What roughly $470m of borrowed money gets you in Nigeria vs Ethiopia

Ethiopia and Nigeria both borrowed roughly the same amounts of money from China’s EXIM Bank for massive infrastructure investments. The former sought to transform its capital’s transit system with a light rail ($475m); the latter tried to boost security in its capital by installing security (CCTV) cameras ($470m).

The outcomes of the two projects are an indication of what will be the impact of China’s ongoing infrastructure projects in much of SSA. Some countries because of the specificities in their domestic political economy are using borrowed money to deliver on actual tangibles — dams, power lines, stadia, housing projects, railway lines, roads, et cetera (corruption plays a role, but projects get completed). Yet others are accruing loans (albeit on concessionary terms) simply to treat the cash injections in the same manner that political elites have treated windfalls from mineral resources in decades past.

Ethiopia just opened its new light rail system in Addis. Nigeria’s CCTV project was a major flop. Of course this fact was not lost on a section of Nigerians on twitter:

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How is the world reacting to China’s rise?

China has experienced a spectacular economic growth in recent decades. Its economy grew more than 48 times from 1980 to 2013. How are the other countries reacting to China’s rise? Do they see it as an economic opportunity or a security threat? In this paper, we answer this question by analyzing online news reports about China published in Australia, France, Germany, Japan, Russia, South Korea, the UK and the US. More specifically, we first analyze the frequency with which China has appeared in news headlines, which is a measure of China’s influence in the world. Second, we build a Naive Bayes classifier to study the evolving nature of the news reports, i.e., whether they are economic or political. We then evaluate the friendliness of the news coverage based on sentiment analysis. Empirical results indicate that there has been increasing news coverage of China in all the countries under study. We also find that the emphasis of the reports is generally shifting towards China’s economy. Here Japan and South Korea are exceptions: they are reporting more on Chinese politics. In terms of global sentiment, the picture is quite gloomy. With the exception of Australia and, to some extent, France, all the other countries under examination are becoming less positive towards China.

That’s Yuan, Wang and Luo writing in a neat paper that analyzes news coverage of China in different countries.

More on this here (HT Jay Ulfelder).

On the Continent opinion survey data from a select set of countries show high favorability ratings for China — by about two thirds or more of survey respondents. The same countries have seen some decline in US favorability ratings over the last few years. As you’d expect, people’s reaction to China’s rise is based on perceptions of the potential material impact it will have on their lives. On average, the survey evidence suggests that most Africans view China’s rise as a good thing.

It is interesting that across the globe young people, on average, have a more positive view of China’s rise than older people. Younger people probably associate China more with glitzy gadgets in their pockets; and less with cultural revolutions and famine-inducing autocracy.

The potential impact of a Chinese slowdown on Africa’s economies

The FT reports:

For Africa’s non-oil exporters, the collapse in crude prices has provided a cushion. But, with many African countries import-dependent, the depreciation of currencies affects inflation and the cost of imports. It will also put a strain on those nations that have taken advantage of investors’ search for yields to tap into international capital markets.

The likes of Zambia, Ethiopia, Rwanda, Kenya, Ghana, Senegal, and Ivory Coast have all issued foreign currency dominated sovereign bonds in recent years. “In the past, foreign exchange weakness in Africa was largely shrugged off. Economies adapted and found a way to cope with it, but the recent surge in eurobond issuance has been a game-changer,” says Razia Khan, chief economist for Africa at Standard Chartered.

“Now, when currencies depreciate, external risks are magnified, public debt ratios rise, and perceptions of sovereign creditworthiness alter quite dramatically.”

Prof. Deborah Brautigam of SAIS sees the following happening:

  • Prices for African commodities will worsen, then improve. In recent years, China’s slower growth has pushed down prices for gold, crude oil, copper, platinum and iron ore. South Africa’s mining sector was expected to lose over 10,000 jobs due to lower demand
  • Africa will import even more from China. Cheaper Chinese exports will please African consumers while putting Africa’s manufacturers at a further disadvantage. There will be more pressure for tariff protections
  • [L]ow wages in Ethiopia and elsewhere had been attracting significant factory investment from China. With costs now relatively lower in China, the push to relocate factories overseas will slow. This will save Chinese jobs, but postpones Africa’s own structural transformation.

And concludes that:

In the short term it is hard to see how this devaluation can help Africa, notably its productive and export sectors.

The thing to note is that different African countries have different kinds of exposure to China. The commodity exporters (both petroleum and metals) will be hit hard. The effects will be somewhat attenuated in countries exposed primarily through Chinese FDI and infrastructure loans. Domestic fiscal reorganization and resources from the AfDB and other partners should plug a fair bit of the hole left by declining Chinese investments (although certainly nowhere near all of it). And with regard to sovereign debt, a Chinese downturn might persuade the US Central Bank to delay its planned rate hike — which would be good for African currencies and keep the cost of borrowing low.

