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Dealing with Unscrupulous ICT Vendors in Africa

17 May, 2014

Source: ICT Africa

 
The availability of cheap goods from overseas, coupled with the surplus of fake products is an exacerbating problem in Africa that concerns a number of industries. Africa, which is about the world’s third largest producer of cotton, has its textile industry almost wiped out as a result of cheap, poor quality Chinese products flooding the market. The health industry is threatened by the influx of counterfeit malaria and other tablets from the East. Many other industries are facing a serious challenge competing with substandard products from overseas.

The African ICT industry is by no means an exception to this predicament. In fact, with the growth of mobile services and increased demand for ICT products and services, the Africa ICT industry is increasingly at risk to take a more serious hit than most of the industries.

In addition to the dumping of cheap and counterfeit handsets, computers and other ICT products, the ICT infrastructure development is facing a big challenge.

Due to the fact that the telecommunication industry has been playing a crucial role in Africa’s rapid economic growth, there has been an enormous build-up of underwater fiber optic cables over a short period of time in Africa. By the end of 2013, it was estimated that at least 12 submarine cables were serving sub-Saharan Africa.

As each new submarine cable slowly closes the digital divide in Africa, there is also an increasing need to install the necessary infrastructure that will extend connectivity beyond coastal urban centers. This effort must be supplemented by building terrestrial long-haul cross-border fiber networks that will allow Africa to transition seamlessly into the age of high-speed Internet, thus allowing African companies to operate more competitively on a global scale and providing African communities the accessibility to socialize, interact and connect with other nationalities digitally. Due to this promising opportunity, every country in Africa is gearing towards installing terrestrial fiber optic backbone infrastructure networks to improve international and intra-African connectivity.

Building nationwide infrastructure requires significant investment, which is why most African telecommunications networks are opting to purchase the lowest-priced network equipment in order to cover a larger scope. This makes them more vulnerable to paying for products and services that appear cheap but tend to be very expensive to maintain and upgrade over time. In many cases, what African operators save in upfront costs of building infrastructure, they quickly lose in the operational costs.

Because of the need for affordable financing to build costly national backbones, African operators are lured into settling for China EXIM Bank supported vendor financing of their projects. While such financing is the best option many service providers have for building the much needed infrastructure, it comes with many strings attached. The vendors, usually suppliers of transmission equipment, end up responsible for supplying all the products and services required to complete the projects, including network design and planning, optical cable, conduits, hardware and equipment, transmission equipment, trenching, installation, operation and maintenance.

According to ICT Africa estimates, over 60% of the so called turnkey solution projects in Africa are won by Chinese vendors, primarily Huawei and ZTE. A combination of vendor financing and apparent low cost are responsible for the Chinese success.

Networks are oftentimes designed to the vendors’ advantage where, despite relatively low upfront costs, they can reap huge returns by supplying replacements parts over the life of the network. In many cases, there is also very little technology transfer leading to operator perpetual dependency on foreign expertise on all aspects of network development and maintenance.

While financing from China has obviously been crucial for completing many telecommunication infrastructure projects in Africa, Africans have to take more ownership of their own projects and control the quality and longevity of the products that go into their networks. This will not only guarantee reasonable upfront capital costs, but also reasonable long term operational costs that will enable lower cost per bit over the life of the network.


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