Tin Hinane El Kadi: “Collective bargaining would help maximise gains from negotiations with leading tech firms”

Tin Hinane El Kadi is a political economy researcher. She is currently writing a PhD thesis at the London School of Economics and Political Science (LSE), looking at China’s Digital Silk Road in North Africa.

This interview is also available in French.

How are Egypt and Algeria establishing and negotiating digital partnerships with strategic partners? What is the role of China in their digital transformation strategies?

So far major negotiations around digital issues have taken place within broader trade negotiations. Both Algeria and Egypt have engaged in trade negotiations on a bilateral basis whether it is with economic blocs like the EU or with other countries, limiting their bargaining power. The most contentious point in trade negotiations regarding the digital sphere has been around the free flow of data. Developing countries have increasingly been calling for data localisation while global powers like the US and institutions like the World Trade Organisation (WTO) have been pushing for a global data governance framework that favours the free flow of data across borders.

China is an increasingly important actor in this sphere. Unlike the US, China has been a vocal proponent of data localisation and data sovereignty. Many nations have introduced data governance frameworks that resembles China’s. The digital space is a notable aspect of recent China–North African partnerships. Chinese tech firms are becoming ever more important actors in North Africa through the Digital Silk Road, the digital component of the Belt and Road Initiative (BRI). North African governments see the Digital Silk Road as an opportunity to help bridge the digital divide and bolster their own national efforts to build digital economies and create high-quality jobs for the millions of unemployed university graduates across the region. In recent years, the region has become home to notable Digital Silk Road projects such as smart cities, satellite navigation centres, data centres, and network infrastructure. So, I would say that China plays quite a significant role in the region’s digital transformation strategy.

How are geopolitical digital rivalries between the US/China/Europe affecting Egypt and/or Algeria and how do they deal with these rivalries?

Developing countries haven’t had to choose between any of these big players so far. Often what we see on the ground is a mix of infrastructures, hardware, software, and standards that will mirror the interests of host countries and pre-existing ecosystems and social preferences. Several African countries purchase digital equipment from China because it tends to be of good quality and cheaper than alternatives that Western countries have to offer. Moreover, China provides funding for what is expensive backbone infrastructure. This is an undeniably significant comparative advantage for the globalisation of China’s ICT industry abroad. Both Algeria and Egypt have avoided picking sides in the current digital rivalries between great powers. Even though the US has attempted to bring these countries to stop purchasing Chinese digital equipment, the price competitiveness of Chinese ICT original equipment manufacturers (OEMs) such as Huawei and ZTE, and the access to loans they both provide though Chinese public banks, has meant that countries like Algeria and Egypt, seeking to expand and update their digital infrastructure, are often left with no other alternatives.

Interviews I conducted with diplomats in both countries have highlighted that not picking sides and continuing to work with whichever firm had the best offer in terms of technology and cost was the most strategic position for middle income countries as it allowed them to leverage different powers to achieve their economic, political and security goals.

Both the US and EU countries are advancing the objectives of de-coupling and de-risking strategies when it comes to their technological cooperation with China. How might this affect Africa in the future?

Both the EU and US have tried to convince African countries not to use Chinese digital equipment in their infrastructural mix, but they did not have any interesting alternative to put on the table. During the Trump administration, Washington was prompting its clean network programme. According to Washington it was a “comprehensive approach to safeguarding the nation’s assets including citizens’ privacy and companies’ most sensitive information from aggressive intrusions by malign actors, such as the Chinese Communist Party”. In practice, they offered loans to developing countries to remove Chinese equipment and replace them with more expensive but supposedly more secure US digital equipment. The Egyptian policymakers I have spoken to about this programme found it very insulting considering the huge infrastructural needs of the country. I suppose that the reaction of leaders in other African countries was similar, understandably so.<?p>

Huawei is a key choice for several African countries as they build their digital infrastructure. What is the company’s strategy?

Huawei has become a significant player in the ICT infrastructure of African countries. An estimate by foreign policy suggests that Huawei has built 70% of Africa’s 4G network. While this number was challenged by some experts, the reality is likely not too far from this. The shift to 5G will probably also be undergone with Huawei as it is more cost effective to stick to the same ICT provider.

I believe that Huawei has such a significant footprint on the African market for a set of reasons. First, the Shenzhen-based firm produces high-quality equipment that is cheaper than its competitors’ wares. Some analysts have estimated that Huawei’s equipment is about 30 percent cheaper than those of its competitors, but estimations vary widely depending on the type of technology. Huawei’s remarkable push to internationalise, including its price advantage, can be traced to the financial edge it derives from the Chinese state and the company’s commitment to R&D. Huawei and other Chinese tech firms venturing abroad benefit from access to large loans provided by China’s state-backed policy banks, specifically the China Development Bank (CDB) and the China Exim Bank. For instance, Huawei received one CDB loan to the tune of US$10 billion in 2004 and then received another for twice that amount in 2009. Credit from the CDB allowed Huawei to offer what is termed vendor financing, which is providing the financial backing for customers to make major purchases.

