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Poisoned Chalice or Fuel for Development? (Part II)



Posted on: 04-Jun-2012

Poisoned Chalice or Fuel for Development? (Part II)

In the first of a series of OUCAN debates, two renowned African public intellectuals give their views on the pros and cons of the wave of investment and trade between China and Africa's 54 countries that is remaking the international political economy as we know it. Both concerned with job creation, economic growth and poverty reduction, they propose a radically different engagement with the People's Republic and draw our attention to the complexity of the debate and to a wide range of historical and contemporary examples that buttress their argument. Regardless of whether one agrees with them or not, they force to rethink our assumptions about the China-Africa relationship past, present and future.

In the lead up to the fifth Ministerial Conference of the Forum for China Africa Cooperation to be held in Beijing later this year, OUCAN is launching a series of online debates on China-Africa relations by scholars, development specialists, business people, and civil society representatives from China, Africa and beyond.

The first debate pits two distinguished African intellectuals against each other in "Poisoned Chalice or Fuel for Development". The first debate went live on Monday, 28th May. Professor George Ayittey was the first intellectual to give his views on Sino-African relations. On the 5th June Dr Martyn Davies will continue the debate by introducing another viewpoint on Sino-African engagement. The public will have the opportunity to continue commenting on Professor's Ayittey and Dr Davies's views.

"Dear George,

Thank you for an interesting, but ultimately unsatisfying read. I beg to differ with your analysis. Here is why. 

I would like you to consider what I call "Beijing's unintended impact in Africa"- focus on the big picture, perhaps rather than the details which we are still trying to understand. China's growing influence in Africa goes beyond the proliferation of "Made in China" products and building of infrastructure. China's developmental experience is increasingly appealing to African governments that are disenchanted with the so-called western economic "model" - exacerbated by the financial crisis. African leaderships regularly talk of adopting the "China model" to address their developmental challenges. African delegations regularly visit Beijing in search of an answer to the question "how does an economy achieve double digit growth for over two decades, even through a global economic recession?"

Take South Africa as a case in point. Since President Jacob Zuma's state visit to China in August 2010, almost every member of the ruling African National Congress's 86-strong National Executive Committee has travelled to China on learning journeys seeking to understand the Chinese state's economic management policies and structures. The ANC Government regularly describes itself as a "developmental state" – a state that seeks to be more proactive in driving growth. Government policy-makers, some of whom may have a pre-existing ideological suspicion of "the market", are all too ready to embrace a new model that supposedly offers a new way, one that places the state as the driving force of growth. And they are right to be impressed by what they find in China.

China's economy has grown at roughly 10% for almost three decades – a phenomenal achievement that has elevated China to become the world's #2 ranked economy. The primary growth driver has not been, contrary to popular belief, China's export machine but rather state-led fixed asset investment spending.

China has, in effect, been on a stimulus package spending program for decades. Government spending on infrastructure now accounts for almost half of GDP. This capital has been channeled into the domestic economy through the state-owned banking sector, in particular the policy banks. The state-owned nature of the Chinese policy banks has allowed them to deploy capital over longer lead periods and regularly seek far lower returns on investment in comparison to private capital. Arguably, capital is invested in a manner that is suited to the needs of developing economies. The lending is ultimately more answerable to political stakeholders than it is to private shareholders.

China's foray into Africa over the past decade has been financed by its policy banks. At a previous World Economic Forum summit in South Africa, ICBC Chairman - Jiang Jianqing - said that Chinese investment in Africa is "growing and becoming more diversified, even as the global downturn curbs investment by other countries."The state-supported nature of Chinese finance in Africa may be distorting the capital raising market for large infrastructural and commodity finance projects on the continent. But the nature of these financing structures with their higher tolerance of risk is a potential game changer in developmental finance in Africa's economies.

The main actors in this process are China EXIM Bank, China Development Fund (CADFUND), China Construction Bank and the Industrial Commercial Bank of China (ICBC). The CADFUND, managing a US$5 billion equity fund, is at the forefront of Chinese investment into Africa. Co-investing by taking a minority equity position with leading Chinese firms into the continent and with CDB providing debt financing, the fund may account for the origination of over US$50 billion of Chinese investment into Africa. No other economy is deploying such sizeable amounts of capital into the continent. Clearly the traditional aid model that has largely shaped Africa's relations with the western world is in need of replacement.

Chinese bank-provided finance is a masterful Chinese foreign policy tool, particularly in Africa's cash-strapped, but resource-rich, countries. It is particularly popular where infrastructure needs are huge and where states can securitise their proven resources as collateral. Despite the relatively scant numbers of these large projects they have attracted enormous attention in the media. These "coalition arrangements" linking commodity extraction with the construction of infrastructure in recipient African countries are inventive and are certainly providing impetus for traditional donors and development finance institutions to change their obsolete, tired models of aid and risk aversion toward the continent.

Africa is proving receptive to Chinese investment with political resistance to Chinese investment in the continent's assets absent. Whilst debate and political opposition to Chinese investment in the western world has increased, no such political resistance from African governments has been forthcoming. Africa provides a welcoming environment for Chinese capital.

All of this is very appealing to the ANC and its attempt at a developmental state. It seeks to use the development finance institutions – the Industrial Development Corporation (IDC) and the Development Bank of Southern Africver has not been, contrary to poy. The argument being that perhaps there hasn't been enough "D" in IDC and DBSA. China helps to refocus the attention of the ANC –and other ruling parties- on development questions.

I want to conclude by stressing that it is risky to try to simplify China's developmental experience and call it a "model" ready for application elsewhere. China's greatest economic success has been the creation of a vibrant and highly competitive private sector that now contributes over 2/3 of China's GDP. Contributing to this has been a pervasive education system, enabling infrastructure, and effective management of state institutions.

Africa's interest in China's developmental experience has not been created by the current crisis that is inflicting western economies, but it has definitely accelerfrica over the past decade has bn Africa has been commercial. But without any intention from Beijing, it will increasingly influence African government's economic management policies. What is apparent is that African Governments no longer look toward the West for development models, but rather the East, in particular China. And this, George, is a fact to be welcomed. I look forward to hearing from you.

Yours truly,

Martyn"

Edited by: Editor: Dr Harry Verhoeven

 

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