What Works for Africa? - Analysing the Chinese and World Bank Models
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Transcript of What Works for Africa? - Analysing the Chinese and World Bank Models
List of Contents
1. INTRODUCTION 3
1.1 Defining the Problem 41.2 Structuring the Study 5
2. THEORIES ON ECONOMIC DEVELOPMENT 6
2.1 Market-led Growth; comparative advantage 62.1.1 THE PROFITABLE INVISIBLE HAND 82.2 State-led Growth; building industries 102.2.1 THE ACTING STATE 122.3 Stairway to Heaven; theoretically derived variables 143.1 The Beijing Consensus 163.1.1 STATEMENTS 163.1.2 IMPLEMENTATION 183.1.3 THE MODEL 213.2 World Bank Growth Strategy 223.2.1 STATEMENTS 223.2.2 IMPLEMENTATION 243.2.3 THE MODEL 26
4. METHODS; SEARCH FOR CAUSALITY 27
4.1 The Dependent Variables 284.2 Chinese Cases 314.3 World Bank Cases 31
5. ECONOMIC EFFECTS 33
5.1 Impacts of the Chinese Model 335.1.1 ANGOLA 335.1.2 SUDAN 355.1.3 CAUSAL CLAIMS 375.2 Impacts of the World Bank Model 395.2.1 UGANDA 395.2.2 RWANDA 415.2.3 CAUSAL CLAIMS 43
6. CONCLUSION 51
7. FURTHER PERSPECTIVES; DEVELOPING DEVELOPMENT 53
8. REFERENCES 55
9. APPENDIX 64
9.1 Case selection – World Bank Model 64
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1. Introduction
The Chinese advance on the world stage and their influence in the developing world has been
widely studied, but Chinese commitment in Africa in particular is often seen to lack a genuine
Chinese motivation for Africa’s development – politics solely based on its own interests (Tull,
2006). This is problematic in the sense that even though such motivation might be present, it
does not change the outcome of their actions. The effect of their infrastructural and trade-
related investments with no strings attached is still an object worth studying.
The development doctrine of the World Bank and its specific policy recommendations for
Africa has also been the subject of extended research and evaluation, resulting in the addition
of democratic institutional conditions and a certain acceptance of government trade
facilitation to the otherwise exclusively free trade and economic laissez-faire policies of the
former Washington Consensus.
Nevertheless, the two models have rarely been set up against one another in any way, but as
incompatible examples of different motives. It is taken for granted that the World Bank model
is altruistically better for Africa’s development – in spite the fact that studies have shown the
economic consequences of some of their former policies to be directly harmful for African
progress (Laird, 2007; UNECA, AfDB & WTO, 2007). Further critique points to the fact, that
most of Africa has not shown the same results as the speedy advance of the Asian tigers. The
main puzzle of this is what actually works for Africa? We try to pursue this through the
following problem:
How do the Chinese and World Bank models affect the economical development of Africa?
In answering the problem, two key challenges are present. Initially, it is fundamental to clearly
define what economic development is. If not, it will be all but impossible to choose the correct
dependent variables to look at, and argue for causal mechanisms. Secondly, it is essential to
determine the concrete nature of our explanatory variables – what the models consist of – to
be able to determine any causal link and answer how they affect economical development.
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1.1 Defining the Problem
The main paradigm of economic development today is economic growth led by exporting
goods – that is by increasing production of goods to be exported and converted to income
(Gibson et al., 1992: 342). Hence, economic development is seen as the value of the goods
produced, and exports as a way of generating income to increase this value. Even though
exports are not the only way of achieving economic growth, it is the dominant view. Because
of this, we have to look at the theories within this export-led growth paradigm to identify our
variables and theorems for the analysis.
To identify what the models actually do in Africa1, it is necessary to establish what constitutes
a model as such. Here, we define a model as: a coordinated set of implemented policies on a variety
of areas.
We have no intension of pursuing the question of motivation since this is not relevant for the
problem posed. The effect of a model is the same whether it was implemented for development
purposes or not. Consequently, the reasons for them doing as they do are not important here.
The choice of China and the World Bank must be seen in the light of their differences. Today,
with development procedures more or less standardised across the DAC countries2, their
multilateral organisation, the World Bank, stands increasingly out from the non-DAC
countries acting bilaterally. Of this latter category China attracts the most attention because of
their potential importance as they continue their economic and political rise. Thus, they might
not be equally important in numbers, but as two distinct models, they are the frontrunners.
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1 By Africa we mean sub-Saharan Africa (SSA), which include the 48 countries of continental Africa except the North-African countries, which have a very distinct culture, foreign and trade relations from those of SSA.
2 Member countries of the Development Assistance Committee (DAC): Australia, Austria, Belgium, Canada, Denmark, Finland, France, European Union, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States.
As a consequence of the definitions made, a model’s effect on
economic development is the variation on the variables derived as
the exhaustive theoretical elements of economic growth caused by
the policies of the model.
1.2 Structuring the Study
The analysis will focus on assessing causality between the models’ policies and the variables
acknowledged as exhaustive in describing economic growth. This requires looking at theorems
from across the continuum of export-led growth theories, identifying the concrete policies that
make up the two models and performing a case-study to clarify any co-variation between these,
as well as a discussion of the short and long run aspects of these causalities.
An essential element for causal claims to be made on the problem posed is chronology. Since
both models include relatively new strategies, dating back to the turn of the millennium, this
will be the reference point of the analysis. This makes for the following structure:
Review of the two poles within export-led growth theories to derive our dependent
variable, which are all the relevant variables relating to economic development.
Examination of the stated and implemented policies of China and the World Bank
to determine the precise contents of their models which makes up our explanatory
variable.
Discussion of the need for a qualitative case study to decrease the risk of influence
from neglected external factors and execute an operationalisation of the dependent
variables for a consistent analysis frame.
Assessment of co-variations over the last decade between the model and the
dependent variables present in both cases of each model and theoretical explanations
to claim causality.
Evaluation of the prospects for longer run effects of the Chinese focus on
infrastructure and the World Bank’s focus on institutions.
Conclusion on the advantages of the Chinese model in the short run, and its
probable shortcomings in the long run compared to the World Bank broad focus on
institutional capacities.
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2. Theories on Economic Development
Economic development is often unclearly noted as a combination of lots of different variables,
even though the combined value of goods produced divided by the size of the population
(GDP per capita) seems to be the favoured single measurement (Meier, 1995: 7). Here, we
accept the GDP per capita as the definition of economic development. We acknowledge that
the broader term of development has to include more aspects, but in the world of economics
GDP per capita is the macro aspect. Further, the main paradigm of economic development
today is that growth is to be achieved by increasing exports. To understand the effects of
models operating within this trade-oriented paradigm we have the privilege of not having to
deliver numerically precise effects and thus be bound to a single theoretical set of rules. To
understand how models work within the paradigm of export-led growth, and which variables
they focus on to achieve higher GDP, we can look at theories from both sides of the continuum
to get the full inclusive picture - the free trade market-led arguments and the protectionist state-
guided thoughts.
2.1 Market-led Growth; comparative advantage
The idea behind market-led growth theory came in Wealth of Nations where the Scottish
economist Adam Smith answered the question of what makes an economy grow. He
concluded that economic growth is achieved through capital accumulation, free trade, an
appropriate (limited) role for the government, and a system of justice, however most
importantly, individual entrepreneurship (Greenspan, 2008: 249). If a nation is to achieve
greater wealth people must be permitted to freely pursue their own interests. Competition is
crucial because it motivates everyone to be more productive, usually through specialisation and
labour division. If every individual competes for private wealth, they act as if controlled by an
invisible hand for the benefit of society (Greenspan, 2008: 249). The absolute essential
ingredient in this classical capitalism is the power of competition, since this is the driving force
for technological gains and new procedures, which constantly increase productivity and thus
wealth. Outdated and uncompetitive production gives way to what is new and improved. This
has been termed creative destruction (Greenspan, 2008: 248).
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The international trade dimension of this classical capitalist view stems from the English
economist David Ricardo, who envisaged the idea of comparative advantage. The idea is that if
every country produces the type of commodity which it can manufacture with a comparative
advantage to other countries, everyone will benefit (Meier, 1995: 455). The traditional example
of this theorem is an illustration of possible trade policies of Portugal and England in the early
19th century. The Portuguese are better at producing both wine and cloth for every unit of
labour, but they are relatively more productive (“more better”) at wine production. This means
that the ratio of wine production per unit of labour between Portugal and England would be
higher than the cloth ratio, even though both favour Portugal. England thus faces a
disadvantage in both commodities but is relatively less disadvantageous in the cloth
production, their comparative advantage. It would then be mutually beneficial if Portugal
produced wine and England cloth with a free trade agreement allowing Portugal to export
wine and import cloth, and vice versa. Thus, they could both consume more goods because
they are able to import commodities at a lower opportunity cost than if they produced it
themselves.
The Ricardo model produces the basic argument for the benefits of free trade. However, it does
not incorporate more than a single factor of production (labour) and it requires technological
differences between countries in order to produce comparative advantages. With equal
technological progress in the Ricardo model there would be no reason for trade, and all
countries would become autarkies.
The Swedish neo-classical economist Bertil Ohlin came up with another model built around
the principle of Ricardo. It explained the comparative advantage by endogenous variables
instead of the exogenously given technology. The model focuses on the relative endowments of
labour, capital and natural resources. A country has a comparative advantage in commodities
requiring factors of production which are relatively abundant locally. Hence, free trade would
be beneficial if countries produced goods in whose production they had a natural advantage,
be it because of natural resources, cheap labour, or easy accessible capital – the Heckscher-
Ohlin theorem (Meier, 1995: 455). This model includes more factors than Ricardo, but it builds
on the premise of equal production technology in all countries, meaning that the specialisation
heralded by Ricardo would be impossible. Even though industries with increasing returns to
scale have proven specialisation useful, thus promoting the classical model, the Ohlin model is
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none-the-less extremely relevant in showing the potential benefit of trade, and thus free trade,
even between countries of equal technological level.
2.1.1 THE PROFITABLE INVISIBLE HAND
The free trade theories see development in the light of the sophistication and thus income of
each unit of export. Countries enter the world market exporting natural resource-intensive
products, and then by the profits of trade, move on to more profitable commodities, from
unskilled labour-intensive, skilled labour-intensive, capital-intensive to knowledge-intensive
products.
In general, classical and neo-classical economists alike tend to focus solemnly on the trade
benefits derived from the import-side. Internal resource allocations are prerequisites for the
comparative advantage to maximise imports as described above. However, Adam Smith
originally envisaged another starting condition for international trade more aligned to Ohlin’s
factor of production theorem; countries enter the world market with idle land and labour. This
surplus vent or excess factors of production (as we might call it to stress similarity with the
natural resource advantage postulated by Ohlin) are unused because of a lack of demand from
the domestic market. By opening up the market the labour division can work to its fullest and
have further incentives to improve its production powers, and to augment its annual produce to the
utmost (Smith, 1937: 415). Exports can thus increase without a decrease in domestic
production. This theorem does however rest on the assumption that domestic consumption
holds back production technology.
Another key facet of the classical economists’ view on the market’s ability to improve
production is the availability of natural resources. The classical free trade view is that these are
of no significant permanent importance since the production capacities of a country are the
sole determinant of its wealth, present or future. Having natural resources as the main source
of export income is of course useable but the income is best when it is utilised via investment
in future production facilities that can generate more income per unit of labour. Nonetheless,
the output must be regulated very skilfully to be beneficial in this matter. The potentially large
inflows of income can be very harmful on ascent up the ladder. This is so due to the so-called
Dutch disease – a fast increase of international demand for a certain product paid for in local
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currency will drive up the exchange rate thus damaging the exports of the otherwise more
profiting production sectors. On top of this, there is the risk of inflation caused by an
overheating economy and a reduction in the gained purchasing power of the population.
However, if such a rise in the exchange and/or inflation rate can be controlled, e.g. by altering
the interest rate or reversing a budget deficit, the availability of natural resources does provide
for a comparative advantage in the longer run according to the Ohlin model and a means of
income to be used on production facilities in the short run.
The fear of Dutch disease brings up regulation as another element. Naturally, free trade
theorists see a very limited role for state intervention, but market failures such as rapid
inflation, monopolies, external costs and benefits and dysfunctional infrastructure and market
institutions do justify government interference. Price control, tariffs and similar acts do not.
Institutions are understood broadly as the existence of a number of linked rules and routines
that define and determine a connection between a role and a case as a proper action.
The main point is that state interventions are accepted to fix severe problems, not to meddle
with trade relations in general.
If the state were to intervene in trade relations by protectionist policies, the effect would be a
deadweight loss (Pindyck and Rubinfeld, 2005: 328). The free market is formidable at weeding
out the inefficient companies through creative destruction. It is an immensely difficult task for
a government administration to copy (and improve) these beneficial parts of the free market to
predict which industries will turn out to have growth potential. Even if this is obtained, the
administration would have to calculate the correct level and period of time for the protection of
domestic industries.
Further, if companies are never fully released and domestic markets kept in a permanent state
of protectionism because of a lingering perception of exploitation, all the documented benefits
of free trade would be lost.
The theorems presented rest on the assumption of capital mobility internally in order for the
market-led best allocation of resources. If this is not the case, internal competition as well as
production costs will suffer resulting in difficulties competing internationally and damaging the
technological progress of the domestic industrial sector.
