Business Daily:Chinese firms at risk of breaking local contractors rule

© Xinhua News Agency.All Rights Reserved FILE – Chinese State Councilor and Foreign Minister Wang Yi L meets with Kenya’s Cabinet Secretary for Foreign Affairs Raychelle Omamo in Mombasa, Kenya, on Jan. 6, 2022. (Photo by Long Lei/Xinhua via Getty Images)

Foreign contractors will have to sub-contract a third of their works to Kenyans in a policy that shielded them from the 2012 proposal that overseas firms doing construction in Kenya be 30 percent locally-owned.

The adoption of the rule in 2014 was expected to mostly affect China whose State corporations have been undertaking projects funded by Beijing and negotiated under a government-to-government pact.

KeNHA says the Chinese contractors will be penalised if they fail to achieve the 30 percent rule at the conclusion of the ongoing road projects.

“Their contracts demand they get to 30 percent. They can hire locals, source materials within Kenya and add that as local content,” said KeNHA in a statement.

“They risk not getting their last payment if they do not attain the 30 percent local content rule at the end of the project.”

The 30 percent rule was introduced to increase the participation of local firms in multi-billion-shilling State contracts.

But Chinese firms seem to be struggling to meet the share based on a sample of ongoing road projects provided by KeNHA.

China Railway No.10 Engineering Group has offered Kenyans a measly 0.9 percent or Sh12.8 million of the Sh1.31 billion construction of the eight-kilometre dual carriageway from the Kisumu Boys roundabout–Mamboleo junction.

Kenya has over the past two decades embarked on its most ambitious infrastructure investment ever, entailing construction of new roads, upgrading of some facilities and rehabilitation.

Local firms have missed out on the lucrative contracts, winning only a small share of the total value of awarded contracts with the rest going to foreign firms mainly from China.

One local contractor blamed the government for raising their demands on firms during tendering like requiring experience on big projects, which many lack, due to decades of underinvestment in the sector.

In the past, some local contractors gave the sector a bad name through project delays, shoddy work that frayed soon after completion and diversion of project funds.

Although China’s increasing economic presence in Africa has aroused fears of excessive dominance, Chinese contractors have won admiration from Kenyans due to their efficiency and speed, which have helped lift the country’s dilapidated road network in recent years.

Typically, Chinese road-building contractors employ Kenyan workers mainly as labourers.

“The proportion of local sub-contractors is small for Chinese projects because the local content policy is a mutual agreement which is not binding. The Chinese decide depending on costs proportion they are comfortable with,” says Oscar Otele, a University of Nairobi lecturer and governance consultant.

China Road and Bridge Corporation (CRBC) has ceded contracts worth Sh7.9 billion to Kenyans for construction of the Sh60 billion Nairobi Expressway, reflecting local content stake of 13 percent for the double-decker road that is almost complete.

Sinohydro Corporation has offered locals deals worth 2.3 percent or Sh495.8 million for the Sh2.1 billion Kibwezi-Mutumo-Kitui road.

Local players have clinched 3.3 percent of the Sh4.4 billion Kitale –Endebes –Suam road being built by China State Construction Engineering Corp Ltd.

But the Chinese firm building the Sh8.4 billion Kenol–Sagana road has upended the trend. Jiangxi Transportation Engineering Group, which is dualling the 84-kilometre road, has offered locals deals worth Sh2.1 billion or 25 percent of the contract value.

Unlike their Western counterparts who are known for stringent financing conditions, China has used its soft loans to charm its way into the hearts of most governments in Africa.

The terms and conditions of engaging Chinese firms are usually negotiated between the heads of state.

A case in point is the tender for a multibillion-dollar Standard Gauge Railway project that was won by a Chinese company and sparked widespread criticism over the transparency of the process.

China Road and Bridge Corporation was appointed to build a new railway from Mombasa to Nairobi at a cost Sh447.5 billion. The tender had no public bidding, which they say was a condition for Chinese loans to help fund construction and some MPs complained that the contract was overpriced.

The government agreements in Beijing-funded construction projects had cushioned Chinese companies from the 2012 regulations that required they cede part of their stakes to locals.

dguguyu@ke.nationmedia.com

Chinese firms at risk of breaking local contractors rule (msn.com)