African governments are banking on renewed relations with China to spread communication networks into underserved and rural areas, but their use of condition-free Chinese loans for funding has raised concern in a continent rife with corruption and poor governance.
Chinese network gear vendors Huawei Technologies and ZTE have swept African telecom markets with products priced lower than those of their Western rivals. Their gear has helped expand local mobile and fixed-line networks, but many contracts for the two vendors have been partly or wholly funded by low-interest loans from the Chinese government, analysts say. Those loans are given in Africa largely without conditions such as improved government transparency or protection of human rights, unlike loans from the World Bank or International Monetary Fund that usually have strings attached.
"The fact that a growing number of telecom companies have contracts with Huawei and ZTE is indicative of the fact that the two companies offer good financing arrangements," Mike Theuri, an analyst at Africa Telecoms, said via e-mail. Equipment from the companies is also reliable for its price, said Theuri.
"When a cost-benefit analysis is performed, the Chinese vendors are likely to top their European counterparts," he said.
But China's use of loans with few strings attached "is a double-edged sword in the sense that in nations where corruption is condoned, it can easily lead to the fostering of greater corruption," Theuri said.
Business by Chinese companies in Africa has ramped up in recent years in sectors like minerals and energy as well as network gear. The increased business has come as China, a rising geopolitical power hoping to win friends abroad, has also started offering major aid and loan packages to African countries. Last month, at a meeting in Cairo, Chinese Premier Wen Jiabao pledged loans worth US$10 billion for African governments over three years.
The telecom industry is among the fastest growing in Africa and most of the funds are committed to expanding mobile infrastructure. Huawei and ZTE have both worked to tap that growth. ZTE, which earned one-fifth of its total revenue in Africa last year, aims to build its market share there to at least 30 percent, a company spokeswoman said.
Huawei and ZTE are supplying network gear and services in most sub-Saharan African countries for providers such as MTN, Safaricom and Orange. ZTE's deals have included the construction of an EV-DO network in Morocco and a WiMax network in Libya, which was billed as Africa's first and for which Huawei also supplied equipment. ZTE is eyeing populous countries like Nigeria and South Africa for more business, the company spokeswoman said.
Huawei is working to grow across Africa and still sees enormous untapped opportunities in the continent, a Huawei representative said in an e-mail. One focus for the vendor in Africa is technology that uses renewable energy to help cut costs, the representative said.
Huawei's contract sales grew 23 percent in sub-Saharan Africa in 2008 and over 40 percent in North Africa and the Middle East, the representative said, without giving dollar figures. Huawei, which has grown rapidly worldwide, surpassed Nokia Siemens to become the second-largest mobile infrastructure vendor globally in the third quarter, according to researcher Dell'Oro Group.
Huawei and ZTE have done so well in Africa partly because they can undercut the prices of their rivals' network gear. Huawei's prices in Africa and Europe are 10 percent to 15 percent lower than those of rivals like Ericsson, while ZTE prices are 30 percent to 40 percent lower, according to technology consultancy BDA.
Lower-cost equipment from the Chinese vendors has helped African operators roll out more extensive coverage and new services, said Dobek Pater, senior telecom analyst at Africa Analysis, in an e-mail. In some cases that means better mobile coverage in rural or poor areas, a boon for a continent where insufficient infrastructure can make telecom and Web services highly expensive. Huawei, for instance, says its CDMA (Code Division Multiple Access) networks cover one-third of Nigeria's rural users.
Concerns about low quality in Chinese products may also be fading. "Whilst the product or services of the Chinese vendors may not be the best, they have apparently improved significantly over the past few years," said Pater, citing talks with operators.
South African operator MTN declined to comment on deals with Huawei and ZTE. Kenyan operator Safaricom said its work with the two vendors is based on thresholds it uses for all business partners.
"We only partner with companies that meet certain prescribed and clearly spelt-out benchmarks in terms of service quality and overall customer experience," Safaricom CEO Michael Joseph said in an e-mailed statement.
But success for both Huawei and ZTE in Africa has been tainted by accusations of graft, which observers say is ingrained in much of the continent's telecom market. Allegations of fraud and mismanagement recently led Uganda to suspend work on its national fiber backbone, a project for which the US$30 million first phase was contracted to Huawei.
"Essentially this project was a disaster," said Ishaa Otto Amiza, a member of the Ugandan parliamentary committee investigating the project, in an interview. A complete lack of government supervision in the project "is a clear indicator that those in the Ministry of ICT had connived with Huawei to eat money," he said.
The Chinese government, which funded the project, has also been strangely silent in the months since the probe began, said Otto. "China, as the funders, should have shown concern in all this but we have not heard anything," he said.
Huawei declined to comment on the Uganda case.
ZTE has been accused of graft in Liberia, where it allegedly conspired with officials to kick out another bidder for a contract several years ago, according to a report by the Liberian Observer posted on another Web site.
A ZTE representative said reports linking the company to corruption were false and the company was unsure why they had appeared.
Both Huawei and ZTE also said they follow standard industry practices in providing financing options to their customers and that the options they offer include loans from commercial banks.
Scandals in Africa have also hit major Western companies. Nigeria in 2007 suspended its dealings with Siemens over allegations that the company bribed local officials with more than US$14 million.
Huawei and ZTE, like some Western companies, have also stirred controversy by doing business in countries like Zimbabwe, Sudan and the Democratic Republic of Congo, all nations known for poor protection of human rights. ZTE and Sweden's Ericsson, for instance, both helped Zimbabwe expand its Econet wireless mobile service.
"In the absence of trade embargoes against Zimbabwe and Sudan, there is nothing that prevents China from continuing to make the investments that are crucial to its national interests in the same way that Western companies continue to invest in the Democratic Republic of Congo despite the nation's appalling human rights track record," said Theuri.
When asked about human rights concerns, both Huawei and ZTE said that many multinational companies work in such countries.
There are also questions whether Chinese investments in Africa will last long enough to witness meaningful growth. China wants to prove that it can outlast the West in investing in Africa.
Theuri feels that Africa has long been ignored by Western nations when it came to consistent and substantial foreign direct investment and if China can sustain it, then the relations will last.
(Edris Kisambira in Kampala, Uganda, contributed to this story.)
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