May 28th 2017

Business / Economy

Unlike other powers, China gives more trade than aid

The study says that Chinese aid may continue to play a bigger role over time because Kenya’s foreign aid flows are volatile. “The coefficient of variation of Kenya’s aid is 74.19 between 1960 and 2013 the coefficient of variation for Sub-Saharan Africa is 64.71 over the same period.

By Jack Otwalanewsdesk@kenyafreepress.comFriday, 03 Jun 2016 08:23 EAT

Chinese relationship with Kenya is more business oriented than what is widely viewed by some people as a donor. Although at times, it does provide grants and other forms of aid. Statistics indicate that Chinese aid to the sub-Saharan Africa in 2013 was $3.2 billion (Sh322.57 billion) - which is quite small compared to its investment stock of $32.35 billion (Sh3.3 trillion) in Africa. Chinese aid to Kenya is Sh46.85 billion. However, Kenya’s net exports to China have declined to 14.74 per cent per year over the period, reaching a low of negative $12.2 billion (Sh1.3 trillion) in 2014.

A World Bank study ‘Deal or No Deal’ authored by Apurva Sanghi and Dylan Johnson reveals that on 2003, the Chinese aid to Kenya become significant after 2002 but increased to 1.23 per cent of total loans and grants. According to the study Kenya should seek global markets and improve export competitiveness by curbing inflation and real exchange rate appreciation, reducing high tariffs on manufacturing inputs and attracting more FDI into manufacturing instead of focusing on exports to the Chinese market.  

It also reveals that Mombasa holds the key to achieving export competitiveness. “Greater efficiency at the port will cut the time for goods to reach Nairobi and help Kenya’s regional exports,” the study indicates. “Enforcing competition law in the transport sector creates an automated risk management system to speed up risk-free cargo through customs and creating a trade information portal on general tariff rates, preferential rates and quality standards,” the study says.

The study reveals that China also accounted for 10 percent of loans and 20 percent of physical infrastructural assistance to Kenya in 2005. It says that Chinese aid may continue to play a bigger role over time because Kenya’s foreign aid flows are volatile. “The coefficient of variation of Kenya’s aid is 74.19 between 1960 and 2013 the coefficient of variation for Sub-Saharan Africa is 64.71 over the same period.

Chinese official development assistance is a small fraction of Kenya’s total aid flows. China is absent from the top ten donors because it is not a member of the OECD, so little of Chinese financing qualifies as official development assistance under the standard OECD definition. Overall, aid to the health and population sector is the highest at $574.3 million (31 percent) followed by economic infrastructure and services at $407.5 million (22 percent).

Currently there are about 400 Chinese firms spread across every sector in Kenya. In February 2014, the Sino-African Centre of Excellence (SACE) foundation launched the Business Perception Index (BPI) survey to learn the views and experiences of Chinese companies in Kenya. The BPI surveyed 75 companies - 25 states owned and 50 privately owned enterprises. According to the study many firms are in the manufacturing, construction and resources sectors.

These Chinese firms are in trade, tourism, hotels and restaurants. Interestingly, some Chinese companies work with Kenya Power - a government-owned power company to establish 33 power lines in Kitale, Awendo, Konza and Kutus. Oil companies have been attracted to Kenya’s new oil discoveries in Turkana and the northwest part of the Rift Valley, but the UK  based Tullow Oil Plc has rights for drilling in a good portion of the area.

According to the World Bank study, Chinese companies have invested $178.9 million (Sh18.03 billion) in metals, $150.9 million (Sh15.2 billion) in communications and $68 million (Sh6.84 billion) in automotive original equipment manufacturing (OEM). “These companies want to take advantage of the growing telecommunications market in Kenya: the number of mobile telephone has grown significantly in the last five years, reaching over 33 million subscribers in 2014,” the study says.

Chinese firms such as Huawei and ZTE wish to compete with other major companies such as Nokia or Ericsson. The top sectors are communications at $2.51 billion (Sh253.02 billion) , alternative and renewable energy at $2.36 billion (Sh237.90 billion) and coal, oil and natural gas at $1.35 billion (Sh136.08 billion).

According to the study, Chinese companies have contributed $464.75 million (Sh46.85 billion) in capital investment - with an average investment of $35.75 million (Sh3.6 billion) per project other foreign companies in Kenya had a similar project size of $35.5 million (Sh3.58 billion).

Jack is a business and society writer at the Kenya Free Press





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