China snatches rail contract from slack UK

Chinese companies step in
Ethiopia’s first and only railway line was built by the French nearly 100 years ago during the reign of Emperor Menelik II and ran from Addis Ababa to Djibouti. But by 2008, it had fallen into disrepair and could not be salvaged, Getachew says. At the same time, the Ethiopian government recognised how vital a good transportation system was for promoting competitive trade and supporting national socio-economic development.

So in 2008, Getachew visited the UK to explain Ethiopia’s proposed railway infrastructure development. On that trip he met John Pearson, a British railway engineer with over 40 years’ experience, and invited him to Ethiopia to become ERC’s Technical Advisor.

Pearson says he went after being impressed by Getachew’s pitch to build and run a standard gauge railway network and an LRT system in the capital and power both by spare capacity generated by the country’s rich renewable energy resources. Also, he hoped to try and promote UK businesses – such as the rail consultancies and contractors with whom he spent his working career – within the Ethiopian railway sector.

However, no other UK interests followed Pearson to what he calls “one of the most important transport infrastructure development projects for Ethiopia and East Africa”. He describes the present lack of UK involvement as unfortunate and one that needs to be addressed by the UK government. Ethiopia turned to the rest of the international community, resulting in Chinese companies bidding and winning the contracts, with 70% of costs financed by the Export-Import Bank of China and 30% by the Ethiopian government.

Now, from the centre of Addis Ababa to hundreds of kilometres away, Chinese railway engineers can be found wearing broad-brimmed hats against the harsh sunlight and overseeing Ethiopian workers as the LRT and Addis Ababa-Djibouti railway line gradually take shape.

“If Ethiopia is able to develop properly then all countries can come to do business,” said Ke Dazhong, chief engineer at a railway sleeper prefabrication factory run by China Civil Engineering Construction Corp, which is building the railway line to Djibouti. Turkish and Brazilian companies are constructing other segments of the nationwide rail network. Western companies’ lack of interest stems in part from Ethiopia still enduring an image problem, according to some commentators, with many companies failing to believe there are business opportunities in Ethiopia while continuing to associate the country with famine and drought.

This narrow and unfair perception also misses key points in Ethiopia’s favour, according to Manaye Ewunetu, managing director of London-based ME Consulting Engineers, which specialises in Africa and the Middle East. Ethiopia’s government has proved that it can, and does, pay creditors on time. Its revenues are bolstered by a working tax system – continually developing and improving – that can draw on an ever expanding tax base: the country’s population is over 90m and still increasing.

Ethiopia is no longer an economic shrinking violet. Africa’s oldest independent nation has had the fastest-growing, non-oildriven economy among African countries in recent years. In 2012, Ethiopia’s GDP equalled Kenya’s at $42bn and is forecast to become the largest in East Africa. Ethiopia offers companies an excellent launch pad from which to market to the rest of Africa, Ewunetu says, and businesses that come will be able to take advantage of the country’s ambitious renewable energy plans and long-term capacity building efforts. Two more five-year Growth and Transformation Plans will follow the end of the first one in 2015.

Despite the above, countries like Ethiopia – all the while urgently seeking foreign direct investment and foreign exchange to help fund massive infrastructure projects – still have to contend with Western companies often remaining nervous about participating in major projects in sub-Saharan Africa, say Pearson and Ewunetu.

Admittedly, Pearson notes, there are UK companies which have had bad experiences. But that shouldn’t hold all others back, he says, especially when UK companies have capacity-building skills needed by a country like Ethiopia.

Another problem stems from Western companies being put off by what they perceive as insufficient profits in the short term, and hence they remain focused on other regions like the Middle East, Ewunetu says. As a result such companies are refraining – unlike their Chinese counterparts – from investing in Africa.

“It might not look like a mistake now but in the long term it could look like a mistake,” Ewunetu says.

