China’s mighty telecom footprint in Africa

 

China plays a major role financing and supplying telecom and ICT equipment to Africa, a precondition for eLearning. Chinese companies have broken the monopoly of Western telecom giants in Africa, helped to bring down charges and contributed to the triumphal success of mobile phones on the continent. They have also donated educational communications hardware worth millions of dollars. However, China’s engagement has attracted mixed reactions.

By Andrea Marshall

China’s influence in Africa has been expanding dramatically, and it is very noticeable: New railways, roads, airports, hospitals, schools or stadiums have been built across the Continent with help from China. Beijing says in 2010 bilateral trade with Africa increased by 43.5 per cent compared to 2009, a record US$ 114.8 billion making China into Africa’s biggest trading partner.

However, the trade is described as asymmetric. In 2010 crude oil formed 70 per cent of all Africa’s exports to China, with another 15 per cent of exports being raw materials, according to African Development Bank figures.

In the African ICT and telecom sector, China‘s contribution generally takes the form of equipment supply to national firms. China has in many African countries built a new national backbone infrastructure, for example in Ethiopia, Ghana or Angola.

The two Chinese telecom powerhouses: Huawei & ZTE

The two major Chinese players in this field are equipment manufacturers Huawei Technologies and ZTE (Zhongxing Telecommunications Equipment Corporation). In 2010, they were active in 50 African countries, providing communications services for over 300 million African users, writes Zhang Zhongxiang, a research fellow at the Shanghai Institute for International Studies. According to him, the two Chinese firms have established more than 40 third-generation telecom networks in more than 30 African countries and built national fiber-optic communications networks and e-government networks for more than 20 African countries.

[callout title=Huawei in Africa]

… is a private Chinese firm founded in 1988 in Longgang District, Shenzhen, Guangdong, employing several thousand employees across the African continent*, 65% of them locals (says Huawei)

32 offices from Cairo to Johannesburg, 2 R&D centers, 6 training offices, 12,000 local engineers have been trained so far

*figures vary between 2,500 and 4,000. (Sources: Huawei.com.cn, “China Report” by Zhang Zhongxiang, Lin Sun interview).[/callout]

Huawei, whose name can be translated from Chinese as ‘China Can’, is the largest telecom equipment manufacturer and network solutions provider in China and the third-largest in the world. State-owned ZTE is the second in China and the fifth largest in the world, according to Dr Lin Sun, a veteran telecom industry consultant with 25 years of experience, now based in Beijing.

Lin Sun says Africa accounts for about 12 to 13 per cent of Huawei’s revenue (about US$ 3.5 billion from Africa, 2010). For ZTE, Africa sales make up a slightly lower proportion at about 11 per cent or US$ 1 billion (in 2009 – figures for 2010 have not been released yet). Annual sales of mobile phones in the region is about US$ 4 to 5 billion a year with an estimated growth rate about 15 per cent.

A third, less prominent player is ASB (Alcatel Shanghai Bell), a mixed private-public French-Chinese joint venture.

[callout title=ZTE in Africa]

(state-owned) 1,000 employees, 63% of whom are Africans (says ZTE), representatives in nearly 50 African countries

1 training center and 15 training bases in Africa, providing training for 4500 Africans annually

(Source: zte.com.cn).[/callout]

Market strategies

The key market strategy of the Chinese companies seems to be their competitive pricing, tailor-made for cash-stricken African countries.

Huawei’s former head of operations in West Africa, Wilson Yang, quoted in a case study on the company by the University of Pennsylvania Wharton School in 2009, says that Huawei manages to achieve tremendous margins while still pricing itself only 5 to 15 per cent lower than its major international competitors, Ericsson and Nokia. ZTE prices 30 to 40 per cent below European competitors.

Another factor for Huawei’s success in Africa is its superior customer service with unparalleled responsiveness of management and personnel, according to the study.

