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Chinese Reach Extends to African Materials Market

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Four state-owned, multinational Chinese construction companies have been short-listed for a tender to construct an $80-million major cement factory in Ethiopia, at a time when China’s dominance in Africa’s construction industry is growing.

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The four—Sinoma International, CDI-Chengdu Cement Research Institute, Hefei Cement Research Institute and Northern Heavy Industries—now await a technical and financial evaluation of their engineering, procurement and construction tender documents for the construction of the Habesha Cement factory, which has a projected capacity of 1.2 million tones of cement per year.

India’s Walchandnagar, synonymous with sugar production in Ethiopia, is the only other company that was prequalified for the project owned by Habesha Cement Share Co. The owner will name a winner in the next 120 days.

Already, the four Chinese firms are expanding and upgrading two other cement factories of Mugher and Messobe. Ethiopian cement demand is set to rise to 14 million tonnes annually over the next five years, matching a projected construction industry growth rate of 25%.

Habesha Cement Factory Ltd. general manager Mesfin Abi, who confirmed the new facility, which will be funded 70% through bank loans and 30% equity, will account for more than half the total cement produced in Ethiopia and that design, financing and construction of the plant will be carried out by the winning firm.

During the last quarter of 2009 the company successfully raised $22 million, the equivalent of 25% of the total cost of the project, through share sales.

China's Export and Import Bank, which plans to commit $20 billion for refurbishment of Africa's infrastructure by end of next year, is expected to provide the bulk of the financing if any of the four Chinese bidders are awarded the contract, even as the number of African firms disechanted by the growing dominance of the East Asian firms in the continent’s construction market keeps growing.

Analysts and players in Africa’s construction industry have raised concerns over the shrinking share of the construction market for local firms. Chinese construction companies have an unfair advantage, they say, because of their access to cheap capital, low-cost labor and cheap building materials through their country’s supply chains.

“It is going to be a contentious issue going forward, especially when the foreign investors begin moving into areas way beyond the comfort zones of locals. For instance, here in Kenya, we already are seeing disenchantment among road and construction contractors who claim they have been locked out by the Chinese,” Robert Shaw, a Nairobi-based analyst, recently told the Business Daily newspaper.

However, Kenya Investment Authority (KIA), a state agency mandated to encourage investments has ruled out government intervention in contractor awarding to foreign construction companies.

“We are a liberalized economy without controls on how far an investor would go in terms of sectors except for sensitive sectors such as banking and insurance. What we have is a principle requirement that such foreign investment must at least attain the $1-million mark in terms of value,” said Susan Kikwai, managing director KIA.


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