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Can Europe's builders compete with China's in Africa?

February 21, 2020

China is Africa's biggest player in the infrastructure sector. European contractors have fallen behind. And they are struggling to come up with ways to regain market share they've lost to Chinese builders.

Mali Bamako - Brückenbau
Image: picture-alliance/Photoshot

The effects of China's ongoing coronavirus outbreak are reverberating across the globe. While most African countries have been largely spared of official cases so far, they may feel its effects, especially in the construction industry. China is Africa's biggest market player in infrastructure development.

"What happens in Africa with the projects may well be more dependent on how quickly China's economic hubs are able to recover, than people-to-people flows," according to Beijing-based consultancy Development Reimagined.

A Chinese economic slowdown could especially hit countries that are part of China's Belt and Road Initiative (BRI) — 40 of Africa's 54 countries had signed agreements with China to be part of it by September 2019. The outbreak could be an opportunity for them to "rethink their relationship with China," say the consultants at Development Reimagined. So could a slowdown help European construction firms recapture some market losses? 

Trying to play catch-up with China

Chinese companies are building the vast majority of roads, ports, airports and other transportation infrastructure across Africa. In 2018, they accounted for 62% of the market share on the continent, according to Berlin-based European International Contractors (EIC). 

Despite being the continent's biggest donor and trade partner, the EU's contribution to Africa's infrastructure development pales in comparison to China's. A fact that frustrates Germany's construction industry, as DW recently found out at an event at the German Foreign Ministry earlier this month. Policymakers and industry representatives met to discuss how they could better do business in Africa at an industry event organized by the German Network for Architecture Exchange and the Foreign Ministry. The discussions showed that Europe still needs to rethink how it engages with Africa. 

Afrikanische Union Gebäude Außenansicht Äthiopien Addis Ababa
The 200 million dollar bill for the African Union heading quarters in Addis Ababa was paid for by China Image: Imago

"We haven't found the right [Africa] strategy," said Hans Joachim Bliss of the Federation of German Contractors (HDB). 

Germany's builders haven't traditionally looked to Africa for business opportunities. But that has changed.

China's engagement of the continent over the past two decades has partly been behind the reactivation of the growing interest from Africa's traditional partners, and changed the "terms of engagement," according to Hannah Marais, one of the authors of Deloitte Africa's 2019 "Africa Construction Trends Report." This has assisted to reposition Africa as a commercial opportunity rather than a recipient of donor funds.

"The China-Africa relationship has shifted the conversation around Africa," Marais told DW during a phone call.

Geopolitics and business interests 

German contractors in Africa regularly have to deal with Chinese companies on the continent. Many have lost bids to them. Chinese contractors offer lower prices, undercutting their competitors by 20% or more, according to the European International Contractors. It says that's because they benefit from subsidies from Beijing and preferential treatment in many African countries, where they are often exempt from some visa regulations and taxes. Germany doesn't have double taxation agreements with most countries in Africa, including its two most populous countries, Nigeria and Ethiopia.  

Graphic showing the biggest funders of African construction projects

But Chinese companies aren't just profiting from Beijing's support. They also benefit from European funds. African countries also borrow money from European and multilateral development banks, such the European Investment Bank and the World Bank. The governments tend to choose Chinese contractors because they are cheaper. And that's a global trend. 

Chinese companies are now receiving more World Bank funds, according to the Rhodium Group. "Chinese firms captured as much as 21% of all World Bank transportation infrastructure project value in 2018, up from 12% in 2014," it says. 

Meanwhile, European companies often find themselves competing with each other. Chinese firms tend to work together. Every country in the EU focuses on its own construction industry, experts say. 

"We need to work more intensively together," said Hans Joachim Bliss of the Federation of German Contractors (HDB). "One company can't compete with a state-owned company from China."

The industry representative suggests bundled solutions. That could help compete with some of China's offers, which tend to be more comprehensive and less bureaucratic. 

"We need another philosophy. The world has changed geopolitically," Bliss said. 

But tying business interests to political interests isn't something policymakers will do.

An image showing Han Joachim Bliss chatting with German Minister of State Michelle Münterfering (right).
Hans Joachim Bliss (left) chatting with German Minister of State Michele Münterfering Image: Till Budde

"Business cannot be linked to the geopolitical strategy," said Dorothee Schneider, who heads the German Economy Ministry's Subsaharan-Africa division. 

Linking taxpayer money to business interests would not go down well. The government is trying to safeguard the interests of ordinary citizens

Clearly, business and policymakers are struggling to come up with answers. While African countries may themselves need to rethink their dependence on China, many in Europe recognize that EU states need to change their approaches.  

The German government says it wants to work on a new EU pact with Africa when it assumes presidency of the Council of the European Union in the second half of 2020. So Brussels could release a revamped Africa strategy later this year. But will it have buy-in of business and industry across the bloc?

Chiponda Chimbelu DW Journalist
Chiponda Chimbelu A business journalist with a focus on Africa, and diversity and inclusion.