China is also an emerging financier in Africa. Some deals involve inter-governmental financing tied to the purchase of Chinese equipment. State-owned Chinese banks provide loans on condition that African governments buy equipment and services only from Chinese companies. Telecom expert Lin Sun, however, told eLearning Africa that most Chinese financing is not a subsidy from the Chinese government but comes from the vendors or vendor-guaranteed loans, up to US$ 5 billion a year: “This is not additional ‘investment’ but often part of sales term to help pay off the balance.”

He points out that Chinese firms are taking on big risks in Africa: “There have been cases where customers defaulted payment for projects which caused financial loss to vendors.”

For a growing number of infrastructure loans the Chinese Export-Import (Ex-Im) Bank is using a deal structure known as “Angola mode”, in which payment is made in natural resources (Foster/World Bank 2009).

Analysts also point out that China’s engagement is attractive for African governments because China does not attach political conditions to its economic relations – unlike Western countries or international organisations such as the International Monetary Fund or the World Bank, as shown in the example of Angola below. He Wenping, director of African studies at the Institute of West Asian and African Studies in Beijing, told the British Guardian: “African countries […] like that the Chinese are less critical of their internal political affairs and there’s less bureaucracy, so projects and deals are executed a lot faster.”

The “no strings” policy has raised concerns that it may increase corruption levels and create human rights issues (Columbia School 2008). Some critics argue that China is engaging with conflict-ridden African nations and teaming up with dictatorial regimes like Sudan (IDE 2009). Some say China ‘buys’ African governments by setting up prestige projects.

Chinese technology and learning

China does not seem to systematically support technology-enhanced learning and training in Africa but equipment donations worth millions have been reported. Huawei for example recently donated educational communications equipment to three universities in Ghana (see below).

The company also established six regional centres in South Africa, Nigeria, Kenya, Egypt, Tunisia and Angola to provide technical training for up to 2,000 local people annually. Similarly, ZTE has been training a considerable number of Africans.

China’s government underlines that Chinese enterprises have helped to set up “friendship schools” promoting elementary education in 300 villages in Nigeria. Schools have also been set up in other African countries such as Angola, Uganda, Tanzania, Ghana and others.

Although there is no firm information, it can be assumed that hundreds, if not thousands of African students, professionals and officials have been trained in China.

Why does China engage in Africa?

The Chinese government and its state-controlled media stress the mutual benefits of Sino-African win-win deals which are seen as “a South-South cooperation between developing countries”, according to the Forum on China-Africa Cooperation (FOCAC).

In Lin Sun’s opinion, China’s increased activity in Africa is mainly a response to business opportunity: “Huawei is a private firm and hence very much profit driven, ZTE is government owned, but it is publicly traded so revenue and profit are top priority.”

“On the other hand, some of their activity is supported by government banks which may be seen as a sign that either the government or the firms intend to control regional infrastructure. But I would say it is a stretch.”

Other analysts stress that the reasons for China’s increasing engagement in Africa stems from its global economic strategy and international political objectives, particularly its huge demand for energy, minerals and resources.

“More than anything else, China wants unrestrained access to Africa’s natural resources, while gaining a sphere of influence in Africa and the developing world as a whole,” writes Peter J. Brown (November 2009). “Employment opportunities for its huge population – estimates of the total number of Chinese now working in Africa point to as many as 1 million – and preferential access to markets especially for cheaply produced goods are also part of China’s game plan.”

The September 2009 Japanese External Trade Organization report claims “there are important military and security considerations linked to China’s penetration of the African telecommunications market.”

Effects of the Chinese engagement

Chinese engagement in Africa seems to give many a sense of immediate and true progress – projects get implemented quickly, at a large scale, and often people benefit directly, be it from improved mobile phone services, from new hospitals or from railways.

