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A Study On The Impact of China's Investments in Africa
A Study On The Impact of China's Investments in Africa
A Study On The Impact of China's Investments in Africa
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Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(5):529-537 (ISSN:2141-7024)
between China Central Telecoms and Kenya According to Pere (2006), Chinese development is
Broadcasting Corporation. (Nairobi Star, East Africa not a zero-sum game and so the policy statements
22 April 2011,) express six themes, namely;
1). China is a peace-loving nation and opposes the
Chinese electronic company AUCMA has set up a use of force in international disputes, with the
television assembly factory in Kenya with a Sh117 exception of Taiwan.
million investment. The facility has the capacity to 2). China is a developing country, and pursues unity
assemble 800 television sets per day and employs 52 with the third world countries
people. The two countries have signed two technical 3). China is co-operative in international affairs, and
and economic co-operation agreements to support supportive of international organizations and
economic recovery programmes under the Ministry international treaties.
of Planning and National Development. 4). Chinese foreign policy is independent and
autonomous
It is the aim of this paper to assess the impact of 5). China is an aspiring great power with growing
Chinas Investment, economic and developments national strength and rising international status.
activities in Africa by focusing on a single African 6). China pursues people-centered (or put people
country: The studys specific objectives are as first) development and policies (Xiaoxing 2005).
follows;
i. To examine the type of investments being China Africa Relation
made in Kenya by china China was attracted to Africa as early as the Tang
ii. To examine China Kenya trade relations dynasty (A.D. 618 907) and the 19 century reports
iii. Identify features and significance of Chinese of the meat-eating, ivory exporting people of bophali
aid to Kenya who are the inhabitants of the now modern Kenya or
iv. To identify China-Kenya military relations Tanzania confirms this (Rotberg, 2008). It is in the
15th century that China started its first certain direct
Research Hypothesis involvement with Africa. Since then China and
Chinas investment in Africa aims at Africa have enriched each other intellectually,
achieving tangible developmental results culturally and commercially, but still there are
and the conditionality are suitable for questions as to whether Chinas promises to do more
African countries. for economic growth and poverty alleviation more
than Western nations will bear results. Chinas goals
Research Question are ideological as well as material. It is not in
What is the impact of China-Kenyas competition with United States or Europe for Africa
relation in terms of, investment, trade and or to score in the ongoing battle for global hegemony.
aid? Diplomatically China has established embassies in 38
of Sub-Saharan Africas 48 countries and exchanged
Sub-Research Questions military attaches with African nations (ibid.). There
What is the composition of Chinas FDI in are also scholarships available for study in China for
Kenya? African students.
What are the major exports from China?
What type of aid does Kenya receive from China and Africas shared reliance on one another
China? can be evidenced in Beijing Summit of the Forum on
China-Africa Cooperation (FOCAC) which is held
Chinas Foreign Policy every third year. In 2006 the summit included the
Since the founding of the peoples republic of China heads of state, government officials and
in 1950, Chinese leadership has wrestled with the representatives from forty eight African countries. As
dilemmas of the need to restore the country to its of 2007, President Hu Jintao had paid five visits to
historical standing as a leading power against the the continent- twice as vice president and three times
milieu of its own development challenges. According as president (ibid).
