China's phone firms help Africa go mobile
By Peter J Brown
The sheer scale of China's involvement in Africa overshadows the country's
role, led by the likes of Huawei Technologies and ZTE Corp, in also putting the
advantages of a modern mobile-phone network into the hands of the great African
public.
Premier Wen Jiabao, at a meeting of the Forum on China-Africa Cooperation in
Egypt this month, pledged US$10 billion in new low-interest loans to African
countries, while the Asian giant's investment in infrastructure, commodities
and other projects surged 77% in the first three quarters of this year,
according to Associated Press, citing Wen.
In a recent interview, China's Vice Minister of Commerce Chen Jian said that
Chinese-African trade volume reached $106.8 billion
in 2008, and that China's total direct investment in the continent reached $7.8
billion by the end of 2008, while another $875 million has been invested so far
this year.
While big-scale projects and loans grab the headlines, China's response to
Africa's demand for cell phones is hardly less impressive or needed - despite a
worldwide surge in cell phone usage, fewer than three out of every 10 Africans,
fewer than 300 million people, own a cell phone as opposed to roughly eight out
of every 10 people in North America and nine out of 10 in Europe.
Three Chinese telecommunications companies, Huawei, ZTE and Alcatel-Lucent
Shanghai Bell Ltd Co (ASB) are a growing presence in the in Africa. ASB is
listed as Paris-based Alcatel-Lucent's flagship Chinese company -
Alcatel-Lucent owns a majority stake - but ASB is "directly managed by China's
State-owned Assets Supervision and Administration Commission of the State
Council, and is the first foreign-invested company limited by shares in
telecommunications industry in China", according to a company press release.
Europe and Asia account for roughly 65% of Huawei's overseas sales, while
Africa, the Middle East, and South and Central America account for 30%,
estimates Lin Sun, a Beijing-based telecom industry consultant.
Last year, Huawei and ZTE had combined sales in Africa between $2 billion and
$3 billion, says Sun. ZTE's operations in Africa are considerably smaller than
Huawei's, but it is a fast growing company.
"ZTE's advantage is that it offers handsets in addition to network equipment,
and the company expects to sell more affordable handsets in the region soon,"
said Sun. "Many African countries have shifted gears to specifically accelerate
mobile communications, which is more cost effective to build than traditional
fixed access."
ASB has been active in Africa for about a decade and had considerable success
early on in Angola, Ghana, and Nigeria. In 2003, the company started building
Ghana's nationwide telecom network, and the project's $150 million price tag
made it the largest telecom contract awarded to a Chinese company in Africa.
The following year, the Export-Import Bank of China provided ASB with a loan
package of more than US$60 million to help boost sales overseas. This type of
Chinese government support continues today, often on a much grander scale. Last
March, the China Development Bank said it would provide ZTE with a $15 billion
credit line, "including ZTE’s overseas project financing and ZTE’s credit
limits," as part of a "five-year cooperation framework agreement".
Such solid financial support helps to ensure that Chinese telecom companies
will enjoy future success in Africa. However, according to Sun, what really
makes a difference is their "bare-bones" pricing.
"Typically, Chinese companies bid their price at 30-40% below rivals in order
to win projects. It is no longer a secret: costs for product development,
including research and development (R&D), manufacturing, distribution and
sales are generally lower at Chinese companies than their Western
counterparts," wrote Sun in an overview he prepared for the International
Telecommunications Union's Africa Summit last year.
"Fair or not, the Chinese companies are able to transfer savings in labor and
other resources to low price and use it as leverage in emerging markets like
Africa."
Huawei deserves credit for not only elevating its customer service to the
highest priority, but also for being very careful about its pricing strategy in
the region, too.
"According to the former head of Huawei's operations in West Africa, Wilson
Yang, Huawei's profit margins in Africa can be up to 10 times greater than
those it realizes in China. Huawei manages to achieve tremendous margins while
still pricing itself only 5%-15% lower than its major international
competitors, Ericsson and Nokia.
"Furthermore, Huawei is cautious not to price itself too low so that it will
not be seen as yet another low-cost Chinese provider. In contrast, Huawei's
main Chinese competitor in Africa, ZTE, consistently prices 30%-40% below
European competitors and, consequently, its products are perceived as being of
inferior quality," wrote the authors of an April 2009 study entitled, "Huawei
Technologies: A Chinese Trail Blazer in Africa". [1]
Among other things, US-based IBM "helped Huawei learn the importance of turning
R&D into cash and of approaching product development from both technical
and business angles to ensure investment returns. This represented the
transition for Huawei from a low-cost volume competitor to a value-added
leading enterprise," said the report.
Huawei operates 32 offices and service centers stretching from Cairo to
Johannesburg, and it has between 1,500 and 2,000 local employees in Africa,
along with more than a 1,000 Chinese employees. Huawei also has training
centers in Nigeria, Kenya, Egypt and Tunisia to assist local engineers and
customers.
"Contracts last several years, so interruptions due to a change of regime or
unexpected events like wars, social unrest or change of priority in the country
are not uncommon," said Sun. "In some cases, projects were postponed or
suspended due to treacherous weather, natural disaster or political turmoil. At
least one Chinese employee died in 2007 while working in Kenya," said Sun.
