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It’s Not Aid, It’s Business!A Case Study of Chinese Enterprise in Kenya
Mollie Foust and Kyla Raetz
GPPN ConferenceDecember 2-3, 2012Lee Kuan Yew School of Public Policy
Chinese Aid in Africa
Chinese Aid in Africa
USA EC
WB
Franc
e
Germ
any
UK
Japa
n
China
0
1
2
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4
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8Aid to Africa (2008)
Aid
in
bil
lion
s U
SD
D. Brautigam, The Dragon’s Gift; The Real Story of China in Africa.
Defining Terms
• Profit-driven motivation• Capital investmentsBusiness
• Promote economic development AND welfare as main objective
• Provided as grants or subsidized loans
Aid
• Loan by government at interest rate below market value subsidization
• China EXIM Bank• 2-3% fixed interest
Concessional Loan
Radelet, Steven. "A Primer on Foreign Aid." Center for Global Development Working Paper 92 (2006): n. pag. Web.
Chinese Aid in Kenya
Neighbors: • Somalia• Ethiopia• South Sudan• Uganda• Tanzania
http://www.nationsonline.org/oneworld/kenya.htm
Chinese Aid in Kenya
• Small fraction of total aid• Infrastructure, general
economic services• Aid directed through
Ministry of Commerce, banks• Concessional loans
Onjala, Joseph. “A Scoping Study on China-Africa Economic Relations: The Case of Kenya.” African Economic Research Consortium (AERC). Paper No. SSC_05, 5 Mar. 2008, Nairobi. African Economic Research Consortium. Web.
Methodology• Exploratory study • 42 companies• Construction,
manufacturing/assembly, telecommunications, real estate, logistics, tourism
• Semi-structured interviews• Snowball approach
Overview of Findings
0
5
10
15
20
25
Private:Public Firms
private state-owned government
Concessional Loans and Partnerships
Use15%
Do NOT Use85%
Companies using Concessional Loans
Partner17%
Do NOT Partner
83%
Partnerships with Kenyan Government
Concessional Loans
Brautigam, Deborah. "Testimony on China's Growing Role in Africa."United States Senate Committee on Foreign Relations Subcommittee on African Affairs. Washington, DC. 1 Nov. 2011..
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China EximCDBFDIEngineering
Bil
lion
s U
SD
Private and State-Owned Chinese Ventures Registered in Kenya per year
1980s 1990s 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
0.5
1
1.5
2
2.5
3
3.5
4
4.5
# Private Companies# State-Owend Companies
Industry Breakdownpharma
3%plastics
3% real-estate3%
service3%
retail5% trade
3%
other3%
hospitality5%
logistics5%
manufacturing18%
assembly8%
automotives8%
communi-cations
5%
construction29%
Construction is NOT Always Aid
Reasons for Entering Kenyan Market
Government27%
Private In-vestment
70%
Trade3%
Region of Planned Expansion
Series10
5
10
15
20
25
LocalEast AfricaWest AfricaSouthern AfricaNo Information
Nu
mb
er
of
Com
pan
ies
Summary1. Many Private Firms
2. Few Concessional Loans
3. Wide Range of Industries
4. Establishing Investment (Capital and Infrastructure)
5. Private Investment Drives Initial Venture
6. Diversifying Businesses
Business investments, NOT aid
Good for Kenya
• InfrastructureBusiness
• New Markets
• Taxes• Tourists• Visas• Exports, Imports
Policy Implications
• Its not aid, its business—FDI rather than
Aid
• Both Chinese companies and Kenya
benefiting
• Asian markets strong
• Other Asian governments should encourage African investment and FDI