Africa’s Appetite for Chinese Aid: Beware of “No Strings Attached”

    By Scott N. Romaniuk

    January 28, 2019

    The opinions expressed by authors in these commentaries do not necessarily represent the views of the China Institute or the University of Alberta.

    In 2015, President Xi Jinping expanded China’s financial investments in Africa’s industrialization and development to US$60 billion, raising China’s global investments to a level that further rivals United States (US) foreign aid. Xi pledged more funding and loan opportunities before a body of African leaders at the 2018 China-Africa summit in Johannesburg, South Africa at a time of considerable economic downturn that affected many African countries. At the 2018 summit Xi declared that, “China has the strong political commitment to supporting Africa in achieving development and prosperity.”

    African leaders overwhelmingly praised China’s global development commitment and assurances of aid to Africa in particular, with Rwandan President Paul Kagame calling the 2018 Forum on China-African Cooperation (FOCAC) “a powerful engine of cooperation fully aligned with Africa’s Agenda 2063 and Sustainable Development Goals.” Dazzled by promises of Chinese aid (a mix of billions of US dollars in grants and interest-free loans as well as interest-based loans and export credits), and the sharing of Chinese technology, technical skills, and various materials, African countries have ventured impetuously to a “mountain of knives and a sea of fire” (刀山火海). China’s present approach to foreign aid is more akin to a rush of business ventures as opposed to traditional development activities.

    Though China can surely follow through with its colossal financial pledges to Africa, its policies are strongly predicated on the idea of something-for-something. China’s moves may not be entirely predatory and they are pragmatic at their core. Mr. Kagame defended China’s generosity in Africa and approach to pushing African development forward by contending that, “[our] growing ties with China do not come at anyone’s expense. The gains are enjoyed by all who do business with us. Building the capacity of African institutions to transact and monitor more effectively is what will make the biggest difference.” But this may carry risks for everyone.

    China’s “Aid” Model
    China’s aid to developing countries comes in many forms: project development, delivery of a variety of goods and materials, technical assistance and cooperation, human resource assistance and development, medical support, humanitarian aid and disaster relief, volunteering, and debt burden assistance. Its donor portfolio therefore reflects a high degree of diversity but applies the definition of aid loosely and to such areas as military assistance while at the same time omitting, for example, donor administrative costs. On the odd occasion, China has handed-out cash aid but such instances are few and far between.

    While the Asian tiger’s development approach to Africa differs patently from that of other, principally Western, countries, African leaders have turned a blind eye to well-established notions and practices of aid. Extensive data compiled between 2010 and 2014, and presented in a report published by the AidData Research Lab at the College of William & Mary in Virginia, illustrates a flood of discrepancies in Chinese aid.

    The Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC) identifies Official Development Assistance (ODA) as assistance by governments with the specific objective of promoting the economic development and overall welfare of development countries. Whereas more than 90% of US aid fits the general definition of aid, just over 20% of China’s aid fits with the traditional and widely-accepted definition. Given that China is not a member of the OECD it should come as little surprise that Beijing dances to its own foreign aid tune.

    Who Benefits, Now?

    As is the case with countries in other regions of the world, African countries have been quick to jump at China’s dangling yuan, even if Xi’s aid may be seen as a baited hook. For more than a decade, China’s development financing has touched the realm of natural resources, infrastructure in the form of superhighways, and construction projects that include high-rises as well as sundry large scale public and private ventures. Chinese development financing has struck nearly every African country with thousands of China-backed projects. Mauritania, Ghana, Nigeria, Chad, Cameroon, Sudan, Ethiopia, Angola, Zambia, Zimbabwe, and South Africa are among the top recipients of Chinese financial support. The effects of China’s development finance can be seen in the form of sewage system development, road and dam construction, national rehabilitation projects, and agricultural growth, though the majority of Chinese money has targeted the transportation and energy sectors.

    To claim that Chinese aid has hit Africa fast and hard while showing signs of leading to real outcomes is by no means a stretch. Much of China’s investment targets the construction and creation of tangible structures resulting in services for the common African. Ugandans are still awestruck by the Entebbe-Kampala Expressway – a 51km, four-lane highway linking the capital with the international airport and a first for the country – built with a US$476 million loan from China Exim Bank. A major problem emerges through the long-term impact of Chinese development finance and the establishment of an imbalance in partnership in addition to the slow erosion of African debt-service capabilities. China has also traded low-interest loans for extraction rights of proven deposits in African countries, constraining the future use of their own natural resources.

    Win-Win or Lose-Lose?
    Africa’s slide in the direction of debt-service incapacity may give rise to entrenched dependency on Asia’s mammoth development financer. But this has apparently become a small price to pay for immediate gain. spending money on infrastructure and support for physical growth over investment in areas that would lead to fundamental change and sustainable development of African communities, and even an increase in human security, has become a preference of African leaders. A great deal of China’s spending on overseas development is also shrouded in secrecy with little qualifying information provided about where the money actually goes.

    China’s current aid practice is connected to a disconcerting combination of lending to high-risk countries where weak governance environments are seen, thus making debt repayment extremely challenging. At the same time, China’s foreign aid activities bring about prospective problems for the West. China’s “Go Global” strategy, with its large-scale aid streams, shows that Chinese money comes with potentially fewer or fewer unattractive strings attached than Western aid. While conditions still exist, they are far more concealed and carry much deeper and longer-term implications. Greater attraction to Chinese aid could set the stage for China’s foreign aid supplanting assistance from the US and other Western governments.   

    For now, there are winners in Africa, with many governments enjoying the spoils of Chinese aid. However, today’s winners, even those presently relishing the gains, could be tomorrow’s losers. The outcome may even be a negative one for China, particularly if Beijing has a hard time collecting its debts or if its global reputation as a foreign aid donor becomes distastefully bound to its profit impulse. African countries, with fragile and corrupt governing institutional structures hoping for instant reward through China’s aid seduction, are likely to be the biggest losers over the long-term.

    Predicting an outcome to China’s enthusiastic financial engagement in Africa is challenging at best as the economic future of any state remains a black box. One can only wait in order to determine how events will play-out and to see if African countries will remain spellbound by the money spilling from China’s coffers.

    Scott N. Romaniuk is a Postdoctoral Research Fellow at the China Institute.