Lastly, for geopolitical reasons I don’t see China rapidly reducing its footprint on the Continent. In any case, as Howard French makes clear in his latest book, there is a fair bit of (unofficial) private Chinese investment in Africa. Turmoil back home may incentivize these entrepreneurs to plant even deeper roots in Africa and expatriate less of their profits. The net result will be slower growth in Africa. And like in China, slower growth will challenge prevailing political bargains in democracies and autocracies alike.

How does Chinese aid interact with level of democracy in poor countries?

It is a commonly accepted idea in IR theory that states have the habit of externalizing their domestic institutions [and accompanying economic and political systems] in their engagements within the international system (See Katzenstein, 1976 [pdf, gated]) – think democracy promotion, Reagan-Thatcherist free market evangelism, or Sino-Russian coziness with states that have an authoritarian bend. 

This phenomenon has non-trivial implications for development assistance. For instance, poor countries receiving capacity development assistance from say a Scandinavian liberal democracy often need to also adopt related practices beyond the narrow specific field (say tax reform) that is being addressed by the capacity development program. Many projects fail to produce the desired results because of this. Indeed past research has shown that “though aid [from wealthier, mostly Western democracies] does not affect quality of life in the aggregate, it is effective when combined with democracy, and ineffective (and possibly harmful) in autocracies.” [Kosack, 2003- pdf]

So does the effect of Chinese aid/finance to poorer countries follow this pattern? In other words, does the institutional incongruence effect also hold for autocratic donors? Image

The folks at Aid Data blog think it does: 

…… we estimate the relationship between Chinese development finance and human development in democratic and autocratic recipient countries. Our results show a negative relationship between Chinese development finance and human development in democratic countries. Interestingly, these results also suggest that Chinese development finance can successfully promote HDI growth for autocratic recipients. Kosack found the opposite pattern in his study of Western aid.

The findings are preliminary and may not withstand robustness checks, but all the same interesting.

More on this here.

Also, check out the Economist for a neat analysis of the potential impact of a Chinese economic slowdown on African economies.

China in Kenya

Increasing Chinese soft power in Africa is real.

China in Kenya

I have been spending a lot of time in government offices and libraries in Nairobi lately. One thing that struck me this morning is that China Daily now publishes an Africa Weekly magazine and that government offices in Nairobi actually subscribe to it. They do not subscribe to the IHT.

US Africa Policy, A Response

This is a guest post by friend of the blog Matthew Kustenbauder responding to a previous post.

On the question of human rights guiding America’s foreign policy in Africa, I agree with you; it shouldn’t be the first priority. The US needs a more pragmatic development diplomacy strategy, which would help African countries develop just as it would help American businesses thrive.

But I disagree with your characterization of Hillary’s position in this respect. Here’s Secretary Clinton’s own words:
“Last year I laid out America’s economic statecraft agenda in a series of speeches in Washington, Hong Kong, San Francisco, and New York. Since then, we’ve accelerated the process of updating our foreign policy priorities to take economics more into account. And that includes emphasizing the Asia Pacific region and elevating economics in relations with other regions, like in Latin America, for example, the destination for 40 percent of U.S. exports. We have ratified free trade agreements with Colombia and Panama. We are welcoming more of our neighbours, including Canada and Mexico, into the Trans-Pacific Partnership process. And we think it’s imperative that we continue to build an economic relationship that covers the entire hemisphere for the future.” 
“Africa is home to seven of the world’s ten fastest-growing economies. People are often surprised when I say that, but it’s true. And we are approaching Africa as a continent of opportunity and a place for growth, not just a site of endless conflict and crisis. All over the world, we are turning to economic solutions for strategic challenges; for example, using new financial tools to squeeze Iran’s nuclear program. And we’re stepping up commercial diplomacy, what I like to call jobs diplomacy, to boost U.S. exports, open new markets, lower the playing field – level the playing field for our businesses. And we’re building the diplomatic capacity to execute this agenda so that our diplomats are out there every single day promoting our economic agenda.” 

One of the problems, however, is that the pragmatic approach articulated by the Secretary doesn’t trickle down through the bureaucracy. This is especially true, ironically, of the State Department’s primary development diplomacy arm, USAID, which has a deeply entrenched culture of being anti-business. It’s a huge problem, and part of the reason why American foreign policy in Africa has been so slow to adjust to new economic realities.

Security drives US Africa Policy

Security drives US Africa Policy

Academics schooled in all the latest development orthodoxies but lacking the most basic understanding of economic or business history have flocked to USAID, so that the suggestion that American economic interests should guide development policy – making it a win-win for Africa and America – is anathema. It’s also why the Chinese are running all over the US in Africa.

