At the recent China-Africa Forum for Co-operation (FOCAC) 2018 summit held at the Great Hall of the People, Chinese President Xi Jinping doubled China commitments to Africa as he pledged to loan Africa an extra $60 billion. The forum brings together African nations and China and aims to boost the continent’s development.
This has led to a heated debate, some of it well-informed and some of it not, about the nature of Chinese involvement and its implications for the continent. The debate is partially motivated by the rapid growth of China’s economic presence in Africa. Aid is an important policy instrument for China among its various engagements with Africa, and indeed Africa has been a top recipient of Chinese aid: by the end of 2009 it had received 45.7 percent of the RMB 256.29 billion cumulative foreign aid of China.
The aid to Africa has raised many questions, such as its composition, its goal and nature. China provides eight types of foreign aid: complete projects, goods and materials, technical cooperation, human resource development co-operation, medical assistance, emergency humanitarian aid, volunteer programmes, and debt relief. China’s Belt and Road Initiative covers a wide array of fields, such as agriculture, education, transportation, energy, communications, and health.
Between 2000 and 2015 China had lent at least $95.5 billion in financing to Africa in the form of concessional loans.
China’s own policy actively contributes to the confusion between development finance and aid. The Chinese government encourages its agencies and commercial entities to closely mix and combine foreign aid, direct investment, service contracts, labour co-operation, foreign trade and export.
The goal is to maximize feasibility and flexibility of Chinese projects to meet local realities in the recipient country, but it also makes it difficult to capture which portion of the financing is – or should be – categorized as aid. One rather convincing theory is that the Chinese government in effect pays for the difference between the interest rates of concessional loans provided to Africa and comparable commercial loans. Despite Chinese leaders’ claim that China’s assistance to Africa is totally selfless and altruistic; the reality is far more complex. China’s policy toward Africa is pragmatic, and aid has been a useful policy instrument since the early days of People’s Republic of China.
During the Cold War, foreign aid was an important political tool that China used to gain Africa’s diplomatic recognition and to compete with the West.
Since the beginning of China’s reform and opening up, especially after 2000, Africa has become an increasingly important economic partner for China. Africa enjoys rich natural resources and market potential, and urgently needs infrastructure and development finance to stimulate economic growth.
Chinese development finance, combined with the aid, aims at not only benefiting the local recipient countries, but mostly China itself. In addition to securing Africa’s natural resources, China’s capital flows into Africa also create business opportunities for Chinese service contractors, such as construction companies.
This polarization reveals the two sides of the same coin. On the positive side, China’s aid and development financing fills a void left by the West and promotes the development of African countries. Many Chinese projects require large investment and long pay-back terms that traditional donors are reluctant to provide.
The fiscal deficit needs to be reduced a little bit to make more room for the private sector and also to reduce the public debt pressure, While debts are not necessarily bad and can actually be good for growth should they be used for primarily be used for development and not recurrent expenditures. Unfortunately seems like in Africa, we get into debt to loot, plunder, embezzle and pay inflated salaries and pay accrued high interests.
The unfortunate bit about Africa is seeking debt to finance white elephant projects that do not translate into real, sustainable jobs that have a lasting impact on the people of the continent and the economy at large. Most of the projects will take at least 100 years to have any significant impact on the economy.