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2.2 State-led Growth; building industries
The other pole on the export-led growth theory spectrum is state-based theory and is as most
economic theory, built on the widespread critique of the classical argument presented above
(Singer, 1950: 476). The greatest problem of comparative advantage is its static nature. It does
not incorporate the dynamic effects of trade, such as economies of scale, increased
competition and new technology (Vylder, 2007: 37-38). This critique took off especially in the
1950’s fuelled by the work of Hans Singer and Raul Prebisch. They independently presented
an empirical study examining the terms of trade between developed and developing countries
claiming that not only was the benefits from trade not equally shared, but in some cases
actually harming the developing countries (Toye and Toye, 2003: 437-8):
“The specialisation of underdeveloped countries on export of food and raw materials to
industrialised countries, largely as a result of investment by the latter, has been unfortunate
for the underdeveloped countries” (Singer, 1950: 477).
Singer identifies three reasons related to this fact. His first point is that it is not the developing
countries that benefit from the main multiplier effects of the foreign investment, but the
investing countries themselves. The reason is that the investment aims at increasing
productivity of the export-sector of raw materials and food, which, by lowering prices, benefit
the investing countries who import these commodities (Singer, 1950: 474-5). Furthermore, the
productive facilities are often foreign owned as a result of the investment and are therefore
often not included in the internal economic structure of the developing countries (Singer, 1950:
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• Trade flows (import and export)
• Productiveness (investment in production)
• Labour (sector of occupation)
• Government role (corruption, tariffs)
• Financial institutions (exchange rate, interest rate, budget balance, inflation)
• Infrastructure
Variables derived from market-based export-led growth theory
475). The multiplier effects of increased employment, education, capital, technical knowledge,
creation of new demand, etc therefore mostly end up in the investing countries.
Secondly, he discusses Keynes’ principle of opportunity cost, and argues that specialisation on
exports of food and raw materials offers less scope for technological progress than
manufacturing industry (Singer, 1950: 477).
Thirdly and most important are the terms of trade. Prebisch and Singer found that the terms of
trade between commodities and manufacturing goods deteriorate over time from the
perspective of the former (Singer, 1950: 477). For a given level of exports, developing countries
exporting commodities and importing manufacturing goods will be able to import less and less.
This is first of all because of low product diversity on commodities. The only thing producers
hereof can compete on is price, so when productivity rises the price will go down and most of
the surplus will go to the buyer, not the producer. The opposite is the case for manufacturing
goods, which means the producer will be able to keep a share of the surplus from a rise in
productivity. Even though prices on commodities fall, the demand does not rise
proportionately, because of low price elasticity on demand for commodities (Singer, 1950:
479). Consequently Singer concludes that:
“The industrialised countries have had the best of both worlds, both as consumers of primary
commodities and as producers of manufacturing goods, whereas the underdeveloped countries
had the worst of both worlds” (Singer, 1950: 479).
The critique stresses that a move towards more profitable export commodities is highly
doubtful with respect to the market mechanisms, which will instead work to keep countries
firmly at their initial type of export commodity. With free markets someone will always be at
the bottom. Instead of spurring a supply-side industrialisation response, it prevents it.
To change the situation created by the free market both Singer and Prebisch agreed that the
state ought to intervene in the economy. They discard the development process in free trade,
accepting the theoretical benefits at the moment of trade, but claiming a polarising and
escalating unequal distribution of world resources in the longer run.
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2.2.1 THE ACTING STATE
In 1991 Krugman identified three conditions for a manufacturing-friendly environment:
labour-supply, infrastructure and product-demand (Krugman, 1991: 487). The labour-supply
needs to be cost-efficient, meaning as educated and cheap as possible. To ensure this, the state
can provide education and security for basic needs, which will keep wages down (Stein, 1995:
6-7). Furthermore, to keep company-expenditures down, the state can provide infrastructure
such as telegraphs, postal service, water supply, coastal shipping, ports, harbors, bridges, lighthouses,
railways, electricity, gas and technical research (Stein, 1995: 7-8). Thirdly, the factor of product-
demand is listed because of the savings on transportation costs by selling nearby. However,
since Krugman wrote this in 1991 transportation costs have gone considerably down,
indicating that the condition of product-demand might be superfluous (Postrel, 2006).
Krugmans theory is not a development theory but a trade theory, and consequently do not
discuss development. Besides the conditions for industry presented above, the state can pursue
other means to build up an industry.
The first tool is trade policy. Both Singer and Prebisch argued for the use of Import
Substitution Industrialisation (ISI)3. ISI is theoretically grounded on the “infant industry
argument” and holds that state protectionism is needed when the domestic costs of production
exceeds the product’s import price (Baldwin, 2003: 5). Infant industries do not have the
economies of scale to compete with already established companies. The crux of the ISI is to
support strategic substitutes for foreign manufactured goods for which there already is a
domestic demand, by installing tariffs on these manufactured goods. In theory this will shift
demand in favour of domestic producers and limit the import to capital goods (e.g. machinery)
and essential intermediate inputs needed for the industry (Baldwin, 2003: 4). When the specific
industry has gained competitiveness the trade barriers should again be removed. However, ISI
is only supplementary when building up an industry. Research has shown that in cases (mainly
Latin America) where the ISI have been extended to all manufacturing it has negatively
affected the government budget, inflation and balance of trade (Baldwin, 2003: 10).
A second tool is the exchange rate. The common policy to gain competitiveness is to devalue
the currency. This however is not a permanent path to development, so the aim should be to
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3 The argument was first introduced by Alexander Hamilton in 1791, and later formalised in economic terms by John Stuart Mill
pursue a policy of stable or only slightly deteriorating nominal rate of exchange (Stein, 1995:
12).
The third tool is investment. According to the Solow growth model, investment is the key
determinant of growth. If capital added by investment exceeds the depreciation of existing
capital it will result in a growth in output and the stock of capital (Mankiw, 2007: 195). In
Solow’s model it is the private saving rate that determines the level of investment. However, at
an initial state of development the private sector may be unable to save up capital and therefore
capital may be of short supply. To initiate development, capital can be made available either by
state loans, development aid (in the case of developing countries) or by foreign capital in the
form of foreign direct investment (FDI) (Stein, 1995: 16). In the case of FDI, it is important to
ensure that the capital is not used to deplete natural resources, but is invested in industrial
programmes. It is therefore important for the state not to pursue a laissez-faire policy. State
loans are not without problems either since public debt must be paid off eventually and with
interest. Finally, to ensure that investment is not crowded out, it is essential to maintain low
inflation through macroeconomic stability (Stein, 1995: 13-14).
A crucial condition for successful state intervention is the presence of a strong state without
corruption and the influence of selfish stakeholders (Stein, 1995: 19-20). The state needs
capacity and skill to steer the economy and to implement and sustain an industrial strategy.
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• Trade flows (import and export)
• Productiveness (investment in production, export diversification)
• Labour (sector of occupation)
• Government role (corruption, tariffs)
• Financial institutions (exchange rate, interest rate, budget balance, inflation)
• Infrastructure
• Education
• Capital flows (aid, debt, FDI)
Variables derived from state-based export-led growth theory
2.3 Stairway to Heaven; theoretically derived variables
The theories agree as far as trade is the path to economic development through the profits of
exporting goods. And further, that a better production technology means more profitable
exports. Thus, to increase gains from trade and experience a continuous rise in economic
development a country needs to move up from resource-intensive products. This move up the
ladder towards the developed world’s profitable knowledge-intensive industries is illustrated
below in the ladder of comparative advantage. The climb on the ladder is seen as a sign of
economic and technological progress earning more and more income per unit of export goods
produced.
The move up the ladder is determined by an effective allocation of domestic production
resources. However, the path to achieving this is much contested. Both views agree that some
sort of state regulation is required, but they disagree about the scope and nature hereof. In the
market-led growth theory the state should act to secure macroeconomic stability but regulate
only to address severe and concrete obstacles for the market to function, whereas the state
according to the state-led growth theory should steer the economy in a certain direction.
Bottom line: laissez-faire or faire.
Below is the sum of the variables presented in the two theoretical poles. Together they
represent the dependent variables to be looked at when determining the Chinese and World
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Ressource-intensive (rice, timber)
Unskilled labour-intensive (textiles)
Skilled labour-intensive (electronics)
Capital-intensive (machinery)
Knowledge-intensive (computers)
”Natural” comparative advantage: Ricardo- and Ohlin-type exports
“Created” comparative advantage: Krugman-type exports
The ladder of comparative advantage (Meier, 1995: 458)
Bank models’ affect on economic development. They will be operationalised when discussing
the analysis methods.
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3. Model IdentificationsTo analyse the effects of the Chinese and World Bank models using the variables found above,
requires clarification of the concrete contents of both, and whether we can actually talk of two
distinct models. To identify the two models as such using our definition (a coordinated set of
implemented policies on a variety of areas), it is necessary to address a number of initial obstacles.
First, it is more or less impossible to go about it entirely inductive. Which data should be
collected? With 48 countries in sub-Saharan Africa, how would one set the minimum standard
for scale variables defining Chinese or World Bank commitment? Second, if we only fix our
eyes on the output, it would be very difficult to determine analytically whether a possible
pattern in variables would be the actual course of a Chinese or World Bank model or simply
random similarities as a result of external factors.
To avoid these problems we find it prudent to look at the linkage between the stated official
models and the actual implementations. Not that the outcome has to equal the objectives set by
Beijing or Washington bureaucrats. The idea is that if the published visions match the actual
policies we can talk of an actual model, including both a coordinated theoretical background
and a will to implement it. Any mismatch herein will mean either a dysfunctional bureaucracy
or empty rhetoric. In this way we get around looking for unknown data and can determine that
an identified pattern was actually coordinated. However, it does pose another problem; the
stated objectives and the actual objectives might not be the same, resulting in parts of the
model being left out because of them missing in the official documents. We do acknowledge
this difficulty, and accept that the inductive approach is needed in cases where a pattern of
action is found and absent from Chinese or World Bank statements even though it would
require central coordination. This is not the optimal solution but it will minimise errors
compared to other methods, and is necessary since we cannot expect every part of the models
to be explicitly formulated.
3.1 The Beijing Consensus
3.1.1 STATEMENTS
The starting point of Chinese-Africa relations is stated as historically determined by years of
friendship with a mission of South-South cooperation to preserve their own interests to the fullest
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possible extent in the process of globalization (FMPRC, 2003a), the interests of the developing countries
as a whole (Hu Jintao, FMPRC, 2004) and the establishment of a just and equitable new international
political and economic order (Beijing Declaration, 2000). The concrete meaning of this new
political and economic order is the mutual respect of sovereignty stated in every FOCAC-
declaration, the White Paper and numerous speeches (FMPRC, 2003b; FMPRC, 2006).
Besides these proclamations of common interest and friendship, high-level contacts and state
visits have been stated as a way to enhance cultural understanding and consolidating
comradeship within the developing bloc (FMPRC, 2009b).
The most debated of the official Chinese objectives in concern to Africa is trade relations. The
fact that China sees a huge potential for mutual benefit in expanding trade with Africa is seen
in a number of speeches by Chinese officials (FMPRC, 2009a). They do however acknowledge
in joint Afro-Sino statements that the inter-dependency of globalised economies benefits
developed countries to a higher degree and that it severely challenges the economic security of the
least developed countries (FMPRC, 2006). As a consequence, China reports that it is willing to
take preferential measures to increase imports from Africa and further encourage well-
established Chinese enterprises investing in Africa to create more local jobs, increase technology
transfer and shoulder greater social responsibilities (Hu Jintao, FMPRC, 2004; FMPRC, 2009b).
Another additional reason for the afore mentioned emphasise to trade with Africa is described
by Hu Jintao as the economies being fairly complementary giving that Africa is rich in natural
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• Trade flows (import and export)
• Productiveness (investment in production, export diversification)
• Labour (sector of occupation)
• Government role (corruption, tariffs)
• Financial institutions (exchange rate, interest rate, budget balance, inflation)
• Infrastructure
• Education
• Capital flows (aid, debt, FDI)
Variables derived from export-led growth theory
and human resources and China has applicable know-how and experience (…) the potential for
cooperation is enormous (Hu Jintao, FMPRC, 2004).
3.1.2 IMPLEMENTATION
The Chinese statements of friendship and the importance of South-South cooperation have
been duly realized in regard to high-ranking Chinese officials visiting and signing deals with
African countries as well as the doctrine of non-interference in internal matters (Zhiqun, 2007:
6; Davies, 2008a: 134; Abramowitz, 2007). In fact, the absolute majority of the FOCAC deals
have been made by high-ranking officials in closed negotiations prior to the summits in which
they are revealed (Davies, 2008b: 10). Chinese political support in Africa has been growing
steadily since the introduction of FOCAC – in 2000 eight African countries recognised Taiwan
as the Chinese Republic, today only four are left, of which all are small and politically
insignificant (Davies, 2008b)4.
With regard to the objectives of encouraging investments by Chinese firms in infrastructure
projects, it has been widely pursued. 674 Chinese state owned enterprises operate in Africa
(Wilson, 2005: 9). The important point for understanding the economic causal mechanism is
not whether the number is high or not, but the fact that these investments are made by state
owned companies and is of focus in the Chinese model. The most significant investments
outside of the oil sector, to which we shall return, have been made in infrastructure. The
Chinese companies have been able to deliver projects 25-50 percent cheaper than competitors,
partly because of cheaper materials, inexpensive Chinese labour, access to government
subsidies and cheaper capital than locals, and less pressure by the Chinese Government (…) to adhere
to strict environmental and labor standards (Besada, 2008: 13) More, Chinese state owned
companies do not face the same pressure for short-term profits as do their Japanese and
Western competitors (Kaplinsky, 2006: 3).
