AN EXECUTIVE of a South African construction company told me recently that the company no longer bothered to put in bids for projects in African countries if it was competing with Chinese companies, because it could not beat the “China price”.

It was, the executive said, a waste of time and money putting together a bid where the winner would be selected on the basis of the lowest cost rather than on quality of work and delivery. The Chinese invariably got the business, as their bids were always significantly lower than those of their competitors from other regions.

We’ve heard a lot about China and its increasing involvement in Africa. Recent statistics raised in a presentation on Chinese contractors in Africa raised a new and interesting point about just how big a share of African projects the Chinese actually have.

The presenter, Dirk Kotze from China-focused advisory firm The Beijing Axis, speaking at a breakfast at the Gordon Institute of Business Science, said the real story of China in Africa was less one of foreign direct investment in growth enterprises, as often portrayed, and was more one of earning fees on contracts.

In 2001, Chinese companies captured more than 40% of Africa’s projects put out to tender both by the private and public sector, up from just 7% in 2001. Last year, six countries — Algeria, Angola, Nigeria, Zambia, Sudan and Democratic Republic of Congo — accounted for 48% of the $41bn paid to Chinese contractors.

South Africa is low on the list of countries in which such projects are undertaken by Chinese companies — 22nd out of 30 countries measured. Labour regulations make it very difficult for foreign companies to import their own workers here. In other African countries, the laws are more flexible.

A notable exception is Sephaku Cement, the local partner of Nigeria’s Dangote Cement, which was able to hire more than 600 employees of China’s Sinoma International Engineering to construct the Aganang cement production facility in North West. The rationale for bringing in Sinoma was that Sephaku could save as much as 25% of total development costs. According to Sephaku, conditions for this arrangement included skills transfer — one South African labourer for every three Chinese — and the withdrawal of all Chinese workers on completion of the construction phase.

China’s ability to arrange low-cost financing is a key competitive advantage in the bidding process, along with lower costs of labour than can be obtained locally, which sidelines competitors from other regions — including Africa. A significant downside for African economies is the fact that the debt financing is generally tied to the procurement of Chinese labour and/or Chinese equipment.

Questions whether China is exploiting Africa are often raised in an examination of that country’s activities on the continent. There is nothing inherently wrong with Chinese companies getting paid for work done in Africa — it is just a pity that a bigger chunk of the procurement and fees are not staying on the continent, nor is there is any significant spin-off into broader economic growth through skills, development and job creation.

Despite the benefits of cheap infrastructure, there is growing discontent in Africa with the low safety standards of many Chinese companies, the failure to deliver projects always on time, and quality issues.

Ironically, many of the problems attributed to Chinese companies are a matter of African governments making exceptions for China and failing to enforce regulations on issues such as environmental protection.

But this might change as African governments, buoyed by the continent’s increasing attractiveness as an investment destination for global capital, gain greater leverage to negotiate deals that are more favourable for their countries’ long-term growth. Many leaders are gradually becoming more assertive about tackling corruption, enforcing standards on health and safety and looking to secure a better deal for African labour in projects involving foreign investors.

China is also starting to change. Developments at home such as rising wage costs and demand for more profitable investment may mean a rising “China price”.

But it should not be a zero-sum game. For African engineering, construction and procurement companies, the real benefit of having well resourced and well priced Chinese firms active in Africa may be in establishing strategic partnerships to develop the continent, leveraging their different strengths.

• Games is CE of Africa@Work, an African business consulting company