A report of the Columbia School of International and Public Affairs (2008) came to the conclusion that the country’s engagement in the African telecommunications infrastructure has accelerated general development “to a degree that would otherwise have been impossible”. According to the Africa Infrastructure Country Diagnostic, a World Bank programme, telecom improvements have contributed as much as one per cent to per capita GDP growth – a bigger role than changes in monetary or fiscal policies. Calestous Juma, a Harvard professor born in Kenya, argues that China is helping technology transfer and higher technological education, as well as re-establishing Africa as a source of valuable commodities for the global market.

However, China is accused of failing to create local jobs, flooding markets with poor quality goods, devastating local industries, securing contracts through outright bribery and turning a blind eye to human rights abuses in countries such as oil-rich Sudan or diamond-rich Zimbabwe. George Ayittey, a Ghanaian economist at the American University in Washington, says China’s increased engagement in Africa “has impeded the Continent’s halting steps towards democratic accountability and better governance.” (Economist, February 22, 2010)

The heavy volume of concessionary loans from China is a cause of concern for Sanou Mbaye, a former member of the African Development Bank who fears the effect of a growing debt burden. The former president of South Africa, Thabo Mbeki, has warned of a “new form of neo-colonialist adventure” (News Africa, March 2007).

In addition, concerns about Chinese companies bringing Chinese labour to work in Africa have been raised as well as objections regarding the work conditions of African workers, especially in the Chinese-run mining sector. Scholars from the South African Stellenbosch University conclude that these reports “may to a degree be anecdotal evidence with little substance… [but] there is no doubt that there is room for great improvement” regarding the employment, training and fair treatment of local workers in Chinese firms across the African Continent.

 

Engagement in selected African countries

With China’s activities in the African ICT sector being highly diverse, it is difficult to identify a specific geographical focus for this particular sector.

Spotlight on…Ethiopia

Ethiopia ranks among the very poorest countries on earth yet it has made a huge effort to expand its telecommunications network – with the help of China.

The Ethiopia Millenium Project has been described as “the largest telecommunications project [by China in Africa] by far” (Foster 2008). The Chinese government and banks provided US$ 1.5 billion (!) in loans according to the state-run Chinese news agency Xinhua quoting the Ethiopian Prime Minister Meles Zenawi in January 2009.

In 2006–07 China had agreed to provide financing for the project to create a fibre-optic
transmission backbone across the country and expand the cellular GSM network, with an estimated 8.5 million new connections. According to a World Bank report, the project was being financed under export seller’s credit arrangements. It was mainly undertaken by the Chinese firm ZTE.

Some Ethiopian experts have expressed scepticism, saying that the project is short sighted. In an interview with eLearning Africa, Professor Alemayehu Geda from the Department of Economics at the University of Addis Ababa warned about the long-run operational costs and lack of genuine technology transfer to the Ethiopian experts.

“Ethiopia’s telecom sector depends on China’s technology. China has the monopoly to deliver spare parts and after sales services for years to come.” He stresses the need to upgrade the skills of local workers and officials both in negotiation and technical handling of the industry.

 

Spotlight on…Angola

A country stricken by 27 years of civil war, Angola provided the first major example of what has since been called the “Angola mode”: In 2004, the China’s Ex-Im Bank extended a US$ 2 billion credit line to the country, backed by an agreement to supply China with 10,000 barrels a day of Angolan crude oil.

This deal came at a crucial time – “after lengthy negotiations with the International Monetary Fund collapsed when Angola expressed its dissatisfaction with the policy reform programmes required as preconditions for financial aid,” a report by the South African Stellenbosch University (2010) says.

In the telecom sector, Chinese ZTE entered the country in 2004 on a deal with Angola’s fixed line utility, Mundo Startel. In 2008 ZTE assumed the management of state-owned mobile operator Movicel. Huawei set up the national backbone for Angola’s operators in wireless technology and fourth generation network with funding from China’s Ex-Im Bank. Huawei has also invested US$ 7 million into the Universidade de Telecomunicações and has built the new Telecom Technical Training Centre.

 

Spotlight on…Tanzania

Although there are no reliable figures available, some reports say that former socialist Tanzania is among the primary recipients of Chinese foreign direct investment.

