Myths about China in Kenya

Opinion and Analysis

A Chinese supervisor demonstrates his masonry skills. According to a recent survey, Chinese companies hire Kenyans for 78 per cent of full-time, 95 per cent of part-time roles and 93 per cent of companies report hiring Kenyan employees. PHOTO | ANTHONY OMUYA 

By Apurva Sanghi and Dylan Johnson

In Summary

• Despite many problems, State’s local involvement is a net positive, as most relations in the world tend to be.

In recent years, China’s presence in sub-Saharan Africa has risen rapidly. Many fear that China spells doom for the Kenyan economy.

Producers of manufactured goods, for example, face more competition from China in both foreign and domestic markets.

Others argue that China will exploit Kenya’s resources and leave it unable to industrialise. If the manufacturing sector fails to take off, it will be harder to move people out of poverty.

But China also benefits Kenya. It finances key infrastructure and construction projects such as the standard gauge railway or the port at Lamu Island, and offers affordable and diverse products for consumers.

Kenyan retailers benefit from greater profits by selling low-cost Chinese products like plastic shoes or motorbikes. And even if local producers may struggle, critics often overlook the boon to consumers from China.

We investigate some persistent myths about China in Kenya in our paper Deal or No Deal: Strictly Business for China in Kenya? Let’s start with the three big ones.

Myth 1: China is deliberately flooding the market with cheap products and destroying Kenya’s economy.

When people learn of the bilateral trade deficit between China and Kenya, they usually react with alarm. But Germany also has a large bilateral trade deficit with China and seems to be doing just fine.

What matters is the overall trade balance. Nobel laureate Robert Solow once remarked, “I have a chronic trade deficit with my barber, who doesn’t buy a darned thing from me. As long as he balances his books and saves, his personal deficits are irrelevant.” Similarly, a country focuses on its trade balance for its balance of payments; country to country deficits are irrelevant.

Kenya exports little to China because it hasn’t exported much in general: The export to Gross Domestic Product (GDP) ratio actually declined between 2005 and 2012, far from the norm for other high growth economies.

Kenyan manufacturers must pay higher transport costs and contend with a climbing real exchange rate, making goods less competitive on global markets. In turn, Kenya’s exports fall, hurting net exports and resulting in a negative overall trade balance.

So if Kenya, for example, makes it easier for Omo (a popular domestic brand of washing powder) to produce, Omo will export more to the world, not just to China.

And consumers now have greater variety and choice. Someone looking for a budget smartphone can pick up a Huawei phone for around Sh6,000 (about $60).

A mitumba trader can boost profits by buying a bale of shoes from China for half of what they would cost if sourced locally.

Moreover, since small shops still constitute up to 70 per cent of retail shops, retailers importing goods for resale appear to have benefited on a large scale from Chinese products.