More to do than just keeping fingers crossed

Employees of Henan International on the construction site of a water supply project in Maputo. Photos by Wang Chao / China Daily

Construction company looks for more diversification opportunities in Mozambique

They are the two branches of a Chinese company, they are operating in two African countries, yet their recent fortunes could hardly be any more different.

The Mozambique operations of Henan International recently received a tick of approval from a customer for two water supply projects it has completed. In Guinea, the company's branch has just resumed building a road, work that was interrupted by an breakout of the Ebola virus that claimed 100 lives.

Henan International also has a presence in a dozen or so other African countries, and last year signed contracts worth $630 million.

The company was set up by the Henan provincial government in 1983 as a response to the central government's going-out campaign in which almost every province set up firms doing international engineering, procurement and construction.

The company's first building project was a stadium in Senegal, a gift of the Chinese government. Over the years it has evolved from a gray government entity into a sophisticated international firm that follows the dictates of the market place.

Last year the widely respected magazine Engineering News-Record, published by McGraw-Hill Construction, included Henan International in a list of the world's 250 largest international contractors.

Henan International's ranking had jumped four places to 147 based on the value of its international contracts the previous year. The company's revenue was 6 billion yuan ($962 million) last year.

Yue Jianfeng, general manager of Henan International Mozambique, has been working in that country since 2011. Last year the company employed about 100 Chinese and more than 1,000 local workers.

The Mozambique branch is building the Massingir Dam in Gaza province, an important agricultural area. The $30 million project will be finished in June. The company is also building a road of more than 100 kilometers, a project funded by the African Development Bank. It will cost $65 million and be finished by November.

"Over the past 10 years Mozambique's economy has grown 7 percent every year, and this momentum has delivered infrastructure projects to Henan International," Yue says.

The company is also eager to snare work on the Greater Maputo Water Supply Project on the outskirts of the capital, with an estimated contract value of between $80 million and $100 million.

The company once built a significant part of the urban water supply system for downtown Maputo and now, as the population grows, the city is expanding.

"For every new project, the company designates a team of five to 10 people in Mozambique to follow it and another team of similar scale in China, including legal consultants, engineers, marketing and environmental experts," Yue says. "They gather as much information as they can to win the bid."

In Mozambique, the company's success in bidding for projects is above the average for other local companies, Yue says, attributing this to the preparation by the company's headquarters and the efforts by the Mozambique branch to blend with local culture.

"All Chinese staff have to attend a training course in China that usually lasts six months before they join the Mozambique team."

Training covers Mozambican culture, communications skills, including learning Portuguese, and advice on personal healthcare.

"For instance, you drink tonic water to prevent malaria, and learn to respect the local festivals and religions."

The company's competitors mostly come from Portugal, Mozambique's former colonial ruler, and as more international companies have swarmed into the country, profit margins have dropped, Yue says.

"In addition, because infrastructure is closely related to how the economy is faring, sometimes the only thing we can do is keep our fingers crossed that the country will develop faster, generating more demand for infrastructure.

"There has even been talk about Mozambique being the next Dubai in 20 years. I do hope that happens, which means many more road, bridge and city water supply projects."

However, rather than just keeping his fingers crossed, Yue is looking for ways to increase business.

"The proportion of the cake taken up by engineering, procurement and construction is shrinking, so we have to diversity. As more companies come to Mozambique, I foresee huge demand for office space, which means great potential in commercial real estate."

Another possibility is exploring natural resources, he says.

"Mozambique is rich in natural gas, but few mines have been developed. Lack of roads and other infrastructure is a big hurdle."

Henan International started exploring for natural resources in 2007, and since then has secured exploration rights to an iron ore mine in Liberia and a copper mine in Tanzania, and the rights to mine bauxite in Guinea.

"Once we start the ball rolling, the whole industry chain will be activated: exploration, mining, building roads and building living quarters. Thousands of jobs will be created. We will then be able to push the economy forward instead of just praying."

In addition to applying for funds from the Export-Import Bank of China and the China Development Bank, Henan International has also sought funding from the World Bank and the Africa Development Bank. But since the 2008 global financial crisis, international funding has been harder to obtain. In 2012 the company won a bid to build a 205-km road in Zambia, with funding from the Export-Import Bank of China.

It was a rare case of a company owned by a provincial government receiving funds from a Chinese policy bank, because big state companies are usually more competitive in obtaining such funds.

"Financing is really a big issue for engineering, procurement and construction companies, because huge amounts of money are involved," Yue says.

"I hope the government can open more financing channels for us, especially for private or provincial-government-owned companies, so more companies can establish themselves in Africa."

Contact the writers at wangchao@chinadaily.com.cn

(China Daily Africa Weekly 04/25/2014 page21)