African Development Review, Vol. 22, No. S1, 2010, 615–628
Building Complementarities in Africa between Different Development
Cooperation Modalities of Traditional Development Partners and China
Richard Schiere∗
Abstract: China’s relationship with Africa has grown exponentially over the last decade with US$95 billion in bilateral
trade in 2008 and US$5.4 billion of Chinese investment in Africa for the same year. The growth of Sino-African relations also has
an impact on the role of traditional development partners in Africa in particular in the aftermath of the 2008 financial crisis, which
has already led some traditional development partners to reduce their aid budgets and subsequently their Official Development
Assistance (ODA) flows to Africa. The objective of this paper is to analyse different development cooperation modalities in Africa
of traditional development partners and China. This requires identifying trends in aid, debt relief, general budget support, trade,
preferential trade access, and investment flows of both traditional development partners and China. The paper advocates that
complementarities can be built between these development modalities on a national, regional and global level. This would enhance
development effectiveness, increase efficiency and create win-win situations which would be beneficial to African countries,
China and traditional development partners.
1. Introduction
China’s relationship with Africa has grown exponentially over the last decade with US$95 billion in bilateral trade in 2008 and
US$5.4 billion of Chinese investment in Africa for the same year. The growth of Sino-African relations also has an impact on the
role of traditional development partners in Africa in particular in the aftermath of the 2008 financial crisis, which has already led to
some traditional development partners reducing their aid budgets and subsequently their Official Development Assistance (ODA)
flows. The objective of this paper is to analyse the different development cooperation modalities between traditional development
partners and China. The aim is not to identify which development cooperation modalities are more or are less effective, but rather
to build complementarities so as to enhance development effectiveness for the recipient African countries. This would require
analysing trends in aid, debt relief, general budget support, trade, preferential trade access agreements and investment flows of
both traditional development partners and China.
By emphasizing and disaggregating the development cooperation modalities of traditional development partners, as represented
by the Development Assistance Committee (DAC)1 and China, this paper complements existing literature on China-Africa, which
often focuses on issues such as the limitation of commodity dependent exports for Africa, infrastructure investments in Africa
and competition from the Chinese manufacturing sector (Foster et al., 2009; Kaplinsky and Morris, 2008; Sandrey and Fundira,
2008; Magder, 2005). More recently, there is also emerging literature in the field of political science on China’s impact on the
international aid architecture (Paulo and Reisen, 2010; Brautigam, 2008; Wang and Bio-Tchane, 2008), although this research
does not disaggregate the various development cooperation modalities as is the case in this paper.
The outline of this paper is as follows. Section 2 emphasizes the effects of the financial crisis and subsequent economic
downturn as well as the policy response of African countries. Section 3 highlights the development cooperation approach of
traditional bilateral and multilateral development partners. Section 4 presents the development cooperation modalities of China.
Section 5 uses data on aid, debt relief, general budget support, trade, preferential trade access and investment flows by traditional
development partners and China to present the trends in development cooperation. Finally, the conclusion and recommendations
highlight the policy options on a national, regional and global level, which could enhance development effectiveness of the
recipient countries in Africa.
∗
Richard Schiere is Principal Economist, Resource Mobilization and Allocation Unit, African Development Bank Group. The views expressed in this
paper are those of the author only and do not necessarily reflect the views of the African Development Bank Group, its management or its Executive Board.
The contribution of Aymen Dhib, statistical assistant, for providing support in data collection necessary for this paper should also be acknowledged.
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Figure 1: Projection of GDP growth and per capita income
Source: African Development Bank Group.
2. Impact of the 2008 Financial Crisis and Policy Responses
The 2008 financial crisis and subsequent economic downturn that followed had a negative impact on the global economy. At the
beginning of the crisis, there was an initial discussion that Africa was ‘decoupled’ from the crisis. The reason for this ‘decoupling’
argument was two-fold. First, Africa had limited exposure to the crisis as the continent was not fully integrated in the global
financial system. Secondly, the growing relationships with Asia countries, in particular China, made African countries less reliant
on traditional development partners, which were suffering from a severe economic contraction. Unfortunately, by the beginning
of 2009, it became evident that the financial crisis had transformed into economic downturn that affected the global economy. For
Africa the financial crisis led to a drop in GDP growth to 5.6 per cent for 2008, 2.5 per cent for 2009 and 4.5 per cent for 2010
(African Economic Outlook, 2009). This was well below Africa’s average GDP growth rate of 5.7 per cent over the last decade
(see Figure 1).