Maintaining communications and establishing trust with local staff and
customers can also be a challenge. Language barriers loom large. This can
complicate efforts to maintain local operations.
"Africa is different from other markets where Chinese companies typically use
local managers to run operations. Most local people there do not speak English,
and they lack basic training in technology and products," said Sun. "To ensure
smooth operations, Chinese companies often have to assign large numbers of
employees on site for months at a time to oversee network installation and
testing. This adds strain to employee morale as they have to be apart from
their families for long periods of time."
Mark Schroeder, director of Sub-Sahara Africa analysis at Texas-based STRATFOR,
a global intelligence company, describes the Chinese government as quite
consistent with respect to its strategy there, and yet China's aid and loan
programs are very flexible.
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. 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.
"Although its aid and loan programs are aimed to support its strategic
imperatives, China, however, is not a monolith. As more and more state-owned
enterprises are sold [in share sales to the public] and face international
competition, they tend to take their own interests into account. Often these
interests coincide with the Chinese government, but not necessarily," said
Schroeder.
Above all else, the relationship between African countries and China is quite
pragmatic, according to Professor Calestous Juma, an expert on the practice of
international development, and director of the Science, Technology and
Globalization Project at Harvard University's Belfer Center for Science and
International Affairs.
"African countries are not operating on the basis of any rules. First, they
have natural resources that China is interested in. Second, China serves as a
role model for them on how a developing country can transform its economy over
a short period," said Juma. "More importantly, China seems to be paying
particular attention to their interest in infrastructure and training in the
engineering sciences."
There is not much sign of recent change with respect to China's broad array of
foreign aid programs in the region, according to Deborah Brautigam, associate
professor at American University's School of International Service in
Washington, DC, and the author of a new book, The Dragon's Gift: the Real Story
of China in Africa, which will be out later this year.
"As with many aspects of Chinese policy, much is experimental. However, the
current strategy has been underway since the mid-1990s, with some adjustments
along the way," she said, adding that the biggest challenges facing Chinese
telecom companies in Africa today are the same ones that all Chinese companies
encountered from the start.
"They are finding out that expectations for corporate social responsibility are
higher than they had thought. But the biggest challenges are still the same
that face other companies: dealing with corruption, poor infrastructure,
unskilled local manpower, and so on."
Subtle shifts in attitudes there can be detected.
"China has been engaged in Africa for several decades. In most countries, like
Tanzania, for example, this new increase builds on these solid foundations.
There is a plurality of voices in countries like South Africa or Zambia, some
positive, others critical," said Brautigam. "[There are] lots of worries about
competition in manufacturing and the increase in small-scale Chinese traders,
low labor standards, and the export of substandard goods. These issues
regarding China were hardly raised before 2005 or 2006."
If one gets the idea here that the Chinese government is not effectively
addressing the need for change in its dealings with specific countries in
Africa, well, think again.
"Their goal is to maintain political ties while increasing trade and
investment. It has been a success, and they regard it as successful. Trade last
year was over $100 billion and investment has been up sharply. They won Malawi
away from Taiwan. They have a long term perspective," said Brautigam.
According to Juma, China is closely monitoring reactions to its policies and
has expressed a clear interest in adjusting its policies based on the needs of
its partners.
"The best test will be the extent to which China starts to work with a broader
range of African development partners," said Juma. "It is not just China that
needs to learn from others; the Western world should also learn from China,
especially on priority areas such as infrastructure and engineering education
that draw African countries to China."
At the same time, the scale of the telecom development work underway in Africa
by Chinese telecom companies in general might be transformed into a two-edged
sword for China. In other words, given the constant allegations of corruption
involving African government officials and despite China's efforts to end the
practice - even going so far as to execute Chinese officials who have been
found guilty of engaging in corrupt practices at home - the Chinese telecom
expansion involves a certain degree of risk in terms of helping to spread
popular discontent as well as anti-Chinese sentiment.
"China and its companies have faced some blowback in several African countries.
Chinese agreements [involving access to natural resources], construction, and
other operations are often accused of not benefiting local Africans," said
Schroeder. "If Chinese telecom companies elect to operate in a similar fashion
as some Chinese resource and construction firms, then they could face the same
blowback."
Schroeder points to the fact that 60% or more of Huawei’s workforce in Africa
is local, and that China has started building schools and soccer stadiums to
benefit local populations as proof that this important message is getting
through.
"The Chinese are quick to adapt to these concerns. They have realized that
pleasing the government by building its palaces, political party office towers,
or by other means, may not be sufficient to protect their interests in Africa,"
said Schroeder. "Beijing is sensitive to anti-Chinese reactions in such a way
that they can adapt their behavior, trying to minimize the possibility that
unfriendly attitudes can be transformed into hostile actions."
China has the ability to fit telecom infrastructure expansion in Africa neatly
together with other public sector transport and power infrastructure projects
in many countries, so that any immediate sense of true progress is magnified
considerably.
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