The United States is stepping up its efforts to try and contain Chinese tech companies like Huawei with a new development financing program that aims to persuade countries in places like Africa to avoid using equipment made by the telecom giant.
The idea here is to challenge one of Huawei’s key advantages by providing government-backed financing that Washington hopes will convince governments and telecom operators in emerging markets to buy networking equipment made by Finland’s Nokia, Sweden’s Ericsson, or South Korea’s Samsung, for example.
The U.S. asserts that Huawei’s relationship with the Chinese government and the Chinese Communist Party presents a grave security threat.
USAID working together with the Development Finance Corporation and the U.S. Exim Bank is spearheading the new undertaking that, at least in Africa, is pretty much dead on arrival.
The fact that the U.S. government seems to think that trying to rival China’s infrastructure financing capabilities is a viable solution to confronting Huawei, one of China’s so-called “national champions,” demonstrates just how poorly they understand what they’re up against — especially in a place like Africa.
Consider the following three reasons why a plan like this faces long odds in developing markets in Africa, the Middle East, and elsewhere:
Reason #1: They’re Way Too Late.
This would have been a great program somewhere around the end of George W. Bush’s second term. Back then, Africa’s telecom markets were still wide open, and Huawei didn’t have the foothold that it has today. Mobile communications had not yet taken off, internet penetration was still low, and those markets were all largely up for grabs.
But it’s too late now. Chinese equipment makers have somewhere around 50-60% of the African telco networking equipment market and built an estimated 70% of the continent’s 4G network. Companies like Safaricom in East Africa are already too deeply invested with Huawei, so in the name of inter-operability, they’re probably going to go with Chinese kit when they upgrade to 5G. It’s just too expensive to do otherwise.
Reason #2: The Chinese Will Simply Undercut the U.S. Price.
W. Gyude Moore, a senior fellow at the Center for Global Development in Washington, neatly explained in a tweet today why the U.S. will never be able to compete with China Inc. on an initiative like this: “If this forces Huawei to drive down its prices or add sweeteners to its ICT deals – delivering great value for money in price-sensitive Africa, I am here for this.”
Whatever financing deal the U.S. offers an African country to buy non-Chinese-made telecom equipment, it’ll simply be countered by the Chinese with an even better offer. One would think that after watching their own industrial base get hollowed out by this exact Chinese practice, the U.S., of all countries, would understand how the Chinese operate.
Reason Number #3: It’s Not All About Money. Relationships Matter.
There’s no dispute that cost is a key factor for African stakeholders in determining which telecom provider they use and the fact that companies like Huawei and ZTE have been able to leverage state-backed financing to fuel their growth in places like Africa is undeniable. But it’s not the only consideration.
For more than a decade, Huawei has invested heavily in building relationships at the highest levels of government and telcos across the continent. Amid the COVID-19 crisis, those ties have only deepened. Huawei has been very effective in donating money, equipment, and services to countless African ministries. The U.S. doesn’t have those kinds of ties and it’s going to be extremely difficult, if not impossible, to get in between those relationships.
A Poorly-Conceived Policy That Simply Won’t Work
The U.S. case to persuade African countries of the dangers of using Huawei equipment and taking Chinese loans is further undermined when it misrepresents the problem. Bonnie Glick, the deputy administrator of USAID helping to lead the effort, told the Wall Street Journal “countries are left in a tremendous amount of debt, and China takes over control of national assets.”
Now put yourself in the position of an African leader whom she’s presumably trying to persuade with this logic. What national asset is she referring to that’s being taken over by the Chinese? That African leader, many of whom are understandably concerned about the dangers of Chinese indebtedness, will turn to his staff to ask for a list of distressed assets anywhere on the continent that have been handed over to the Chinese due to debt default.
They won’t come up with any because there are none.
The insistence on continuing with the Chinese asset seizure narrative despite the fact that scholars, analysts, and journalists have thoroughly debunked the charge just makes the U.S. look foolish every time it comes of their mouths. And the more they talk about this, the less they’re actually addressing real problems associated with China’s presence in Africa and elsewhere.
The bottom line is that this is a poorly-conceived plan designed by people like Glick who are clearly way out of their depth on how to challenge Huawei. It’s just not going to work.
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