Is this a timely advice or a pitch for US Companies?

Speaking at the US Africa business summit that held in Washington DC from June 13 to  16, Wilbur Ross, US Secretary for Commerce made some interesting remarks about the Trump administration’s expectation and trade relationship with Africa. But perhaps the most interesting remarks from Ross at the opening session of the 3-day summit was his statement on how procurement of major infrastructure projects is being handled by African governments.

Speaking on factors that will help foster a mutually beneficial relationship between the US and African governments, he listed four factors; access to markets, recognition of truly international standards, due process in procurement and protection of international property.

However, speaking specifically on procurement, he said “…the way that projects are procured plays a major role in their success. There have been many failed infrastructure projects that can be traced back to the procurement stage. In many countries in Africa, and around the world, for that matter, procurement is decided on the basis of the lowest price. But while many may think they are saving money, we have seen repeatedly that when life cycles and quality factors are not considered in the procurement process, projects frequently face large cost overruns, safety or performance issues and delays. In short, you get what you pay for. In short, low cost procurement has not always been good for Africa, nor has it been good for US companies who tell us they can’t or won’t enter markets where low cost procurement is the norm.”

This statement, of course, got many of the African delegates at the conference looking at each other. The question was if this was a timely and genuine advice being giving to African governments or a side dig at Chinese companies who are now beating American companies to getting all the major infrastructure projects on the continent as African governments seek to develop their infrastructure for their fast growing population.  Africa is hungry for infrastructure and the Chinese have stepped in aggressively to satisfy that hunger with little or no conditions attached. All across Africa, China is helping building railways, airports and factories.

On May 31, Kenya proudly launched a new 470 km Standard Gauge Railway line built and funded by the Chinese replacing an old debilitated railway line built by former colonial masters Britain. The US$3.2 billion project is said to be the country’s biggest infrastructure project since independence. At the commissioning of the project, Uhuru Kenyatta described China as a “true friend.” Thanks to the Chinese, Kenyans can travel comfortably in a modern train, an experience many Kenyans will be having for the first time. Already, Kenya is said to have secured another US$3.6 billion loan to extend the rail line for another 250 kilometres.

 

Nigeria is also having its share of the Chinese goodies. In July 2016, Nigeria commissioned the Abuja to Kaduna railway line, funded and built by the Chinese at an estimated cost of US$1.45 billion. The rail line is Nigeria’s first Standard Gauge Rail and for many Nigerians, represents the first experience traveling by rail. In April, the federal government sought the approval of the national assembly for another US$6 billion from the China Export and Import bank for the modernisation of railway lines across the country. The rail lines will connect several key cities in the North to the South, moving cargo and people easily across the country in a way that has not been done since independence. China has also helped remodernise some of Nigeria’s airports and Chinese companies are prominent in the Nigerian manufacturing sector.

Akinwunmi Adesina, President of the African Development Bank (AfDB), who also spoke at the conference noted that China is now Africa’s largest trading partner. He disclosed that in 2015, Africa’s exports to China stood at US$67 billion, 153 percent higher than Africa’s exports to US in the same year. In the same year, China’s exports to Africa stood at US$102 billion while US exports were US$27 billion or just 26 percent of Chinese exports to Africa.

While there is a trend of an increasing trade relationship between China and Africa, the trend is in the reverse between the US and Africa. While Africa exports to the US has declined from an all time high of US$113 billion in 2008 to US$26.5 billion in 2015 and just US$10 billion between January to August this year. US exports to Africa has also declined from an all time high of US$38 billion in 2014 to US$22 billion in 2016, according to Adesina. In April China promise to set up US$60 billion fund to invest in Africa.

There is no doubt that the relationship between Africa and US is not perfect, like most relationships. But there is also no doubt that Africa and China needs each other. Africa needs modern infrastructure to help drive economic growth and the rising demands of an expanding and young population. Africa youth population is estimated to hit 840 million by 2050. These are youths that will have global expectations in an increasingly interconnected world. Africa needs the infrastructure to meet that expectation.

China looks into the future and sees the potential in Africa’s huge population, a ready market for its excess manufactured products. Household expenditure in Africa is expected to rise by N1.4 trillion in the next three years and business investments are expected to rise by US$3.5 trillion in the next eight years. Chinese companies are positioning to be in a key position to take advantage of these emerging opportunities especially as the Chinese economy looks for outlets for its excess products.

The truth is that Africa is starting from such a low floor that it is really not choosy about quality but cares more about affordability, as any poor man will tell you. In street parlance, they say “a beggar has no choice.” Most African countries are just too poor to choose quality American products over affordable Chinese products. With low capital, Africa is more willing to go for affordability rather than quality and durability. And the Chinese are not only offering products, they are also offering money, and that combination is difficult to resist for hard pressed African governments.

That is something that American companies may need to understand to play on the continent. They do not need to dump down on quality, but they need to understand Africa wants the best but it has to be affordable and that is what the Chinese are offering. And as African delegate pointed out, even in America most products are made in China. So why not Africa?

 

Anthony OsaeBrown