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How the US can out-invest China in Africa

China recently surpassed the US as Africa’s largest trading partner, but African countries are also growing wary of Chinese investment. This presents an opportunity for US businesses. To take advantage, US diplomats must become more effective advocates for the US private sector.

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Second, the guidelines that govern how African countries award contracts – as dictated by international funders like the European Union and the World Bank, as well as African governments themselves – typically favor the lowest-price bid. This plays right into the hands of Chinese companies.

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Competing against China’s cheap financing and low construction costs will require the effort of various US agencies, including the Overseas Private Investment Corporation, the Export-Import Bank, the Commerce Department, and even the White House. But US diplomats can immediately take advantage of China’s reputational issues in Africa to hammer home certain points to their African counterparts.

First and foremost, China’s cheap financing is not as cheap as it seems. Much like the Godfather, who doles out favors but expects bigger favors in return at some later time, the Chinese government is not ashamed to cash in on preferential trade agreements or access to natural resources. In exchange for this access, China will offer infrastructure development.

Similarly, officials throughout East Africa have complained that the Chinese government will often construct small infrastructure projects (like a small highway) pro bono, but later demand that Chinese construction firms be hired for larger infrastructure projects (like a dam) for which China will no longer foot the bill. In these and other ways, China can slowly gain effective control over much of a country’s economy.

As important, the low-cost of Chinese construction is often more than offset by the higher costs of maintenance and repair or lower output, as the case may be. The poor quality of Chinese constructed infrastructure has been well documented in China, Africa, and elsewhere. Some officials in Ethiopia and Kenya have argued that they have to spend more money fixing Chinese-built roads than it would have cost them to build high-quality roads in the first place.

A cheaper Chinese product might seem like a fantastic buy at first, but not when it produces less efficiently than its American-made equivalent, and certainly not when it breaks.

Guidelines for how African countries award contract must reflect these lessons, so US diplomats should lobby to change their structure. A structure that takes account of multiple factors – not just cost, but also quality, environmental impact, and training of local labor – would be much better for Africa as well as for US companies.

For the US private sector to succeed in these markets, the US government must conduct effective commercial diplomacy, a concept that Secretary Clinton has been promoting for some time. Across Africa, her Department can now lead the way.

Alexander Benard is managing director of Gryphon Partners, an advisory and investment firm. He recently published an article in Foreign Affairs on the US-China competition in emerging markets.


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