Emerging donors (China), new finance, new ideas? Implications for governance and development

Addis Ababa Residential School on Governance and Development

CARLOS OYADevelopment Studies, SOAS, University of London

Email: co2@soas.ac.uk

Addis Ababa, 28 March 2012

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Some preliminary considerations on the China-Africa complex

• ‘Chinafrique’ represents a complex set of vectors (processes, linkages and relations)– Essentially: trade, investment, aid, migration

• Many of these elements linked in various forms of ‘bundling’ but not always

• Data problems: a lot published material but scarce evidence – problem of comparing ‘apples and lychees’ (Brautigam)

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Literature on China in Africa: a preliminary assessment

• Significant amount of junk until fairly recently: biased, anecdotal, methodologically flawed, naïve ‘China bashing’

• Good news: some serious scholarship emerging Brautigam, CCS-Stellenbosch, SOAS (Large, Corkin), Mohan-Power, many PhDs, etc.

• Bad news: still early days to assess ‘impact’ of a complicated process with multiple facets, lack of comparative analysis, still room for speculation

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Some antidotes against poisonous ideas…

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http://www.chinaafricarealstory.com

Review of African Political Economy

China Quarterly

articles since 2008

And some emerging empirically-grounded research

Understanding context and conditions: China

• Externalization of Chinese system of accumulation – ‘go out’

• Resource and energy security – long-term viability of Chinese development model

• Foreign exchange reserve accumulation use of reserves move away from risky financial assets and more into ‘real’ assets strategically designed to support China’s growth path

• Rhetoric and reality of historical links with Africa and the ‘South’ – diplomatic and strategic alliances

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Accumulation of international foreign exchange reserves (US$ million)

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Brazil

China

India

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In Africa... Growing discontent with ‘traditional’ aid system: some responses

• Changes in global aid architecture (Paris and Accra declarations and beyond) – unlikely in medium term / too many unfulfilled promises

• Breakdown of OECD policy consensus – contingently possible at country level

• Effective use of rents: ‘resource’ (Angola), ‘geo-political’ (Ethiopia) or ‘demonstration’ rents (Mozambique)

• ‘Emerging’ donors (mainly China, India and Brazil) and competition ‘revival of triangulation’ (Large) and increasing leverage for recipient countries?

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Some hypotheses about implications of Chinese aid to Africa for the political economy of aid

• Hypothesis 1: More policy space and bargaining power for African governments if additional aid reduces dependence on ‘Anglo-American’ like-minded donor bloc

• Hypothesis 2: Following China’s example – potential of technical cooperation at level of long-term strategic planning etc.

– learning from concrete lessons of Chinese experience? More suitable/relevant technical assistance? Alternative view in the political economy of development?

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Some hypotheses about implications of Chinese aid to Africa for the political economy of aid

• Hypothesis 3: financing necessary development of infrastructure that is neglected in current Western aid agenda – renewed focus on economic infrastructure

• Hypothesis 4: Good governance agenda to be neglected China’s reputation around its alleged support to ‘rogue’ states (e.g. Sudan, Zimbabwe, Chad): a threat to good governance ‘achievements’?

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Yes, impressive growth…

Source: Brautigam (2009, p. 170)

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Put all that in perspective:the relative magnitude of Chinese aid to SSA

US$ million - commitments

Source: own elaboration from DAC database and Brautigam (2009)

Chinese aid: $1.4bn in 2007; $1.8bn in 2008 and perhaps $2.5bn in 2009 (Brautigam)

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12Zimmermann and Smith 2011

“Financial resources provided by China for foreign aid mainly fall into three types: grants (aid gratis), interest-free loans and concessional loans. The first two come from China’s state finances, while concessional loans are provided by the Export-Import Bank of China as designated by the Chinese government. By the end of 2009, China had provided a total of 256.29 billion yuan (around US$40 bn in total) in aid to foreign countries since 1950, including 106.2 billion yuan in grants, 76.54 billion yuan in interest-free loans and 73.55 billion yuan in concessional loans.”

Information from recent China ‘white paper’ on aid

http://www.scio.gov.cn/zxbd/wz/201104/t896900_2.htm 13

Complex architecture

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Certainly not all about aid (especially if accurately defined) ...

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Putting China’s aid/investment magnitude in perspective

• So, note that relative importance of Africa for China’s go out strategy (in terms of both FDI and aid)

• Questions about the sustainability /contingency of China’s surge in Africa (check Chinese internal economic and political dynamics)

• China not the only significant non-DAC donor: consider Arab agencies and other ‘Southern’ donors (Brazil, India, Venezuela...)

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Hypotheses 1 and 2: A Beijing policy consensus for Africa?

• Importance of capital accumulation• Economic nationalism• Large-scale infrastructure: ‘to end poverty build a road’• Coordination governance capabilities and centralisation• Experimentation (no single recipe)• Focus on (rural) industrialization and manufacturing skills• Careful management of foreign capital and competition• The economic, political and social challenges of growing inequality

• BUT… China’s ambivalence towards promoting any development model: (a) no interference in policymaking; (b) ‘uniqueness’ of Chinese development path; (c) but belief in alternatives to hegemonic neoliberalism

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However, negotiating capital may be enhanced by emerging donors (China etc.)

• No policy strings a threat to ‘good governance’?• Focus on basic economic infrastructure and investment projects

with long maturity hitherto neglected by DAC donors• Less bureaucracy and transaction costs more cost-effective

and faster delivery ‘aid tying ‘may be inconsequential given competitive advantages

• Potential for technical cooperation at level of long-term strategic planning – learning from Chinese experience?

• But is magnitude and current engagement enough to induce radical changes?

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Hypothesis 4: A threat to ‘good governance’?

• What governance? Short-term moralistic/fiduciary vs long-term development concerns

• Empirical proof: One would have to empirically show that any ‘progress’ made on GG in Africa before China’s rise has been ‘reversed

• Double standards: ‘good governance’ record for OECD donors Ethiopia, Senegal, Uganda, Mozambique, etc. – aid-governance nexus is murky and open to manipulation as discussed yesterday

• And note:– China, albeit unevenly, works in 43 SSA countries and its presence in

‘rogue states’ much less important than usually assumed – Showing capacity to adapt and change (Sudan-Darfur issue)– Forms of aid ‘in kind’ (Chinese aid ‘packages’) reduce options for

theft/diversion of funds (little or no funds are actually transferred)– Chinese ‘aid model’ far from unique replication of Japan’s aid

experience in China20

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Perceived comparative advantage: a potential division of labour?

Who among the following partners are typically most effective at meeting the development objectives of the country?Source: http://www.voxeu.org/index.php?q=node/6741 and African Economic Outlook 2011 p. 109

So, can ‘emerging’ donors (China) make the difference?

1. Volume matters

2. Co-optation by DAC blocs avoided? Not all emerging donors similar (eg Brazil)

3. Whither donor harmonization?

4. Active promotion of ‘alternative’ economic policies?

5. Perception of increasing bargaining power matters for agency

6. Much depends on how African governments:– use their bargaining power to strike better deals with China and

– they use potential policy space (and added infrastructures) to induce changes in DAC donors’ practice

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