A major war has broken out between local and foreign contractors over the control of the multi-billion shillings’ building and construction sector in Kenya. At stake is the Sh829 billion Kenya borrowed from China for various infrastructural projects, mostly roads. Chinese multinationals are poised to repatriate home 75 per cent of this loot. Local contractors will get almost nil, according to industry analysts.
The foreign companies, nearly all owned by the Chinese government, have not only seized key public works. Thy have also grabbed ‘private’ tenders, including the 39-storey Hazina Towers, which will be the tallest construction in the region once complete. China Jiangxi won the tender to construct this Sh6.7 billion landmark. The company is also building the Sh1.3 billion ICPAK complex on Thika Highway.
And a proposed law, Public Procurement and Asset Disposal Bill 2014, is likely to make things worse, for it seeks to restrict mega contracts to a few companies. “An accounting officer of a procuring entity may use restricted tendering if competition for contract, because of the complex or specliased nature of goods, works or services, is restricted to prequalified tenderers,” the bill says.
Implicitly, foreign firms with tendency to influence State officials are likely to win huge public works at the expense of local contractors who may not have the capacity to bribe their way through Kenya’s murky procurement system.
The situation is so bad, according to contractors and labour rights defenders. “Why are Kenyan-owned construction firms not winning tenders like that of NSSF and instead only Chinese companies are sole winners,” COTU secretary general Francis Atwoli has asked. According to him, NSSF (National Social Security Fund) Hazina Towers, Tassia project and Embkasi Phase Five development, all worth Sh10 billion, have gone the Chinese way.
“As foreign contractors become more visible in our built environment arena, local contractors have gradually been pushed to the periphery and rendered impotent. In fact, the fortunes of the local contractors are at an all-time low,” Moses N Muihia, the national chairman of the Kenya Federation of Master Builders (KFMB), complained recently in a prominent daily newspaper.
“It is shameful that despite the numerous projects being undertaken by foreign-owned companies, the main benefit to Kenya is through employment of menial workers. There is very little to show in terms of technology and skills transfer. Worse still, it is Kenyans who are left paying loans for money repatriated abroad. ,” he added.
This unpleasant trend has the National Construction Authority (NCA) worried, and is now proposing that 30 per cent of the value of projects should go to locals.
Indeed, in April 2013, Kenyan contactors and engineers moved to court to bar Chinese and foreign contractors from handling State-funded road projects. “Most of the foreign contractors are foreign state enterprises which enjoy subsidies that enable them to undercut local firms, a suit by roads and Civil Engineering Contractors Association (Raceco) argued in the petition.
Four months ago, the government gazetted new rules to check the growing influence of foreign builders. Cabinet Secretary Charity Ngilu’s regulations provide that companies reserve a third of their contract or stake to local builders. “A foreign person or firm shall subcontract or enter into a joint venture with local person or local firm for not less than 30% of the value of the contract work for which registration is sought … The ratio of ownership of a joint venture or construction work between a local firm and a foreign firm shall be at least 30% for the local firm.”
According to experts, while foreign firms are given multi-billion shilling tenders, the government has set a Sh500 million ceiling for tenders it can award local contractors – who number about 31,000.
In defense, Chinese firms claim they are professional, and have created thousands of jobs for Kenyans. In 2011, they say, they created 1,400 jobs in the engineering and construction sector. “Chinese companies have only offered their nationals management and technical jobs which account for just 10%. The rest is given to local staff,” according to China’s deputy minister for Transport, Gia Hong Feng.
“Chinese firms’ dedication to their work, coupled with skilled workmanship, and the timeous execution of the projects, has won the respect and admiration of many Kenyans,” says Peter Ngari, University of Nairobi lecturer in Urban Planning. Indeed, Chinese investment in Kenyan roads began in 2006 and has resulted in the “rehabilitation and construction of approximately 905.4km of road at an estimated (Sh37.3 billion”, says Daniel Elliot, in an article, The EU and China in Africa: The Case of Kenya.
Not everyone believes so. “China’s financial firepower helps its firms win many … contracts. But in agreeing to such deals, some governments appear to have flouted rules meant to foster sound public investment,” the international newspaper Wall street Journal wrote awhile ago.
Indeed, the entry of the dragon into Africa’s building and construction industry has given way to the emergence of a ferocious broker who has wedged herself/himself between the Kenya government and Chinese contractors. These so-called go-betweens have influenced the flouting of procurement procedures.
For instance in 2013, the Kenya government, citing corruption in tendering, cancelled a key tender for the supply of police equipment. ZTE, a Chinese firm, had clinched the Sh8.8 billion tender through a process that inexplicably drew just Chinese contractors. The rot came out when Huawei, another Chinese company that had lost out in the tendering, sought court intervention.
In hindsight, the dispute between the two companies was an extension of the stiff war they have waged against each other elsewhere in Africa. It also revealed the extent of corruption in the procurement process involving Chinese firms. In the Kenya Police communication tender, ZTE had “offered its equipment at double normal market prices,” according to the Wall Street Journal.
In 2006, ZTE got a major telecommunication contract in Ethiopia, funded by Chinese bank. Later, the World Bank claimed that procurement rules were breached in the award of the Sh132 billion project. Ethiopia would later bring in Huawei to end ZTE’s monopoly. And in 2011, Uganda was forced to cancel a Sh6.5 billion contract (Uganda Broadcasting Corporation) it had awarded Huawei. It cited corruption.
Experts in construction industry claim that Chinese firms use unorthodox means to clinch tenders. “They have local brokers who use every trick in their armor to flout tendering procedures,” says a prominent contractor.
The ZTE-Huawei war is symbolic of the Chinese firms’ scramble for Africa. They have brought to Africa their fierce business.
The Daily Nation once reported thus, “The race for multi-billion-shilling contracts … has in recent months produced some vicious corporate battles that have shaken key government departments to the core. The tendering wars have been so intense that not even the fact that most of the Chinese companies are government-owned has helped.”
In the meantime, Kenyan entrepreneurs get stumbled upon in this vicious war.
“Local contractors need government support in order to participate in the large infrastructure projects as a matter of national importance. Local contractors can make their contribution in developing Kenya, they can play an important role in alleviating the huge unemployment in the country” Muihia says.”
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