How Chinese Companies Make Huge Profits In African Projects

Written by Kevin Mwanza

China Wu Yi, a leading Chinese construction and engineering company, is set to make an unprecedented profit of $85 million from upgrading a 25 kilometer stretch of road, the company revealed in a statement to its directors.

The revelation explains in part why many Chinese companies are scrambling for projects in Africa.

The profits China Wu Yi expects are over 100 percent of the estimated projects cost and more than the international net margins of about two percent for similar projects, Standard reported.

The firm is among many others whose presence in Africa, mainly in the infrastructure and construction sectors, makes huge profits for Asian companies operating on the continent, with little benefits to sub-Saharan nations, World Bank said in March.

The China Wu Yi project will cost about $164 million and is financed by the World Bank and the Government of Kenya. It is set to take three years to complete.

The Chinese company has also won other major construction projects in the region’s biggest economy mainly due to its low bids that have pushed it above its international and local rivals, Business Daily reported.

China Wu-Yi constructed the Nairobi-Thika Highway in November 2012, at a cost of $360 million. It is also upgrading the 53-kilometer Jomo Kenyatta International Airport- Rironi road in the city. It will also construct the Garsen-Witu-Lamu road at a cost of Sh 10.4 billion.

Last month, the firm had the lowest bid to construct the Malindi-Salaa road in the coastal region of Kenya, Standard quoted James Macharia, the country’s infrastructure minister saying.

Other major constructions firms from the world’s second biggest economy include China Road and Bridge Corporation (CRBC) that is constructing the 472-kilometer standard gauge railway, the biggest infrastructure project that will connect Kenya, Uganda and Rwanda at a cost of $3.8 billion.

Japan, another giant from Asia has also increased its presence in infrastructure projects in Africa, a move described by analysts as an onslaught on its Asian rival for the rich economic opportunities on the continent.

Last month, during the Tokyo International Conference on African Development (TICAD), Prime Minister Shinzo Abe said that Japan offers better quality on infrastructural projects than China.

World Kaihatsu Kogyo (WKK) of Japan is currently undertaking expansion of the 2.6-kilometer road in Nairobi into a dual-road at a cost of $130 million. The project is funded by the Government of Japan, The Star reported.

However, Chinese firms have already eclipsed their Japanese counterparts in Kenya’s infrastructural projects, and from all indications, huge profits are fueling the rush.