to Alden (2007) in 1978, the new leader Deng
Xiaoping set China on a gradual capitalist oriented According to Li Anshan as cited by Rotberg 2008)
development road which produced three decades of Chinas African policy can be divided into three
double digit growth with income per capita of US$1, periods, namely;
700 in 2005 Alden continues to state that the 1). 19491977: a period of normal development;
approach to foreign policy was based on the 2). 19781994: a transitional period; and
following: - observe calmly, secure our position. 3). 1995 to date: as a period of rapid development
Hide our capabilities and bide our time. Be good at Within these periods there has been gradual shift in
maintaining a low profile, never claim leadership. Chinese policy towards economic development
which was followed later by new foreign policy of
independence, peace and development. After the
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Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(5):529-537 (ISSN:2141-7024)
founding of Peoples Republic of China (PRC) in grants for infrastructure and energy, extended
1950, China foreign policy was hemmed in by air services between the two countries, technical
international politics. In 1982, the Communist party assistance for assessment and classification of
of China (CPC) had its new principle of party relation standards in industrial products, and
independence, complete equality, mutual respect, modernization of equipment and training at the
non-interference in others affairs and promised to state- owned Kenya Broadcasting Corporation
network with other parties within and outside China. (Gadzala, 2009, p. 209). In general, the
In 1982, Premier Zhao Ziyang had his first visit to establishment of the diplomatic relations
eleven African countries with an intention of showing between the two countries has realized a series
Chinas diplomatic focus on Africa as well as other of aid and assistance provided by China to
developing countries and to establish mutual Kenya which include Moi International Sport
understanding, friendship and strengthen two sides Center, methane-generating pit and the
cooperation. Zhao announced four principles on expansion project of Eldoret hospital,
Sino- African Economic and Technical Cooperation, Confucius Institute at Nairobi University,
namely equality, bilateralism, effectiveness and co- Teaching Chinese and Joint Research Work on
development. Vegetables with Egerton University, Road
Construction Projects.
The principles are more of a declaration of Chinas
aid framework which provided favourable conditions The two countries renewed a new Cultural
for the recipient countries in Africa and most Cooperation agreement, May 2009 signed
importantly the no political strings issue coupled between the Permanent Secretary, Ministry of
with the Beijings willingness to provide aid and State for Culture and National Heritage and
concessional loans. Vice minister for Culture of China (China-
Kenya Website).
Chinese African relations are characterized by
summit diplomacy, equality, co-development and Importance of the Relation
cooperation and it is worth mentioning that summit China views Kenya as an opportunity to the region
diplomacy is not found with any other country, and it has become a key focus of Chinas trade and
except in Africa. Rotberg (2008) argues that China economic strategy in Africa. Kenya is a war-free
has a unique feature in foreign policy embedded in country with stable political situation and this makes
the principle of non-interference in the internal affairs it an ideal regional flat form for Chinese investors to
of other countries. Chinas African policy has increase their business in Africa. Currently China is
retained its principles while at the same time adapting offering favorable loans to Kenya, building hospitals
to domestic and international conditions. and schools for less developed areas, has set up
malaria prevention and control centers as well as
China- Kenya relation according to this paper is sending volunteers to train the locals.
subdivided into three historical periods, namely;
1. President Jomo Kenyatta Era (1963 1978): Gains and Losses of the corporation
This diplomatic corporation between Kenya and According to Rotberg (2008), China and Africa
China covers a number of issues, like the Anti- greatly need each other its like both benefit from this
piracy Corporation, roads and Bridges remarkably symbiotic relationship. China not only
Corporation, and oil Exploration Corporation. purchases Africas unprocessed returns of the sub
2. President Daniel Arap Moi Era (19782002): soil, but also constructs or refurbishes roads and
The year 1978, saw President Daniel Arap Moi railways, creates export processing zones (EPZ),
in power, and only after then that the relation of supplies equipment, supplies military free power,
the two countries fetched a fast development. builds barracks, provides uniforms and offers various
3. In December 2002, a new government was types of assistance.
formed under President Mwai Kibaki and he
expressed to hold a great account of the Foreign Direct Investments by China in Kenya
relations with China, willing to further deepen Foreign direct investment (FDI) is investment in
and expand the friendly cooperation between foreign assets, such as foreign currency, credits,
the two countries (China-Kenya Embassy rights, benefits or property, undertaken by foreign
website). China-Kenya economic relations in national for the purpose of production of goods and
the Kibaki era began with high-level political services, which are to be sold either in the domestic
contacts between the two states followed by a market or exported overseas (Investment Promotion
series of agreements. During his visit President Center Act, Chapter 518).