The distinction between aid and trade-related matters is not quite clear in China’s dealings with
Africa. The definition of foreign aid itself is not apparent but the Ministry of Commerce does
have a separate fund to be disbursed as grants, interest subsidies for interest-free and
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4 African political support was a crucial factor in China taking the permanent seat in the UN Security Council from Taiwan in 1971 (Taylor, 1998).
concessional loans, or technical assistance, which is aggregated as Chinese official
development aid (ODA) to be around US$ 2.3 bn. in 2006 (Davies, 2008b: 1; Besada, 2008:
13). One diplomat estimates the ratio of grants to loans to be around 50/50 (Davies, 2008b:
11).
The concessional loans and interest-subsidies that allows for very favourable loaning
conditions are met with conditionality from China EXIM Bank which administer these loans
on the basis of promoting economic development and trade with China (Davies, 2008b: 21,
Glosny, 2006: 19). The basic criteria is that
“Chinese enterprises should be selected as contractors/exporters and equipment, materials,
technology or services needed for the project should be procured from China ahead of other
countries – no less than 50 percent of the procurement shall come from China” (Davies,
2008b: 57).
EXIM Bank dominates Chinese assistance to Africa and by 2006 the World Bank estimated
that over US$ 12.5 bn. had been used to finance the earlier mentioned infrastructure projects in
SSA (Davies, 2008b: 7) – a huge cut of the total Chinese aid. A further characteristic is that
most of this aid is dealt bilaterally from government to government (Glosny, 2006: 22).
Another aspect of this trade-related assistance is the FDI which is to be separated from ODA,
although most of the Chinese enterprises active in Africa are state owned which makes the
difference between concessional loans to infrastructure projects and FDI supported
manufacturing a bit cloudy. Nonetheless, FDI from Chinese enterprises has surged within the
last 15 years, with Chinese FDI outward stock in Africa increasing from US$ 49.2 million in
1990 to US$ 2.56 bn. in 2006 – a 2,800 percent increase, albeit from a low level (Besada, 2008:
3). The investors have established around 480 joint ventures, primarily within oil, textile,
infrastructure, and agriculture. The latter being of particular importance with African
governments committed to food security. Resource extraction is by far the largest investment
object. About 80 percent of African export to China consists of five key commodities (oil, iron
ore, logs, diamonds and cotton) (Besada, 2008: 7).
Even though the trade boom is largely a result of energy and mineral products, it also reflects
Chinese trade policies such as removing tariffs on 196 imports from the 28 least developed
countries in 2005, expanded to 454 items in 2007. With the latter expansion, preferential
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treatment now includes light industrial, mechanical and agricultural products. The 2005 deal
was aimed at raw materials, e.g. copper, cocoa, sesame etc., which included only US$ 350
million worth of duty-free goods, or one percent of African exports to China. By now most
African exports receive duty-free access to China’s market resulting in increased African export
revenues (Besada, 2008: 6). Even taking the five key commodities out of the equation, 20
percent of the current US$ 60 bn. is much higher than 50 percent of US$ 4 bn. Further,
Chinese bilateral trade and investment agreements have been signed with three quarters of
SSA countries (Chan, 2007: 2).
Even though the Chinese go to great lengths to uphold the principle of mutual respect for
sovereignty, after their accession in the WTO they push for removal of import and export
restrictions on the international scene (Holslag, 2006: 134). In Africa the situation is somewhat
more delicate. Here, the Chinese seek to institute Special Economic Zones (SEZ), which they
themselves initiated with Deng Xiaoping’s reforms (Davies, 2008a: 134). The idea is to open a
given area for advantageous business opportunities but not to open up the entire society. Two
zones have been announced to be located at the copper belt in Zambia, and the Indian Ocean
Trading Hub in Mauritius. The last three are in the process of being established in Nigeria,
Egypt and Tanzania, with several other African countries planning such zones to attract
investment to labour-intensive manufacturing industries (Davies, 2008b: 25). Zambian
President Mwanawasa declared that Chinese companies would be allowed to operate without
having to pay import or value-added taxes, whilst the Chinese invested US$ 250 million in a
copper smelter at the Chambisi mine (Chan, 2007: 4; Davies, 2008b: 27).
Even though a wave of Chinese immigrants was not explicitly formulated in the policy
statements it is however a pattern seen all over Africa, with numerous new Chinatowns
housing 80,000 Chinese nationals who are working primarily in the retail business (Zhiqun,
2007: 4). It is not in direct contradiction with the notions of cultural and economic exchange,
which also includes an enormous increase in the number of Chinese tourists, but the
immigration could be classified as a case that would require official coordination and approval
from the Chinese authorities. Therefore, immigration of Chinese nationals can be considered
part of the model.
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3.1.3 THE MODEL
The first step of the Chinese model is made of speeches of friendship, mutual benefit, interests
and solidarity along with many frequent high-level visits both ways. The second step of the
model cannot be disintegrated chronologically but consists of the following key components:
•Debt relief, grants and low-interest loans (ODA).
• Concessional loans by China EXIM Bank to be used on large infrastructure
investment deals, primarily by Chinese infrastructure firms (ODA/FDI).
• Chinese investments and subsidies to Chinese firms that invests in Africa –
primarily in the infrastructure, energy, mineral and agricultural sectors (FDI).
•Trade deals including removal of Chinese import tariffs on African goods.
•Establishment of SEZ’s to attract and focus foreign investment.
•Energy deals granted to Chinese state owned enterprises.
The fact that this second step consists of a whole variety of FDI, ODA and trade, simply
reflects a situation with negotiations behind closed doors at the most senior level. The linking
between these has been shown in several studies (Davies, 2008b: 52; Davies, 2008a: 134;
Zhiqun, 2007: 15). It is not always possible to prove these links between state-granted aid and
energy deals to companies. Often, we cannot dismiss the fact that the energy or raw material
deals are caused by the simple fact that the Chinese Enterprises’ bids were simply more
competitive. One does not have to exclude the other however. They may well have lower bids
for the contracts and deals as we have seen and still use these in the documented package deals
including aid, trade, investments and political support.
The bottom line is that the Chinese model focuses to a very high degree on infrastructural
development and investments in business sectors with no serious political strings (apart from
the one-China policy and a certain push for SEZ’s).
The final step is the massive immigration of Chinese workers to the investment projects and for
job-seekers to the African retail business together with surging trade volumes, mainly in the five
key commodities, but African exports have also experienced growing demand from the
Chinese markets outside minerals and energy.
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3.2 World Bank Growth Strategy
3.2.1 STATEMENTS
According to the World Bank Operational Manual, “the Bank's mission is sustainable poverty
reduction [and] a critical priority is promoting broad based growth, given its proven importance in
reducing poverty” (The World Bank, 2004a: OP 1.00). They make low-interest loans available on
favourable terms to middle-income countries that could not, due to their poor creditworthiness,
be able to obtain them on the free market. Countries, who cannot afford these loans, are
eligible instead to interest-free loans or grants.
Their model for economic growth has shifted a lot on the continuum between market and
state-led growth theories since the institution’s birth. This has broadly followed the intellectual
debate as when John Williamson framed the World Bank model as a part of a Washington
Consensus. At that time the World Bank loans were distributed through the Structural
Adjustment Program (SAP) setting up conditions, which the developing countries should
comply to in order to acquire loans (Ohkubo, 2009). Williamson summarized the
conditionality in policies that followed the dictums of liberalization, stabilization, deregulation
and privatization (Williamson, 1989). Since then the World Bank model has changed, and we
will therefore not elaborate on the SAP any further. Nonetheless, having the SAPs in mind is
important when examining the present model for economic growth.
The present World Bank model was initiated in the late 1990s, with Joseph Stiglitz as Chief
Economist and James Wolfensohn as President of the World Bank Group5. Stiglitz was very
critical of the former Washington Consensus model. According to him, it was based on doctrines
and ideology that completely ignored the presence of market failures (Stiglitz, 2001: 57). Nevertheless
government failures exist as well, and Stiglitz therefore advocated for a middle way with
market forces at the centre of the economy but including government intervention (Stiglitz,
2001: 71). Stiglitz points out
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5 The group consists of five institutions: The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The IBRD and IDA make up the World Bank, while the three others are independent affiliates created and working in collaboration with the World Bank.
“…that there are numerous cases where government policies can make an enormous difference
for the better. Almost all the success stories in terms of economic development, such as East
Asia, were cases where government had assumed a very strong role.” (Stiglitz, 1998: 71)
The question is then how big a part the government should play. Stiglitz puts it this way:
“The issue is one of balance, and where that balance is may depend on the country, the
capacity of its government, and the institutional development of its markets” (Stiglitz, 1998:
8).
This is a withering away of the former concept of ‘one size fits all’. There is a need for a
specific development strategy for each country (Stiglitz, 1998: 16). These have been named
Poverty Reduction Strategy Papers (PRSPs). In relation hereto Stiglitz and Wolfensohn
believed that for the strategy to be successful the developing country should itself own and
manage the strategy (Wolfensohn, 1999: 9), because an
“…attempt to impose change from the outside is as likely to engender resistance and give
rise to barriers to change, as it is to facilitate change. At the heart of development is a
change in ways of thinking, and individuals cannot be forced to change how they
think” (Stiglitz, 1998: 20).
Ownership basically means that the developing country draws up the PRSP. The role of the
World Bank is therefore one of partnership. With the PRSP as the starting point, the
developing country and the World Bank in collaboration compose a Country Assistance
Strategy (CAS) pinpointing which areas the World Bank should aid (Stiglitz, 1998: 32). The
CAS will include not only transferring capital, but also providing knowledge that is essential for
development and capacity building (Stiglitz, 1998: 32).
In the CAS the World Bank strives for a holistic framework (Wolfensohn, 1999: 8). This is
outlined in the World Bank’s Comprehensive Development Framework (CDF) introduced by
Wolfensohn in 1999. Wolfensohn recognizes the multidimensional nature of providing
economic growth, and writes that:
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“We cannot adopt a system in which the macroeconomic and financial is considered apart
from the structural, social and human aspects, and vice versa.” (Wolfensohn, 1999: 7)
The World Bank therefore aims to scatter the loans to developing countries between both sides
of the coin; investment and adjustment. Wolfensohn emphasizes that the strategy should be
results-oriented; the reforms should not be ends in themselves, but serve as means to foster
economic development (Wolfensohn, 1999: 2).
3.2.2 IMPLEMENTATION
As explained above, Wolfensohn and Stiglitz advocate for the developing country to be in the
driver’s seat (Wolfensohn, 1999: 9; Stiglitz, 1998: 21). Even though the developing country fills
out the PRSP, it has to be approved by the World Bank together with the IMF who writes a
Joint Staff Assessment (JSA) pointing out their disagreements with the PRSP (Bretton Woods
Project, 2003). The judgment of the JSA indicates whether the World Bank will support the
country, which undermines the idea of ownership. This view was presented in an independent
evaluation of the PRSP initiative:
“The Bank management’s process for presenting a PRSP to the Board undermines
ownership. Stakeholders perceive this practice as ‘Washington signing off ’ on a supposedly
country-owned strategy.” (The World Bank, 2004b: 8)
Furthermore the evaluators point out that
“The content of Bank assistance strategies formulated subsequent to PRSPs overlaps with
the content of PRSPs. But PRSP programs are broad and not well prioritized, so this
overlap has not entailed major changes in Bank programs.” (The World Bank, 2004b: 8)
It is therefore the Worlds Bank’s Country Assistance Stategy (CAS) and not the country’s
PRSP that guides the World Bank’s model. As mentioned above the CAS is negotiated
between the World Bank and the developing country (at least officially). The negotiations are
conducted behind closed doors, making it hard to evaluate the process. However, the World
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Bank does not leave its view on economic development (the CDF), and the conditions (specific
policy actions) attached to its loans therefore persist (Bretton Woods Project, 2003). This
suggests a ‘take it or leave it’ approach, which questions the element of partnership. Stiglitz
holds that
“Although the particular priorities will differ from country to country, there are some
common elements.” (Stiglitz, 1998: 31)
These common elements are outlined in the CDF. Within the field of macroeconomics, there
has not been much debate since the days of SAPs. In Stiglitz’ paper he accentuate the
importance of an outward orientation, including free trade and encouraging foreign direct
investment (FDI) (Stiglitz, 1998: 37). Free trade, according to Stiglitz, first of all enables
specialization as explained by the comparative advantage theorem and secondly benefit the
developing country with “management expertise, technical human capital, product and process
technologies, and overseas marketing channels” (Stiglitz, 1998: 37).
