Business / Companies

Funds conundrum

By Wang Chao and Andrew Moody (China Daily) Updated: 2014-04-14 07:12

There is a common perception that all the sub-Saharan African nations are "least developed countries", but there are some exceptions such as Gabon that are prompting Chinese companies to chalk out new business strategies to stay ahead.

Although there remain major inequalities, Gabon now ranks as a middle-income country. As such it is less dependent or rather reluctant to seek external funding for infrastructure projects.

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Many Chinese infrastructure companies have found that money is not necessarily the top draw in Gabon, sources say. "Good investment proposals from Chinese companies are welcome in Gabon. But if the companies try to sweeten the offer with low-interest loans from Chinese lenders, then it is very likely that the proposal will be rejected," says Wu Jingchun, economic counselor of the Chinese embassy in Gabon.

Sinohydro, which has a presence in more than 30 African nations, is one Chinese company that has managed to carve a niche in the Gabon infrastructure market. The state-owned hydropower engineering and construction company has businesses spanning road construction, grid systems and hydropower generation.

It recently completed the $400 million Grand Poubara power generation and electricity transmission project in Franceville, Gabon. The project is expected to give a major fillip to the third-largest city in Gabon because it seeks to unlock fresh investment potential.

Qiu Xin, deputy general manager of Sinohydro Gabon, says demand for electricity has been spiraling in the African nation. "The old power facilities in Gabon are unable to cope with the rising demand triggered by a growing population. With several Gabonese cities charting plans for industrial transformation, the country also needs more power for industrial activities."

Funds conundrum Gabon has many rivers flowing through it, including the Ogooue, the fourth-largest river in Africa by volume of discharge, which gives it a tremendous advantage in hydropower generation. "Only 2 percent of the estimated hydropower potential of more than 8,000 megawatts has been exploited in Gabon," Qiu says.

He says Gabon's reluctance to use debt for infrastructure development is proving to be a major challenge for the State-owned Chinese companies. "Most of the Chinese investments are linked to financing, from The Export-Import Bank of China or The China Development Bank, in the form of low-interest loans and backed by the sovereign guarantee of African nations," he said.

"Gabon is a small country and its total annual GDP is around $15 billion. But a mega hydro project can easily cost billions. So that poses a contradiction between the needs and the supply." Qiu adds that in addition to the different attitude toward loans, cheap labor is something that does not exist in Gabon.