Boom Town: Kigali’s Chinese investment

Vivian Kayitesi, the head of investment promotion at Rwanda Development Board (RDB) noted: ‘The major area of Chinese investment in Rwanda are in construction and real estate, hotels and ICT’. She went on to say that since 1994 China’s investments stand at almost $200 millions out of more than $5 billion, which is less that 4% of total investments. Projects included the construction of high profile ‘landmarks’ such as the Marriot Hotel at $60 million (2010) through joint ventures, as well as Chinese-owned initiatives such as BCEG ($10m, 2009).

But not all construction is good construction.

During the past year, nightclubs and cafes were developed using allegedly sub-standards materials. In 2012, Rwandan authorities claimed that 84 hazardous cases were recorded; and 120 cases in 2013. According to statistics from the Rwanda National Police Fire and Rescue Unit, 33 cases were very ‘serious’, largely occurring in Kigali, due to short-circuiting. ‘Investigations indicate that electricity installations in these affected facilities were either sub-standard, outdated or were badly installed.’

In a bid to incentivize more investment, the Rwandan government established Special Economic Zones (SEZ). During a high level policy workshop held in Kigali on October 16, 2012, Claire Akamanzi, acting CEO of Rwanda Development Board, described SEZs in Rwanda as designed to provide investors with industrial and commercial lands, improve availability of electricity, transport linkages, market access and availability of skills.

When Forum for African Investigative Reporters (FAIR) visited the SEZs on the outskirts of Kigali City, we observed that the zone was being developed almost exclusively by Chinese companies. China Star Construction Co. Ltd, a subsidiary of FoShan CHINASTAR Steel Structure Co. Ltd, has already built nine factories. China Star is a construction engineering company which specializes in steel structure and building construction.

‘We have finished the first part of the SEZs where we built nine factories for the government and are set to begin the second phase whereby we will build five factories for private enterprises’, said Wei Heng, its operations manager.

We noted seven companies from China present in SEZs out of 52. Companies from China include Beijing Paper Corporation Ltd, FADAR Ltd, NEWO PARKO LTD, Beijing Decoration Design and Eng. and China star construction Co. Ltd among others.

John Bosco Sendahangarwa, the head of the Special Economic Zones Authority of Rwanda (SEZAR), highlights that SEZs may include free ports, free trade zones, technology parks, tourism parks, information technology parks and other schemes. He further noted that Special Economic Zones are increasingly being used as an economic policy tool worldwide. ‘They have the ability to promote private investment, industry and export growth as they offer quality infrastructure, streamlined business regulations and incentives to investors and businesses’, said the head of SEZs.

Local construction companies, we learned, feel they cannot compete. ‘Most of big building and roads construction projects are being executed by Chinese contractors,’ said a local engineer who requested anonymity. He explained that Chinese companies win big tenders due to a combination of low cost of construction backed by vast technical and financial capacities. ‘They offer low prices because they import most materials and equipment from China from partners who supply them with materials at cheap prices,’ claimed the engineer.

In a government tender to construct a hangar at Kigali International airport, China Star won the tender, bidding $1,2m. Two other local companies, Real Constructors Ltd and Horizon Construction ,a subsidiary of Horizon Group, had respectively bid $1.8 m and $3m.

Yet, Chinese construction companies have also been accused of malpractice in tender processes. A supervisory engineer, working at Real Constructors Ltd in Kigali said that cheapened project value was due to cost-cutting measures that impacted the integrity and quality of projects.

‘Sometimes they purposely offer sub-standard materials or equipment in their bids compared to the terms of reference in order to offer low prices and win the tender. When the client notices it during project execution, the client is obliged to request the quotation of the right specifications within tender terms of reference. It is at this time that the Chinese contractors take advantage by offering much higher price in order to fill the gap in their low contract amount.’

WEAPON OF MASS CONSTRUCTION

In the middle of Kigali, Chinese labour is busy at work, building shopping malls and hotels. Kigali Marriot Hotel is one of the projects awarded to a Chinese company. The US-based hotel chain announced in March 2011 a partnership it entered with the government of Rwanda and New Century Development Limited from China — currently constructing the hotel at former Jali Club in Kigali — to manage the over $60m facility to open in December 2014.

An accountant at the site who requested anonymity said that the bulk of labour and materials used were imported from China, except for cement sourced from Uganda and a few local materials such as wood and bricks. It is a must to source the latter locally because of they are cheap at 10 RWF a brick and it would be expensive to transport them in case they could be sourced from China.

Moving to a different site revealed similar concerns: Chinese contractors were conducting surveys at Avenue de la Paix where a local bank Cogebaque Ltd, and insurance firm, Cogear Ltd, are about to build a commercial building on Plot No 1320 in Nyarugenge district. Representatives from the two institutions were conducting a compulsory site visit to contractors before they proceeded to prepare their bids.

A local engineer, Kazungu Fabrice, with more than 20 years of experience, said that even though they are touring the site he is not confident that his company will win that tender.

‘It is difficult to compete with Chinese companies accessing low cost capital. The origin of their financial capacities is their home banks which provide them with loans at a very low rate of interest. Wei Heng, the operations manager at China star construction Co. Ltd, said that his company access loan to Chinese banks at 8%. Local companies struggle to get loans and once they get them, high rates of interest that stands between 17 to 18% in Rwanda become a stumbling block.

As another local engineer informed us, the problem with Chinese companies is that they use all means possible to win tenders, even bribery. ‘During execution, they can bribe a supervisor to use cheap sub-standard materials or equipment. He said that it is hard to supervise Chinese companies to comply with the terms of tenders because they want to use sub-standards materials that were not prescribed in the terms of tenders they won in order to maximize profits.’

Rwanda Bureau of Standards, RBS, the government institution charged with developing standards and enforcement, claimed that the majority of low standards products originate from China. Philip Nzayire, head of quality assurance at RBS, said recent inspections of construction materials entering Rwanda included low-standards electrical installation cables, roofing sheets and other goods. RBS successfully sought to re-export the goods back to their country of origin.

What happens when low quality materials are not identified in time? Well, they find their way into public buildings such as nightclubs and restaurants that have caught fire. Literally.

SCALING UP, DROPPING STANDARDS

Local contractors agree that China has a competitive advantage in construction fields due to technical expertise. But what room does this leave for Rwandan companies in their own economies? This was the theme of the first ever COMESA Business Council (CBC) Manufacturers’ Fair and dialogue, held in Kigali in July 2013. The event was titled ‘Linking Businesses to Markets: Unlocking the Potential of the Manufacturing Sector in the COMESA Region.’

Robert Bayigamba, chair of Rwanda Association of Manufacturers, RAM, said that studies of Rwandan markets revealed the country cannot compete in ‘mass goods’ - Rwanda’s geography, high costs of production and small profit margins, marginalized quantity over quality. ‘We need to sensitize our consumers about the quality of locally manufactured products,’ said Nicholas Mulungwe, cluster development expert at COMESA’s leather product institute, based in Addis Ababa.

‘The best and bad quality comes from China. It is up to us to ensure that we produce first quality products for our consumers to appreciate them.

‘There must be no blame game.’

* This article was funded by Forum for African Investigative Reporters (FAIR) and WITS China-Africa.

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* This aritlce was first published by African Sentinel