How much has changed since the SAPs? According to Dani Rodrik, the spectrum of
conditionality has gotten even bigger, and he argues that there exists an augmented
Washington Consensus (Rodrik, 2001, 15). However, the contents are somewhat changed
towards a slightly more interventionist view on market failures and particularly a change from
decentralisation towards demands of good governance. In general the policies which the
government, according to the World Bank’s CDF, should pursue in order to create a strong,
competitive, stable and efficient private sector (Stiglitz, 1998: 24) include
• Education. Should be provided by the state. (Stiglitz, 1998: 31)
• Infrastructure. Especially communication and transportation. These should preferably be
provided by the private sector (Stiglitz, 1998: 31), which require a
• Legal and regulatory structure. This includes taxation, “competition laws, bankruptcy laws,
and more broadly commercial law.” (Stiglitz, 1998: 24)
• Good governance. State capacity building and fighting corruption. This covers “creating
political accountability, strengthening civil society participation (…) and establishing institutional
constrains on power” (The World Bank, 2003: 112-113).
• Social protection and health. This not only helps the functioning of the private sector, but
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also “contribute to the solidarity, social cohesion, and social stability of a country” (The World
Bank, 2003: 133).
Even though the afore mentioned implementation of policy recommendations follows the
principle of the SAP era, two main implementation changes have occurred on top of the
moderations of the Washington Consensus. First, the realization that the loans given though
the SAPs had not provided the target for economic growth meant that the World Bank initiated
a debt relief program for the Heavily Indebted Poor Countries (HIPC). The requirement to
participate in the HIPC program, except being heavily indebted, is that the country through its
PRSP shows a strategy for reallocation of the government funds freed by debt relief (The
World Bank, 2003: 114). Second, the balance between investment and adjustment is explicitly
articulated and statistics show that 75 to 80 percent is investment lending providing funds for
institution building, social development, and the public policy infrastructure needed to facilitate private
sector activity (The World Bank, 2003: 49).
3.2.3 THE MODEL
The World Bank model consists of both funding and technical assistance. The funding
comprises of loans below market rate, development aid and debt cancellation.
The technical assistance is specific policy recommendations provided in the World Bank’s
Country Assistance Strategies (CASs). As discussed above the CAS is greatly tied by the
World Bank’s ideological view on development, the Comprehensive Development Framework
(CDF). The overall categories of these policies are summarized below:
• Broad strategy. Both macroeconomic stability, and structural and social policies.
• Good governance. Capacity building and anti-corruption policies.
• Trade-facilitating state intervention. The state should regulate the market economy in a
way that encourages trade, FDI and private sector entrepreneurship
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4. Methods; search for causality
The focus of this paper is, as mentioned initially, on how and not how much the models of
China and the World Bank affect economic growth. Or more precisely, which causal links can
be claimed between the implemented policies of the models and the variables derived as the
exhaustive theoretical elements of economic growth.
To claim causal links four preconditions are needed (Agresti & Finlay, 1997: 357):
Co-variation between implemented policies and changes on the dependent variables.
Chronology in the claimed causal direction – the models’ policies must be
implemented before any co-variation can be acclaimed as their doing.
Absence of spurious factors from external factors in the causal line.
Theoretical explanation of the variation as a cause of the explanatory variable.
This calls for a qualitative method of case analysis because of the ability to include theory in
the assessments. This helps to focus on the precise variables influencing the particular outcome
thus limiting the likelihood of spurious effects. In dealing with complex processes such as the
economy, which includes a great many interacting variables and indicators, the extent and
limiting of spurious effects are of vital importance. As a result, the ability to determine that an
outcome is due to a particular cause is rarely possible in such circumstances. However, by
looking in depth at specific cases we are able to narrow down the likely cause.
With regard to the chronology, the first FOCAC meeting of the Chinese model was held in
2000 while the World Bank CDF strategy was introduced in 1999 making the reference point
of our analysis the year 2000 and the time frame of changes in the dependent variables the
years 2000 to 2008. In the data collection we strive to get data as close to these two target years
as possible.
If we were to study the models quantitatively, there would be a need for more cases than the 48
countries in sub-Saharan Africa to get a statistically valid answer on the level of economic
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impact. This is so because several SSA countries cooperate with both China and the World
Bank simultaneously, which makes it difficult to conclude which model is causing the
outcome. This is a further complication of the many interacting variables of the complex real
world. This is not a point exclusively for a hypothetical quantitative study. This still needs to be
addressed in qualitative case studies. Consequently, the case selection should be aimed at
countries that apply distinctively to only one of the models, or as close as possible although this
greatly decreases the number of available cases. Having only a few cases is not analytically
problematic but it raises the question of external validity and whether the findings apply to
other contexts (Bryman, 2004: 30).
For each model we have chosen to select two cases based on the SSA countries application of
the respective model. We have chosen two cases partly because of the limited number of cases
available and partly because it reflects a middle ground between on the one hand; too many
cases resulting in information overload with a greater risk of actual effects being neglected, and
on the other hand; a greater risk of the before mentioned spurious effects from external factors
if just a single case were to be examined.
The cases are chosen with the objective that the explanatory variable, the implemented models,
should be as similar as possible.
Finally, to include further perspectives on the changes in dependent variables, meetings were
held in Kampala, Uganda and Kigali, Rwanda in April 2009 with various actors within the
field. The ones quoted in the paper are the USAID Mission Director in Kampala and the FDC
presidential candidate and opposition leader in Uganda, Kizzy Besigye. These meetings should
not be seen within the analysis framework set up, but rather as a way to substantiate the
theoretically deduced theorems in praxis.
4.1 The Dependent Variables
To meet the criteria of measurement validity, the systematisation of economic development
was carried out by creating a broad and inclusive set of theoretically deduced variables to
capture the concept (Adcock & Collier, 2001: 531). Using the growth theories in this process
furthermore gives an element of objectivity (Bryman, 2004: 30).
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However, the operationalisation of economic development into the eight variables from the
theories still needs precise indicators to fulfil the criteria of internal reliability, or the relation
between the variables and their indicators (Hellevik, 2002: 53). This operationalisation is
presented below.
Trade flows. Import and export values for the particular case (and bilaterally with China if
affected by the Beijing model) are fairly simple and comprehensive within the variable of trade.
Productiveness. This variable is best summed up by GDP per capita (Meier, 1995: 7). We use
GDP per capita measured by purchasing power parity to compensate for the differences in
consumer prices, thus giving a better ability to compare data across cases. Further, the
percentage of GDP invested is, according to the Solow model described earlier, essential for
future production. Finally, export diversification is measured by the country’s primary export
good as a share of total exports.
Labour. The percentage of labour occupied by the agricultural, manufacturing and service
sectors and the contribution of these sectors to the GDP will provide the indicators for the
labour market variable.
Government role. Tariffs/quotas on foreign products and possible subsidies to domestic
production as well as scores on international corruption charts would indicate the level and
nature of government interference. In addition, the size of the state budget as a percentage of
GDP would indicate the government’s partition and influence on the economy.
Financial institutions. The skill of the financial institutions to facilitate flows in the economic
system would be indicated by the rate of inflation and the interest rate. This in turn would
require the exchange rate and budget surplus/deficit to get the full picture.
Infrastructure. This includes a great many things. Here, the important part from the theory was
the ability to efficiently allocate internal resources. Hence, our indicator is the amount of
transportation infrastructure present (kilometres of railways and paved roads).
Education. The educational level which serve as a tool to establish whether investment in this
area promotes more capital-intensive jobs. The literacy rate would work very fine as an
indicator on the degree of education. It is very broad and hence works very well on the general
educational level, especially in Africa where the rate still varies much more than in the West.
Capital flows. External capital flows can be split into three categories of inwards flows; the
amount of development aid, FDI and state loans. In addition to the latter however, we have to
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include public debt to be repaid. Indicators for aid volumes are not easily found in the Chinese
model, since they are reluctant to deliver this information. However, when possible, for
example when published as part of a larger deal, this indicator can be included. This is of
course not the optimal solution, but it is an unfortunate necessity event though it decreases the
internal reliability.
This covers our theories’ premises for their theorems, which makes us confident in the internal
validity of our framework for analysis (Hellevik, 2002: 51). To secure the reliability of the
indicators, they are obtained from official statistical databases such as the CIA World Fact Book
and the World Bank (Adcock & Collier, 2001: 531). In addition the indicators help to ensure
transparency and replicability (Bryman, 2004: 30).
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• Trade flows: Import volume, export volume
• Productiveness: GDP per capita, percentage of GDP invested,
export diversification
• Labour: Distribution of labour on sectors, sectors’
percent of GDP, unemployment
• Government role: Tariffs/quotas on foreign products, subsidies to
domestic production, scores on international
corruption charts, state budget percent of GDP
• Financial institutions: Exchange rate, interest rate, budget balance,
inflation
• Infrastructure: Km of railways, and paved roads
• Education: Literacy rate
Indicators of Economic Development
4.2 Chinese Cases
To choose cases that demonstrate the Chinese model we search for the ones fitting the key
components described in section 3.1.3 to the highest degree. In addition, the Chinese
involvement must be more profound than the World Bank members on the majority of these
variables.
Several countries fit some of the Chinese model’s components. The planned SEZ’s give an
initial overview. However, Egypt and Mauritius, chosen as two of the spots for these zones, are
not part of our definition of SSA standing out culturally and developmental. The other three
proposed SEZ’s; Tanzania, Zambia and Nigeria, would be of more interest. A part from these
SEZ-countries trade volumes have been particularly high between China and South Africa,
Angola, Ethiopia, Congo (Brazzaville), Zimbabwe and Sudan (Alden, 2007: 20). All these
countries have had high-ranking Chinese visits within the last couple of years and a surge in
trade with China (FOCAC, 2006). However, some of these do not fit the intension of being a
place using the Chinese model instead of the World Bank. South Africa are simply too rich
and productive and has been so for many years back which excludes them as a developing
economy in the SSA context. On top of this, their involvement with China is minor to the
DAC-countries of the World Bank. Nigeria, Zambia, Ethiopia, Tanzania and Congo too have
extensive deals and policy consultations with the World Bank and IMF dwarfing their trade
and aid volumes with China (CIA World Fact Book, 2008). In Zimbabwe, the expulsion of
most white farmers has had too much influence on the economic situation to allow for any
causal claims derived from the Chinese model. The civil war in the Sudan is an analytical
obstacle, but the Chinese are immensely bigger than any other state on all the criteria and any
economic development following the circumstances of internal unrest have been tested under
the harshest conditions making it scientific acceptable. The two countries to be examined and
analysed on the variables found are thus Sudan and Angola.
4.3 World Bank Cases
The aims of the loans provided by the World Bank are very scattered. It is therefore not
possible to select cases by looking at the policies of the countries. Instead we have to work on
the assumption that the countries most under the influence of the World Bank are the ones that
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receive the most funding. This is defended by the fact that if countries do not align to the
conditions of the World Bank they will not receive the funding. To measure this, the loans are
summarized and divided by the country’s GDP.
Furthermore, it is important that the World Bank is the biggest donor, and that the country has
participated in the PRSP program since the beginning in the late 1990s. These two criteria are
checked beforehand.
Lastly, cases where China is a large trade partner are deselected.
The selection process is somewhat complicated because of the larger quantity of possible
countries involved. The criteria presented above are used as filters to remove the countries least
fit for analysis. These filtrations are shown in appendix 9.1.
Having removed the cases, where the World Bank is not the biggest donor or the country have
not participated from the start, four countries remain in focus with a World Bank ODA/GDP
ratio above 1 percent. These are Ethiopia, Rwanda, São Tomé & Príncipe, and Uganda.
Ethiopia is ignored because of its relations with China. China is Ethiopia’ biggest trading
partner and many of the characteristics of the Chinese model are present in Ethiopia (Lin,
2006). São Tomé & Príncipe is two small islands in the Gulf of Guinea. For that reason, and
because the World Bank only have launched two projects over the last five years, São Tomé &
Príncipe would not be representative of the countries of Sub-Saharan Africa, and is therefore
left out. The cases selected to analyze the World Bank model is therefore Uganda and Rwanda.
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5. Economic Effects
All data collected are shown in the appendix. If an indicator is not presented in the case
studies, the data are not available and thus not directly included in the analysis.
5.1 Impacts of the Chinese Model
5.1.1 ANGOLA
Angola was the scene of repeated civil wars in the 1990s, but with a peace agreement coming
into effect in 2002 the economy started a recovery process. This is reflected in the increase in
productiveness measured by GDP per capita, which rose by a massive 780 percent between
1999 and 2008 to US$ 8,800. This recovery was led by huge investments peaking at 34.5
percent of GDP in 2004 encouraged by the 2003 ‘Law on Private Investment’, but has since
gradually decreased to 9 percent in 2008.
The investment was mainly made in the petroleum sector, of which Angola has a natural
comparative advantage with huge reserves. Since the millennium the dominant role of the
petroleum sector and its supporting activities has increased, contributing 45 percent of GDP in
1999 and about 85 percent today (CIA, 2000; CIA, 2008). The same story goes for the export
sector, to which oil accounted for 96 percent in 2005 up from 90 percent in 2000.
This follows from both rising oil prices and increased production due to a higher world
demand (CIA, 2008). However, subsistence farming still provides the main livelihood for most
people. If we look at the labour variable over the period of the Chinese model, the distribution
of labour on sectors has not changed much. The industry and service sectors still only holds 15
percent of the workforce.
The trade deals signed with Beijing have lifted Angolan exports to China from less than US$
400 million in 1999 to US$ 23.23 bn. in 2007, while trade the other way increased from less
than US$300 million to US$ 1.6 bn. amounting to around a quarter of Angolan GDP. This is a
3450 percent increase in Chinese-Angolan trade volume while the same number for the general
trade volume was 1,000 percent.
