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The Poison Apple – Chinese Development Assistance to Africa

Over the past 20 years, China has been investing heavily in the African continent, pushing boundaries and challenging international norms that have dictated aid and trade policy since the Cold War. For poor states in Sub-Saharan Africa, the progress of China over the past 25 years is incredibly attractive. China has achieved a 9.8 percent annual economic growth rate, and reduced rural poverty by 40 percent. These are the kind of statistics most Africans states can only dream of. African leaders view Chinese trade and aid policies as a win-win situation – African states are provided with loans for desperately needed infrastructure, and state-owned Chinese companies bring their ‘expertise’ and manpower to build highways, stadiums, and palaces… Unfortunately it is not quite this simple, and the reality is that while Chinese aid and trade policies may be developing the African economies, they are damaging the development of the African population.

To completely comprehend the role China plays in African development, it is essential to understand the history of aid to Africa. Western economic relations with Africa took off during the Cold War, when aid was utilised by the Soviet Union and US to turn states communist or capitalist. Then, as newly industrialised economies in Asia boomed during the 1970s and 1980s, the World Bank and IMF adopted stabilisation and structural adjustment policies. This new approach saw poor governments receive budgetary support in return for adopting a package of free-market solutions to development, known as the Washington Consensus.

In the 1990s, the donor community responded to widespread dissatisfaction with the programs in place, and came back with the ‘Washington Consensus Plus’, which includes requirements of institutional and legal reforms, the promotion of good governance, and policies to develop human capital such as female education.

Foreign aid to Africa has a long and turbulent history, that cannot be properly summarised in one paragraph, but the important thing to understand is that this history has created a set of norms that govern bilateral and multilateral provision of aid to developing states.

So where does China come into this system? It doesn’t. As a new donor state, China is not governed by these existing norms. The international aid system has been shaken up by new donor states that are also recipient states – titled ‘South-South’ cooperation. Where ‘traditional’ donor states provide aid packages and loans, provisional on requirements such as the liberalisation of foreign exchange and import control, the devaluation of the currency, the abolition of price controls and the promotion of foreign investment; emerging donors such as China offer condition-free loans that undermine decades of progress.

Chinese development assistance is guided by ‘China’s Eight Principles for Economic Aid and Technical Assistance to Other Countries’ determined in 1964. These include: the principle of equality and mutual benefit in providing aid; the respect of sovereignty; absence of any conditions attached to aid; and the requirement that Chinese state owned firms will carry out the construction of the project, and provide all equipment and materials. China does not dictate any specific policy and emphasises that there is no universal blueprint for development. This is particularly attractive to developing states who have been subject to a uniform set of policies under the Washington Consensus that they argue is not in line with individual state development needs.

It is very difficult to address just how much aid China is providing to Africa, as it is delivered as development grants, concessional loans, state-sponsored and subsidised overseas investment, debt relief and technical assistance. There is very limited data available, but the NYU Wagner School estimated all Chinese development assistance projects in 2007 to total $25 billion, and according to the Financial Times, in 2009 and 2010 China lent more money to developing countries than the World Bank.

So why is China suddenly investing so much money in Africa? The most obvious answer is oil. As the world’s largest energy consumer, China is keen to diversify its energy supply and Africa has an abundance of untouched energy resources. In 2009, African oil accounted for 80 percent of China’s trade in the region, and 70 percent of China’s infrastructure financing occurs in Angola, Nigeria, Ethiopia and Sudan, all of which have significant oil fields.

As a result, the Chinese government favours high profile infrastructure projects, mainly in the transportation and energy sector, as these areas are required for effective resource extraction and trade and therefore mutually beneficial endeavors. This has been seen through the construction of roads in Ethiopia, the renovation of the railway system in Nigeria, and the construction of a hydroelectric power plant in Ghana. It is evident that infrastructure-based development assistance is beneficial for the economic development of the recipient state as they are able to more efficiently transport resources to ports to increase their export market, and ultimately make the state more attractive for Foreign Direct Investment.

Although there is support for Chinese investment in Africa as an effective and alternative development route mainly amongst African leaders and conservative economists, the opinion of the broader international community, African activists and local populations in the recipient states are generally negative. Firstly, the lack of conditions tied to Chinese development assistance means that money is funding oppressive regimes and corrupt dictators who otherwise would not be eligible for loans.

Despite the identified flaws of Western aid policies, there is established consensus in the international donor community, which ensures continuity in the aid system, and Chinese ‘no-strings-attached’ aid undermines progress in political reforms. Chinese engagement in Africa means that recipient governments are able to reject demands put forward by the IMF, the World Bank and bilateral donors to improve transparency, decrease corruption and make progress towards democratisation.

This was evident in Nigeria, where after extensive negotiations with the World Bank, the Nigerian government agreed on a $5 million deal that would allow the clean up of the country’s major railway system. Just as the deal was about to be finalised, the Chinese government offered Nigeria $9 billion for Chinese companies to rebuild the railway, with absolutely no conditions. Situations such as these are very common particularly in Angola, Chad, Sudan and Zimbabwe, where Chinese development assistance undermines consensus and progress in good governance, human rights and environment sustainability.

Further, the Chinese focus on natural resource extraction leads to exploitative relationships. Reports have highlighted that Chinese companies are exploitative and operate in developing states with a complete disregard for human rights and environmental sustainability. As it is Chinese policy for all development assistance to be mutually beneficial, infrastructure loans provided to recipient states comes with the condition that Chinese firms complete the project. This is known as tied aid, which is widely accepted to reduce aid effectiveness as capital is not provided to develop the recipient state’s economy and enhance industry. Additionally, the potential that Chinese development assistance holds to provide employment is restricted as Chinese labour is brought into the developing state, often removing locals from positions. Chinese aid and trade policies to Africa undermine established consensus and potential progress in reducing corruption, increasing transparency and improving governance in recipient states.

In the 1990s, when asked what the alternative to the Washington Consensus is, Margaret Thatcher famously stated ‘TINA’ – ‘there is no alternative’. Widespread discontent in developing states with the failed outcomes of the Washington Consensus, and the emergence of China as an influential donor state means that there is an alternative – the ‘Beijing Consensus’. The international aid system is changing, and potentially becoming even more powerful. China is one of many emerging donor states that are gaining more influence in the international aid system and undermining established consensus.

Chinese aid and trade policies in Africa do not represent a long term or sustainable development path for recipient states, as it does not advance the wellbeing of the recipient population, is exploitative and supports bad governance. It is accepted that aid is only effective in a good policy environment, yet traditional aid policies have not been much more successful in leveraging good policies than Chinese development assistance. Therefore, a significant reform of the existing aid structure needs to occur to include emerging donors and strengthen all actors’ capacity to advance the well being of the populations within developing states.

 

Ashleigh Peplow Ball is a Bond University Undergraduate Student studying International Relations and Communications with a particular interest in international development. She is the President of the Bond University United Nations Student Association (BUUNSA).

 

A visual insight into the influence of Chinese investment in Angola:

[youtube width=”600″ height=”365″ video_id=”QkjH_0wKPfo”]

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