Made in China: Africa's ICT infrastructure backbone

Chinese technology is the foundation for Africa's networking infrastructure and increasingly, Chinese tech giants are moving into enterprise software and services. Is the continent too dependent on China, and will U.S. and European enterprise lose out on a burgeoning market?

Some are calling it the next wave of colonisation. Others are praising China's canny foresight. Whichever way you look at it, China is playing a significant role in ICT development across Africa and there is no end in sight.

Companies like Huawei, ZTE and China Telecom are driving much of the core IT infrastructure across the continent. China's foreign direct investment in Africa grew 40 percent annually over the past decade, according to Mckinsey and Co. The China Investment Global Tracker calculated the value of Chinese investment in sub-Saharan Africa between 2005 and 2018 at US$299 billion. In 2018, Chinese president Xi Jinping pledged a further $60 billion in investment to African nations.

In the past, big tech vendors didn't really see Africa as a place to make money, whereas Chinese companies were more willing to take the perceived risk, according to Gyude Moore, visiting fellow at the Centre for Global Development (CGD) and former public works minister of Liberia. This resulted in investment in a range of areas.

Network backbones in most African countries were paid for by loans from China and so usually use a Chinese provider. Moore cites the example of cellular communications: 50 percent  of 3G systems used by African telcos were built by Huawei and another 20 percent to 30 percent were built by ZTE, while Huawei has built up 70 percent of 4G networks and is likely to build all 5G networks.

Chinese vendors have an African track record

While 5G has brought the role of Huawei – one of the few major equipment providers for the superfast mobile technology -- into the global spotlight, both Huawei's and ZTE's involvement in Africa goes back over 20 years, notes Mark Williams, managing director at Berkeley Research Group.

"Their initial competitive advantage was around cost as they were cheaper than their main rivals from Europe," Williams says. "Over recent years, the Chinese vendors have moved into fibre-optic networks and have been supplying equipment and constructing networks across the region."

But Chinese companies are not just developing Africa's infrastructure spine – they have impacted hardware design as well. China's Tecno Mobile, for example, invested a great deal in handsets for the African market, such as developing a camera that responded well to dark skin and investing in batteries that last longer to accommodate electricity-access issues, Moore notes.

In addition, Chinese venture capitalists are starting to fund logistics and fintech startups. A group of Chinese investors made a splash last November with a $120 million investment in OPay, the mobile money service in Nigeria. Norway-based Opera, which founded Opay, is majority-owned by Chinese investors.  

Going beyond infrastructure

"China is expanding its role from initially simply building the infrastructure to now building the apps that are used on that infrastructure, something that was exclusively the purview of Western VC firms and investors," Moore says.

Otherwise, the presence of these Chinese low-cost equipment manufacturers has reduced operating costs for telcos in Africa and accelerated the rollout of mobile broadband in a way that would have been difficult to imagine 20 years ago, says Ian Waters, senior director of EMEA marketing at ThousandEyes.

Response to Chinese investment is mixed, depending on who you talk to. While the continent is not a homogenous whole, there is general acknowledgement throughout the region of the positives that such investment is bringing, tempered with concerns about the impact on local providers.

As Chinese businesses expand into the fintech arena, for example, and competition increases, there is downward pressure on price, the CGD's Moore notes. This is a positive impact since price point decides most of the decisions in the African market. But the impact on local businesses can be significant. "Because a single Chinese investor can come into a country with $300 million, local firms are going to struggle to compete," Moore says.

Squeezing out local providers

Even though most employees that are hired by the Chinese-backed startups are Africans, most of the value that is created is to the Chinese investor, Moore says. "There is a fear that they will crowd out local investors and entrepreneurs," Moore adds.

Concerns have also been raised about the influence of China on African development and culture. Mandarin has started to be offered in schools in Kenya and South Africa, but response has been mixed, with some critics noting language can be used as a tool of colonisation.

Increasing interest in Chinese is only logical, though, given that since 2009, China has surpassed the U.S. as the continent's single-largest trading partner, Moore noted. In addition, China's Belt and Road Initiative (originally dubbed One Belt One Road or OBOR), meant to further develop trade routes and economic integration with Europe and Africa, will give the country even more influence.

"These investments in Africa must be making the lives of normal citizens better and that's all that should matter," says Stanley Chao, author of Selling to China and managing director for All In Consulting, which advices companies that want to do business with China . "But the better lives and low-interest loans do come with strings. These African countries will be satellite countries for China. In fact, I believe any country heavily involved in China's OBOR (One Belt One Road) initiative will be part of China's sphere of influence."

Securing the future

It's not only competition and culture that are subjects of concern. A growing dependency on Chinese ICT products brings up security issues.  For example, the U.S. government's position is that Huawei's close ties to the Chinese government, seen in light of China's history of espionage against the West, suggests that the company's products may be engineered to capture and leak data back to Beijing.

But Chinese networking products are already at the core of African infrastructure, and  African network operators are more dependent on their suppliers than service providers in other regions, especially given their tight financial constraints.

Chao believes that China has broad control over Africa's ICT systems. "The Chinese will use it to their advantage," Chao said, adding that "I think these African countries realize it, and accept the consequences for accepting the low-interest loans."

But Africa's networks and systems are not built by Africans and do not use African components, so there is always the risk that whoever is building an ICT product may create some sort of backdoor, Moore notes. In fact, documents leaked by former U.S. intelligence contractor Edward Snowden and published by various news organizations have shown that the NSA has conducted its own surveillance campaigns, including programs to hack into equipment from Chinese networking manufacturers.

Moore relates a conversation he had with a high-ranking African official. They were talking on WhatsApp and the official suggested they change to WeChat, widely used in China. When Moore quipped that the Chinese would be listening in, the official replied: "Somebody's always listening; I'd rather it's the Chinese."

Moore does believe, though, that once access becomes ubiquitous, African countries will be more interested in who is listening and what they have to gain.

U.S., European businesses losing out

For now, China's investment in Africa is a key example of soft geopolitics, notes Jonathan Brufal, partner focused on Africa at international law firm Gowling WLG, cautioning that it is possible that Western companies will lose out if they don't try to invest alongside the Chinese in Africa.

 "No question the U.S. is concerned and should be concerned -- they are losing control and influence over Africa as well as the other OBOR countries," Chao said. "I see the world bifurcating into two distinct trading zones and spheres of influence.  China will control one sphere with its OBOR countries, and the U.S. will control the other with the EU and some other countries."

To a certain extent, China's future in Africa is going to be dependent on what happens to the Chinese economy as a result of the novel coronavirus, or COVID-19.  Africa is significantly dependent on China and depends on China more for trade, which represents a quarter of all African trade, than it does for investment, Moore noted. But, he said, holding all things constant, he believes there will be an increase in that investment with continued diversification.

He also believes this will encourage a lot more European investment. "Whether it is the U.S. or Europe, they have begun to look at Africa differently because of Chinese investment. I am looking forward to seeing growth over the next five years."

Copyright © 2020 IDG Communications, Inc.

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