The government’s role has increased a great deal measured by the increase of its budget up
from 8 percent of GDP to 24.6 percent. Its role in the Angolan economy is highly influenced
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by the dominance of the petroleum industry, which is under great control by the government
(USTR, 2009: 10). Recently, to enable the revival “of domestic production of non-petroleum goods”
the government has postponed the implementation of harmonized regional policies including
lower tariffs (USTR, 2009: 7), as the state-led growth theory prescribes. In spite of this, the
import duties on intermediate goods for industries were removed in 2008, resulting in a slight
decrease in the average tariff from 8.5 percent in 2000 to 6.4 percent in 2008, which places
Angola much lower than an average SSA country. (USTR, 2009: 7)
With regards to infrastructure, much was destroyed doing the civil war and the government has
allocated a lot of resources to deal with the problem – US$ 7.5 bn. in 2007, or 9.2 percent of
GDP that year (USTR, 2009: 11). The data for our indicators on the transportation
infrastructure are not available, meaning that we have no way of assessing whether the money
spent has made an actual difference. The size of the allocation however, suggests that it has, or
will do.
In continuation hereof, the financial institutions ability to facilitate capital flows have been
fairly successful over the time period chosen. The inflation rate have gone down from 270 to
12.5 percent, the interest rate have been cut somewhat but still lies at almost 20 percent, and
the budget deficit of 169.4 percent have been turned into a 24.2 percent surplus. The latter of
course is due to the fact that state expenditures have risen not nearly as much as the value of
production. The exchange rate of the Angolan new kwanza increased rapidly from over half a
million NKz per US$ at the end of the civil war to around 75 today. Since 2003 it has been
fairly stabile though due to a stabilisation programme using foreign exchange reserves to buy
kwanzas out of circulation. This policy that has kept the kwanza stable and remarkably
reduced the interest rate but is very expensive in terms of foreign exchange but because of high
oil income, it has been sustainable since 2005. The institutions are however still under heavy
criticism for not having the regulatory and legal capacity to facilitate much foreign direct
investments outside the petroleum sector – a persistent critique in the past as well (USTR,
2009: 9). A further problem regarding corruption is that Angola has improved very little on
average in international corruption measurements since 2000 – from a score of 11.8 to 21.4
(100 being the best).
When it comes to the last variable, capital flows, the amount of aid received by Angola today
is not easily accessible since the Chinese do not give away this type of information. However, if
we are to believe the Chinese diplomat who states, that around half the funds from the
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Ministry of Commerce is disbursed as grants and the other half as loans, we get a decent
overall view. Before the FOCAC rounds began in 2000, Angola received US$ 383 million in
foreign aid, accounting for 3.3 percent of GDP. If the Chinese line of credit to Angola is any
measurement for their grant aid, the original US$ 2 bn., later increased to US$ 7 bn., would
amount to roughly 2-6 percent of GDP that in the meantime has increased ten fold (Servant,
2005). These data are still very dubious but even if we were to look only at the loans, these 1.5
percent interest rate credits are well below the two digit inflation rate making a part of them
pure grant aid, and showing a considerable increase of capital inflow since 2000. This loan was
even interest free for the first five years but as mentioned earlier, included a clause to use
Chinese firms for some of the considerable infrastructure projects initiated (Sautman, 2006:
26). At the same time, the Chinese cancelled previous Angolan debt that now stands at only
7.2 percent of GDP, down from 90.5 percent in 1999.
5.1.2 SUDAN
The economic situation in the Sudan is heavily connected to the oil industry and fairly peaceful
relations between Khartoum and South Sudan. The Darfur province, however humanitarian
and politically important, is not of crucial importance to the Sudanese economy, the
population, production and natural resources being very limited (Prier, 2006).
Today, China is Sudan’s leading trade partner (ECOS, 2007: 11). Between 1998 and 2008
China’s share of Sudanese export went from 1 to 82 percent, while the share of import
remained at 28 percent. In real terms however, imports rose from US$ 1.4 bn. to US$ 7.6 bn.
and exports from US$ 0.6 bn. to US$ 13.6 bn. This steep rise in exports of 1260 percent is due
to higher oil production. In 2008 oil accounted for 92.6 percent of Sudan’s exports. As the
leading developer of Sudan’s oil industry, China has invested over US$ 15 bn. since 1996
heavily in infrastructure and facilities to increase oil output (Alden, 2007: 61). In 1998 the
Chinese National Petroleum Company (CNPC) participated in a pipeline project of 1500
kilometre linking some of the oil fields to Port Sudan, which was extended in 2005 (Human
Rights Watch, 2003; Energy Information Administration, 2007). China furthermore provided
US$ 1.15 bn. in 2007 to build a railroad connecting the capital and the largest port, Port Sudan
(Save Darfur, 2007: 3). However, the statistics show that the kilometres of railroad did not rise
remarkably, due to the fact that much investment is going into replacing old tracks
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(Encyclopedia of the Nations, 2009). A further important aspect is that many of the Chinese
projects are not only controlled by Chinese contractors but also carried out by Chinese
workers. To complete the pipeline to Port Sudan, 10.000 Chinese workers were brought in and
in daily affairs approximately one third are Chinese (Human Rights Watch, 2003).
Turning to productivity, GDP per capita increased from US$ 940 in 1999 to US$ 2,200 in
2008. Nonetheless, Sudan remains predominantly agricultural, employing 80 percent of the
work force over the last decade, but only contributing 32.8 percent to GDP in 2008.
The size of the state budget grew from 3.7 percent of BNP to 13.6 percent from 2000 to 2008,
indicating a larger role for the government in the economy. Unfortunately, corruption in Sudan
is still a major problem, with only a minor improvement in the corruption score from 15 in
2000 to 18 in 2007. The wealth is not distributed to the population. The Save Darfur Coalition
holds that “it is obvious that, in the context of the crony nature of the Khartoum regime and the historic
concentration of wealth among Sudan’s ruling elite, that ‘a rising tide does not lift all boats’ ” (Save
Darfur, 2007: 3). However, the investment rate of 18.1 percent is not low. On the other hand it
is hard to tell what it is invested in. A former minister of Finance for Sudan has stated that as
much as 70 percent of the oil revenues have been spent on arms and arms production for to the
current conflict in Darfur and skirmishes with South Sudan (Save Darfur, 2007: 3).
The funds provided by China to spur the economic development are unconditional, and China
does therefore not intervene with Sudan’s financial allocations. However, because China is
Sudan’s largest provider of arms, international pressure pushed China to agree to UN
Resolution 1769 to demand peace in Darfur, but China rejected sanctions of any kind (Save
Darfur, 2007: 1-3).
Looking at the financial institutions, some of the institutional indicators have worsened and
some have simply not improved within the last decade. From 2000 to 2008 the state budget
deficit increased tenfold in real terms to 9.4 percent and external debt increased to US$ 30.5
bn. The inflation rate today is high, though lower than in 2000. Furthermore the Sudanese
pound got more expensive as a result of the boom in exports of oil, making the country less
internationally competitive, the Dutch disease as mentioned earlier.
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The private sector is further constrained by costs related to poor domestic logistics and high
fees at Port Sudan (The World Bank, 2008g: 2). The failure to diversify its exports is also due to
the trade restrictions imposed by the Western powers following the crisis in Darfur and the
previous civil war (The World Bank, 2008g: 1). Fortunately for Sudan, China on the other
hand has signed a zero-tariff agreement on 44 Sudanese commodities (Save Darfur: 2007: 4),
albeit the share of the population employed in the agricultural sector has not improved at all.
The industrial sector’s increasing share of GDP is the only indicator of a changing labour
market although the increased value of oil and the larger oil production might be the sole cause
of this. Further evidence that Sudan has become more closed is evident in the fact that the
average tariff increased to 16 percent in 2008 from 4.2 in the late 1990’s.
5.1.3 CAUSAL CLAIMS
An initially pressing critique of the Chinese model involves the selection of the countries for
the model. Even though motivation is excluded on the grounds that it does little to change the
outcome of the model, the question arises of whether the effects of the Chinese model only
applies to countries with natural resources. The critique is valid as far as the cases chosen for
the Chinese model are only ones with massive amounts of natural resources. This does not
change the procedures however, and the absolute majority (if not every country but city-states)
have various natural resources. Some more valuable than others of course, but nonetheless
something that can be produced more of and exported if investments are made in
infrastructure and production facilities. Hence the model is relevant at a broader basis, albeit it
might be on a smaller scale than is the case with Angola and Sudan.
In both cases, oil is of significant importance and the massive exports of this commodity are
directly linked to the Chinese trade deals that are completely dominant as a trade partner for
both countries. The market-led theory explains the trade benefits in the short run of exporting
raw materials. Further, the effective allocation of internal resources to the commodities that
can be sold with a comparative advantage, be it natural or technological, is of major
importance for achieving the benefits of trade. This is especially true when the resources and
labour lay idle beforehand. This point provides the theoretical background for the Chinese
model’s cause of the surge in both infrastructural investments and production of raw materials.
The emphasis on the petroleum sector has resulted in its increasing relevance to GDP and
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dominance of exports above 90 percent. However, the limited dispersion of investments has
also caused stagnation in the division of Labour. Within the field of economics these are the
only direct effects of the Chinese model.
The indirect effects of a much larger state budget are somewhat more complex. The financial
institutions have in both cases been able to show some progress, but this can not be linked to
the explanatory variable, the Chinese model, due to its principle of non-interference. The
income does make it easier to get a surplus on the state budget of course, but whether the
decline and stabilisation of the exchange and inflation rate is only due to the Chinese model or
whether they gained financial experience from dealing with the money is not clear enough to
make any causal claims. However, their dismissal of influence on the countries’ internal
matters makes the quite stabile and very low corruption scores of both countries
understandable.
If we look at further co-variation, the last decade has meant a more educated population in
both cases, but the internal distribution of Chinese loans are not just because of the Chinese
model. They take pride in not advising countries of what to do with the loans, except the
choosing of Chinese contractors for infrastructural projects.6The direct causal links are
presented in the table below.
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6 Except a designated percentage to be used on products from Chinese firms.
Explanatory variable (The Chinese model)
Mutual preferential treatment (trade deals)
Chinese investment in infrastructure and production facilities of a naturally comparative advantageous sector
Politically untied state loans and grants6
Dependent variable (Effects)
Huge increase in trade
Exponential growth in GDP per capita
Stable sector division of labour
Low export diversification
5.2 Impacts of the World Bank Model
5.2.1 UGANDA
Uganda’s PRSP was first put forward in early 2000 and later revised in 2005. The key points
hereof are supported in the World Bank’s Country Assistance Strategy. The data for World
Bank lending does not go further back than 2005, but since then it has been lending US$ 325
million annually to Uganda, which accounted for 11.4 percent of state budget in 2008 (The
World Bank, 2009a).
Uganda has long since removed all quantitative trade restrictions with the encouragement of
the World Bank, leaving tariffs as the only trade barrier today (WTO, 2001). Through the
‘Regional Trade and Facilitation Project’ the World Bank has supported the creation of the
free trade area among the countries of the Common Market for Southern and Eastern Africa
(COMESA), of which Uganda is a member (The World Bank, 2006: 31). Despite this, average
tariffs have risen from 5.8 to 11.9 percent since 2000. This is due to the fact that in 2005
Uganda joined the East African Community (EAC), and adopted its Common External Tariff
(The World Bank, 2008a: 1). However, the efforts of regional integration have contributed to
steady rise in trade: Exports (US$ 471 million in 1999 to US$ 2.3 bn. in 2008) and imports
(US$ 1.1 bn. in 1999 to US$ 3.58 bn. in 2008). An important remark is that that the tariffs
deviate a lot from product to product. They are high on finished goods and products that
Uganda produces itself, while low on non-domestic agricultural products, machinery and
transport equipment (WTO, 2008b: 1).
Looking at the government role, its budget has increased from 4 to 7.7 percent of GDP.
The overall productiveness, measured by GDP, increased a lot but because of Uganda’s
population growth rate of 3.4 percent, the third largest in the world (Uganda Ministry of
Finance, 2005: 5), the GDP per capita only rose slightly from US$ 1,060 to US$ 1,100.
Still relying on agriculture, Uganda has an aim of enhancing product diversification (Uganda
Ministry of Finance, 2005: 23). Consequently, the labourers employed in industry and service
sectors have gone up from 18 percent in 1999 to 30.1 percent in 2003. By extension the
industry and service sectors have increased their contribution to GDP from 65 percent in 1997
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to 71 percent in 2008. Furthermore, coffee, Uganda’s main export product, has gone down
from 45.5 percent of export earnings in 1997 to 19 percent in 2007.
In contribution hereto the World Bank furthermore “provides funding to poor farmers to adopt
improved technology and management practices in their farming enterprises to enhance the
productivity” (The World Bank, 2006: 33).
