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- 1. It’s Not Aid, It’s Business! A Case Study of Chinese Enterprise in Kenya Mollie Foust and Kyla Raetz GPPN Conference December 2-3, 2012 Lee Kuan Yew School of Public Policy
- 2. Chinese Aid in Africa
- 3. Chinese Aid in Africa Aid to Africa (2008) 8 7 Aid in billions USD 6 5 4 3 2 1 0 D. Brautigam, The Dragon’s Gift; The Real Story of China in Africa.
- 4. Defining Terms • Profit-driven motivation Business • Capital investments • Promote economic development AND Aid welfare as main objective • Provided as grants or subsidized loans Concessional • Loan by government at interest rate below market value subsidization Loan • China EXIM Bank • 2-3% fixed interest Radelet, Steven. "A Primer on Foreign Aid." Center for Global Development Working Paper 92 (2006): n. pag. Web.
- 5. Chinese Aid in Kenya Neighbors: • Somalia • Ethiopia • South Sudan • Uganda • Tanzania http://www.nationsonline.org/oneworld/kenya.htm
- 6. Chinese Aid in Kenya • Small fraction of total aid • Infrastructure, general economic services • Aid directed through Ministry of Commerce, banks • Concessional loans Onjala, Joseph. “A Scoping Study on China-Africa Economic Relations: The Case of Kenya.” African Economic Research Consortium (AERC). Paper No. SSC_05, 5 Mar. 2008, Nairobi. African Economic Research Consortium. Web.
- 7. Methodology • Exploratory study • 42 companies • Construction, manufacturing /assembly, telecommunicatio ns, real estate, logistics, tourism • Semi-structured interviews • Snowball approach
- 8. Overview of Findings Private:Public Firms 25 20 15 10 5 0 private state-owned government
- 9. Concessional Loans and Partnerships Companies using Concessional Loans Partner Use 17% 15% Do NOT Partner Do NOT Use 83% 85% Partnerships with Kenyan Government
- 10. Concessional Loans 45 40 35 Billions USD 30 25 20 China Exim 15 CDB FDI 10 Engineering 5 0 Concessional Non-concessional Non-concess. Contract (committed) Brautigam, Deborah. "Testimony on China's Growing Role in Africa."United States Senate Committee on Foreign Relations Subcommittee on African Affairs. Washington, DC. 1 Nov. 2011..
- 11. Private and State-Owned Chinese 4.5 Ventures Registered in Kenya per year 4 3.5 3 2.5 # Private Companies 2 # State-Owend Companies 1.5 1 0.5 0 1980s 1990s 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
- 12. Industry Breakdown pharma plastics 2% real-estate 3% 3% service 3% retail 5% trade construction 3% 29% other 3% hospitality 5% logistics 5% communications 5% automotives 8% manufacturing 18% assembly 8%
- 13. Construction is NOT Always Aid
- 14. Reasons for Entering Kenyan Market Trade 3% Government 27% Private Investment 70%
- 15. Region of Planned Expansion 25 Number of Companies 20 Local 15 East Africa West Africa 10 Southern Africa No Information 5 0
- 16. Summary 1. Many Private Firms 2. Few Concessional Loans 3. Wide Range of Industries 4. Establishing Investment (Capital and Infrastructure) 5. Private Investment Drives Initial Venture 6. Diversifying Businesses Business investments, NOT aid
- 17. Good for Kenya • Infrastructure Business • New Markets • Taxes • Tourists • Visas • Exports, Imports
- 18. Policy Implications • Its not aid, its business—FDI rather than Aid • Both Chinese companies and Kenya benefiting • Asian markets strong • Other Asian governments should encourage African investment and FDI
Hinweis der Redaktion
- D Brautigam estimatesoffical Chinese development aid to dispersed Africa at about US $1.0 billion in 2008, and $1.4 billion in 2009. (168) This is out of a total estimated official aid of $3.1 billion.This estimate includes concessional loans, external assistance expenditure, and debt relief, including the cancellation of $3 billion in debt for Africa between 2001 and 2008.Between 2006 and 2009 China’s aid to Africa was scheduled to double, which it did, from an estimated 625$ million to $1.4 billion.
- This is comparison to other major African donors in 2008: US at $7.2 billion, EC $6.0 billion, World Bank $4.1 billion, France $3.4 billion, Germany $2.7 billion, UK $2.6 billion, and Japan $1.6 billion.There also is no single Chinese aid agency or department, like DFID or USAID. Rather, Chinese aid is routed through three main areas: Ministry of Finance external assistance expenditure, China Exim bank concessional loans, and debt relief.
