China's Tied Aid to Africa

♠ Posted by Emmanuel in , at 6/25/2007 11:35:00 PM
The Who song "Won't Be Fooled Again" ends with the lyric "meet the new boss...same as the old boss!" That lyric came back to mind as I read this Financial Times article describing how the much-ballyhooed (by the Chinese, at least) China-Africa Development Fund is nothing but another exemplar of tied aid, with China replacing developed countries as the givers with strings attached. What else is new:

The much-trumpeted $5bn China-Africa Development Fund, portrayed by Beijing as economic assistance, will be used to invest exclusively in Chinese enterprises and their projects in the continent.

Such policy of “tying” aid to purchasing goods and services from the donor country has been attacked by development experts as wasteful and inefficient, and most donor governments have been abandoning the practice.

State-owned China Development Bank was due to launch the first $1bn phase of the fund on Tuesday for Chinese businesses whose “trade and economic activities have reached or will reach Africa”, as well as companies and projects in Africa in which Chinese enterprises have invested, according to the fund’s official mandate.

Investments will concentrate in companies and projects related to natural resources, as well as infrastructure, agriculture, manufacturing and industrial parks set up by Chinese companies in Africa, the bank said.

Tied aid has been a feature of European, American and Japanese assistance to poor nations for decades. But more recently they have been dropping such conditions, given the evidence that tying aid reduces its effectiveness by as much as a quarter.

Daniel Large, a researcher in China-Africa relations at the School of Oriental and African Studies in London, said: “This fund was announced as economic assistance with much fanfare last year but in fact it looks like more of the same and is very much anchored in China’s interests.”

Hu Jintao, the Chinese president, announced plans for the fund in November last year at a China-Africa Co-operation Summit in Beijing.

In most of its aid assistance to Africa, Beijing requires infrastructure construction and other contracts to be divided up, with 70 per cent going to “approved”, mostly state-owned, Chinese companies and the rest handed to local firms, many of which are also in joint ventures with Chinese groups...

Many aid groups and other large donors criticise Beijing for supporting unsavoury regimes in Sudan and elsewhere and say those policies are aimed solely at securing oil and mineral resources with little concern for environmental and social consequences...

CDB will manage the new fund on a semi-commercial basis by taking equity and quasi-equity stakes in Chinese firms doing business in Africa.

At a meeting of the African Development Bank in Shanghai last month, China said that it wanted to provide about $20bn in infrastructure and trade financing to Africa over the next three years.