The Tanzanian government reportedly signed a US$ 170 million contract with a Chinese vendor to lay the country’s 10,674-kilometre national fibre optic backbone, under construction since the beginning of 2009. The second phase has been financed by a US$ 100-million concessional loan of the Chinese Exim Bank, according to the Chinese government (April 2010).

The completion of the first phase closed a significant gap in the East African fibre ring, connecting to the SEACOM, TEAMS and EASSy submarine cables and running from Kenya through Uganda, Rwanda and Burundi to Dar es Salaam, Tanzania. During the ongoing second phase, Tanzanian towns and cities are being connected to the neighbouring countries of Zambia and Malawi.

The backbone which is hoped to be completed by the end of 2011 is expected to lower the communication costs between Tanzania and the rest of the world as well as promote e-government, e-learning, e-health, e-commerce, economic growth and development of science and technology.

The Tanzanian Minister for Communications, Science and Technology, Makame Mnyaa Barawa, pointed out that the backbone project aims at connecting about 128 higher learning institutions, over 6,000 secondary schools and over 52,000 primary schools when fully operational.

 

Spotlight on…Uganda

China has been implementing a large scale telecommunications project in Uganda since 2006/2007, connecting all Ugandan ministries to an e-government network, establishing a government data centre and connecting 28 Ugandan districts to the national ICT backbone (Stellenbosch University 2010).

The first three phases – US$ 106 million – are covered by concessional loans from China’s Export Import Bank and being implemented by Huawei. Phase four, connecting the war-torn region of Northern Uganda, will be financed mainly by China but also by the World Bank and other donors.

The authors of the Stellenbosch report conclude: “Currently, the use of the Huawei constructed ICT backbone is limited to government departments, but its utility and development impact is expected to increase as it is expanded outside government buildings to provide internet capacity also to businesses and households. At the time of the field research, a process was ongoing to find a suitable company that can manage the process of extending the use of the ICT backbone also to the private sector.”

However, questions about the implementation and the quality of the 2,500 kilometre fibre optic cable used for Uganda’s Internet backbone infrastructure have been raised. The Ugandan parliamentary committee on ICT reportedly found that the bandwidth per fibre was too small.

 

Spotlight on…Ghana

Ghana’s President John Evans Atta Mills’ visit to China in September 2010 procured the largest proposed development assistance – a multi-billion dollar package, according to the Ghanaian government website. It includes a loan of US$ 150 million for Ghana’s e-governance project which is being implemented by Huawei.

Huawei itself gave a donation of US$ 1 million worth of telecommunication equipment for the University of Ghana, Legon, the Kwame Nkrumah University of Science and Technology and the University of Cape Coast; US$ 3 million video conferencing equipment and a Strategic Partnership.

The other parts of the package cover natural resources and infrastructure projects, as reported by the Ghana News Agency: US$ 3 billion from the Chinese Government through the China Development Bank for the oil and gas industries with an additional preferential buyers’ credit of US$ 260 million for the a water works project. In addition, the China Ex-Im Bank is giving a US$ 10 billion concessionary loan for the development of the railway system. The Chinese private sector is reported to have promised additional US$ 10 million. The Bosai Minerals Group Company Limited is assisting with US$ 1.2 billion to revamp Ghana’s bauxite and aluminium industries.

 

Spotlight on…Northern Africa

In September 2009, Libya’s General Posts and Telecom Corporation signed two contracts with Huawei and ZTE. One was to expand CDMA WLL networks in nine cities including Tripoli to 800,000 phone lines and mid-speed Internet access. The other was a GSM network for 100,000 users. In 2008, ZTE sold WiMax equipment to Libya, the first commercial WiMax network in Africa, covering eight cities.

In Tunisia, ZTE set up two WCDMA networks in Tunis and Sousse in 2004 – the first Third Generation (3G) network in Africa. In Algeria, Huawei built a 3G network and ZTE a CDMA WLL network.