Macroeconomic stability is essential to the World Bank, for which it provides technical
assistance and training (The World Bank, 2006: 17). A key point is to ensure a low
government budget deficit to avoid increased inflation or crowding out the private sector by
appreciating the exchange rate and driving up the interest rate (Uganda Ministry of Finance,
2005: 34). This has been moderately successful. The deficit has increased slightly since 2000
from 8.4 to 10.8 percent of GDP in 2008, and the inflation has likewise increased from 7
percent in 1999 to 10.5 in 2008, but fortunately for the private sector the interest rate has gone
down from 25 percent in 2000 to 19 in 2008, and the exchange rate has been stable, with a
slight depreciation. To help minimise the state budget, the World Bank furthermore provides
debt relief. In 1999 Uganda received US$ 2 bn. in debt relief from the HIPC programs, of
which the World Bank has provided nearly half (The World Bank, 2009e). In addition
economic aid, most of which is provided by World Bank IDA grants, has increased to
Uganda from 6 percent of GDP in 1999 to 11.5 in 2008
The World Bank supports infrastructure projects to reduce the cost of doing business – e.g.
US$ 100 million to enhance the power grid (The World Bank, 2006: 23-25). Because Uganda
is landlocked, transportation infrastructure is especially important, but even though the World
Bank has provided US$ 263 million, this only constitutes to 0.7 percent of GDP (The World
Bank, 2006: 29). This has led to improvements though; between 2000 and 2008 the number of
kilometres of paved highways rose by a factor of 9.
The education variable has been a focus area with 8 percent of the capital borrowed from the
World Bank since 2005 invested in education (The World Bank, 2009a). The effects hereof are
incremental, but our indicator, the literacy rate, rose by five percentage points from 2000 to
66.8 percent in 2008.
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The private sector receives by far the biggest amount of funding (The World Bank, 2009a). To
stimulate private sector investment support is provided for privatisation of state enterprises
and the strengthening of the commercial regulatory environment (The World Bank, 2006: 21).
Looking at the statistics, this plan has succeeded. Domestic investment has risen from 13.7
percent of GDP in 1999 to 26.5 in 2008 and FDI has gone up from US$ 82 million in 1999 to
US$ 368 million in 2007.
To facilitate the above the World Bank provides credit and technical assistance to improve the
capacity of the government and good governance (The World Bank, 2006: 15). A key factor
here is fighting corruption (Uganda Ministry of Finance, 2005: 26), but even though Uganda
has improved on the international ratings, it is still ranked low at a score of 27.
5.2.2 RWANDA
The Rwandan genocide 15 years ago devastated the economy. Since then, the aid volumes
have increased greatly. After the completion and approval of their PRSP in 2002, the World
Bank has on average been lending Rwanda US$ 94 million annually, in 2008 corresponding to
13.5 percent of GDP (The World Bank, 2009a). In 2005 Rwanda qualified for debt relief
under the HIPC program with a debt of US$ 1.4 bn. in 2004 (The World Bank, 2009c). They
received US$ 810 million, with World Bank assisting half (The World Bank, 2002, 24).
A central objective in the World Bank’s Country Assistance Strategy is a transformation from
subsistence agriculture into commercial agriculture (The World Bank, 2002: 20). In the World
Bank’s ‘Rural Sector Support Project’ it provides “the technology, infrastructure, credit and other
support services, and the institutional capacity to foster this transition, improve productivity, and expand
and diversify exports” (The World Bank, 2002: 22). Trade was identified as an important tool in
getting there. From 1999 to 2008 import and export grew steeply, but is still very low in real
terms. In 2008 export per capita was only US$ 21 compared to more than US$ 150 on average
in SSA, but the statistics further show that the non-agricultural sectors grew, measured by its
contribution to GDP, from 56 percent in 1998 to 65 in 2008 (Samen, 2005: 11). To increase
the volume of trade, Rwanda joined the regional trade unions of COMESA and EAC,
supported by the World Bank (The World Bank 2009h). This has greatly increased the
Rwandan regional exports (The World Bank, 2009d: 2). Exports were also improved by the
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deterioration of the exchange rate within our time frame.
To further improve the conditions for a climb up the ladder of comparative advantage, the
government increased import tariffs on finished goods while keeping them low on
intermediate goods and commodities, that Rwanda does not possess (WTO, 2008a: 1). On
average the tariffs increased from 9.6 percent in 2000 to 17.9 in 2006.
With regards to the diversification of export products, Rwanda is improving but still relies on
agriculture and minerals (Bureau of African Affairs, 2009). In 1994 coffee was the main
export product accounting for 60 percent. Today, this position has been taken over by
minerals, but only covers 35.9 percent of the export earnings.
Another mean of achieving increased trade and move away from subsistence farming is
transportation infrastructure through linking rural areas to markets and thereby increasing the
returns to producers of commercial crops. The statistics show that from 2000 to 2008 the
kilometres of paved road increased from 1,000 to 2,662, albeit the country still faces very high
transportation costs (Seman, 2005: 9).
To spur the process of reform, the World Bank seeks to strengthen the governance through
capacity building: Rwanda decentralised the government in 2001 and adopted a new
constitution in 2003 (Ministry of Finance and Economic Planning, 2002: 10). Looking at the
government’s role, its influence measured by the state budget share of GDP grew steeply from
3.4 percent of GDP in 1998 to 9.6 in 2008. Further, the corruption fell remarkably from 1998
to 2007.
In continuation of the institutional support above, the ‘Competitiveness and Enterprise
Development Project’ aims at strengthening the institutional settings, both the commercial
legal system and the financial sector (The World Bank, 2009c). This is reflected in the
statistics, showing that inflation fell half a percentage-point from 1998 to 9.5 percent in 2008.
More, the government has gotten control over the budget deficit, reducing it from 79 percent
in 1999 to 14 in 2008. The more liberalised private sector also caused an incline in FDI from
US$ 5 million in 1999 to US$ 67 million in 2007.
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Another aspect of the change in this institutional capacity is the increased investment in
education (CIA, 2000; CIA, 2008). This indicator of the literacy rate, has gone from 60.5
percent in 1995 to 70.4 in 2008.
Looking at the statistics, the overall evaluation of the Rwandan economy shows that the
economic policies of the government have been positive: The interest rate was kept stable
from 2002 to 2008 at around 16 percent, which facilitated a high investment rate of 22.5
percent of GDP. Within our time frame, GDP per capita grew from US$ 720 to 900.
5.2.3 CAUSAL CLAIMS
In general, the policies and outcomes of the two cases are very similar, which makes room for
causal claims if supported by theoretical explanation.
In line with the state-led growth theory, the World Bank supports interventionist projects to
ensure conditions for economic development that are not facilitated by the market. This
includes Krugman’s conditions for a manufacturing-friendly environment; infrastructure and
education. In the two cases, both indicators improved, though not dramatically. Furthermore
it includes institutional settings for the private sector; commercial law, legal enforcement
herewith and financial institutions, for which the World Bank provides technical assistance.
Last but not least is macroeconomic stability. By minimising the states budget deficit, also
helped by debt relief by the World Bank, the inflation was kept at acceptably low levels, which
ensured a low interest rate in both cases. This facilitated high private investment above 20
percent of GDP in both cases and the good conditions for the private sector managed to
increase the foreign direct investment significantly. Supported by the state-led growth theory it
is fair to draw a causal link from these state policies to the increase in BNP per capita of 4
percent in Uganda and 25 percent in Rwanda.
In both cases state budget grew and corruption diminished. A causal link hereto is the World
Bank’s strategy of enhancing the role of the government though capacity building and
principles of good governance.
In relation to the ladder of comparative advantage, the non-agricultural sectors grew in their
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contribution to GDP in both cases. The causal explanation is the steps taken in Rwanda to
move from subsistence agriculture to commercial agriculture and the strategies in both cases
of increasing the industrial sector, which are all supported by the World Bank. The theoretical
explanation for these policies is the improvement in terms of trade by building up an industry
to process raw materials and food instead of exporting non-processed products.
Following this, the policies to diversify the export base, supported by the World Bank, has also
succeeded. Today the main export product accounts for only 19 percent in Uganda and only
35.9 percent in Rwanda.
The World Bank supports trade liberalisation and reduction of tariffs. The argument behind
this is the one presented in market-led growth theory; that specialisation in comparatively
advantageous sectors will increase returns. Nonetheless, to be less vulnerable to price shocks
the World Bank supports projects to diversify the export base. By looking at the Herfindahl
index of export diversification, this policy has succeeded to a much higher degree in Uganda
and Rwanda than is the case with Angola and Sudan. The data only show the change from
1998 to 2002 but the fact remains that the move towards export diversification are much more
profound in the World Bank cases (Xiaobao Chen et al., 2005: 73).
Both Uganda and Rwanda have considerably higher average tariffs today than in 2000. The
causal explanation behind is the influence of the regional unions EAC and COMESA. The
World Bank supports these organisations, but it cannot be justified to fully link this policy
shift to the World Bank.
The higher average tariffs reflect an increase in tariffs on finished goods and commodities also
produced domestically. On the other hand, free trade is encouraged within the regional
unions, and in relation to the rest of the international economy the tariffs on non-domestic
commodities and intermediate goods are kept low. These strategic tariffs are, according to
state-led growth theory, a necessity for a country under development to not be ousted by the
more competitive developed countries. The members of the unions are at a somewhat similar
developmental stage, which makes the competition fairer. The competition ensures
specialisation and the low worldwide tariffs on intermediate goods ensure competitiveness of
the domestic industries.
Even though protectionism has increased, it is still very limited. Rwanda has a maximum
tariff of 30 percent (WTO, 2008a: 1), while Uganda’s are more scattered, most being at 25
percent (WTO, 2008b: 1). Furthermore the statistics show that import and export volumes
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increased in both cases. These increases are however not directly linked to World Bank
policies, but indirectly we do see a connection in the World Bank support for the before
mentioned regional trade unions and the production growth following macroeconomic
institutional stability.
Lastly, it is important to mark that the World Bank, like the Chinese model, pursues a path
between state- and market-led theories. The World Bank supports the governments to
intervene in the economy and provide institutional settings, but overall the economy is driven
by private sector entrepreneurship. The direct causal links are presented in the table below.
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Dependent variable (Effects)
Increased and improved government role
Diminishing dependence on the agricultural sector
Increased export diversification
Macroeconomic stability
Better private sector conditions- Commercial law- Financial system- Infrastructure- Education
Moderate GDP per capita growth
Explanatory variable (The World Bank model)
Technical assistance
Tied financial loans and grants
Conditions:- Government capacity building- Principles of good governance- Macroeconomic stability- Structural policies- Social policies
5.3 Model EvaluationsAs we have seen, there are certain similarities between the two models and the resulting
economic effect. As the Chinese and the World Bank models use logic from both poles of the
spectrum of export-led growth theory, this is not surprising. The differences are however, more
interesting.
We have shown that the World Bank model’s focus on institutions that facilitate free trade,
huge aid packages in debt cancellation and low-interest loans conditioned by good governance
have caused growth in GDP per capita, trade and good governance over the last decade. This
focus on institutions capable of following a free market, which the Chinese model neglect, has
caused the value of trade volumes to follow the level of industrialisation neatly because of
diversity in specialised products. The smaller but institutional more solid investments in a
broader portfolio of products are more stable to changing market conditions. However, the
construction of infrastructure and capacity building here within are hampered by these
institutional standards and the costly and difficult administration of state planning compared
with the Chinese as commented by a USAID Mission Director:
“Capacity building with full accountability is extremely difficult and inefficient. If the
Chinese say they’ll build a road, they’ll build it. With the World Bank it just doesn’t get
build.”7
The Chinese model of colossal trade deals and preferential trade treatment, no political
interference and relatively smaller grants delivered very fast as infrastructure for production
and trade, have caused very high GDP growth per capita over the past decade as well as
massive growth in trade volumes. It seems that the Chinese model of addressing infrastructure
and production facilities limitations first instead of the World Bank model’s focus on primarily
institutional limitations are more effective on GDP in the short run. This is not only true
internationally but also regionally:
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7 This comment was stated during a meeting with the USAID Mission Director in Kampala, Uganda on April 14,
2009. We were granted permission to quote this statement but in general the meeting was off record and the
Mission Director asked that his name would not be mentioned. Also see Wilson, 2005.
“Infrastructure will also not only make Africa more accessible to Chinese and other foreign
commercial partners, but will enable increased intra regional trade in Africa. Poor
infrastructure has been a major impediment to economic development in sub-Saharan
Africa.” (Davies, 2008b: 40).
The big question is what causes industrialisation in the longer run and thus a more permanent
level of higher economic development.
One view on this question is founded upon the lack of industrialisation in the Chinese model
cases seen over the last decade upon the indicators of labour force distribution in sectors and
these sectors’ contribution to GDP. Combined with the lack of progress in good governance
and very limited export diversity, the argument goes that economic development with
infrastructural focus is present only in the short run. The value of production is artificially high
at the moment as the institutions are simply not capable of absorbing these amounts of capital
inflow properly. The poor institutions waste the money, use it on arms, fail to invest it in
production facilities and diversified portfolio of products and therefore the natural resources
are quickly wasted in corruption and civil war (Chan, 2007: 6). Raw material prices will
eventually fall in relative value compared to manufactured goods as described in the state-led
growth theory and the question then is; can these countries’ institutions keep facilitating
investment in industrialisation and infrastructure?
The immediate response is, that it is always possible to criticise that not enough is spent on
investments, but even though the cases of the Chinese model presents investments percentages
relatively lower than the cases of the World Bank, in absolute terms per capita they are higher,
10 percent of 100 is larger than 20 percent of 10.
Furthermore, without these extraordinary inflows of infrastructure and trade income it would
take a very long time to invest enough surplus vents within the country to industrialise,
especially when 80 percent of the population are living as subsistence farmers. Jeffrey Sachs
puts it a similar way in the Millennium Project: “Many reasonable governed countries are too poor to
make the investments to climb the first steps of the ladder [of comparative advantage]” (UN, 2005:
34).
