Posted by: Jeff | June 24, 2010

The China Conundrum in Africa

Photo: Foreignpolicy.com

From Foreign Policy:

When Ellen Johnson Sirleaf assumed office in Liberia, the government’s budget was a mere $80 million — as she put it, about the budget of a high school. Today, the budget is $350 million — better, but still not great. So her pronouncement today speaking at the Council on Foreign Relations was particularly ambitious:  “Liberia should not need aid in 10 years,” she told the audience. “we’ve got the resources … We’re going to go from dependency to self-sufficiency.”

How?  Largely by relying on Chinese direct investment.  Resource-hungry China has been spending money at tremendous rates throughout the African continent in order to procure construction and infrastructure contracts.  These contracts often reap huge rewards for China – goodwill among African nations that often distrust the West, and huge resource windfalls.  Many of the construction projects financed by the Chinese are aimed at improving infrastructure for extraction industries.

There is a double edge to such projects – while it certainly helps improve GDP and economic growth in Africa, it does so predominantly in resource industries, as those are the roads and infrastructure improvements that China is interested in financing.  The idea is that increased revenue for African states will lead to their ability to finance their own public service projects, but that is a bridge we have not yet seen crossed.  It is a form of top-down economics that always makes me skeptical, especially in those states that have shown a propensity for elite corruption.

All of this leads to a new conundrum in the aid industry:

[Rapid Chinese investment has] got to be something of a wake-up call for U.S. foreign aid — and even private investors. Thanks to its historical ties to the United States, Liberia is usually thought to be in “America’s” sphere in influence on the continent — after all, Monrovia has been a major recipient of foreign aid. But China’s presence, and its increasingly attractive and flexible model, is pretty hard to out do.

Western aid agencies are really in a bind now – self-sufficiency is the goal of their existence, but it seems that African countries are making more progress toward that goal by partnering with China, and not USAID.  We’re wary of Chinese influence and its microeconomic impact, but is sacrificing macroeconomic stability and growth worth curtailing Chinese financial investment throughout the region?

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