The conviction on corruption charges and a two-year ban imposed on ZTE and Huawei Technologies in Algeria underscores the growing controversy surrounding the awarding of ICT contracts to Chinese firms in northern and sub-Saharan Africa.
The two companies were found guilty by a judge last week of corruption charges related to tenders for state telecom contracts, specifically for bribing executives at the state-owned telecom network, Algérie Télécom, between 2003 and 2006. In addition to a two-year ban on participating in telecom bidding in the country, the two companies have been fined 3 million dinar (US$30,000) each.
Two executives of Algérie Télécom, Mohammed Boukhari and Chami Madjodoub, were found guilty of receiving the payments and money laundering and were sentenced to 18 years imprisonment and ordered to pay $64,000 each in addition to the prison terms.
Three Chinese officials, Dong Tao and Cheng Zhibo of ZTE and Xiao Chuhfa of Huawei, were sentenced in their absence to 10 years in jail. Their extradition is being sought by the Algerian government although it is unlikely that China will extradite them.
Statements from the companies confirmed the details of the sentences but denied the charges. Huawei in a statement presented the companies as "victims of bribery as well," pushing the blame on the executives cited for the offence.
But the convictions put pressure on the China-based companies to show they can participate in telecom and networking bids in the region without resorting to bribes, industry insiders say.
"There have been several complaints of corruption practices by the two Chinese companies in Africa, which they have always denied. But with conviction of officials, ZTE and Huawei have to clear their names," said Edith Mwale, telecom analyst from African Center for ICT Development.
The Chinese government has funded several telecom projects in Africa through loans whose conditions are that supply and installation contracts are given to Chinese companies. ZTE and Huawei have been awarded several contracts by African governments and telecom operators to supply infrastructure support, laying fiber-optic cables and supplying devices such as modems and handsets.
Corruption has however become rife in Africa's telecom market as international telecom companies compete for supply contracts in the region's telecom sector.
In 2010, Germany-based Siemens lost the right to bid for World Bank-funded telecom projects in Africa after corruption allegations surrounded the company's acquisition of a supply contract in Nigeria. The company was found guilty of paying more than $12.7 million to three former communications ministers in Nigeria.
ZTE and Huawei, however, have faced more corruption allegations in Africa than other companies.
Last year, Nigerian lawmakers gave the go-ahead to a joint committee of police, public procurement, debt management and IT officials to investigate ZTE over a $470 million contract for the National Communication Security System. The investigation, currently in progress, is supposed to determine whether the award of the contract to ZTE conformed to guidelines for government contracts.
The Ugandan government last year blocked a $74 million loan from the Import and Export Bank of China (EXIM) earmarked for a digital migration project, in order to check into allegations of procurement flaws and overpricing by Huawei.
Separately, controversy arose in the country over a tender by Huawei to lay fiber-optic cable for the national transmission backbone infrastructure project. The national backbone and e-government infrastructure was a $106 million project, funded by a loan from the EXIM Bank of China. The project was halted over controversy involving allegations of inflated costs and the use of incorrect cabling.
In Kenya, controversy surrounded the award in August 2011 to the Pan African Network Group of China for the country's digital TV signal distribution operations. Opposition Kenyan lawmakers accused the Kenyan government of flouting the tender process and knocking local companies out of the bidding process in favor of the Chinese company.