China is Everywhere in Africa

"The Chinese are everywhere," writes a friend who is a missionary in Tanzania. News of China building sports stadiums, roads, railroads, pipelines, ports, bridges, hospitals, schools, and office buildings throughout the continent confirms her observation. China enjoys a reputation of making the lowest bid, not requiring local reforms, and bringing projects in on time.

     A consortium of companies led by the China Communications Construction Company broke ground this year on its $478.9 million contract to build the first three berths on phase one of a $5 billion infrastructure project on Kenya's coast at Manda Bay. To the Chinese, the islands of Lamu, Manda, and Pate that lay just off Africa's Indian Ocean coast may have resembled the Hong Kong and Macau areas of China.

     When completed in 2030, the Lamu area will be a deep-sea port hub with 32-berths, a pipeline to oil fields in Kenya (10 billion barrel reserve) and Uganda (2 billion barrels), a natural gas power plant, and a railroad that runs south to the Mombasa-Nairobi line and north to link landlocked Ethiopia and South Sudan to the Lamu port. The latter link would help free South Sudan's oil shipments from depending on Sudan's northern pipeline to Port Sudan on the Red Sea.

     Security at the Lamu project is a major concern. Islamic extremists, the Shabab from Somalia, killed in Lamu county in 2014 and at a Nairobi shopping mall in 2013. Earlier, violence left 1000 people dead and another 600,000 displaced during the 2007 election of Kenya's president, Uhuru Kenyatta. Poaching of elephant tusks and rhinoceros horns for art objects and folk medicine in China, Vietnam, and Thailand continues to reduce Africa's wildlife population. One Chinese woman was jailed in Kenya for two and a half years for trying to smuggle 15 pounds of ivory pieces onto a Kenya Airways flight by claiming they were macadamia nuts.

     Originally, China's interest in Africa resembled that of the Europeans who carved up the continent in the 19th century. They were intent on extracting raw materials. While it is true that China still builds roads in Ghana to mine gold and into Mozambique to cut timber, the forecast of three billion people added to the continent's population between 2000 and 2100, now also motivates China to open manufacturing plants in Africa and to develop a market for its exports. Some African manufacturers suffer by not being able to compete with China, but resellers benefit from higher profits on, for example, Chinese shoes, motorbikes, smartphones, and counterfeit goods. In return, China is a market for Africa's tea, cut flowers, and, of course, chemicals, minerals, and lumber. But China's infrastructure improvements will not benefit China alone. They will be open to all marketers who see an opportunity to get more goods in and out of Africa.

   

   
   

 

All Aboard for China's African Railroads

A new Chinese built railroad scheduled for next month's trial run from Kenya's busy Mombasa port to the Kenyan capital of Nairobi offers students a good opportunity to study the map of East Africa. At the same time, this infrastructure improvement will benefit, not only the Chinese, but all future marketers who want to get their commodities and products in and out of Africa.

China has seen Africa's need for railroads as a promising use for its excess steel production and a way to avoid charges of dumping, i.e. exporting overcapacity at below fair market prices. Since Africa's population is expected to boom from one to four billion between 2000 and 2100, China also is looking ahead to the need for ports and transportation links capable of handling a growing market for Chinese goods (and Africa's own growing economies).

China has experience building railroads that connect African ports, known to handle 90% of the continent's exports and imports, with the interior. In the 1970s, China financed and built the TAZARA Railway from Zambia's Copperbelt to the port at Dar es Salaam in Tanzania. Other Chinese railroads connect Nigeria's capital at Abuja to Kaduna, and an electrified railway that opened this year gives landlocked Addis Ababa in Ethiopia access to the Gulf of Aden/Red Sea in Djibouti.

By the time the Mombasa-Nairobi line is ready to handle passengers and freight in January, 2018, it will have taken seven years for a process that required: Kenya and the China Road and Bridge to sign a memorandum of understanding, to finalize $3.6 billion in financing from China's Exim Bank and Kenya's government, to lay tracks, to build and deliver locomotives and cars, and to complete trial runs. Kenya's attitude toward the Chinese-built Mombasa to Nairobi railway turned negative as ballooning costs turned four times the original estimate and raised suspicions of corruption.