- Foreign aid:OECDFinancial flows, technical assistance, and commodities that areDesigned to promote economic development and welfare as main objectiveProvided as grants or subsidized loansSome of these are concessional/subsidized loans and some are economic development driven, but they are a small portion and it is not welfare driven. A vast majority is FDI.
- Literature usually touts that China is providing “aid” to Africa that is not long-term sustainable for Africa’s future, often involves intensive resource extraction, and is a new type of colonialism. We argue that this is not the case. Chinese companies are not providing AID to Africa at all and to refer to it as such is detrimental to the aid community. These Chinese companies are investing, FDI, and engaging in a free-market economic system that happens to be on their side at the moment.
- % of Chinese aid small in large picture: 9.98% of total in 2005 Most Chinese aid for Physical infrastructure (accounted for nearly 20% of total aid to Kenya in this sector in 2005) Second most Chinese aid for General Economic services (Hydro electric power and Social Administration, nearly 70% of the total aid to Kenya in this sector in 2005)No Chinese NGOs thereNo Chinese aid agency in existenceisdept of foreign aid Aid via the Ministry of commerce, China Exim Bank, China development bank (China Africa Development Fund)Most studies say Chinese go into Africa for resources, but no resources in Kenya
- Mollie Foust and I conducted most of our research through semi-structured interviews, using a list of set questions but allowing ourselves to follow up on responses. This lead to a number of validity concerns. We saw most of our subjects only one time and expected them to represent their entire organization. This could potentially lead to bias, as we had to assume that a) the interviewee was giving us correct and complete information, b) that the interviewee’s personal perspective did not overly influence the information they gave us, c) that the way in which we formatted and asked our questions did not overly bias the interviewee. It is impossible to avoid all bias, but I believe we did fairly well under the circumstances. We collected information from several other sources to corroborate and add to our interview information. These included company documents, news articles, government documents, and, where feasible and applicable, from other interviewees. Foust and I also wanted to make sure that we were not systematically “missing” organizations. We mainly used a “snowball approach” to gather subjects for our interviews, asking companies we already spoke to for the names of other companies and a contact at these companies. This was essential as most companies had little or no online presence in Kenya, no working contact information, and several were located in unmarked buildings. We supplemented the “snowball approach” with web searches, a list of Chinese enterprises from the Chinese Economic and Commercial Counsellors office (thought this list was incomplete, out of date, and had little working contact information), and walking and driving around areas with high Chinese or industrial concentrations. While there was a handful of organizations that refused to be interviewed, did not respond to multiple requests for interviews, or that we know exist but were unable to contact, we feel confident we interviewed the majority of the large Chinese organizational investors in Kenya, and were aware of all of the major Chinese “players”— SOEs, private companies, and individual investors. The organizations we know we missed were very few and were dispersed across industries, reassuring us that we were not systematically missing organizations from one particular field. We also know that there were numerous smaller companies who we did not interview. We chose to only interview large companies—for the reasons listed above, and also for logistical reasons, such as labour, time, budget, and linguistic constraints. Though Foust speaks Swahili and I speak Chinese, some of the smaller private companies had employees who only spoke dialect and were unable or too nervous to speak to us as a result. In the end, while we identified over 160 Chinese enterprises operating in Kenya, we were only able to interview 32 companies. Thus, our research is not a complete survey of Chinese enterprises in Kenya; however, it was never meant to be more than an exploratory study. While our interviews are not comprehensive, by supplementing them with information from the other sources described above I believe that preliminary conclusions about the effect of Chinese enterprises in Kenya can still be drawn. Also, as this is one of the first studies on the Chinese in Kenya, even incomplete information is still adding to knowledge. Finally, Foust and I sought to remove interviewer bias from our transcripts through respondent validation—providing clean and organized copy of our interview notes to the subjects for assessment. We did this despite our fears of censorship because a) we believed it was the best way to remove interviewer bias under the circumstances, and b) we felt by promising to do this at the beginning of our contact with the company, we would find more willing participants in the study and make interviewees feel more relaxed and open about sharing information with us. We received very few minor edits; most of them adding information about specific products or processes not brought up during the interview. The vast majority of organizations were content with our transcripts. These transcripts, all approved by the organizations we spoke to, are now being coded for analysis using the qualitative comparative analysis methodology.