Mwai Kibaki held extensive talks with
President Hu Jintao and Chinese government Natural Resources
officials who resulted to a five-part agreement While the country has little proven actual resources
covering official development assistance in such as oil and gas an offshore exploration deal was
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Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(5):529-537 (ISSN:2141-7024)
signed between the Kenya Government and China, established in Kenya from 2000-2006 326 employees
allowing CNOOC to explore in six blocks covering were Chinese and 4,940 employees were sourced
445,000 square miles in the north and south of the locally. The only reported case where the level of
country. Chinese employees exceeded Kenyan employees was
the case of Changhong Electronics Ltd. where 70
The Manufacturing and Service Sector employees were Chinese compared to 46 local
Chinese firms that have been present in Kenya since employees. The wage labour situation in Kenya also
around 2000 have produced and exported anything appears comparatively fair for those employed as
from the manufacture of solar panels, processing production workers in the manufacturing sector.
maize and wheat, building bicycles, growing
mushrooms, producing sausages and farming Road Infrastructure
ostriches. The rate of investment has been varied with Current transport infrastructure in Kenya equates to
Chinese Huangpai Grain Processing Ltd spending 177,500 KMs of roads, with 63,000 KMs making up
US$ 924,000 in 2000 in capital costs, and Chinese classified (read major) roads and 114,500 KMs of
supermarket chain Horizon Ivato Supermarket Ltd unclassified (read rural) roads, with that said major
making capital costs of US$ 11,154,000 in 2003. investment is still required for approximately 40% of
Composition of Chinese investment projects in roads in an unmaintained condition located mainly in
Kenya currently number about 96 with a workforce rural areas. Connecting these areas is clearly the key
of about 6,700 Kenyans and an investment capital of infrastructure task at hand for the Kenyan
52.6 million US dollars (Kenya Investment government, and to its credit it has actively tried to
Authority). Most FDI from China is made by encourage such development, promoting itself as a
companies from China which is either wholly or stable and geographical gateway to Africa. The
partially state-owned even though in Kenya they Chinese government, having its largest African
operate as private companies. Until the year 2000, the embassy in Nairobi, have seized on the opportunity to
FDI from China remained very low. The flows from develop major transport links to support its own
China became remarkable in 20042006. economic interests and employs Chinese firms to
carry-out the work (although these firms do not work
According to Chege (2008) in the year 2001 and exclusively for the government).
2002, there were 17 Chinese investments established
in Kenya. In the year 2003, 11 Chinese firms were Chinese investment in Kenyan roads began in 2006
also started, which were fully owned by the Chinese, and has resulted in the rehabilitation or construction
mostly in services sub-sector making 82 % of the of approximately 905.4 KMs of road at an estimated
firms while the rest were in manufacturing. It was cost of 316 million over a four-year period. Chinese
noted that capital investments in these firms were firms have, for example, sought to ease traffic
entirely foreign, averaging US$ 1.3 million per firm congestion in cities such as Nairobi by completing
and most of the capital was invested in service sector. by-passes in the north, east and south of the city and
More so eight (8) Chinese firms were established in by linking the Jomo Kenyatta International Airport to
Kenya in 2006, again mostly in the services (63%) the city centre.
and manufacturing (37%) sub-sectors and most of the
capital was invested in services sector. The average Where motorways are concerned the Chinese have
capital investment amounted to US$ 636,000, with a invested approximately 200 million in the
bigger share of it going into services investment. rehabilitation of the Nairobi-Mombasa (termed the
Employment averaged 85 persons per firm for locals A109 officially, but the China Road by Kenyans on
and 8 persons per firm for foreigners. an informal basis). Ambitiously, the China Road and
Bridge Cooperation (CRBC) is also in the process of
Within the firms, employment averaged 45 persons, taking-on a former British colonial dream of linking-
with local employment averaging 37 (82%), while up Africa, by investing an estimated 43 million in a
foreign averaging 8 (18%) persons per firm. By 2004 530 KMs connecting Kenya with Ethiopia. Chinese
there were about 60 Chinese companies doing their firms are honing their road-building skills and
businesses in Kenya of which firms had established learning from experiences in Kenya.
their activities the in same year with capital costs
averaging US$ 775,000 per firm (ibid.). Employment Chinese investment in Kenya is concentrated in the
was mainly local (97%), averaging 114 per firm and manufacturing and service sector and recently they
foreign (3%), averaging 4 persons per firm. These are moving to mining and mineral exploration.
