#27 China-Africa Tech a guest post by Alexandria Williams
A discussion of how African business leaders should think of Chinese Tech with a case study of Huawei
Hi all - This is the 27th edition of Frontier Fintech. A big thanks to my regular readers and subscribers. To those who are yet to subscribe, hit the subscribe button below and share with your colleagues and friends. 🚀
Introduction
China is becoming a technological powerhouse with significant advancements in their technological capabilities when viewed from multiple angles. In terms of Research and Development, AI capabilities and the market cap of its leading technology companies it has become a leading force. One outcome of this is the growth in B2B infrastructure companies emanating from China and seeking business elsewhere. One example has been Huawei which is a powerhouse in terms of networking, servers, databases, consumer hardware and telecommunications infrastructure. Their growth has been remarkable. Huawei has over 194,000 employees globally and despite being a privately held company, its market cap is estimated at US$ 174 billion.
Over the last decade, Huawei has expanded into the finance industry with offerings in Hyper-Converged Infrastructure (HCI), data centre infrastructure, private cloud and networking equipment for bank and fintech deployments. This is an encroachment into an industry dominated by American giants such as Oracle, HP, Dell and IBM. In addition to the hardware providers, the bank technology industry was dominated by tightly knit networks of consultants, vendors, software providers and hardware systems built on top of American technology.
In the recent past, Huawei as well as a number of Chinese tech giants has been caught up in global geopolitical cross-winds particularly after the former U.S president issued what is now called the “Huawei Ban”. Here is a good resource on the whole Huawei issue.
This has created a conundrum for business leaders in the African finance and industrial space in general. On one hand, Huawei is building world class hardware products for various industries which offer good value in terms of cost, durability and reliability. On the other hand, geopolitical risks abound for institutions that partner with Chinese tech giants. This situation is akin to the Sword of Damocles, hanging over any business leader that has to make such decisions.
I don’t know how business leaders should think about such a situation. Nonetheless, I wanted to get context from someone who covers Chinese tech and particularly Chinese Tech in Africa. I reached out to my good friend Alexandria Sahai Williams to give her perspective on this. None of the content on this article is a recommendation or a definitive answer but just helps to guide the thinking around the future of Chinese - African tech relationships with an initial focus on Huawei.
Background on Alexandria Sahai Williams
Alexandria Sahai Williams is based in Nairobi, where she researches new happenings in China, Africa, and technology. Prior to moving to Kenya, she was a student at the Yenching Academy of Peking University in Beijing where she obtained her LLM in Intellectual Property Law. For her Master’s thesis, she developed a theoretical model for legally binding blockchain administered smart contracts. After graduation, she worked for a top Beijing-based tech company valued at $160 billion helping them expand into new markets. She speaks, reads, and writes in both Chinese and English. Follow her on Youtube and Medium at The Africa Data Digest, and on Twitter @alexandriasahai. You can also reach her on Linkedin.
Sidenote: She’s a very useful resource on Chinese tech in Africa.
Alexandria’s Article
Introduction
The past two years have been a rollercoaster for Huawei, the infamous China-made multinational telecommunications equipment and consumer electronics company. What’s emerged from the headlines have been questions about the origins and intentions of Huawei’s massive worldwide expansion.
Is Huawei an arm of the Chinese government? Is Huawei part of a massive spy program on behalf of the Chinese Communist Party? And, does Huawei program backdoors into its technology?
The reality is, Huawei has a long history in China and foreign markets and has made, often, ruthless efforts to secure its place as a global telecommunications influencer. But whether Huawei’s tactics make them an undesirable vendor is up for debate.
To understand Huawei we have to go back to the very beginning, the origins of China’s tech revolution and the going out of the nation’s tech companies into the world stage.
JVs and the ‘80s
China’s tech industry has been wrought through the careful collusion of state and private actors. The nation’s journey to tech superstardom began in the 1980s. Prior to this point, China was a mere importer of technology.
The major shift began when a series of Sino-foreign Joint Ventures (JVs) were established and later became the key to helping the nation grow its domestic tech industry.
A JV requires that a foreign firm partners with a host-country firm in order to gain access to a nation’s domestic market. If the process is done well, What usually occurs is the transfer of knowledge and technical know-how from the foreign partner to the domestic partner.
Some of the most famous JVs established in China throughout the 80s and 90s include Siemens and Nokia in Beijing, as well as Ericsson in Nanjing. The level of research and development, training, and know-how that occurred in their formation spurred a level of tech innovation that would later thrust the nation into the forefront of the global tech industry.
But even with these JVs in place, China faced a huge barrier in achieving tech development. In order to access foreign technology, China’s tech companies had to pay high licensing fees that they could not yet afford. To mitigate this issue, the nation created a policy environment enabling domestic tech companies to utilize the technical know-how they’d gained through joint ventures to develop their very own patents.
The biggest moment in China’s domestic tech development came when the nation made the crucial decision to create its very own 4G standard. They had tried and failed with 3G. But when it came to 4G they’d learned their lesson. To assist in the creation of China’s very own 4G standard, China’s government, brought together a group of ‘international companies, SOEs and private companies’, including Huawei to assist in the effort.
What was born out of this effort was the 4G Time Division Long Term Evolution (TD-LTE) standard. With their very own 4G standard, Chinese telecommunication companies were then able to go global and set new standards for the ICT industry on the world stage.
Much like today, developed countries had their own standards, practices, and misgivings that prevented them from working with China-born telecommunications companies. But, developing countries, eager to move their telecom industries forward at the right price, were a more realistic grab. The African continent then became a huge target.