- Private firms are clearly there to earn a profit. Welfare is not their priority and purely business transactions. State-owned firms are more tricky as they could be entering the market on concessional loan agreements so we will investigate that more later.Chinese government defines “state-owned” as a company that has 100% ownership by the government. For the purposes of this study, we classified “state-owned” as a company that has any ownership by the government, as there are typically pressures that come with that regardless of the percentage of ownership.
- First, looked to see how many companies were using concessional loans. Not very many…gives some credence to the fact that these companies are there to do business. To check robustness, looked at those that have ever partnered with the government on a project and results look very similar. We can conclude that it would be very unlikely that companies engaging in aid, even the Chinese definition of aid, would do so outside the concessional loan package AND without partnering with the Kenyan government. “The EXIM Bank gives the Kenyan government good interest rates, but they are limited to $120millionUSD per year for Kenyan loans. Therefore, they cannot fund large projects” CITICEXIM BankConcessional Loans:$11bill since 1995-2009Only for foreign aid loans/concessional loans issued by China EXIM BankBrautigam: loans made by government at interest rate below market rate as indirect way of providing subsidyNon-concessional instruments:China Development Bank made commitments over $10bill and disbursed $5.6bill since 2010China EXIM Bank non-concessional: $13 bill 2007 and extend up to $20bill by 20102010 total FDI from China $2.1bill to Afirca. Stock of FDI $13 billEngineering contracts valued at close to $40bill did not count as FDI or AID because contracts
- Insert chart about the difference between dwarfing of concessional and non-concessional loansEXIM BankConcessional Loans:$11bill since 1995-2009Only for foreign aid loans/concessional loans issued by China EXIM BankBrautigam: loans made by government at interest rate below market rate as indirect way of providing subsidyNon-concessional instruments:China Development Bank made commitments over $10bill and disbursed $5.6bill since 2010China EXIM Bank non-concessional: $13 bill 2007 and extend up to $20bill by 20102010 total FDI from China $2.1bill to Afirca. Stock of FDI $13 billEngineering contracts valued at close to $40bill did not count as FDI or AID because contracts
- 1980s: makes sense to have only state-owned and not many bc china is closed economy1990s: makes sense that no private investment but surge of state-owned bc china opened up economy, explored new markets2000: first private firm on scene. 2001: market research for Go Out policy and then initiated in 2001 in ernest—see jump in both state-owned and privateContinue to have private investment in 20032002: Zouqu: encouraged chinese companies to invest abroad: Go Out policy initiated in 2001 in ernest2006: China’s Year of Africa (geared up before so ready) explains 2005 jump2008: election in Kenya, particularly violent and many many Western companies exited private firms saw market opportunity and jumped at it (state still nervous)2010: continue to be more private investment and state-owned companies get back on board…risk is better managed
- If they were going into aid, they would be investing in agriculture, healthcare, pharma, education, etc. they are not. Construction and infrustructure are often cited as aid and we agree that aid into kenya is in that form, however, the majority of the companies that were in construction were NOT in welfare-producing construction. Most was high-end real estate and the like.
- Chinawuyi is a state-owned chinese company that does do work on concessional loans but they also do things like this nice high-rise building.
- Finally, the most telling indicator of business and enterprising is that 70% respondents said they came to Kenya initially for private investment and trade, not to do government work. Many of them see Kenya as a regional hub because of it’s strategic location
- Trolling for new market opportunities. Not merely looking for additional government loans.
- There for business, There to grow businessShown grow into other industriesChinese govt encouraged this in 2005 with zuoqu, bc market floodedCreating new marketsAuto (only one, state owned)Construction (no Kenyan on scale)Pushed out foreigners not KenyansOnly now as enter in restaurants, safaris, etc are clashing, but really new market bc aimed at Chinese mainlyGood for Kenya bc:Build infrastructure good for businessNumber one complaint of manufacturing, ADB says it’s the main reason to not invest in Kenya. So was holding Kenya back, now local cos can benefit as well as investorsCreating new marketsNew tax, more tourists, more visa fees, more export fees, new products
- Good for Kenya bc:Build infrastructure good for businessNumber one complaint of manufacturing, ADB says it’s the main reason to not invest in Kenya. So was holding Kenya back, now local cos can benefit as well as investorsCreating new marketsNew tax, more tourists, more visa fees, more export fees, new products
- Stop thinking about it as aid!Asia: Post 2008, Asian markets in better situation for growthBy showing this is business not aid, we recommend other Asian gov’t follow lead of Chinese gov’t and encourage their companies to invest in Kenya (and Africa)Can help with concessional loans, expedite visas