As a prominent economic historian recently remarked in the Telegraph, “While we [Western governments] indulge our Victorian urge to give alms to the Africans, Beijing is pumping black gold.” And this is just it. As long as the US approaches Africa as a beggar needing to be saved and not as a business partner worthy of attention, both sides will continue to lose out.

In this respect, what Africa does not need is another “old Africa hand” steeped in conventional development ideas and old dogmas about what’s wrong with Africa and why the US must atone for the West’s sins. For this reason alone, John Kerry – not Susan Rice – probably stands a better chance, as the next Secretary of State, at putting American foreign policy toward Africa on a more solid footing.

– Matthew Kustenbauder is a PhD candidate in history at Harvard University.

Ignoring the log in one’s own eye (forgive the hackneyed biblical metaphor)

Hilary Clinton is on a tour of three African states. She is visiting Zambia, Tanzania and Ethiopia. This is what she had to say in Lusaka:

U.S. Secretary of State Hillary Rodham Clinton on Saturday warned Africa of a creeping “new colonialism” from foreign investors and governments interested only in extracting the continent’s natural resources to enrich themselves and not the African people. 

The point was directed at China.

But Mrs Clinton’s statement conveniently left out Equatorial Guinea, Gabon, Nigeria, Ethiopia, Uganda, among others. In these states the US government and American multinationals continue to cooperate with regimes that are obscenely corrupt and/or repressive for “constructive reasons.”

Chinese involvement in Africa is not clean, no doubt about that. Beijing’s support of the murderous regime in Khartoum is despicable. But this is nothing new. The US, Western Europe and Russia have done worse. The worst of all is the French who were in bed with the Rwandan army even as elements within it (Rwandan army) orchestrated the 1994 genocide.

Many people that I have spoken to about Chinese involvement in Africa seem to have lots to complain about, but they also like Chinese pragmatism. They get the roads built, the fibre cables laid out, etc.

I must say that Africans who are suffering under oppressive regimes still need western pressure on their governments to allow for more political space (however janus-faced this pressure might be). That said, Africa needs more options. A globally conscious China with lots of money to throw around will – in the long run – do more good than harm in Africa.

Their resources-for-(white elephant)-projects approach might yet prove to be better than the previous resources-for-Swiss-bank-accounts approach of Western multinationals.

And as has been the case with shady Western involvement in Africa, whenever the Chinese make deals that are bad for the locals the blame should be directed at the African governments who take side payments and look the other way.

if a tenth the charities out to help “africa” were any good ….

A lot of money has been poured in Africa (to use a Kenyan phrase) since the 1960s. Most of it has gone down the drain without much impact. If a tenth of the aid effort in Africa were effective things would be very different. Instead you have a cacophony of aid effort without much coordination. Yes there are the many hospitals, schools and business projects that have improved millions of livelihoods, and we applaud them. But there are also bizarre projects – like giving rape victims cameras to record their ordeals in the Congo or this crazy idea to send a million shirts to Africa.  As Aid Watch aptly puts it, a lot of aid is never about what the people in this mythical place called Africa need but what people want to give – and oftentimes what they want to give is a function of their warped notion of what life is like on the Continent.

And in other news, Sierra Leone has seen the light. As I noted here two years ago, the country’s HDI indicators belong in a time long gone. It is therefore encouraging that the Sierra Leoneans have decided to take HDI matters seriously.

china in africa: getting the right picture

Here is a new blog on this by Brautigam. I attended her talk at Stanford and kind of liked the book.

I am glad that a consensus seems to be emerging that one-sided and blind China-bashing is not productive, especially with regard to Chinese involvement in Africa.

And in other news, what is Kagame up to? The man appears to be turning into a paranoid autocrat. It’s been 16 years since 1994 and about time he started being more open to constructive criticism.

equatorial guinea, where does the money go?

Equatorial Guinea is the third largest oil producer in Africa, right after Nigeria and Angola. Equatorial Guinea also has just over half a million people. It therefore defies logic that this country should still have many of its people living in squalid conditions. This country ranks 121st out of 177 on the UN Human development Index, even though it has a per capita income (PPP)  of 50,200 (CIA Factbook) – only second to Luxembourg in the entire world! Why are many Equatorial Guineans still dirt poor, dying from treatable illnesses and ignorant? Where is Teodore Obiang Nguema Mbasogo taking all the oil money?

This is a shame to the continent and to Obiang and his cronies. It is high time African leaders became their own keepers and fostered a culture of intra-continental competition rather than their old-school collusion to steal all they can from the poor and dying, as is happening in this fabulously wealthy country. This is especially important now that the EU and the US – because of competition for resources with China – have decided, like the latter, to turn a blind eye to gross injustices like this one.

With a total population smaller than those of most African capitals, and with all the oil money, how hard can it be to keep track of everyone and ensure that all Equatorial Guineans are well fed, educated and healthy?