Second, considerable investments in R&D are a cornerstone of Huawei’s global success. The Chinese firm reinvests a far greater share of its profits back into production and R&D compared to U.S. firms like Cisco, which have grown increasingly financialised. This has been especially the case since the 2000s, when Beijing adopted a handful of policies to boost “indigenous innovation” in strategic areas. These policies reflected concerns in the Chinese Communist Party’s leadership that its low-value-added export path in the 1980s risked leaving China stuck indefinitely at the bottom of global value chains and vulnerable to the national security implications of foreign-controlled internet infrastructure. In response, new Chinese policies were aimed squarely to support the emergence of competitive domestic actors by offering a wide range of incentives for local public and private firms to enter the digital innovation fray. In this context, Huawei progressively ramped up its own R&D efforts and set out to overtake its global competitors.

Finally, a less-recognised factor behind Huawei’s success lies in the firm’s capacity to adjust to disparate cultural, political, economic, and institutional settings in different regions around the world. The tech giant has flourished in widely varying environments, from democratic Senegal to autocratic Cuba, from the United Kingdom’s (UK) liberalised telecommunications industry to Ethiopia’s state monopoly over telecommunications, and from the stable and prosperous EU to war-torn Afghanistan. Admittedly, Huawei’s operating environment in some of these locations is changing, with the UK government barring the firm from its 5G rollout. Nonetheless, these setbacks reflect geopolitical misgivings more than shortcomings in the firm’s technological and business capabilities.

Huawei’s bid to internationalise its operations has involved learning and making adjustments. Gaining local knowledge allowed the tech multinational to finetune its products on short notice to meet local customers’ evolving needs. For instance, in attempting to capture more smartphone market share in Muslim-majority countries, one of Huawei’s popular smartphones came with a built-in Muslim prayer reminder function and an app for locating nearby mosques. In Africa and other developing regions where the need for job creation, training, and technological upgrading is pressing, Huawei has emphasised knowledge transfer schemes by creating ICT academies, organising tech competitions, and providing scholarships to outstanding students.

In this context, collective bargaining could be an advantage for African governments. Why, in your opinion, is this not happening?

Indeed, collective bargaining would help maximise gains from negotiations with leading tech firms like Huawei. This could be done by attributing a greater role for African regional blocs. In North Africa, for instance, states could leverage their collective markets to bargain better deals with Chinese and other foreign multinationals. Moving beyond fragmented bilateral commercial negotiations with China would help level the playing field for all North African governments as they deal with Huawei and other companies whose investments and know-how they hope to attract and harness. However, at the moment, we are witnessing the opposite—more competition between different African countries to attract more tech investments than cooperation, leading in some cases to a race to the bottom. This is often due to political rivalries and domestic agendas which tend to be short-sighted. In North Africa, the increased political tensions between Morocco and Algeria (largely due to Western Sahara and Morocco’s recent normalisation with Israel), has made the realisation of the United Maghreb impossible. As it stands, the Maghreb is the least economically integrated region in the world.

Several African countries are claiming for increased digital sovereignty. What is your analysis of this? To what extent is this objective effectively included in the negotiation process and implemented in practice?

The success of the Chinese model has inspired other developing countries. With the rapid rise in digitisation since the Covid-19 pandemic, several African countries have adopted data localisation strategies. It is estimated that roughly 33 African governments adopted data flow regimes that subject data to contractual safeguards, prior authorisation, or mandatory localisation. Countries like Egypt, South Africa, Chad, Senegal, Tunisia, Kenya, Uganda, and Zimbabwe have all adopted conditional flow regimes for data protection purposes, with some taking stricter data localisation measures than others.

Notably, to achieve greater data sovereignty, Senegal was the first African country to replicate the Chinese data governance model that requires all servers to be located within a country’s borders. The West-African state moved all government data and digital platforms from foreign servers to a Huawei-built data centre in Senegal. The data centre was financed through a 46 billion CFA francs (70 million euro) Chinese loan. But this creates several issues. The danger of relying on Chinese surveillance technologies for African countries’ own cyber sovereignty have been somewhat concealed by China’s advocacy for data sovereignty in various global digital technology standard-setting bodies. Yet, an investigation published by Le Monde showed that confidential data from the Chinese-built African Union headquarters was diverted every night from Addis Ababa to Shanghai. Of course, China is by no means the only power involved in using the Internet for spying. US intelligence services have accessed the data of millions of citizens across the world through the help of US tech giants. Ultimately, data sovereignty will remain an elusive goal without building endogenous technological capabilities.

This discussion on negotiations with great powers inspires a serious rethink on that old chestnut: regional integration. Integration will contribute to improving the bargaining power and competitiveness of Africa as a continent in a way that can allow each country to better harness the benefits of foreign investment in general and Chinese investments in particular. Moving beyond the current bilateral relations with China is hence a necessary step to help even out the unbalanced relationships of the Asian giant with the region.

This interview is part of the Negotiating Africa’s digital partnerships: interview series led by Dr Folashade Soule with African senior policymakers, ministers, private and civic actors to shed a light on how African actors build, negotiate and manage strategic partnerships in the digital sector in a context of geopolitical rivalry. The series is part of the Negotiating Africa’s digital partnerships policy research project hosted at the Global Economic Governance programme (University of Oxford) and supported by the Centre for International Governance Innovation (CIGI).