Beyond China: The AfDB's Asian contractors

Over the past 10 years, Asia has rapidly become the biggest source of contractors for the African Development Bank, winning contracts worth hundreds of millions of dollars each year. The lion’s share of these contracts have gone to firms from China, which alone have won $6.2 billion of AfDB funding since the year 2000, as explored in the previous part of Devex’s AfDB Contractor Insights series. But China is not the only Asian country that sees opportunity in Africa. India, Japan, and South Korea are increasingly pivoting toward Africa for opportunities, both through the AfDB and through other means. Between 2000 and 2016, Indian firms won $1.06 billion in awards for 201 contracts; Japanese firms won $650 million for 227 contracts; and South Korean firms won $241 million for 19 contracts. While these amounts look small compared to China’s earnings, which were distributed across 556 awards, they should not be discounted. Japan and South Korea, as more developed countries, are increasingly engaging Africa through diplomatic and bilateral channels, and there is reason to believe their firms will take a greater interest in Africa in the future. Indian firms, meanwhile, won more AfDB contracts than firms from many African countries, and have a strong, increasingly localized presence across the continent. The role of Asian companies and countries in African development is not monopolized by China. The 2017 annual AfDB meetings were held in New Delhi, India, and next year’s are set to be hosted by Busan, South Korea. Here, Devex analyzes 16 years of AfDB contract awards data to look at how the role of these Asian countries in the bank’s work has evolved. Who’s winning contracts, and what for? Japan Japan is arguably the most developed of the Asian economies whose firms are competing for AfDB contracts. It is also home to the most transparent and active Asian bilateral aid agency: the Japan International Cooperation Agency. JICA has traditionally worked in Africa through grants and technical assistance to the continent’s least developed nations. Without much focus on loans or private sector cooperation, all but the most international Japanese firms haven’t had a big, local bilateral channel to development contracts in Africa to date. However, JICA Senior Vice President Hiroshi Kato told Devex in an interview that the organization is changing this approach, and hopes to stimulate more Japanese private sector participation in African development. This is evidenced by the recent $300 million loan agreement between JICA and AfDB to support the bank’s Enhanced Private Sector Assistance Initiative, as well as the announcement made by Japanese President Shinzo Abe that the country will invest $30 billion (more than all the AfDB’s awards since 2000) in Africa over the next three years. Within our data, AfDB awards to Japanese contractors fall into two categories: a few massive, multimillion dollar contracts for energy infrastructure works; and many small contracts for vehicles procured from local vendors of Japanese automotive firms. Awards in the first category go to familiar Japanese multinationals: Mitsubishi, which won a large energy works contract in Egypt; Hitachi and Sumitomo, which jointly won another energy contract in Egypt. Those in the second category go to Japanese automotive firms such as Toyota — however, in most cases, the real beneficiaries are local auto dealerships, so these awards could be considered more local than “Asian.” After two boom years in 2007 and 2008, Japanese firms’ success with the AfDB stalled in 2009, falling to zero some years since. However, given Japan’s desire to change its aid relationship with Africa, and the sectoral diversity of its grant and technical assistance in the past, it is likely that a greater number and diversity of Japanese firms will turn to Africa, and perhaps to the AfDB, for future opportunities. India India is also the source of a growing number of AfDB contractors. Like Japan, many of the successful Indian contractors to AfDB have come from the energy sector, alongside some wins in the transportation sector. Unlike Japanese firms, however, the top Indian performers were much more consistently successful, winning multiple contracts over the years considered. This is likely due to these firms’ greater focus on Africa: Kalpataru Power Transmissions, for example, has 16 offices across the continent, while KEC International has 23. These firms may not be African in origin, but they are African in their operations. This will be a long-term advantage for these firms, since AfDB increasingly wants its contracts to be procured through local, beneficiary government procurement systems. For the most part, Indian contractors to AfDB won awards in East Africa. They won over $100 million of awards in Tanzania, Kenya, Uganda, and Ethiopia each, plus an additional $302 million for “multinational” awards — largely for cross-border road and transmission lines construction, again in East Africa. The recent hosting of AfDB’s annual meetings in New Delhi helped to solidify the regions’ close working relationship. While India lacks a formal bilateral aid agency — and is itself a developing economy — its growing ecosystem of multinational corporations and its geographic and commercial proximity to Africa mean that its firms will continue to be strong competitors for AfDB awards, although mostly in infrastructure-heavy work. South Korea South Korean firms still represent a minority of contractors to AfDB, and indeed a minority of its Asian-origin contractors. However, there are characteristics of Korean firms’ work that make them worth noting. Like their competitors in Japan, India, and China, most Korean firms seeking AfDB awards are chasing contracts for transportation and energy projects. Construction and engineering “chaebols,” or conglomerates, are the major Korean contractors to AfDB, such as Keangnam Enterprises, and Daewoo International, one of firms that came about through the collapse of Daewoo in the late 1990s. Unlike their Chinese competitors, Korean firms were among the few to win infrastructure projects in North Africa. In fact, Korean firms won more AfDB funding in Morocco and Egypt over the years considered than their Chinese counterparts, and even worked with Chinese partners on one Egyptian project. Additionally, South Korean firms had the highest average award-per-contract of any Asian nationality among AfDB contractors. The average award to a Korean contractor was $12.7 million, edging out China at $11.2 million. If the modest amount of work the AfDB has done with Korean firms to date was generally for high-value activities, this would imply that — if Korean firms scale up their work with AfDB — they could become strong competitors to Chinese and European contractors in the future. The South Korean government is also interested in working more in Africa, as evinced by the recent announcement that Busan will soon host the 2018 annual meetings of the AfDB. It is forging connections to the continent through other means as well, including through its comparatively new bilateral aid agency — the Korean International Cooperation Agency — and through programs with donors such as the World Bank. Observers will be watching to see if South Korea can keep up with India and Japan as all three chase opportunity in Africa, and how that competition will be reflected in future AfDB contract awards. Cooperation between Asia and Africa is likely to continue to grow, increasing competition for AfDB awards and other sources of Africa-focused development funding. Development implementers in Africa might look to understand this trend, its competitive impact on their sources of funding, and the opportunities for cooperation and collaboration it will open. Interested in learning more about Asian contractors to AfDB? Read our article on the rise of Chinese contractors, and visit our interactive visualization of the AfDB contract awards data to perform your own analysis.