The capital flows granted by the extensive trade deals allow for a larger absolute level of
investment. If they were to wait for their own surplus as the primary basis for investments then
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market-led theory argues that the low level of free trade available with their biggest potential
markets in the West makes this extremely slow and difficult. Chinese agricultural tariffs
averaged 15.8 percent, compared to 73 percent in the EU and 23 in the US. More, state support
for American and European farmers was 18 and 33 percent of their income respectively, while
in China it lay at only 1.5 percent (Sautman, 2006: 35).
To the proposed lack of industrialisation, it can be pointed out that the population growth and
Chinese demand for raw materials hides the industrialisation process. The same percentage of
people work in the industry and service sectors, although one could argue that this ought to
have seen a rise as with the cases of the World Bank. The Chinese demand for raw materials
however does grant a justified excuse for having a large extraction industry. If there is demand,
there is profit from sales, which can be invested. This is a natural resource comparative
advantage if inflation and exchange rate is kept fairly stable, as we have seen until now in the
cases of the Chinese model. In the SSA the five key commodities of oil, iron ore, logs,
diamonds and cotton increased from 50 percent to more than 80 percent of exports to China.
The relative increase is understandable since China accounts for nearly the entire increase in
global demand for nickel, steel and copper (Besada, 2008: 7).
In absolute terms the non-‘key commodities’ have risen dramatically but it is nonetheless
problematic that 5 key commodities still constitutes such a great proportion of the export. To
accommodate for market fluctuations in certain sectors this should be diversified as with the
World Bank model.
Aside from the institutional facilitation of investment from which it is difficult to conclude
much within this short time frame, another important aspect derived from the state-led theory
lies in the preferential trade treatments. The African countries might move up the ladder of
comparative advantage by investing the inflows of capital, but this would happen extremely
slowly and at an enormous opportunity cost because of the local entrepreneurship being kept
down caused by cheap imports from the already industrialised preferential trade partner. This
critique is applicable for both the World Bank and China, but has primarily been directed at
China because of the overlap of exports products in China and Africa. An example of this can
be seen in the footwear and textile industry whose representatives concluded that Africa had
lost more than a quarter of a million jobs over the past few years because of cheap imports from
China (Chan, 2007: 6).
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On the other hand, the inflows of capital for infrastructure and industrial facilities do transfer
production technology allowing for more profitable exports from Africa (Besada, 2008: 8).
Furthermore, the critical point regarding the imports from China is not directly relevant in a
macro perspective. The products are generally complementary to African products with the
textile sector being almost the sole exception. The critique within this field is valid even though
60 percent of the Chinese exports are foreign owned. But half the exports comprise of
machinery and electronic equipment which is cheaper than Western counterparts and benefits
African consumers (Sautman, 2006: 4).
In assessing long term effects, the indirect effects of the models are highly relevant as well. For
instance, the countries of the Chinese model do not follow the same level of good governance
principles as the World Bank conditions. This could lead some countries to unwisely lend more
money to cover sudden deficits (a sort of Chinese free-riding on the huge World Bank debt
cancellations). This is hypothetical at the moment though since the Chinese have accepted to
cancel a lot of the African countries’ debt as well as lending money at very favourable interest
rates. But on the longer run there is no guarantee for this policy, as is more or less the case with
the World Bank who unlikely to quickly forget the criticism of their previous lending policies.
Another aspect of the good governance discussion evolves around the afore mentioned market
fluctuations and the fact that we have seen the level of governance improving at the World
Bank model as opposite to the Chinese. One could argue that the actual picture of the
economic effects is easier seen after a financial downturn when the Chinese stop buying more
raw materials which are pressing GDP per capita up at the moment, hiding industrialisation
levels and bringing absolute investments to a high level. This speculative argument is supported
further by the steady deteriorating relative value of raw materials, vis-à-vis manufactured
goods. The weaker institutions in the Chinese cases will likely be incapable of sustaining the
present level of absolute investments per capita. This might lead them to fall behind the World
Bank cases in absolute investments thus making the more institutionally focussed World Bank
model more attractive in the long run.
However, these critical points do not alter the concluding fact that the Chinese model delivers a
higher GDP growth and absolute higher investment in the short run, rather they simply refer to
the likeliness that in due time this advantage will be smaller and might be surpassed by the
World Bank model.
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Before ending the discussion about the possible long term economic effects, the political issues
are essential to address.
Politically it is very problematic if the models followed in Africa does nothing but economic
growth. This is not a case for rejecting the economical development view, but rather an
acceptance derived from above that governance and democratic procedures are interlinked
with long term economical progress. We have seen that the World Bank model does improve
good governance with non-official conditions, but the Chinese involvement with regimes for
which non-democratic procedures are a necessity for staying in power are dubious.
In Zimbabwe and Sudan the flows of income from trade with China are a considerable source
of income for leaders that use state resources, thus indirectly from China, on human right
violations (Wilson, 2005: 15). However, it is an open question whether African wealth in the
longer run subsidises and leads to democratic reforms or not8. This is a much debated topic
and a complete inclusion is neither relevant nor possible here, but in continuation of the
economic importance of institutions in the long run it is a subject worth studying over a longer
timeframe as with non-democratic institutions’ capacity to facilitate investments.
Hitherto we have seen no indication that African regimes have become more corrupt since China’s
presence began to rise around 2000 (Xiaobao Chen, 2005: 39), but neither any improvements from
an initially very low level. So the bottom line is that the World Bank model is the only model
with proved democratic progress, which is vital for the best relative allocation of investment in
future production and thus economic development.
Even if the poor institutional handling in the Chinese model causes absolute less investment in
the long run than with well-functioning institutions and thus a lower economic development
than with the World Bank model, it is still helping Africa with crucial financing and quick and
very necessary infrastructure. The analysis shows that a more rapid economic growth is
possible in the short run even though the income might be capable of better relative use.
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8 The opposition leader and presidential candidate in Uganda, Kizza Besigye, commented that “no wealth can subsidise freedom” during a meeting in Kampala, Uganda on April 18, 2009. We were granted permission to quote this statement but in general the meeting was off record.
6. Conclusion
The Chinese and World Bank models for Africa are indeed qualitatively distinct models and
even though neither follows one of the two idealistic poles within export-led growth paradigm
in which they both operate, their effects are very different. The Chinese model causes very high
growth in GDP per capita in the short run, while the World Bank model through its broad
institutional focus is slow and inefficient initially but absolutely necessary in sustaining
economic progress in the longer run.
Beijing’s model focuses on loans and grants to be used primarily on infrastructure and
production facilities constructed by Chinese firms, while signing very large trade deals that
include preferential treatment in tariff matters between China and the recipient country. The
absolute majority of these immense trade volumes are within the energy and raw material
sectors. By looking at the two cases most aligned to the contents of the Chinese model, Angola
and Sudan, we have seen a pattern in the dependent variables in both cases. The recipient
countries’ GDP have increased greatly due to the high export volumes, and the infrastructural
focus of the Chinese grants and loans seem to have been the facilitator by a more efficient
allocation of internal resources and investment in the industries facing international demand.
The immediate effect is however somewhat compromised in the longer run. As raw material
prices deteriorate compared to manufactured goods over time, the government institutions will
face their test. Have the huge inflows of capital been spent wisely? As we have seen, it has been
turned into a higher absolute level of investment than their neighbouring countries, but a
relative lower one and a labour market without a movement towards the industrialised and
more profitable sectors. In the longer run, one can fear that the neglected focus on institutions
in the Chinese model have fostered inefficiency. Even though corruption in itself does not seem
to have increased, the level of governance has not improved either, making these countries
worse off relative to the countries of the World Bank model.
The World Bank includes a high degree of institutional perspective in their model for Africa.
Even though their stated objectives of recipient control of the funds through the PRSPs do not
appear to be the actual case, their policy and institutional conditions together with huge aid
packages and aid cancellation have proved relatively successful. When looking at Rwanda and
Uganda we have seen a number of effects on economic development in both cases consistent
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with the model and theories. The macroeconomic stability policies have caused a steady
economic growth, significant improvements in institutional capacities, increased trade volumes
and a move towards a more industrialised and diversified export portfolio. The improvements
have been present in all variables identified as important to economic development, but have
spurred some criticism of bureaucratic slowness in investments. Compared to the Chinese
model, the pace of investment in infrastructure has been low.
While the effects of the Chinese model on economic development in Africa seems to be
superior in the short run, it still stands as a postulate whether the Chinese model can actually
be used effectively outside countries with highly valued natural resources. Theoretically it is
highly dubious whether they can keep their lead in the longer run with an institutional lack.
Because of this, the World Bank’s model looks like the better of the two.
However, the analysis does show that the immediate limiting factor in African countries is
infrastructure, and that this is simply prioritised too low and implemented far too slowly and
inefficiently by the World Bank. If this lesson could be learnt from the Chinese model and
actually included in a new model, economic development could be improved in both the short
and the long run.
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7. Further Perspectives; developing development
Although the World Bank model seems to be superior in the long run, our case analysis
concludes that infrastructural focus rather than further resources to democratic institutions are
beneficial in the short run. Below are some additional perspectives on how to improve the
better model (and possibly the one which is easier to change) with this lesson in mind.
The accountability and inefficiency problem that severely hampers the World Bank investments
is seen as a necessity in the long run because of it being the only way to build African
institutional capacity. This, however, might not be the case. The academic debate on planned
development versus a search, or ‘trial and error’, approach is perhaps a way to include some of
the positive elements of the Chinese model into a newer World Bank model. The cliché of the
‘best of two worlds’ does have a connotation of certain indifferent neutrality but the different
effects of the models provide for something to be learned and perhaps improved.
The search development, as opposed to the over-planned nature of current development
procedures, resemble the critique put forth by the market-led theorists; the absence of a single
efficient system of evaluation, feed-back and accountability between the policy makers and the
policy objects make the planned system wasteful. Consequently, the objects, or the aid-
receiving countries, must be included in the development process to allow for a more
decentralised search for the best solutions by trial and error (Easterly, 2008: 19). Through joint
financing projects directed by the government of the developing country we would have some
degree of domestic accountability. Such a shift in paradigm is underway and the resemblance
to the government-to-government policies of the past is strikingly going back to the future9.
These thoughts are not new, but as we have seen, the World Bank has a gap between rhetoric
and outcome. An organisational study of where this problem lies is outside the scope and
relevance here, but the fact remains, the World Bank’s detailed conditions for policies and
institutions are still present. While the Chinese’s limit the conditions to a development-wise
insignificant one-China policy, their lack of concrete institution building are too far in the other
direction though.
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9 This comment was stated during a meeting with the USAID Mission Director in Kampala, Uganda on April 14, 2009. We were granted permission to quote this statement but in general the meeting was off record and the Mission Director asked that his name would not be mentioned.
Accepting and implementing receiving country autonomy does however, evoke the dilemma of
cooperation between the World Bank and the developing countries. Democracy must be a firm
demand from the World Bank keeping in mind the economic consequences without. What
stops an approach solely focused on domestic accountability from avoiding the mistakes of free
trade and lending sprees of the 1970s and 1980s? The Western lenders to which the World
Bank is accountable simply cannot accept developing countries to ‘trial and error’ on these
issues.
The conditions on democratic and economic institutions and concrete economic policies do
not have to be linked however. The World Bank could ease up their conditions on concrete
policies in the economic area thus allowing for the flexibility and autonomy in economic
affairs needed for ‘trial and error’ policies in the developing countries, while still maintaining
fixed conditions on the nature of the domestic democratic process. The latter is the basis for a
functioning accountability system to ensure policymakers decision are within reason.
Even though this might cause policy mistakes along the way, the ideal is a process of creative
destruction, only not on businesses as described in section 2.1, but instead on ideas and
concrete approaches. This would allow for a learning process and theoretically the best policies
in the long run. This may jeopardise some of the concrete policies desired by the World Bank
and sometimes result in unwise spending, which again would make such a shift unrealistic
because of the World Bank’s accountability to the donor countries. For the sake of the
argument however, without having to go through two sets of bureaucracy – domestic and
World Bank, infrastructural projects could be built, and built faster, which we have seen is a
present problem and the short run limiting factor for economic growth. An explicit World
Bank acceptance of policies that increase tariffs and subsidies to foster infant industries and fix
market failures could enable the developing countries to seek advice and the expertise of the
World Bank to overcome the worst obstacles within such state led growth initiatives. This is no
more than Stiglitz has spoken of as the role of the World Bank.
Thus, the idea is to maintain an institutionally conditioned basis, institutional learning
progress in concrete policies through trial and error that includes a bigger focus on fast
investments in infrastructure as the Chinese have shown as a way for rapid increases of
production, at least in the short run.