The impact of the 2008 financial crisis can be divided into three rounds. The first round effect (i.e. transmitted through the
financial sector), the second round effect (i.e. transmitted through the real sector) and the third round effect (i.e. transmitted
through the public sector). The impact of the first round was relatively limited as Africa was not completely integrated into the
world economy, although middle-income countries in Africa did see a withdrawal of capital (Kasekende et al., 2009; International
Monetary Fund, 2009a, 2009b) as well as their stock market indexes drop dramatically by between 30 and 60 per cent (see Figure
A1 in the Appendix). The second round effect was transmitted through the real sector and included a drop in exports, lower FDI
inflows, a decrease in remittances and a decline in tourism revenues.
The second round effect had a direct negative impact on Africa in particular through the drop in commodity prices. At the
height of the crisis some commodity prices dropped by more than 50 per cent, compared to just one month before the financial
crisis erupted,2 as was the case for copper and oil. Other commodities such as cocoa and coffee recovered relatively quickly
(see Figure A2 in the Appendix) and this was the reason why Eastern Africa was less severely hit by the 2008 financial crisis
than other parts of the continent. The combined effect of the first and second round led many African countries to have a ‘twin
deficit’ in the current account and national budget (Thorton, 2008). The third round effect of the financial crisis was transmitted
through the public sector due to an unsustainable public debt level which requires reduction in public expenditure for both African
governments and development partners.
For donor countries which have been exposed to the brunt of the financial crisis, it is likely that aid budget would be reduced.
In this regard it should be emphasized that preliminary data of the OECD does show a significant discrepancy between DAC
members and high volatility related to the debt relief provided in 2008. For example, Austria, Germany and Canada reduced ODA
flows in 2009 due to non-extension of debt relief by respectively 31, 12 and 9.5 per cent (OECD, 2010). In the medium term,
there are two reasons why overall ODA flows will likely decline. First, a majority of donor countries have budgetary pressures
as they have unsustainable high budget deficits and growing public debt. This is already the case for Italy, Ireland and Greece,
which reduced their development cooperation budgets by respectively 31, 19.8 and 12 per cent (OECD, 2010). Secondly, the fact
that an aid target of 0.7 per cent of GNI will automatically translate into reduced ODA if there is an economic contraction. This
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has caused the aid budget of the Netherlands to be reduced by 4.5 per cent in 2009, although some countries, like the United
Kingdom, have excluded development cooperation expenditure from being cut.
The reduced growth rate also had an impact on the GDP per capita in Africa which dropped significantly from US$1.600 in
2008 to US$1.447 in 2009. The reason for this drop is that the average population growth rate in Africa is 2.3 per cent,3 which
means that any growth below this benchmark will lead to a drop in GDP per capita. This drop in GDP per capita is particularly
important as Africa is directly exposed to the dramatic rise in food prices, which, according to the AfDB research led to seven
countries in Africa being vulnerable (with 38 million inhabitants which is the equivalent of 4 per cent of Africa’s population),4
while another eleven countries are highly vulnerable (with 330 million inhabitants, which is 33 per cent of Africa’s population).5
These estimates are similar to the results of UNCTAD which has estimated that 21 African countries face food security crisis and
300 million Africans are confronted by chronic hunger (UNCTAD, 2009).