  Plans call for extending the Mombasa-Nairobi line farther west around the northern coast of Lake Victoria, up to the Uganda border by 2021, and then on to Uganda's capital in Kampala and Kigali, Rwanda, with a branch line to Juba, South Sudan. Extending the Mombasa-Nairobi line into Uganda would facilitate oil shipments from new fields in and around Lake Albert and copper, cadmium, and other mineral shipments from the Democratic Republic of the Congo. It also would improve the supply route to the Dominican nuns mentioned in the earlier post, "Celebrate Uplifting Efforts to Promote Self Reliance in Africa."

Although the Mombasa-Nairobi route is only about 300 miles long, terrain required 98 bridges, embankments, cuttings, and an elevated section through Tsavo National Park that provides six openings for wildlife to pass underneath. Annually, freight trains are expected to carry 22 million tons over the line, 40% of all cargo entering Mombasa. Trips from the freight terminal at Mombasa to container depots at Embakasi/Nairobi are expected to take less than eight hours. New standard gauge trains traveling at 75 mph could reduce a passenger's trip from Mombasa to Nairobi to four hours compared to the current all day trip on the deteriorated, leftover meter gauge railway built before Kenya's independence. The trip will take longer when any stops are made for passengers at the 40 stations expected to be completed along the route.

Africa's Chinese railroads are a work in progress. Funding and loan repayment, as well as stolen materials, have plagued these projects. In some cases, the China Communications Construction Company will operate Africa's railways while local employees are being trained. Over Easter, Nigerians complained about changed schedules and poor communication. The same poor maintenance that left colonial railroads in disrepair after African countries gained independence could be a problem in the future.

Invest in Africa's Agricultural Future

Following the Battle of Waterloo, although Napoleon had been defeated, Baron Rothschild of the 18th century British banking family is said to have observed that the most profit can be made when there is no consensus about the future. His actual quote is believed to have been, "Buy when there's blood in the streets, even if the blood is your own." A potential Disney investor might have said the less gruesome, "Buy when Mickey is still a steamboat captain." When I lived in Hawaii, I often heard the quote, "Missionaries came to do good, and they did very well (financially)."

     The point is, now is the time to get in on Africa's future, especially the continent's agricultural potential. It takes time to develop a profitable African connection, and time is on the side of today's young people who have 40 or more years of work ahead of them. One option to explore is the process of putting together a supply chain that buys and brings processed African produce to markets in developed countries. Another is to process, brand, package and bring African products, such as Go Honey, to the growing African market.

     Shoppers in Madison, Wisconsin, now buy cassava flour from West Africa at the African & American Store on East Johnson Street. Thanks to Hugh Jackman of Wolverine and musical theatre fame, New Yorkers now drink his Laughing Man Ethiopian coffee at two cafes he opened in Manhattan. A film, "Dukale's Dream," which can be rented at tugg.com/titles/dukales-dream, tells the six-year story of how Jackman and Dukale met and how Dukale's family has prospered. The family that used to spend the day growing coffee and collecting firewood now has a gas system that provides light and a cooking flame. Dukale increased coffee production by buying more land, hiring workers, and training other farmers. His wife owns a small shop and his children attend school.

     As a growing continent which now has more than 1 billion mouths to feed, Africa also provides a healthy opportunity for future agricultural sales and profits. The roads and rails China built to move minerals and lumber to ports for export have improved infrastructure for distribution within Africa as well. Countries, such as Nigeria, that have seen falling oil and mineral export prices damage their economies, have been forced to rediscover their agricultural pasts and improve their farm to market road systems.

     Director Chris Isaac at the venture capital company, Agdevco, cautions that it can take a 10 to 20 year view to overcome barriers to big returns from African agriculture. He cites competing claims on land that make it difficult to lease or buy. Then, there are poorly educated farmers, poor quality seed and fertilizer, limited access to credit, a lack of infrastructure, an undeveloped marketing network, and a corrupt bureaucracy, especially at the local level. These barriers obviously also impede the progress of women who make up half of Africa's poor farmers. (Also see the earlier post, "Want An Exciting Career?")

     What's going on in Uganda suggests the kind of advantageous landscape agricultural investors should seek. Once in the grip of Joseph Kony's Lord Resistance Army (LRA), Uganda is on track to become a rice and maize success story. Millions of dollars of investment have come to the area north of Kampala from international private equity, global venture capital, and private companies, such as German-based Amatheon Agri. What these investors provide are land, high quality seed and fertilizer, leased machinery, training, a market for farmers' output, a grain processing facility, and an integrated value chain for selling grain nationally. Uganda's government has invested in roads and power and has given tax breaks to foreign investors.

     With $25, anyone can invest in Africa's agricultural future by going to kiva.org.