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

3

4

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6

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8Aid to Africa (2008)

Aid

in

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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

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15

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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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45

China EximCDBFDIEngineering

Bil

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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

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2.5

3

3.5

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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