What Works for Africa? May 2009 54
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Pages: 1
The World Bank (2004b): The Poverty Reduction Strategy Initiative – An Independent Evaluation of The World Bank’s Support Through 2003. Located April 24, 2009 on WWW:http://lnweb90.worldbank.org/oed/oeddoclib.nsf/24cc3bb1f94ae11c85256808006a0046/6b5669f816a60aaf85256ec1006346ac/$FILE/PRSP_Evaluation.pdfPages: 124 (1-124)
The World Bank (2006): The World Bank in Uganda – Country Brief 2005-2006. Located May 18, 2009 on WWW: http://siteresources.worldbank.org/UGANDAEXTN/Resources/WorldBankinUganda2006.pdfPages: 48 (5-52)
The World Bank (2008a): Uganda: Trade Brief. Located May 4, 2009 on WWW:http://info.worldbank.org/etools/wti2008/docs/brief196.pdfPages: 2
The World Bank (2008b): Uganda at a glance. Located May 19, 2009 on WWW:http://devdata.worldbank.org/AAG/uga_aag.pdfPages: 1
The World Bank (2008c): Governance matters 2008. Located May 18, 2009 on WWW:http://info.worldbank.org/governance/wgi/pdf_country.aspPages: 8
The World Bank (2008d): Angola: Trade At-A-Glance. Located May 20, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/taag6.pdfPages: 2
The World Bank (2008e): Sudan: Trade At-A-Glance. Located May 20, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/taag179.pdfPages: 2
The World Bank (2008f): Angola: Trade Brief. Located May 20, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/brief6.pdfPages: 2
The World Bank (2008g): Sudan: Trade Brief. Located May 18, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/brief179.pdfPages: 2
The World Bank (2009a): Country Aggregate Reports. Located May 19, 2009 on WWW: http://go.worldbank.org/TT3JHWEID0Pages: 4 The World Bank (2009b): Country Papers and JSANs/JSAa – Sub-Saharan Africa. Located May 20, 2009 on WWW: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/
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EXTPOVERTY/EXTPRS/0,,contentMDK:20195487~menuPK:384207~pagePK:148956~piPK:216618~theSitePK:384201,00.htmlPages: 1
The World Bank (2009c): Rwanda Country Brief. Located May 4, 2009 on WWW: http://go.worldbank.org/YP79K5BDT0Pages: 4
The World Bank (2009d): Rwanda: Trade Brief. Located May 4, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/brief159.pdfPages: 2
The World Bank (2009e). Heavily Indebted Poor Country Initiative (HIPC). Located May 4, 2009 on WWW: http://go.worldbank.org/XEFZ3PAJ20Pages: 1
World Press (2005): Uganda and Foreign Aid. Located May 20, 2009 on WWW:http://www.worldpress.org/Africa/2074.cfmPages: 4
WTO - World Trade Organization (2001): Uganda: December 2001. Located May 4, 2009 on WWW:http://www.wto.org/english/tratop_e/tpr_e/tp182_e.htmPages: 1
WTO - World Trade Organization (2008a): Rwanda Tariff Profile. Located May 4, 2009 on WWW: http://www.wto.org/english/tratop_e/tariffs_e/tariff_profiles_2008_e/rwa_e.pdfPages: 7 (1-7)
WTO - World Trade Organization (2008b): Uganda tariff profile. Located May 4, 2009 on WWW:http://www.wto.org/english/tratop_e/tariffs_e/tariff_profiles_2008_e/uga_e.pdfPages: 7 (1-7)
Xiaobao Chen, Michael; Goldstein, Andrea; Pinaud, Nicolas; Reisen, Helmut (2005): China and India: What’s in it for Africa? Located May 18, 2009 on WWW:http://www.die-gdi.de/CMS-Homepage/openwebcms3.nsf/(ynDK_FileContainerByKey)/ADMR-7B7HWH/$FILE/Reisen.pdf ?OpenPages: 95 (1-95)
Zhu, Zhiqun (2007): China’s New Diplomacy in Africa. Located March 17, 2009 on WWW: http://sloc.cafe24.com/upload/publication01/2007B06.pdfPages: 36 (1-36)
Total pages: 1737
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9. Appendix
9.1 Case selection – World Bank Model
(X) means that the criterion is not met, and the country therefore is deselected.
Criteria
Countries
The World Bank is the biggest donora
The country has participa-ted in the PRSP pro-gramme from the startb
The World Bank lending compared to the country’s GDP is highc
China is not a large trade partnerd
Other
Angola X X X
Benin X 0,56%Botswana X X
Burkina Faso X 0,91%
Burundi X
Cameroon X
Cape Verde X
Central African Republic X
Chad X
Comoros X
Congo, Rep. X
Congo, Dem. X
Cote d’Ivoire X
Djibouti X X
Eritrea X X
Ethiopia 1,07% X
Gabon X
Gambia X
Ghana X 0,92%
Guinea X
Guidea-Bissau X
Kenya X
Lesotho X
Liberia X
Madagascar X 0,82%
Malawi X 0,88%
Mali X 0,29%
Mauritius X
Mozambique X 0,50% X
Namibia X X
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Niger X 0,66%
Nigeria X X 0,12% X
Rwanda 1,35%
Sao Tome and Principe
2,16% X
Senegal X 0,37%
Seychelles X X
Sierra Leone X 0,25%
Somalia X X
South Africa X X
Sudan X X X
Swaziland X X
Tanzania X 0.93% X
Togo X X
Uganda 1.39%
Zambia X 0.27 %
Zimbabwe X X
Sources: (a) OECD, 2009; (b) The World Bank, 2009b; (c) The World Bank, 2009a (Calculated for 2008); (d) FOCAC, 2006
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9.2 Case data – Angola
DEPENDANT VARIABLESDEPENDANT VARIABLES BEFORE (2000) NOW (2008)
TradeImports US$ 3 bn. (1999 est.)e US$ 15.3 bn. (2008 est.)f
- from China NA% (<10%)e 10.5% (2007)f
Exports US$ 5 bn. (1999 est.) e US$ 72.6 bn. (2008 est.)f
- to China NA% (<9%)e 32% (2007)f
Labour market distributionLabour market distributionIndustry & service sectors share of employment
15% (1997 est.)e 15% (2003 est.)f
Industry & service sectors' contribution to GDP
87% (1998 est.)e 90,8% (2008 est.)f
Productiveness GDP per capita (PPP) US$ 1 030 (1999 est.)e US$ 8 800 (2008 est.)f
Investment 34.5% of GDP (2004 est.)e 9% of GDP (2008 est.)f
Export diversification (primary export good as % of total exports)
90% (Oil)e 96% (Oil) (2005)q
InfrastructureRailways 2,952 km (1997)e 2,761 km (2006)f
Highways (paved) 5,349 km (2001)e NA
Financial institutionInflation 270% (1999 est.)e 12.5% (2008 est.)f
Interest rate (central bank) NA 19.6% (31 December 2007)f
Exchange rate (National currency per US$1)
577,304e 75.023 (2008 est.)f
Budget balance -169.4%e +24.2% of GDP (2008 est.)f
Government role Budget 8.0% of GDPe 24.6% of GDPf
Corruption (Score 0-100) 11.8 (1998)g 21.4 (2007)g
Tariffs (MFN applied tariff - trade weighted avg)
8.5%h 6.4%h
Education Literacy rate 42% (1998 est.)e NA
Capital flowsEconomic aid - recipient US$ 383.5 million (1999)e NAState loans NA NAExternal debt US$ 10.5 bn. (1999 est.)e US$ 7.9 bn. (2008 est.)f
Foreign Direct Investment (FDI)
NA US$ 19.5 bn. (2008 est.)f
Sources: (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c: (h) The World Bank, 2008d: 1; (q) The World Bank, 2008f: 2
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9.3 Case data – Sudan
DEPENDANT VARIABLESDEPENDANT VARIABLES BEFORE (2000) NOW (2008)
TradeImports $1.4 bn. (1999 est.)e $7.8 bn. (2008 est.)f
- from China 27%e 27.9%f
Exports 0.6 bn. (1999 est.)e $13.6 bn. (2008 est.)f
- to China 1% (1998)e 82.1%f
Labour market distributionLabour market distributionIndustry & service sectors share of employment
20% (1998 est.)e 20% (2007 est.)j
Industry & service sectors' contribution to GDP
59% (1997 est.)e 67.2% (2008 est.)f
Productiveness GDP per capita (PPP) US$ 940 (1999 est.)e US$ 2 200 (2008 est.)f
Investment NA 18.1% of GDP (2008 est.)f
Export diversification (primary export good as % of total exports) NA 92.6% (Oil) (2007)j
InfrastructureRailways 5,311 kme 5,978 kmf
Highways (paved) 4,320 km (2000)e NA
Financial institutionInflation 20% (1999 est.)e 16.5% (2008 est.)f
Interest rate (central bank) NA NAExchange rate (National currency per US$1)
2.5e 2.1f
Budget balance -8.3%e -9.4%f
Government role Budget 3.7% of GDPe 13.6% of GDPf
Corruption (Score 0-100) 0.15g 0.18 (2007)g
Tariffs (MFN applied tariff - trade weighted avg)
4.2% (1995-99)i 16.0%i
Education Literacy rate 46.1% (1995)e 61.1% (2003)f
Capital flowsEconomic aid - recipient US$ 187 million (1997)e NAState loans NA NAExternal debt US$ 24 bn. (1999 est.)e US$ 30.5 bn. (2008 est.)f
Foreign Direct Investment US$ 1.5 millione US$ 2.1 million (2007)f
Sources: (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (i) The World Bank, 2008e: 1 (j) ECOS, 2008: 7-8
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9.4 Case data – Uganda
DEPENDANT VARIABLESDEPENDANT VARIABLES BEFORE (2000) NOW (2008)
TradeImports US$ 1.1 bn. (1999)e US$ 3.6 bn. (2008 est.)f
Exports US$ 0.5 bn. (1999)e US$ 2 bn. (2008 est.)f
Labour market distributionLabour market distributionIndustry & service sectors share of employment
18% (1999 est.)e 30.1% (2003)k
Industry & service sectors' contribution to GDP
65% (1997 est.)e 71% (2008 est.)f
Productiveness GDP per capita (PPP) US$ 1 060 (1999 est.)e US$ 1 100 (2008 est.)f
Investment 13.7% of GDP (1999)e 26.5% of GDP (2008 est.)f
Export diversification (primary export good as % of total exports) 45.5% (Coffee) (1997)s 19% (Coffee) (2007)s
InfrastructureRailways 1,241 kme 1,244 kmf
Highways (paved) 1,800 kme 16,272 kmf
Financial institutionInflation 7% (1999)e 10.5% (2008 est.)f
Interest rate (central bank) 25.1 %e 19.1% (December 2007)f
Exchange rate (National currency per US$1)
15.258e 16.581 (2008 est.)f
Budget balance -8.4%e -10.8%f
Government role Budget 4% of GDPe 7.7% of GDP (2008 est.)f
Corruption (Score 0-100) 21 (1998)g 27.8 (2007)g
Tariffs (MFN applied tariff - trade weighted avg)
5.8%l 11.9% (2007)l
Education Literacy rate 61.8%e 66.8%f
Capital flows
Economic aid - recipient 6% of GDP (1999)e 11.5% of GDP (2005)m
State loans NA US$ 313,7 million (2008) (from the World Bank)c
External debt US$ 3.1 bn. (1998 est.)e US$ 1.7 bn. (2008 est.)f
Foreign Direct Investment US$ 82 million (1999)n US$ 368 million (2007)n
Sources: (c) The World Bank, 2009a; (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (k) NationMaster, 2009; (l) The World Bank, 2008a: 1; (m) World Press, 2005; (n) UNCTAD, 2009; (s) The World Bank, 2008b: 2
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9.5 Case data – Rwanda
DEPENDANT VARIABLESDEPENDANT VARIABLES BEFORE (2000) NOW (2008)
TradeImports US$ 242 million (1999 est.)e US$ 759 million (2008 est.)f
Exports US$ 70.8 million (1999 est.)e US$ 219 million (2008 est.)f
Labour market distributionLabour market distributionIndustry & service sectors share of employment
10% (2000 est.)e NA
Industry & service sectors' contribution to GDP
56% (1998 est.)e 65% (2008 est.)f
Productiveness GDP per capita (PPP) US$ 720 (1999 est.)e US$ 900 (2008 est.)f
Investment NA 22.5% of GDP (2008 est.)f
Export diversification (primary export good as % of total exports) 60% (Coffee) (1994)t 35.9% (Minerals) (2007)r
InfrastructureRailways NA NAHighways (paved) 1,000 kme 2,662 kmf
Financial institutionInflation 10% (1998)e 9.5% (2008 est.)f
Interest rate (central bank) 16.1% (Januar 2002)p 16.2% (Januar 2008)p
Exchange rate (National currency per US$1)
349.5e 550 (2008 est.)f
Budget balance -78,8%e -14,4%f
Government role Budget 3.4% of GDP (1998 est.)e 9.6% of GDP (2008 est.)f
Corruption (Score 0-100) 25 (1998)g 38 (2007)g
Tariffs (MFN applied tariff - trade weighted avg)
9.6%o 17.1%o
Education Literacy rate 60.5% (1995 est.)e 70.4%f
Capital flowsEconomic aid - recipient US$ 372,9 (1999)e US$ 576 (2005)k
State loans NA US$ 122 million (2008) (From the World Bank)c
External debt US$ 1.2 billion (1998)e US$ 1.4 billion (2004 est.)f
Foreign Direct Investment US$ 5 million (1999)n US$ 67 million (2007)n
Sources: (c) The World Bank, 2009a; (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (k) NationMaster, 2009; (n) UNCTAD, 2009; (o) The World Bank, 2009d: 1; (p) NBR, 2009; (r) Bureau of African Affairs, 2009; (t) Africa Studies Center, 2009
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