The policy response of African countries can be divided into three groups. The first group consisted of emerging and middle
income countries such as South Africa, Mauritius, Cape Verde and Seychelles, which were exposed to the capital withdrawal from
emerging countries. The policy response of these emerging developing countries in Africa was to launch a countercyclical fiscal
policy, which was often a combination of fiscal expansion and low interest rates so as to increase demand. The fiscal stimulus
packages often focused on increasing public investments in infrastructure, which is a structural supply bottleneck and would
therefore strengthen the competitiveness of many African countries once there is a global economic upswing. Some countries,
such as Cape Verde, choose to reduce taxation so as to spur economic growth in their service oriented economy. The second group
of countries consisted of resource rich countries, such as Botswana, which were severely impacted by the slump in commodity
prices. Some countries that had stabilization funds also choose to support investment projects so as to mitigate the impact of the
financial crisis (Kasekende et al., 2010). The third group of countries consisted of low income countries and fragile states. These
countries already had extremely limited policy space and are dependent on development partners and multilateral institutions to
reduce the impact of the financial crisis, in particular through the budget support instrument and other lending activities provided
by multilateral banks and bilateral development agencies.
In retrospect there is a stark difference in policy response to the 2008 financial crisis between Asian and African countries.
Overall Asian countries had the policy space to launch stimulus packages as part of anti-cyclical macroeconomic policy, which
they launched in response to the 2008 financial crisis. This was because many Asian countries had learned lessons from the
previous 1997 Asian financial crisis and had implemented a prudent fiscal policy with limited budget deficits and a build-up
of large foreign currency reserves. This functioned as a ‘buffer’ in the 2008 global financial crisis and subsequent economic
downturn. This domestic response was supplemented by the international initiative to expand the Chiang Mai Initiative, which
aimed to create a network of bilateral swap arrangements among ASEAN+3 countries6 to address short-term liquidity difficulties
in the region and to supplement the existing international financial arrangements. The Chiang Mai initiative expanded to include
US$120 billion and 80 per cent of the funds are provided by countries which hold large foreign currency reserves, in particular
Japan, China and South Korea. On the borrowing side, various countries would have caps on the amount of foreign currency
they can draw on in times of crisis. For example, Indonesia could borrow $12 billion, Thailand and the Philippines $9 billion
each and Malaysia $6.5 billion under their arrangements with the Chiang Mai members (Henning, 2009).This demonstrated
that Asian countries, besides having a prudent fiscal and macroeconomic policy at national level, also created an international
arrangement as a back-up instrument, which could provide loans to address short-term liquidity shortages of a country. In essence,
this mechanism could supplement, or even in the long run replace, loans which were traditionally provided by the IMF.
3. Development Approach of Traditional Development Partners
Traditional development partners have a long history of engagement in development cooperation. In the past aid was politically
supported by the moral obligation of donor countries to assist Africa in the aftermath of decolonization as well as by the need
to defend their strategic interests and spheres of influence in the context of the cold war. A more contemporary argument is that
aid is necessary to address global public goods, such as climate change and civil wars, which have a negative global or regional
impact. For example, civil wars have not only resulted in the loss of economic growth opportunities in Africa, but also led to the
circulation of small arms over porous borders and the spread of instability across the African region.
The traditional development also emphasizes the need for development effectiveness and coordination among donors. This
was the rationale of the Paris Declaration and Accra Agenda for Action (AAA), which advocated use of country owned systems,
the untying of aid and reducing the number of project implementation units. This was one of the lessons learned from the
failed structural reform initiative of the 1980s which lacked broad backing from all levels of government as well as civil society.
Another reason for the emphasis on development effectiveness was that it provides legitimacy for the use of public funds, although
research has indicated that the actual link between aid allocation and development performance or economic growth is not always
strong (Rajan and Subramanian, 2005). Another counterargument is that aid is not effective because ODA flow creates a perverse
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incentive in recipient African countries. This leads to dependency on foreign aid, while key issues such as the mobilization of
domestic resources are not prioritized by the recipient African countries. In short, aid leads to the replacement of the country
development priority by donor preferences and creates long-term dependence (Moyo, 2009).
