UNDER CONSTRUCTION

Chinese and Indian companies are pricing local African firms out of World Bank-backed construction projects

Quartz africa
Quartz africa

For many years, infrastructure projects in developing countries–funded by multilateral organizations like the World Bank–were often awarded to international companies, sidelining local companies.

To turn this around, the World Bank introduced a preferential policy (pdf) to empower local companies. For internationally competitive bids, a sizable portion of the contract is awarded to a successful local bidding company. Having spent $96 billion on civil works projects globally over the past 14 years, the World Bank believes that the projects it backs can contribute to the growth of local companies.

But local companies in Africa have not been successful in winning these large World Bank contracts.

Christine Zhang, a research analyst at the Brookings Institute, and Jeffrey Gutman–a former vice president at the World Bank, now at Brookings–spent time trawling through the World Bank’s data on all of its funded projects for infrastructural development from 1995 to 2013.

Zhang and Gutman found that although more companies winning the contracts are now from developing countries, the Sub-Saharan Africa region has lagged behind. Here, international companies still get the biggest slice of the bank’s infrastructure deals.

Interestingly, after succeeding in their domestic markets, Chinese and Indian firms are now winning more contracts for infrastructural development in Africa.

The Sub-Saharan Africa region was able to garner $17.3 billion in World Bank-backed construction deals from 1995 to 2013. From this amount, only 14% of the contracts for civil works in the region went to East Asia in 1995, but with China’s growing influence on Africa’s construction industry, East Asia went on to win 42% of the contracts for civil works in Sub-Saharan Africa in 2013.

The reasons are hardly surprising. Both governments of China and India provide access to low-cost credit to their construction companies operating in foreign countries, making them more competitive than local African companies.

“When you combine technical expertise with access to credit and relatively low labor costs, plus an effective way of establishing themselves within the region, the result is a very competitive model.” said Zhang and Gutman in an email response to Quartz Africa.

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