companies have also been quick to make use of
Kenyan labour, countering remarks that there are
constraints to the number and quality of jobs created
through Chinese investment because of a lack of
transparency between Chinese businesses and civil
society. Of the total 72 Chinese companies that were
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Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(5):529-537 (ISSN:2141-7024)
unhealthy competition in the market, which leads to The more Chinese manufacturers enter the Kenyan
local companies being unable to compete and having market, the more the manufacturing sector become
to close down. labour intensive and attract workers from the rural
areas of Kenya. This development could change
In Kenya approximately 44 Chinese firms are ruralurban incomes and population disparities.
working on various projects. Kenyan contractors However, the downside is that improved technology
have demanded the government introduce may result in unskilled workers losing their jobs.
protectionism measures, arguing that infant industries
need to be protected so that they can grow and In addition, the continued scramble for market share
become profitable. However, the government has by new actors such as China, presents a unique
confidence in Chinese contractors for the good job opportunity for Kenya to take greater ownership of
they have done and continue to do compared to other and to co-ordinate various donor projects, as well as
contractors to set up strong institutions that improve
accountability and transparency of foreign companies
The Chinese government helps its companies to be operating in the domestic economy, ensuring
competitive through a number of measures, for alignment with the countrys needs and national
instance by providing companies with operating development strategy.
capital, which gives them a competitive edge. The
Chinese government also at times negotiates at a Trade relations between China Kenya
government-to government level on behalf of their The volume and size of Kenya exports and imports to
companies for contracts. In this context, the open and China has been growing over time as evident in table
fair procurement process in the awarding of tenders is 1. Onjala (2008) argues that trade between Kenya and
seen to be violated, an argument that the Kenyan China did not pick up well until the mid of 1990s
government has refuted. The increase in cheap when there was increase in Kenyas imports from
Chinese products affects local companies, which China and very low value of Kenya exports to China
have to retrench employees (to cut operation costs) (p. 24). Chege (2008, p. 26) argues that the increase
due to declining revenues and loss of market share. of chinas imports to Kenya came as a result of two
Kenyan companies also have higher production costs, things, namely;
as their equipment is often obsolete compared to the 1). In 1994 Kenya liberalized its exchange rate as part
modern Chinese factories. However, some companies of economic liberalization programme supported by
have benefited through trading with Chinese IMF and World Bank.
companies and importing cheap goods from China. 2). Chinas industrial modernization produced goods
Nevertheless, Kenyan exports face competition from that Kenyans desired at more competitive prices than
Chinese exports in other developing countries. other suppliers.
government statistics showed that Kenya exported Chinese aid varies from monetary and monetary aid
goods worth 2 billion shillings to mainland China in packages which cover grants and loans for
2008 compared with imports worth 63 billion infrastructure, plant and equipment, scholarships,
shillings (Reuters Africa). In 2008, total trade was training opportunities and technical assistance
$106.8 billion which is 45.1 percent on 2007 (ibid). (McCormick, 2008). McCormick notes that monetary
While Kenyas exports to China increased from aid from China is tied to the use of Chinese goods
Sh1.2 billion in 2005 to Sh2.5 billion in 2009, its and services. Kenya is among the beneficiary
imports rose to Sh74.5 billion from Sh19.4 billion in countries of Chinese aid, but the sources of
2005 (Kenya Daily Nation, 29th 2010). information do not specify if the companies are state
owned or private sector firms.
Beneficiary and Loser in Trade
There are huge quantities of cheap Chinese products The assistance from China to Kenya is project based
available in Kenyan markets. However, there have though in diverse ways (Onjala, 2008). Since the
been some experiences of losses due to competition establishment of the diplomatic relations, the projects
from Chinese imports which has hurt the local textile of aid and assistance provided by China to Kenya
and other local manufacturing sector (Onjala, 2008,) mainly include: Moi International Sport Center,
On the side of exports, there have been losses methane- generating pit and the expansion project of
because Chinese have duplicated the local goods and Eldoret hospital, Confucius Institute at Nairobi
have been trading with them. University, Teaching Chinese and Joint Research
Work on Vegetables with Egerton University, Road
Chinese Aid to Kenya Construction Projects, and so on (China-Kenya
Aid is a loan to a country at concessional or zero Embassy website).
