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Chinese FDI in Africa

Penny Brooks

15th May 2014

Here is a quick note about a news item which provides some excellent evidence of inward FDI in Africa, Chinese investment in access to commodities, and the costs and benefits for an LEDC of overseas investment.

China is providing 90% of the finance needed to build a new railway line in East Africa, with the first phase to run from Mombasa to Nairobi and later stages to extend via Uganda to Rwanda and South Sudan.

A great way to help those countries overcome the constraints of lacking the infrastructure to give them efficient access to ports and therefore to overseas markets for their goods.

Construction work on the standard gauge line is expected to start in October this year, and the 610 km (380-mile) stretch from the coast to Nairobi is due to be finished in early 2018 (so rather faster than the construction of HS2...). This will cost $3.8bn, and Reuters have reported that Kenyan President Uhuru Kenyatta has said the new link should cut the cost of sending a tonne of freight one kilometre from 20 US cents to eight. The Kenyan government only has to provide 10% of the finance, in order to gain this benefit, as well as the advantages of a more mobile population.

However, here is the downside.

The construction work is to be carried out by a Chinese firm. A subsidiary of China Communications Construction Co has been named as the main contractor. Although Reuters report that China's premier has told a news conference that they will ensure that African labourers are trained and employed, in the past and in similar projects, construction has often relied on imported Chinese labour and is more keen on sucking in African raw materials to China than passing on skills. In this case, there has been widespread criticism that there was no competitive tendering for the work.

Kenyan officials said there was no public bidding because that was a condition of securing Chinese financing - again, a useful example of one of the disadvantages that countries can face when they seek to encourage inward FDI in order to boost their growth and development.

There is nothing new here, however. The new railway will replace a rickety narrow gauge line built at the end of the nineteenth century - during British colonial rule, and by British contractors. And the labour used then was imported, mainly Indian workers brought in from another part of the empire.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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