Between 1950 and 2009, China spent only $38.54 billion on all foreign assistance, 40% of which were interest-free and concessional loans. This amounts to almost the same as the United States provided in 2010 alone (i). Chinese firms in Africa are there to do business, yet the rhetoric surrounding these actions claim China is providing a new type of aid, and not one that promotes development. We interviewed 43 Chinese corporations in Kenya over two months and found this misconception to be particularly salient in the infrastructure and telecommunications sectors. The majority of Chinese-African relationships are business ventures, not aid-related missions, and should be viewed through a purely professional and corporate lens. To conceptualize them as aid and criticize them through that lens is inaccurate and distorts both China and Africa’s objectives. Though many of these Chinese firms incite initial monopolies, they also create markets in sectors previously unable to sustain growth. We posit that as these markets become more developed through Chinese corporate pioneering, the potential for foreign direct investment by other Asian nations will expand exponentially and rapidly increase development and growth throughout Africa. Because of their recent development narratives, Asian firms are uniquely positioned to take advantage of this opportunity. We encourage them to do so, and recommend best practices from our research on effective implementation techniques.

In conjunction with the Institute of Public Affairs at the London School of Economics, we spent two months in Kenya collecting data on Chinese industrial firms in Kenya. After implementing standardized interviewing procedures, we consulted Chinese and Kenyan staff at 43 different companies, the Chinese Embassy in Kenya, as well as numerous Kenyan ministries. Firms varied in their willingness and ability to disclose financial statements, though basic economic and personnel information was obtained from all firms. We are currently compiling this information into a full investment map and profile of 160+ Chinese companies operating in Kenya in conjunction with the Kenyan Ministry of Immigration. This paper is a synthesis of the information we collected.

Infrastructure insufficiencies impede most foreign companies to invest in manufacturing in Kenya—power and water shortages, backlogged ports, poor roads, etc. However, Chinese companies take on these challenges by beginning with the infrastructure issues themselves. In our extensive interviews with CEOs of large Chinese firms, such as Sinohydro, ZTE, Hydrochina Huidong, and China International Trust and Investment Corporation (CITIC), we found many are constructing power stations, telecommunications, roads, ports, and rail lines, hoping to jump-start the economy and increase margins for investments in their initial product lines. By developing infrastructure, these Chinese firms not only grow their own business, but create opportunities for expansion into other businesses as commerce becomes easier. In Kenya, we witnessed firms expanding both regionally—into Sudan, Ethiopia, Uganda, Tanzania—and diversifying—the same construction company opening subsidiaries in real estate, import/export, wine products, restaurants, and safari trips. These new markets are particularly important for Chinese businesses as domestic manufacturing opportunities are beginning to disappear and companies increasingly look outside mainland China to expand and retain high profit margins. This combination of investment and expansion, if done with sensitivity and local cooperation, could offer a new standard for development in Africa, one driven by Asian commercial investment.

Chinese companies’ continuing engagement with Kenya will stimulate Kenya’s medium term development because Chinese state-owned firms have been investing heavily in infrastructure--traditionally a major impediment to African development. A recent study by Buyes et al. found that “an investment of $32 billion (including maintenance) to improve the main intra-African road network alone could generate trade expansion of around $250 billion over a period of 15 years” (ii). This would be good both for local governments and for private enterprise as these developments will allow the Kenyan government to operate more efficiently and create a more stable business environment.

We need to change our paradigm, to stop thinking about the relationship between Africa and China in terms of aid. China is not giving Africa aid—China is giving Africa investment. The Chinese firms working in Kenya are businesses, with the same goals and priorities as market-driven companies across the globe. These Chinese companies are bringing business to Africa, and with it, economic development. Other Asian firms should join this process, for both their own and Africa’s sake. Africa has the fastest growing private sector and consumer market in the world. With Europe, America, and some Asian economies beginning to slow, Asian companies have an opportunity to play a vital role in the new global world order—spurring development not through aid, but through commerce and trade.

(i) http://www.guardian.co.uk/global-development/2011/apr/28/china-foreign-aid-policy-report
(ii) http://www.policymic.com/articles/8002/africa-s-economy-surges-as-middle-class-grows-can-free-markets-meet-demand