Time is of the essence
As with any project of the scale of Ethiopia’s railway development, one of the greatest challenges is finishing on time. Getachew says there is every chance that a first-class train ticket to Djibouti will be available with the first phase completed by early 2016.

Others say such a timeline is optimistic and if achieved it may well be at the expense of quality and sustainability. Completion of the LRT by a similar date is more likely, they say, although this will not come without friction. Construction is causing havoc for businesses and traffic alike in the capital. Having to import much of the required raw materials from China presents a significant logistical challenge, said Cai Qinhao, deputy project manager for the LRT’s Chinese constructor company, China Railway Group Limited.

Also, Addis Ababa’s municipal planners have at times not anticipated adequately, resulting in construction delays, and the skill level of the local labour force has required extra training consuming further precious time.

But, Cai adds, by the end of 2015, Addis Ababa should have an LRT which will compare favourably to the one already operating in Beijing. In addition to greater mobility, benefits to Addis Ababa’s 3.4m inhabitants and the city’s businesses will include greater productivity due to longer work hours and workers not having to leave early to get home, said Behailu Sintayehu, ERC’s general manager of the LRT project. Currently, at the end of the working day across the city lines of weary, frustrated workers waiting for minibuses to the suburbs stretch along roadsides as dusk falls.

The plight of these workers might well draw the sympathies of Western companies that remain on Africa’s investment sidelines, watching on as China continues to increase its dominant economic foothold and avail itself of Africa’s riches.

Sub-Saharan Africa reportedly now contains more than 2,000 Chinese companies and well over a million Chinese citizens working in all manner of locations from major cities to oil fields to even the most remote jungles. Project deals between Chinese companies and African governments are being signed the breadth of the continent.

Earlier this year China agreed low-interest loan of $10bn for the construction of a modern container terminal and a special economic zone near Bagamayo on the Tanzanian coast. This November, Kenya launched a new, Chinese-financed railway which is planned to extend across East Africa – eventually linking up with Ethiopia’s network – and will be the country’s biggest infrastructure project since independence 50 years ago.

The $5.2bn cost will be mostly funded by China. Since 2000, trade volumes between China and Africa have increased twentyfold, reaching $200bn in 2012. China is now Africa’s most important trading partner leaving old major powers such as France, UK and US trailing behind.

But it is not too late for non-Chinese companies to get involved in the second phase of Ethiopia’s railway infrastructure construction, some observers note, especially as they say the costs of the first phase could rise sharply and undercut the often-held assumption that Chinese companies offer better value than Western companies.

Sufficient finance has previously been a concern for UK companies looking to invest in Ethiopia while at the same time they faced Chinese companies laden with plentiful supplies of capital, says an embassy trade official at the Addis Ababa British Embassy. But now, he notes, financial constraints on UK companies investing in Ethiopia are easing due to the active involvement of the Export Credits Guarantee Department (ECGD), UK’s official export credit agency.

Whether UK companies use this facility to participate in the second phase of Ethiopia’s railway network remains to be seen, he says. Investment doesn’t have to be in Ethiopia’s rail network. Railway construction, in addition to Kenya’s new project, is also occurring in the Republic of Sudan, South Sudan, Uganda, Libya and Egypt, often to access other countries’ ports. All of which could have important strategic implications.

“Instability will disappear in Africa once countries become economically interconnected,” Getachew says. The ERC has a new railway institute training 500 railway engineers who will become Ethiopia’s nascent railway generation to sustain the country’s new network – as well as its hoped for economic impact – into the future.

The institute is located in the centre of Addis Ababa next to La Gare, the former railway station that once served the old Addis-Djibouti line. Now it simply leases out office space as its railway tracks continue to rust, unlike the railway tracks that will glint in the sunshine and spread across the Ethiopian countryside next year.

Much like Ethiopia’s present government, Emperor Menelik II’s sights were set on modernisation and its benefits. “Africa is a great market,” Ewunetu says. “But unless you are on the train you will miss out.”