China has a long diplomatic history with African nations, which China’s telecom companies used to gain a foothold in the market. High-ranking Chinese leaders would provide an introduction for telecoms companies, they would then sign an agreement, and then the client would apply for credit from one of China’s many ‘policy banks’ such as Exim Bank and China Development Bank. The rest is history.
Huawei, As a telecoms company at the forefront of China’s tech revolution, emerged as one of the nation’s key multinational tech companies.
Some experts view the company’s success as one that has been orchestrated and funded by China’s government. The truth of the matter is, China’s tech companies do and have always operated in an environment that requires cooperation and support from the government. But, this support does not make them a pure instrument of the government itself.
Who is Huawei?
Huawei was founded back in 1987. The company’s founder, Ren Zhengfei, set up shop in Shenzhen, China’s first Special Economic Zone (SEZ), an area that was meant to have free-er market policies and regulations than other regions throughout the country.
There are a number of stories about Ren’s background, but what is known for certain is that the founder joined the People’s Liberation Army (PLA), China’s armed forces, in the 60s and eventually became a military engineer. His affiliation with China’s military and the Communist Party of China (CPC) has become a major source of security concerns surrounding Huawei’s operations outside of China.
While the company has certainly benefited from forms of support from China’s government, what its gained is not entirely related to its founder’s ties to the military and CPC.
A POE not an SOE.
Although Huawei is officially a privately owned enterprise (POE) that is almost fully owned by its employees, the company’s structure and state affiliation is often confused with that of a State-Owned Enterprise (SOE), a company that participates in commercial aspects of the economy on behalf of the government.
Much like in many countries throughout the world, being affiliated and cooperative with state organs allows access to capital and guidance from the government. But, not all of China’s SOEs, even with their preferred status, have achieved the same level of growth and success as Huawei. This even rings true when Huawei has competed directly with an SOE in foreign markets.
For example, ZTE is a well-known Chinese telecommunications company, and SOE, that entered markets throughout Africa around the same time as Huawei.
Both companies received credit lines from China’s policy banks as they expanded their operations abroad. While Huawei was more cautious in its use of credit and was able to strike some deals without the use of credit during its expansion, ZTE made liberal use of credit offerings through its preferential status as an SOE. As a result, the company was deeply in debt by 2012.
SOEs, as extensions of the government, can be riddled with mismanagement, worker apathy, and other restrictions that prevent them from doing their best work. Therefore, state affiliation can be helpful, but certainly not a red stamp for success. Each company, its founders, and employees are responsible for making the necessary strides to grow, especially when it comes to foreign markets. While China’s government organs can provide the push that gets the company abroad, how they gain a foothold is largely dependent on their own skill sets.
Should you trust Huawei?
Companies, governments, and private citizens question the use of Huawei technology. Some say that Huawei sells technology at a fraction of the price to its competitors, while others believe that Huawei has the power and incentive to program backdoors into its technology allowing the Chinese government access to vital information. Being suspicious is fair, and reasonable. Protecting privacy and information should be paramount to companies that hold citizens’ most vital data, but, evidence to support some of the accusations that China has used backdoors in Huawei’s technology to spy on mobile communications has not been presented.
Even in the often-cited case of Huawei’s 5-year long spying campaign at the African Union Headquarters in Addis Ababa brought to light in 2017, there was no public evidence presented that explicitly linked Huawei to the data exfiltration that occurred.
Despite these claims and the possibility that they could very well be true, The African Union signed a new agreement with Huawei to expand tech partnerships in 2019. And, the company continues to expand its eGovernment cloud solutions services to governments throughout Africa.
While Huawei should not be above suspicion, it should be no more or less suspicious than any other company that is involved at the very core of the world’s technological happenings.
How Should We Perceive Huawei?
It’s helpful to think of Huawei in a similar fashion as Cisco, a company that Huawei modelled its technology after and even stole from throughout the 2000s. In Cisco’s 36 years, it has emerged as a market leader that has received support and backing from the U.S. government to reach new levels of success. Much like Huawei has done for China’s government, Cisco has assisted the U.S government in the creation of cybersecurity solutions. The company has been accused of questionable practices including developing backdoors in its firewalls, violating antitrust laws, monitoring user connections, assisting in internet blackouts, and helping China’s government develop the early makings of the nation’s very own internet control and surveillance technology. Accusations aside, Cisco continues to have unfettered access to global markets to provide IT solutions.
But, discussions about Huawei and its global growth tend to ignore the fact that Huawei’s motivations for expansion are not directly tied to the motivations of the Chinese government. At this point in history, Huawei is a multinational tech company with operations in markets throughout the developing and developed world. With each accusation of spying and information sharing, Huawei’s reputation, and its business suffers. The fact is Huawei is primed to compete and has been competing on the international stage. It is strategically detrimental for Huawei to be seen as in collusion with China’s government.
There are a number of ways to deal with Huawei and the possibility that the company might be a participant in hacking, backdoors, and spying. But, shying away from Huawei entirely is not strategically helpful, necessary, or achievable, especially on the African continent where Huawei is involved with governments, banks, private companies, and the very core of the tech sector. What is more realistic is better encryption, monitoring, and systems that work to prevent hacking and backdoors. In an increasingly connected world, the only level of certainty that can be trusted will have to come from clients themselves, not vendors or suppliers of equipment and technology.
As always thanks for reading and drop the comments below and let’s drive this conversation.
If you want a more detailed conversation on the above, kindly get in touch on samora.kariuki@gmail.com;