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Chinese President Xi Jinping is visiting a number of African countries this week. This brings up the usual debates about Chinese activities in building and financing infrastructure in Africa and whether China is ultimately good or bad for the continent.

China’s investments in Africa are already huge, it was the fourth largest foreign investor in Africa spending about $40 billion in 2016, according to UNCTAD’s World Investment 2018 report. It came behind the US ($57 billion), the UK ($55 billion), and France ($49 billion). But China’s investment is growing much faster. I am sure Xi will sign some interesting investment agreements during his visit. Here are some  thoughts on Chinese investment in Africa, based on my interactions with various Chinese companies as chief executive of Africa Finance Corporation (AFC), which invested over $4,5 billion in 30 African countries. It is important to understand there’s a wide variety of actors and motivations with Chinese investment in African infrastructure. Most often you see construction firms looking to execute contracts with private or public sector clients. These construction contracts are often backed by Chinese financial institutions — like China Export Import Bank and Sinosure — looking to support the exports or sales of Chinese products and services. The mission of these financing entities is to support jobs and income generation in China, as well as to support more strategic objectives of the Chinese government.

The Chinese construction firms may take a small stake in the overall project to get it going, but their real interest is in the contract. Others Chinese players include genuine investors looking to hold assets long term — they are typically looking for majority stakes in their projects and are actually quite rare as many Chinese companies are surprisingly risk averse when it comes to Africa — and the Chinese government itself, which provides loans or grants, for major infrastructure projects on a government to government basis, sometimes tied to some form of mineral export. These projects are often done for strategic reasons.

I see a lot of criticism of the quality of the projects constructed by Chinese firms. While some work done by Chinese firms can indeed be shoddy (just like the work of firms from other countries can be shoddy), a visit to China will demonstrate that this doesn’t have to be the case. Chinese firms are more likely to work to a budget than Western firms. For example, while a Western firm may tell you a bridge will cost you, say, $300 million. A Chinese firm may tell you that you can have a $300 million bridge, or a $250 million one.

It is important to manage any major project carefully, but more so when dealing with a Chinese firm as things that may be taken for granted in other parts of the world can be negotiable when dealing with a Chinese firm. You have to be careful to specify the quality that you want and the standards that you would like the project to be built to. You also need to be very specific about the environmental and social standards you want the project to adhere to.

We found it helpful when dealing with Chinese companies to engage the Beijing offices of the major international engineering consulting firms, which understood both Western and Chinese standards, to ensure nothing was lost in translation. Incidentally, one thing often said about Chinese firms that is true is that they have a propensity to use all Chinese inputs. If you want local workers and sub-contractors, which we did, you will have to make that a negotiating point.

It may be surprising to some, given the large amount of Chinese investment, to learn that Chinese firms can be very risk averse and that they still see Africa as a risky place. Although it is changing now, especially with the Belt and Road Initiative which encourages “China Inc” to invest outside China in various emerging markets, most Chinese financiers will not consider a project without insurance from Sinosure, the Chinese government-owned political risk insurer, or other similar institutions, or a local bank guarantee. In turn, Sinosure often requires a guarantee from the government of the country in which the project is located in order to provide the necessary insurance.

This is easier to obtain for public sector projects than for private sector ones. Lately highly-rated organisations like the AFC have been approached to provide counter-guarantees on the obligations of certain countries which don’t have a great record of honouring their payment obligations.

Sinosure insurance and other financing costs do not come cheap, which leads to the point that Chinese firms are not necessarily cheaper than firms from other countries. While the bare construction costs of certain projects may seem cheaper, even after equalizing for quality, there are other costs that may apply including the insurance and other financing costs mentioned before, and costs associated with local content. All of these can add up.

In a power project we financed in Ghana, after a competitive process, and taking into account financing as well as construction costs, a South African consortium proved to be cheaper than a competing Chinese consortium.

Like everything in life there are pros and cons of dealing with Chinese companies. They are not necessarily of better quality, cheaper or easier to deal with than firms from other countries, although they can be all of those things too, especially with appropriate management. However, despite this, I very much welcome the interest of Chinese companies in the African infrastructure space.

Why? One word: Competition.

For too long the number of firms willing to engage in, and finance, projects in Africa has been very limited, meaning that competition has also been limited leading to high prices and a lack of innovation. The increase in interest by Chinese firms has increased the amount of competition, forcing prices down overall and improving quality.

The bleating of companies being forced out of cozy monopolies is probably one cause of the constant refrain we hear about the “dangers” of Chinese interest in Africa. We shaved the costs of that project in Ghana by over 20 percent from initial quotes by running a competitive process involving a Chinese firm. And, although that firm proved not to be the cheaper in the end, both it and its South African competitor came down considerably from their initial quotes because of the competitive tension we were able to introduce.

Chinese infrastructure investment is no panacea and needs (like any other major project), to be managed very carefully, something that African governments and project sponsors have often proved incapable of doing well. But such investment is a useful addition to the slate of options available to Africans and should be welcomed as such. — Wires.