Development partners have attempted to overcome these political economy challenges related to aid by emphasizing issues
such as leadership of the national development agenda, national ownership and consultative process with government as well as
civil society and the private sector in recipient African countries. This approach places the emphasis on good governance and
adequate political representation. The key assumption is that aid works better in promoting social welfare and economic growth in
a country with adequate governance institutions and business environment (World Bank, 1998). Often this ‘governance’ approach
is supplemented by private sector initiatives such as the Extractive Industries Transparency Initiative (EITI), which seeks to
increase transparency in royalties paid by the private sector to government, and the Kimberley process that certifies diamonds are
produced in non-conflict regions. Other means of increasing aid effectiveness is through the implementation of a holistic approach
such as aid for trade, which highlights the need to provide assistance to ensure a supply side response in recipient countries in
addition to market access (Stiglitz and Charlton, 2006) as well as the merging of conflict and development agenda in conflict
sensitive countries (Bodea and Elbadawi, 2008).
Aid effectiveness and efficiency also increased in the last two decades by the shift from technical assistance and project
finance to general budget support and to a lesser extent, sectoral budget support. This aid instrument is used to channel funds
directly through the budget of the recipient country thereby avoiding aid proliferation and fragmentation, which in turn, limits
the absorption capacity of a country (World Bank, 2001). General budget support also reduces transaction costs of aid projects
(Acharya et al., 2006) and deals with recurrent costs which are an essential element in sustainability in the long term (Agbonyitor,
1998; World Bank, 2005). Therefore the consensus is that budget support will contribute to enhancing aid effectiveness if
recipient countries have a favourable policy environment, although some recent research emphasizes the importance of economic
vulnerability to external shock (Guillaumont, 2005). The emphasis on the quality of policies and government in determining
absorptive capacity and aid effectiveness is also reflected in the Country Policy and Institutional Assessment (CPIA) exercise
which is undertaken annually by all Multilateral Development Banks (MDBs) as well as the International Fund for Agricultural
Development (IFAD) and, more recently, by Global Environment Facility.
As budget support operations are channelled through the general budget, this aid delivery instrument requires adequate budget
control, internal audit and procurement standards and therefore is mainly used in countries with higher governance standards.
This is why the benefits of budget support will only materialize if there are sound policies in recipient countries, which is the
rationale for linking budget support to policy reforms (Easterly et al., 2004; Roodman, 2006). To a limited extent, budget support
is also used in fragile states, as these countries are nearly always in arrears and have difficulty paying civil servants’ salaries, as
well as for reintegration of demobilized soldiers. In these circumstances, stability, or rather the non-recurrence of civil war, is
considered just as important a criteria in providing budget support as having prudent financial management systems in place.
Finally, it should be noted that as globalization increases, the importance of ODA as a financial flow to Africa seems to
decrease, compared to other financial flows such as trade, remittances, FDI and portfolio investments. In addition, NGOs and
private sector foundations are also a major source of development financing and these funds are often channelled to specific sectors
such as HIV/AIDS or education. However, public aid flows will likely remain critical in specific situations such as emergency
relief, post-conflict reconstruction and peacebuilding as other financial flows will be insufficient to meet these challenges. In
addition, certain aid delivery instruments, in particular sector and general budget support, would also be highly useful in countries
with high governance and procurement standards, although there is lately a tendency by some bilateral development partners
to introduce human rights and democracy as conditions. For some African recipient countries this borders on infringement of
national sovereignty.
4. China’s Increased Engagement in Africa
Although China is sometimes referred to as an emerging development partner in Africa, this country has long supported aid
cooperation in many African countries in the post-colonial period. This is all the more remarkable as the GDP per capita in
Africa was 50 per cent higher than in China in 1960, which, at the time, was respectively US$144 and US$92. The foundation for
the modern-day Sino-African relationship was built in this post-colonial period. The China cooperation framework with African
countries had mainly a political objective by demonstrating solidarity between developing countries around the world. The best
example of Chinese support was the landmark 1,800 km Tanzania–Zambia railway, which was funded through a US$400 million
interest free loan from China. During that period China officially adopted the eight principles for China’s aid to foreign countries.
