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China and India compete for market share in East African economies

Photo: Downtown Nairobi: Chinese telecoms brands on show.
Downtown Nairobi: Chinese telecoms brands on show.

The Bank of China and the Central Bank of India are set to open fully-fledged operations in Nairobi. The two have had representative offices in the Kenyan capital for several months now, a clear indication of the simmering business rivalry in East Africa on the part of two of Asia's economic giants. It is a rivalry that is clearly apparent across a number of sectors in the region, with both countries having their own particular niches.

While India has something an East African banking pedigree, through such institutions as the Bank of Baroda and the Bank of India, the Bank of China's formal launch will be the first such development for a mainland financial player. The move, by both parties, has been seen by analysts as underlining the importance the two place on establishing clear ties with the East African economy.

According to Nick Mwai, a senior manager at Dry & Associates Ltd, a leading East African consultancy firm, the move is not necessarily about entering the local financial sector. He says: "The two banks are looking to getting a share of the East African market, but are not actually out to compete with the local banks."

In business terms, China is clearly the Africa's most substantial trading partner at the moment. The relationship between the two is estimated to be worth some $116 billion annually, a reflection of China's dominance in the construction sector and its solid track record in completing major projects, such as highways, airports and stadiums.

For its part, India is deeply involved in manufacturing, particularly with regard to various healthcare products, as well as others areas with a high consumer base. It is also hoping to develop its interests in the IT sector.

India's activities in the region, however, have been blighted by continued uncertainty over the role of Essar, the Mumbai-based energy and steel conglomerate, which holds a 50% share in the Kenya oil refinery. To date, Essar has struggled to raise the required $1 billion for the modernisation and expansion of the refinery, the only one of its kind in East Africa. Currently, the Kenyan government is thought to be seeking funding from other sources in order to complete the required upgrade.

China, meanwhile, appears more interested in oil exploration than in developing refinery operations. There are currently several Chinese companies involved with assessing the sites of the country's oil reserves.

Kenya's newly-elected Jubilee government, an alliance of a number of the country's leading political parties, has placed a strong emphasis on the energy sector, seeing it as a key means of boosting the manufacturing sector, as well as creating a number of other socio-economic benefits.

With the country's electricity supply currently only extending to 30% of the entire population, the new government is said to be committed to making it universally available. It also plans to lower the cost of electricity from the current 18 US cents per unit to 10 cents. Such a move would make electricity affordable for both low income groups and for many of the country's manufacturers who have been lamenting its high costs.

India's move into East Africa has been largely driven by Indo-African Business Consulting. Launched in 2004 as a multi-service development consulting firm, it provides advice and assistance to Indian companies looking to do business in Africa across a wide range of sectors.

Its main focus has been on IT, agriculture, energy, mining, consumer goods, cement, education, project management, power and manufacturing. It also provides consultancy work with regard to investment opportunities, as well as guidance as how best to conduct business in Africa.

Photo: Bharti Airtel's Nairobi headquarters.
Bharti Airtel's Nairobi headquarters.

The initiative has seen Indian investment in East Africa grow considerably. It played a key role in the deal that saw Bharti Airtel, a New Delhi-based telecommunications company, acquire Kuwait-based Zain Telcom's Africa business for $10.7 billion. Over the past five years, Indian companies are said to have completed 85 similar acquisitions in the region at a total cost of $16 billion.

While India may have made significant in-roads into Africa's telecom market (Bharti Airtel is now Kenya's second largest mobile service provider, while another Indian company, Essar, occupies the fourth place), China is also benefiting from growth in this sector. The vast number of new subscribers has seen a corresponding surge in the demand for accessories – phone covers, memory cards, USBs, chargers, keyboards, batteries and earpieces. This is an area where Chinese manufacturers have taken a clear lead.

Jane Gitau, a Nairobi-based dealer in mobile phone accessories, says: "China has the biggest share of the market, largely buoyed by good distribution and the popularity of Chinese phones. Brands such as Huawei, Tecno and Bird are favourites in the mass market and are well in served terms of accessories."

