Massive Rail Deal Gives China's Push Into Africa a Major Win:Chinese train company closes $12bn deal in Nigeria

The China Railway Construction Corporation's eye-popping $12 billion deal to build an 870-mile railroad in Nigeria is the biggest single overseas contract in Chinese history and will boost the country's manufacturing sector just as its overall economy shows some signs of slowing. That's not the only upside for China, however: the deal will also give Chinese firms more of a foothold in Africa's biggest economy.

The contract to link Lagos with Calabar, a city in eastern Nigeria, is of a part with China's headlong rush into Africa, where it has built or proposed tens of billions of dollars in infrastructure projects, partly to secure needed supplies of natural resources.

But this process is not without growing pains, both because some Africans object to a second kind of colonialism and because those infrastructure projects have been dogged by persistent questions about quality control and environmental concerns.

"In much of Africa, they have set up huge mining operations. They have also built infrastructure. But, with exceptions, they have done so using equipment and labour imported from home, without transferring skills to local communities," Lamido Sanusi, the immediate past governor of Nigeria's central bank, wrote in the Financial Times last year. "So China takes our primary goods and sells us manufactured ones. This was also the essence of colonialism. The British went to Africa and India to secure raw materials and markets. Africa is now willingly opening itself up to a new form of imperialism."

To expand its influence abroad, China has sought to export its rail technology, even if that effort has been marked by stops and starts in recent weeks. Early this month a Chinese consortium won a $3.7 billion contract to build a bullet train in Mexico, which would have become the first of its type in Latin America. A few days later, the contract was abruptly canceled amid concerns over an unusually speedy bidding process.

“It is a mutually beneficial project,” said CRCC chairman Meng Fengchao, adding that the coastal railway project will adopt Chinese technological standards and result in equipment exports worth 4 billion dollars, such as construction machinery, trains and steel products.

“Meanwhile, the project will create up to 200,000 local jobs, directly or indirectly. Up to 30,000 fixed job posts may also be provided when the railway is operational,” Meng said.

CRCC president Zhang Zongyan said that the company would undertake further studies on the targeted market in order to allow railway, a green and efficient transportation mode, to play a more significant role in Africa.

China has also begun selling its railway technology to developed countries. Last month, Massachusetts transportation authorities signed a $567 million contract with train manufacturer China CNR Corporation for more than 280 Boston subway cars -- the first sale of its kind in the United States and a symbolic move into a type of market typically dominated by Western and Japanese firms.

China's pursuit of foreign rail deals shows no signs of slowing. Further expansion abroad could boost Beijing's influence in emerging markets and could help lift China's manufacturing sector to higher-value and higher-technology activities -- a priority of the country's leaders since China's economy is expected to slow during the coming decade.

Beijing is pushing its domestic railway sector to make this goal a reality. A likely merger between CNR and China CSR Corporation, another Chinese manufacturer, would combine the two state-owned trainmakers -- the country's two largest, previously in competition with each other for foreign contracts -- into a single, heavyweight player able to market potential projects to buyers around the globe.

As for Nigeria, CRCC says that a Lagos-Calabar line would create 200,000 local jobs and generate Chinese exports of machines, trains, and other equipment worth $4 billion. If that sounds too good to be true, it might be. Chinese firms have participated in a variety of Nigerian rail projects in the last two decades, and many have been plagued by financial and technical controversies.

In the mid-1990's, the China Civil Engineering Construction Corporation, a state-owned group that merged with CRCC in 2003, won a railway rehabilitation contract in Nigeria worth more than $500 million. Nigerian transportation officials later claimed that only about 80 percent of that project was finished at the time work was dropped in 2003, due in part to supply problems.

That didn't stop Nigeria from awarding another rail contract, valued at more than $8 billion, to the same state-owned enterprise in 2006. That project, too, faced controversy, this time related to alleged cost inflation and delays in construction; it was later reorganized into a portfolio of smaller, ongoing rail rehabilitation projects. And in Nigeria, where a majority of citizens regard their legislature, judiciary, and national political parties as corrupt, it seems unlikely that a $12 billion project involving construction across several provinces will stay entirely clean.

Questions remain in China, too. A CNR-CSR merger may stifle innovation in the Chinese railway sector just as the country's firms take to the international stage to compete with high-tech Western manufacturers like Bombardier and Siemens.

And then there's the legacy of a disastrous 2011 crash inside China itself. In July of that year, four new Chinese carriages careened off a viaduct in Zhejiang province, killing 40 people. The catastrophe, attributed widely to lax safety and design standards, undermined China's reputation as a reliable provider of the high-tech rail systems to which some developing economies -- like Nigeria and Mexico -- are pinning development efforts.

But as the world's largest economy seeks to upgrade its manufacturing sector and to tap into the resources of oil-rich countries like Nigeria, it seems that many will be getting on board.

Ajibola Aderonke is an auditor at professional services firm Ernst & Young (EY). She previously worked another Big 4 accounting firm PwC. She can be reached at ajibolaaderonke@gmail.com for ideas and suggestions. The post above and its ensuing comments, if any, is purely the opinion of the writer.