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Mobile Phones Souring Africa's Image of China

Shen Hu
Tuesday, 18 Dec 2012 | 12:00 AM ET
Simon Maina | AFP | Getty Images

Every day, about a dozen mobile phone wholesalers field orders and manufacturer offers from offices inside a nondescript, five-story building on Luthuli Avenue in downtown Nairobi.

The building doesn't look like a hub for global commerce, nor does it have a name. But the Chinese wholesalers inside have sold millions of knockoff and budget-priced handhelds to Kenyans and the consumers across East Africa in recent years.

Indeed, the Luthuli Avenue wholesalers and their African retail partners have closed deals for about half of all phones sold in East Africa since 2009.

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All of these devices were made in China and sold with either pirated brand-name labels or through relatively obscure but legitimate companies such as Techno, Oking, G-Tide, Forme and X-TIGI.

These low-cost, sometimes short-lived devices have shaped the common Kenyan's impression of "made in China" – too often for the worse. Moreover, some say Chinese wholesalers pouring cheap phones into Kenya have torn a fissure in Sino-Kenyan relations.

The strain reached new heights in August when hundreds of domestic traders took to Nairobi's streets for anti-China demonstrations. Chinese phone dealers were targets of this wrath.

The protests coincided with a visit to Kenya by U.S. Secretary of State Hillary Clinton and were eventually quelled after the Chinese Embassy in Nairobi, Kenya's president and parliament intervened.

The phone furor prompted Kenya's four telecom operators, cooperating with the government, to start immobilizing the worst of the Chinese traders by adjusting mobile phone signals to effectively block every counterfeit handset in the country.

Telecoms in neighboring Uganda and Tanzania – the ultimate destinations for a sizeable proportion of the phones sold on Luthuli Avenue – are reportedly also weighing the pros and cons of counterfeit-phone lockouts.

Telecom signal tweaking in Kenya was aimed at about 3 million counterfeits among the nearly 30 million handhelds in use nationwide, according to the government's Communications Commission. About 75 percent of the nation's consumers own a mobile phone.

China's Half

Despite the protests and telecom action, low-cost Chinese handset makers appear to have cemented a strong presence on the East African market and are in for the long haul.

Global giants Samsung and Nokia together supply about 50 percent of the estimated 1 million mobile phones sold in Kenya to all East African buyers every month.

But the rest of the market is in Chinese hands. The Chinese device maker Tecno sells about 300,000 units monthly, the company says, while wholesalers on Luthuli Avenue said they sell about 200,000 units combined every month.

Some Nairobi-based wholesalers and their manufacturing partners in Shenzhen or other electronics hubs in China got a start in Africa through the counterfeit business and later switched to legitimate operations.

The founder of the company that makes Tecno phones, Zhu Zhaojiang, launched the business in 2007 without a counterfeit phase and two years later expanded into Africa. The company quickly opened offices in 17 countries across the continent. In addition to a Nairobi headquarters for East African sales, the company has an office in Lagos to oversee monthly sales of more than 1 million units in Nigeria.

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"We pulled out of our domestic and Asian markets early and made Africa the main focus," said Tecno sales manager Rocky Wang. "A billion consumers (across Africa.) What a vast market!" Wang said Tecno is now "a half-step ahead" of other Chinese mobile phone companies and beats the competition because "we don't have the attitude that many Chinese have to make a quick buck for huge profit."

When Tecno first opened in Kenya, Wang said, the company's monthly sales were no more than 40,000 units. At that time, Nokia controlled up to 80 percent of the market.

Kenya "is the center of all of East Africa." Ugandans, Tanzanians, and others from neighboring countries come here for procurement, Wang said. "And the market's capacity will be larger and larger" with the arrival of new buyers from Arab countries.

Lower on the mobile phone supply ladder is a Luthuli Avenue wholesaler surnamed Zhang, who's been marketing phones in Kenya for three years.