Two of the most important principles are equality and mutual benefit and respect for sovereignty of the recipient country.7
After the opening-up period in 1978, China’s engagement with Africa became more focused on strengthening commercial
relationships. This was reflected in the adoption of the four principles of Sino-African Economic and Technical Co-operations
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in 1982 which were: equality, efficiency, diversity and co-development. More recently, Chinese outward FDI is supported by
a ‘Going global strategy’ which encourages Chinese enterprises to become global multinationals by providing soft loans and
supporting investment projects in other countries. China can provide these loans on a competitive basis as it has a large foreign
currency reserve of over US$2 trillion, which has low opportunity costs as they are often invested in US treasury bonds with low
yields. Generally, Chinese investments are focused on the infrastructure sector, which is one of the key constraints for development
in Africa. The Africa Infrastructure Country Diagnostic (AICD) estimates that US$93 billion over 10 years is annually needed to
achieve national development targets. According to the Infrastructure Consortium for Africa (ICA), the infrastructure gap is partly
addressed by China as this country provided US$11 billion in investments compared to US$13.7 billion by the G-8 countries in
2008.
China’s trade and investment are mainly concentrated in a handful of African countries. This is also reflected in the trade
figures with 70 per cent of African exports to China dominated by only four countries which are the commodity exporters Angola,
South Africa, Sudan and DRC, while 60 per cent of imports from China are destined to South Africa, Egypt, Nigeria, Algeria and
Morocco. Besides these commodity rich countries, the majority of states in Africa have a relatively modest relationship with China.
Another aspect of this trade relationship is that China tends to import raw material and commodities from Africa (i.e. oil, copper
and cobalt), while this country exports manufactured goods (i.e. machinery and transport equipment) back to Africa. Outward
FDI flows show a similar pattern of concentration with 50 per cent flowing to just a handful of resource endowed countries which
are Nigeria, South Africa and Sudan, and allocated to the mining sector. South Africa is somewhat different compared to the
other African commodity exporting countries as the Industrial and Commercial Bank of China has a 20 per cent stake in Standard
Bank. This led to a relatively high level of portfolio investment flows from China to South Africa. However, taking into account
the whole of Africa, it can be stated that the Africa-China relationship is referred to as ‘commodities-for-infrastructure’.
ODA from China to Africa is relatively limited and includes a wide range of activities such as providing grants, scholarships,
construction of infrastructure projects, etc. These activities are administered by over 20 line ministries, public banks and other
agencies. Another challenge is that China does not apply OECD-DAC definitions of ODA.8 Brautigam estimates that using the
OECD-DAC definition China’s aid programme is around US$1.5 to 2 billion (Brautigam, 2008) and this aid is mainly provided
in a tied manner (Foster et al., 2009). More importantly, China does not necessarily consider its investment and aid engagement
in Africa as ‘development assistance’. On the contrary, China often has an executive approach in project execution and the
competitive cost structure is highly valued by recipient African countries. China also invests in infrastructure sectors which have
been underfinanced by traditional development partners, although in the last 2009 Forum on China-Africa Cooperation (FOCAC)
meeting there seems to be a shift towards supporting investment in agricultural development, debt relief and the expansion of
preferential access (FOCAC, 2009). This Chinese assistance is still guided by the principle of respecting the national sovereignty
of the recipient country.
The different development modality of China leads some traditional development partners to believe that this Asian country is
overlooking some key development issues such as: (1) free riding on debt relief by providing loans on inappropriate terms; (2)
providing aid with low conditionalities. However, it should be emphasized that the main conditions from traditional development
partner countries are negotiated in the framework of a budget support operation in which China does not participate; and (3)
encouraging unproductive investments due to lack of sustainability and maintenance provisions in investment projects (Manning,
2006). Other concerns of traditional development are non-compliance of governance and corporate standards (Asche and Schüller,
2008) and unfair competition in bidding processes as often China provides tied aid. The suspicions of some traditional development
partners are often fed by the preferred choice of bilateral engagement of China with the recipient African country.
5. Trends and Analysis of Different Development Cooperation Modalities
The objective of this paper is to analyse the different development cooperation modalities between traditional development
partners and China. This requires identifying trends in aid, debt relief, general budget support, trade, preferential trade access
agreements and investment flows by both traditional development partners and China. It has to be emphasized that the aim of
this paper is not to identify which development cooperation modalities are more or are less effective, but rather how to build
complementarities so as to enhance development effectiveness of the recipient African country.
