The issues of Chinese Aid to Africa

1. CUTS – FICCI Conference Global Partnership for Development « Where do we stand and where to go ? » The issues of Chinese Aid to Africa Delhi August 13, 20082 Jean Raphaël Chaponniere Agence Française de Développement Asian Department

2. While economist discuss on the issue of « decoupling » between US and emerging economies The « coupling » between Asia and Africa intensifies Bilateral trade in US billions with Africa (North Africa incl) A broader perspective

3. Bilateral Trade Africa’share of Chinese and World Trade China and Africa The growth of China Africa trade halted the marginalisation of Africa in world trade. African share of Chinese trade is now larger than in the seventies

4. Chinese aid began in the late 1950’s (Egypt, Algeria) and accelerated after Chou En Lai visit in Africa in the 1960’s. Large scale projects such as Tanzam built between 1973 and 1976 (US $400 millions) have been the exception as Chinese aid financed small projects as well as technical and medical assistance. Number of cooperation agreements between China and African states An emerging donor ?

5. The lack of statistics leads either to inflate or to under estimate Chinese Aid to Africa. Various estimates conclude that China is not yet a major donor in Africa. While OECD countries may not meet their Gleenagles objective, China will probably double its aid by 2009 and will be a major donor in Africa during the next decade Esimates of Chine Aid to Africa in US$ Billions in 2006 A minor or major donor ?

6. While the lack of infrastructure is one of the critical constraint to African development, OECD’aid shied away from infrastructure projects. Among the reasons there is the CAD’s Helsinki Arrangement that forbad interest rate subsidies to commercially viable projects. As the private sector did not engage in those projects, this “market failure” opened the way to Chinese ODA. Aid to infrastructures in dollars and % of OECD’s ODA to Africa Competition or complementarity ? In current dollars, OECD aid to infrastructures in Africa is equal to its level in the 1970’s

7. The Heavliy Indebted Poor Countries initiative (HIPC) has reduced African external debt to GDP ratio to 35%. To avoid a new debt crisis, OECD countries agreed to respect a debt sustainibility framework and monitor new credits. If China does not cooperate to this scheme, this collective effort may not be effective. This could eventualy lead to a new debt crisis Sub saharan African debt (% of GDP and exports) 100% 300% 90% Debt GDP 250% 80% Debt /export 70% 200% 60% 50% 150% 40% 100% 30% 20% 50% 10% 0% 0% 1970 1975 1980 1985 1990 1995 2000 2005 Is China a free Rider ?

8. Chinese firms based in Africa won half of the market for major civil engineering projects. Their competitiveness is explained by : (i) their extensive presence in Africa that reduces their cost (ii) good financial conditions (iii) and, not systematically, the use of Chinese labour. Chinese aid is tied as it finances Chinese (as well as foreign subsidiaries) exports. The fact that Chinese firms won contracts financed by bilateral donors while Chinese aid is tied, has led to discuss the relevance of untied aid in OECD countries. Knowing the competitiveness of Chinese contractors, the untying of Chinese aid and the use of international calls for tender by China would probably have little impact on Chinese firms. However, China may be reluctant to untie her aid as open tender may create transparency problem within China. The issue of tied aid

9. The issue of aid effectiveness : different definition • Chinese claim that their aid is more effective than OECD’s as their projects cost less and their implementation is shorter (no conditionality). They sometimes acknowledge that their projects meet with problems once the Chinese experts leave. • Among the criteria used by OECD to assess Aid effectiveness there is its appropriation by the host country.

10. Conclusion : Divergence or Convergence ? • Chinese aid is considered as an alternative to OECD’s aid which is critized as having too many conditionalities (Beijing consensus vs Washington consensus ). • As China is now financing large projects, Chinese may have to change their view on effectiveness. This may lead to some convergence with established donors that could take into account the Social and Environmental Responsablility. OECD donors have started to negociate with the Chinese ExIm Bank. Cooperation with China in Africa could lead to an effective Trilateral Cooperation.