Photo: African mobiles: China more than has them covered.
African mobiles: China more than has them covered.

Away from telecoms, there are other areas in which India seems to have the upper hand in the tussles between these the two economic giants. Indian software, for instance, has enjoyed a substantial uptake in the local banking sector. It is currently being used by Kenya Commercial Bank, the Equity bank and Orange Money to drive mobile banking services.

Manam Infotech, another Indian company, is also providing software services to Mobibank, part of the Kenya Commercial Bank, said to have the biggest branch network in East Africa. Manam's software currently allows Mobibank's customers to access a range of banking services from their handsets.

Indian software companies are also making an impact away from the financial services sector. RMSI, a specialist in geographic information systems (GIS), for instance, is said to be working on a process to digitise Kenya's land registry, considerably easing any search for title deeds. Other IT projects have also been undertaken by a number of other Indian suppliers, notably Mahindra Saytam, Infosys and Tata.

Last year, some 20 Indian companies were said to be scouting Kenya – the largest East African economy and the acknowledge gateway to the region – for buyouts in the software and business process outsourcing sectors. With East Africa poised for whole scale digital migration, it is believed there are huge opportunities in this sector for overseas service suppliers.

East Africa is also serviced by the Indian Pan-African e-network, an ambitious IT initiative between India and the African Union first mooted in 2004. The project was designed to connect the 53 AU member states through satellite and fibre optic network to India and to each other. This is in order to enable access to and the sharing of expertise between India and the African nations in the areas of tele-education, telemedicine, voice over Internet protocols, infotainment, resource mapping, meteorological services, e-government and e-commerce.

Currently, the network connects to a data hub at TCIL Bhawan-New Delhi, allowing access for seven Indian universities and 12 specialist hospitals. The Africa hub is in Dakar, Senegal and connects five regional universities, five specialty hospitals, 53 patient-serving hospitals, 53 learning centres and the tele-education VVIP communication system. The system is operated by the state-run Telecommunications Consultancts India Limited and aims to provide tele-education to 10,000 students across a number of different countries.

Chris Wambua, the Communications Manager at the Communications Commission of Kenya (CCK), says that the Indian project is very much in line with Kenya's universal access IT policy. He does, however, have some reservations that its content, currently, solely focuses on developments from India, ignoring potentially superior content from elsewhere.

Indian companies also seem to have the upperhand in the East African healthcare sector. Cipla, a Mumbai-based pharmaceutical company, has entered into partnership with several East African governments in order to provide affordable drugs across a variety of applications, including HIV treatments, anti-malarial medications, ant-acids and cough remedies.

According to Dr David Soti, the Director of Kenya's Department of Malaria Control, this agreement is not exclusive to Cipla, with several other pharmaceutical companies, including a number of China-based suppliers, providing drugs on a similar arrangement. "We are open to other pharmaceutical companies as long as they meet our requirements," says Soti.

The situation is reversed when it comes to the construction sector, an area where Chinese companies have a decided preeminence. The Kenyan government has already committed to building five new state-of-the-art sports stadiums over the next five years, as well as embarking on an ambitious dam-building project aimed at opening up million acres of land for irrigation purposes.

Photo: Kenyan oil: the new battleground.
Kenyan oil: the new battleground.

Based on its track record, China is decidedly in pole position when it comes to landing all of these premium projects. Chinese contractors have been responsible for building the only two other stadiums in the country – the Moi Kasarani sports complex and the Nyayo Stadium – as well as several large-scale water-management facilities.

With the two Asian giants having carved up a number of sectors in East Africa, expectations are now high as to who will take the lead in the mineral rights and natural resources arena. With the oil industry emerging as a key development area in the region, this is tipped by many to be the new battleground for the two countries.

from special correspondent John Kariuki, Nairobi

Content provided by Picture: HKTDC Research
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