rates of interest (Kiely 2007, p. 45). This study paper
tracks on various aids; systematic aid is the one Beneficiary and Loser
where payments are made directly to governments The obvious benefit from the types of aid given to
and in this case it is the official development Kenya by China are in terms of infrastructural
assistance from Chinese government to Kenya. The development and market development and these are
development aid Kenya receives from China varies the most recipient sectors (manufacturing and
considerably from that originating from Western service) based on the analysis. In addition to direct
donors. In the first instant the difference captures the investments, China has also offered diverse
terms and conditions imposed, and secondly, on the development aid to Kenya including package deals
aspect of tying (McCormick, 2008). China is not so projects and humanitarian aid. Most recently, during
much concerned about the issues of internal the famine that struck the larger Horn of Africa,
governance, human rights and democracy in Kenya China donated foodstuff worth KES 2 billion to
like the donors from the West. Besides subscribing to Kenya. Other areas of assistance include provision of
the One China Policy, in the case of China, there is anti-malaria drugs; construction of a malaria research
no any other conditionality imposed on the recipient center.
country (ibid.). China aid is tied to using Chinese
companies and procurement of materials in China, The impact of Chinese investment and aid to Kenya
but nonetheless, most government officials believe has been mixed. The low import prices of Chinese
that China is perhaps one of the most price- consumer and producer goods have reduced
competitive sources whether its development aid is monopolistic tendencies among Kenyan enterprises,
tied or not (Onjala, 2008). and yet employees and firms are negatively affected
by the influx of cheap products. These effects in turn
In respect to scholarships and technical training, trickle down to the national economy with both gains
decisions are made by the relevant Ministry in and losses.
Kenya. China is considered to be much more flexible
than the Western donors in accepting domestic Table 5: Distribution of Aid Sources to Kenya
constraints. The only political condition China Showing Chinas Contribution: 2002-2005 (in
provides for the establishment of its relations with million U.S. dollars)
African countries is the one China principle, i.e. Sources/year 2002 2003 2004 2005
not to give formal recognition to Taiwan (Pere, 2006 Multilateral 181 229 266 242
China 0.20 6.5 7.1 56
Other Bilateral 272.8 300.5 342.9 379
Features of Chinas Aid to Kenya Total 454 536 616 677
The Chinese development aid until mid-1990s was Chinas Share 0.08 2 2 13
directed towards liberation movement in Africa, but (%)
later in the same decade, China changed its aid policy Sources: Kenya Development Cooperation Report
from liberation to debt reduction, promotion of 2005; Ministry of Finance, Development
investment and assistance in human resource
development (Mohan and Power, 2008, p. 29).
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While analyzing the lack of political strings policy, Africa. Chinas investment in a number of road
there is some fear that this provides a risk as construction projects attests this. More so China
presented: currently offers favourable loans to Kenya for
1). That such policy will fortify repressive hospital and schools construction in less developed
regimes/elites that are not working in the interest of areas.
poor people or development in general.
2). Such policy will weaken social and Generally, the impact of Chinas diplomatic relations,
environmental standards trade, FDI and Aid to Kenya is a mixed one because
3). It will weaken efforts to combat corruption and there are both gains and losses. This ranges from low
promote good governance in Kenya. prices of imports for both consumer and producer
In general, Chinese aid is closely packaged with goods, which provides cheap products
infrastructural projects, often linked to the extraction notwithstanding quality. However this creates
and export of minerals and oil to China -these facts competition where local producers become losers and
indicate that the aid might hurt Kenya in the long-run. this extends to local firms which collapse due to lack
of means to withstand competition and so employees
China Kenya Military Relations end up losing jobs too.
The military exchanges between China and Kenya
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CONCLUSION
To drive the point home, the trade, investment and Central Bank of Kenya (2007)
aid figures between Kenya and China are not that
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Nevertheless, as the study hypothesis states, Chinas country-reports/244-kenya-gdp-country-report.html)
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