Before proceeding it is important to note the differences in analysing the development cooperation modalities, which are the
following: first, traditional development partners base their intervention on 50 years of experience, and emphasize issues such as
untied aid, budget support, sustainability of projects, participatory processes and national ownership. The engagement of China,
on the contrary, is more business oriented and supports infrastructure projects, which are provided on a competitive basis and
are finalized on time. For China long-term development of a country is, in the first instance, the responsibility of the recipient
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Figure 2: Official development flows (ODA) to Africa
Source: OECD and various estimations of Chinese aid and debt relief based on the author’s calculations.
and not of development partners or China. This is not only part of the Chinese non-interference policy, but is also based on this
country’s own development history in the recent past.
Secondly, another challenge in comparing development cooperation modalities is the method of comparison. On the one hand
ODA is well defined for DAC countries and refers to concessionary loans, debt relief, grants and humanitarian aid, while on the
other hand China does not necessary follow this aid definition. For example, China does not consider humanitarian aid, which
is managed by the Ministry of Social Welfare, as part of the development assistance and considers this a stop gap measure,
intended to prevent excessive suffering, rather than provide support for sustainable development (Centre for Chinese Studies,
2010). Another difference is that China is guided not only be the aid cooperation principles of 1982 (i.e. equality, efficiency,
diversity and co-development), but also by lisuonengji and liangli erxing, which means that China’s aid policy should be within
China’s fiscal capabilities (Center for Chinese Studies, 2010).
Thirdly, there is the issue of debt sustainability and loans provided by China EXIM-Bank. In this regard it is important to
highlight that China EXIM-Bank takes debt sustainability into account when making loans, but that is not necessarily the same
as development sustainability (Li, 2007). For instance, an investment in infrastructure such as power, even if financed at a
commercial rate, will increase their ability to repay loans, changing the assumptions under which sustainability is calculated. This
is in contrast with traditional development partners who emphasize long-term debt sustainability by using aggregated variables
such as macroeconomic framework, growth in exports and level of concessional lending as part of the assessment of a country
under the Enhanced HIPC initiative. Unfortunately, EXIM-Bank data is not public and therefore Chinese ‘soft-loans’ cannot be
compared to Other Official Flows from DAC countries.
In this paper, traditional development partners are represented by DAC and multilateral institutions,9 which are subsequently
compared to China. In this regard it is important to highlight that the DAC group is not one homogenous group. For example,
DFID and Nordic countries are in favour of budget support, while the United States of America is overall not supportive of this
instrument. However, the rationale for choosing DAC countries in this paper is that this group of countries represents nearly all
development partners and have collaborated since the 1960s and have been at the forefront of discussions on the international aid
architecture such as on the Paris Declaration and the Accra Agenda for Action.
To analyse the various development cooperation modalities, it is important not only to focus on aid, trade and investment flows
to Africa, but also general budget support, debt relief and preferential trade access. The data of this analysis is provided from
the following sources: (1) OECD provided data on ODA, debt relief, general budget support; (2) UNCTAD on FDI inflows; (3)
IMF-DOT on trade; and (4) CEIC on Chinese investment flows to Africa. A complicating factor in this analysis is that China aid
flows are not centralized or registered. Therefore the aid and debt relief figures from China in the paper are based on the literature
review as well as the FOCAC statements of 2000, 2003, 2006 and 2009. Although this is by no means exact, it does provide a
rough estimate on Chinese ODA and debt relief.
As indicated in Figure 2, in 2008 ODA provided by traditional development partners, as represented in the DAC, was US$33.2
billion, and US$17.9 billion from multilateral development partners. The aid figures of China are much lower and are about
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Building Complementarities in Africa
Figure 3: Debt relief to Africa
Source: OECD and various estimations of Chinese aid and debt relief based on the author’s calculations.