Zhang sells between 10,000 and 20,000 phones monthly, which is an average business pace for vendors in the building. Sales are hottest in the run-up to Christmas; in 2011 Zhang says he earned more than 1 million yuan between October and December.

Wholesalers benefit from the fact that the Kenyan government does not impose tariffs on imported phones. But profit margins can be thin because the best-selling of these Chinese phones retail for between 1,000 and 2,000 shillings, or about 72 to 145 yuan, apiece.

Chinese phone factories keep in close contact with Zhang, whose online QQ messenger service flashes incessantly with news about deals and upcoming models from Shenzhen manufacturers.

Phones are custom-designed for the African market. Many boot to lively, loud music and colorful video clips. Many have a capacity for dual SIM cards, which lets Kenyan consumers, for example, subscribe to the telecom Airtel for voice services and Safaricom for mobile Internet. Chargers and batteries, although usually short-lived, are the universal variety.

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At the last link of the market chain are small retailers like Boniface, a Kenyan young man who sells phones from a one-man stall down the street from the wholesalers.

"I sell six to 10 handsets a day," said the salesman. He said that he hopes one day to cut out the wholesalers by traveling to China and buying phones directly from factories.

Silencing Counterfeits

Kenyan communications commission officials say the telecoms' campaign against counterfeit phones silenced about 1.5 million units in the first two months. It's not just a legal move: The Kenyan government fears hard-to-trace counterfeit phones could pose a security threat as the country prepares for a presidential election in March.

Differentiating real and counterfeit handsets is possible by looking for a unit's International Mobile Equipment Identity (IMEI) number. Kenyan authorities and handset manufacturers built a database of phone users who registered their 15-digit IMEI numbers, which can be found on the back of a legitimate phone.

A distributor of Chinese handsets in Kenya confirmed that few made-in-China units had IMEI numbers before the crackdown. Now, following orders from the wholesalers in Africa, Shenzhen manufacturers add these numbers to phones that can be later sold as knockoffs.

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In his Nairobi home, Zhang takes basic phones shipped from Shenzhen and raises their value by sticking a brand-name logo on each unit cover. He works at a table in his living room with piles of nameless handsets, adhesive paper, and strings of metal Nokia labels.

In this way, wholesalers like Zhang have thwarted Kenyan customs agents who've tried but failed to crack down on counterfeit phones via operations at the border. Zhang picked a green knockoff Nokia and explained that a consumer would have a hard time distinguishing it from the real thing.

Chinese phone companies have been challenged by the counterfeiters, too. Thus Tecno, for example, has been cooperating with Kenyan crackdown, which Wang said he supports as a way to clear the market of fake Technos.

But Zhang said knockoff makers are simply filling a market demand in Kenya, and phone buyers are not left in the dark.

"Our clients tell their customers that this is a fake Nokia," Zhang said. "They don't cheat – and they can't. When has Nokia produced a dual-SIM phone? Only backpackers cheat Kenyans."

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"Backpacker" is the slang word for a traveling Chinese salesman. The Luthuli Avenue wholesalers say East Africa has been targeted by about 200 backpackers from Putian, a village in coastal Fujian Province. They travel in groups of two or three to small cities across the region, selling cheap phones.

Traveling salesmen and their phones are often loved for bringing conveniences to the poor and improving lives in these communities. But they've made enemies and turned popular sentiment against Chinese businesses by fostering a flood of Chinese goods in the region that stifle local industry and prospects for economic growth.

Liu Hui, a Chinese businessman, said traveling phone salesmen are preying on people at the bottom of society in Kenya, where the unemployment rate is as high as 40 percent.

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The Luthuli Avenue wholesalers have also spoken out against the phone peddlers, whom they blame in part for the protests in August that shuttered their businesses for a week.

"They took 2,000-shilling knockoff phones and went to the countryside to cheat people," said one wholesaler. "They told villagers they were real and sold them for 10,000 shillings. They deserve to be punished."

Eight backpackers were arrested in July for peddling knockoff phones. Five paid fines and were deported, while the other three were sentenced to jail.