Telecom Deal by China’s ZTE, Huawei in Ethiopia Faces Criticism

By Matthew Dalton, The Wall Street Journal

LAKE WENCHI, Ethiopia—In the green highlands here southwest of Addis Ababa, farmers like Darara Baysa are proud owners of cellphones that run on a network built by China’s ZTE Corp.

The trouble is, they have to walk several miles to get a good signal. “The network doesn’t work well,” says Mr. Baysa, a former army sergeant, stopping on the unpaved road near his home to show his hot-pink smartphone.

Among other troubles: Ethiopian government officials have in recent years complained to ZTE that the company’s contract for building the network requires Ethiopia to pay too much, say people familiar with the discussions.

The Ethiopian network’s glitches underline the broader troubles that sometimes face poorer nations as they borrow heavily to invest in telecommunications, roads, utilities and other infrastructure to help lift them out of poverty.

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*includes Exim Bank of China and Sinosure but not China Development Bank, which doesn’t disclose export financing figures. Source: the US Export-Import Bank, The Wall Street Journal.

China’s financial firepower helps its firms win many of these contracts. But in agreeing to such deals, some governments appear to have flouted rules meant to foster sound public investment. When countries sidestep such rules, say experts at institutions such as the World Bank, big projects often cost more and are more likely to be poorly executed.

China’s impact has been particularly visible in telecom projects. In Ethiopia, ZTE beat out Western competitors in 2006 for a major telecom project by offering $1.5 billion in low-interest financing, funded by Chinese state-run banks.

A World Bank investigation found that the Ethiopian government appeared to ignore its own procurement rules requiring competitive bidding when it awarded the contract, which gave ZTE a monopoly on supplying telecom equipment for several years. The 2013 report also criticized Ethiopia for giving such a big project to one company and called for the country to audit the contract. It didn’t find that ZTE acted improperly.

Ethiopia ended ZTE’s monopoly in July 2013, bringing in its main Chinese rival, Huawei Technologies Co. The two companies split another big contract, for the next phase of the network’s expansion. Again, financing won the day, with the two pledging a total of $1.6 billion, people close to the negotiations say. Western equipment suppliers, such as Ericsson and Alcatel Lucent SA, ALU.FR +1.57% couldn’t match the Chinese offer, these people say.

Read the full article from The Wall Street Journal.

 


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