US$1.7 billion in 2008. It should also be highlighted that there are two distinct differences between aid policies of traditional
development partners and China. First, China provided mainly tied aid, while DAC countries provide 90 per cent in an untied
manner. The only exception is Korea, which only became a member of the DAC in November 2009, and provides nearly all its
assistance in a tied manner. Although Chinese goods and services are highly competitive compared to OECD-DAC members’
countries, the tying of aid could create distortions and undermine national ownership of the recipient countries. Secondly, a large
group of traditional development partners and multilateral banks provide aid in the form of general budget support, which was
respectively US$5.4 billion in 2008. This represented 9.8 per cent of total ODA disbursement in that same year (see Figure A3
and A4 in the Appendix). This is important as this aid delivery instrument is considered one of the most effective and efficient
instrument for delivery aid as this is directly channelled through the national budget of the African recipient country. Although
this seems to be attractive for African countries, some development partners insist on introducing human rights and democracy
conditions which are on the border of infringing national sovereignty.
Figure 3 indicates the level of debt relief provided to Africa by traditional development partners and China. This indicates that
the total accumulated debt relief from 1999 to 2008 provided by DAC countries and multilateral institutions was US$47.8 billion.
Most debt relief was provided in the period 2003–2006, respectively US$35.2 billion, and coincided with the Enhanced HIPC
initiative. Although China is a limited creditor to Africa compared to DAC countries and multilateral development banks, this
country does provide debt relief on a regular basis to Africa. Unlike ODA, debt relief is by definition untied and therefore could
be an effective means to delivery aid under the condition that there is a national development plan which would channel these
additional resources into productive investments or projects to improve social welfare of its citizens.
As indicated earlier, China has a business oriented approach in its engagement with Africa and therefore any comparison
between the approach of traditional development partners and China should not only focus on aid modalities, such as debt relief
and general budget support, but also incorporate trade and investment. In this regard, China is often cited as the third largest
trading partner of Africa with US$95 billion in bilateral trade in 2008. China also provided US$5.4 billion of investment in Africa
in the same year (see Figures 4 and 5).
Figure 4 highlights that the growth of trade between Africa and China has increased rapidly, but is still relatively limited
compared to the total trade of the continent. In terms of percentage of total trade of Africa, China grew steadily from 3.5 per cent
in 2000 to 11 per cent in 2009. At the same time, the share of DAC countries in total African trade declined from 63 per cent in
2000 to 54 per cent in 2008. Another trend is the growth of the ‘rest of the world’ category. The main drivers in this group were
the Gulf States, India, Brazil and Turkey, which contributed, as a percentage of the total trade with Africa in 2008, respectively,
4.6, 3.5, 2.8 and 1.2 per cent. This trend highlights the growing importance of emerging development partners for Africa.
Although Chinese trade has grown rapidly over the last decade, it is equally evident that traditional development partners still
have an important role in terms of promoting development through trade. The trade patterns of Africa with DAC countries and
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Figure 4: Total trade with Africa
Sources: IMF-DOT, UNCTAD and CEIC.
Figure 5: Total FDI-inflows in Africa
Sources: IMF-DOT, UNCTAD and CEIC.
China are similar and are heavily reliant on commodity exports. To assist in diversifying African exports, traditional development
partners have concluded preferential trade access agreements with Africa’s Least Developed Countries (LDCs), such as the
African Growth and Opportunity Act (AGOA) of the United States and ‘Everything but Arms’ of the European Union. This
latter initiative was launched in 2004. In terms of preferential trade access, it is evident that China is in a learning curve and has
gradually expanded its preferential trade access regime from exempt import tariff on just a few commodities in 200310 to 440
items in 200611 and finally to zero-tariff treatment for 95 per cent of the products from the LDCs starting with 60 per cent in
2010.12 The Chinese preferential trade access could also have a beneficial impact for African countries in terms of diversifying
their export basket, although they will still face strong competition from low-income Asian countries that have the same export
profile and have high productivity.