 

Spotlight on…Nigeria & other Countries

In 2004, Huawei won a US$ 80 million contract with Vmobile in Nigeria for a GSM network. In 2005, Nigeria signed with Huawei and ZTE for a CDMA 450 network and national agriculture network totaling nearly US$ 100 million. Huawei opened a new Technology Support Centre in Nigeria and expanded its training centre for Western Africa in the capital Abuja, constituting a US$ 10 million investment.

In October 2010 Huawei signed a deal worth US$ 40 million with MTN Nigeria for the deployment of rural telephony infrastructure in 350 villages across the country.

Huawei has also built a national IN (intelligent network) in Kenya and is a long-term supplier for operators like Telone, Netone, Telecel and Africom in Zimbabwe.

 

China, India and Japan in Africa

India and Japan have appeared on the scene.

India is setting up a pan-African e-government network to link public administrations in all 53 African countries. Zambia, Ethiopia, Ghana and Mauritius have signed agreements, according to a report by Edris Kisambira (October 2010).

Japan is striving to develop telecom sectors in Southern and Eastern African countries by providing financial and human resources that will create opportunities for Japanese firms, writes Michael Malakata (January 2011).

In Lin Sun’s opinion, China will remain a strong player in Africa because India’s hardware has not been as competitive and Japan is suffering a long economic recession.

But who knows? The battle for the African telecom market may just have begun.

 

References & further reading

African Development Bank Group Chief Economist Complex (July 29, 2010), Chinese Trade and Investment Activities in Africa. Policy Brief Vol. 1, Issue 4. 
www.afdb.org/[…]

Brown, Peter J. (November 18, 2009), China’s phone firms help Africa go mobile. Asia Times.
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Columbia School of International and Public Affairs (2008), China and ICT Investment in Africa. 
www.columbia.edui[…]

The Economist Debate (February 22, 2010), Africa and China. 
www.economist.com/[…]

Foster, Vivien et al (2009), Building Bridges. China’s Growing Role as Infrastructure Financier for Sub-Saharan Africa. World Bank, Washington. Vivien Foster is lead economist in the Sustainable Development Department of the World Bank’s Africa Region.
http://siteresources.worldbank.org/[…]

Foster, Vivien et al (October 2008), China’s emerging role in Africa. Gridlines No. 42.
www.ppiaf.org/[…]

IDE Japan External Trade Organization, Institute of Developing Economies (September 2009) China in Africa.
www.ide.go.jp/[…]

Information Office of the China State Council (December 23, 2010), China-Africa Economic and Trade Cooperation White Paper.
http://news.xinhuanet.com/[…]

Kisambira, Edris (October 28, 2010), Conditional loans raise China’s telecom sales to Africa. IDG News Service.
http://news.idg.no/[…]

Malakata, Michael (January 25, 2011),  Japan, China battle for African telecom investments. Computerworld Africa.
http://computerworld.co.ug/[…]

Smith, David (December 23, 2010), China says booming trade with Africa is transforming the Continent. The Guardian.
www.guardian.co.uk/[…]

University of Stellenbosch, Centre for Chinese Studies (January 2010), Evaluating China’s FOCAC commitments to Africa and mapping the way ahead. Report prepared for the Rockefeller Foundation.
www.ccs.org.za/[…]

United Nations Development Program (November 9, 2010), UNDP, China to boost their partnership on Africa. 
www.undp.org

University of Pennsylvania Wharton School (April 20, 2009), Huawei Technologies: A Chinese Trail Blazer in Africa. 
http://knowledge.wharton.upenn.edu/[…]

Zhang Zhongxiang (January 3, 2011), Developing a Mindset of Corporate Consciousness. China Report Vol. 3. 
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eLearning Africa interviews with Dr Lin Sun, veteran telecom industry consultant, Beijing, and Alemayehu Geda, Professor of Economics, University of Addis Ababa, Ethiopia