Figure 5 highlights the FDI inflows into Africa compared to other sources. Unfortunately, the total data of FDI inflows into
Africa could not be disaggregated by sending countries. Consequently specific DAC countries could not be disaggregated from
the UNCTAD database. However, the data provided by CEIC indicate that Sino-African investments were registered at US$5.4
billion, although actual investment is likely far higher as it is often channelled through off-shore entities. What can be relatively
easily assumed is that the remaining FDI flows are overwhelming from DAC countries. Moreover, Chinese investments are
concentrated on a few commodity rich countries.
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In the analysis for the various development cooperation modalities, which included presenting the trends in aid, general budget
support, debt relief, trade, preferential trade access and investment flow, of traditional development partners and China, the
following observations can be made:
1. Taking into consideration the trends in terms of overall aid flows, debt relief, general budget support, preferential trade
access agreement and investment flows, it is evident that traditional development partners will likely remain an important
development partner for the foreseeable future for Africa. Even after the third round effects of the 2008 financial crisis,
which will likely lead to reduced ODA flows, traditional development will remain critical, in particular as some forms of
aid delivery such as general budget support are highly effective and will not be provided by China. The use of the general
budget support instrument gradually increased from 4.9 per cent in 2001 to 9.8 per cent in 2008 of the total ODA provided
by traditional development partners (see Figures A3 and A4 in the Appendix).
2. Although China has a different development cooperation modality, it is clear that this country is going through its own
learning curve in terms of development cooperation. This is the most evident from the expansion of preferential trade access
agreement over the course of the last decade. The expansion of preferential trade access is also in line with the business
approach of China, and is often well received by recipient African countries. However, this learning curve will not mean
that China will ‘copy’ and ‘paste’ development modalities, of traditional development partners, which often include high
overhead costs in terms of appraisal missions and consultation processes. Rather China will likely focus on niche activities
which could be of added value to Africa, such as encouraging agricultural production and infrastructure investment.
3. China emphasizes infrastructure investments, while traditional development partners emphasize social sectors in Africa.
To some extent this is also a reflection of the different domestic political constituencies within the donor country. In the
case of traditional development partners, public funds are often justified on the basis of poverty reduction or social welfare
enhancement. The domestic political economy in China is different and business interests are supported by the ‘Going global
strategy’ of China. This highlights the potential complementarities between the development cooperation modalities in Africa
between traditional development partners and China. In short, traditional development partners could focus on social sectors
(i.e. health care, education, etc.) and China could focus on physical infrastructure (i.e. roads, dams, buildings, etc.).
4. Although China is not formally a member of the Enhanced HIPC initiative, this country does provide debt relief. Moreover,
the debt sustainability analysis of African recipient countries is just as important for China, as a creditor, as any other bilateral
or multilateral development partner. Therefore, it might be useful for China to strengthen its engagement with the Paris Club,
which often coordinates debt cancellation by sovereign states. In practice this debt relief agreement is often followed on
similar terms by the private sector creditors which are represented in the London Club. However, this collaboration should also
take into account the different method of calculating debt sustainability. On the one hand, the IMF and World Bank calculate
long-term debt sustainability by focusing on the aggregated variables such as macroeconomic framework, growth in exports
and level of concessional lending. On the other hand, China makes a distinction between productive and non-productive
investments of which the former will likely generate revenues to repay itself. Besides these different approaches, it is evident
that more coordination on sustainability analyses might have avoided the well-publicized example of the Democratic Republic
of Congo in which the country was not able to reach the HIPC completion point and receive US$12.3 billion worth of debt
relief if the terms of the Chinese assistance package were not amended.
5. China often focuses on bilateral government-to-government relations, while traditional development partners prefer to
coordinate their positions together and work with the civil society and business sector in Africa. The idea behind this latter
approach was to ensure broad national ownership of policies and investment projects, which were considered one of the
lessons learned from the failed structural reform initiative of the 1980s. This is in contrast with the Chinese approach which
prefers bilateral government-to-government relations. The advantage of the Chinese approach is that the approval process is
shorter, compared with traditional development partners, which emphasize the consultation process, feasibility studies and
social safeguards to mitigate the population that are negatively affected. However, the downside of the Chinese approach
could be that projects are not always sustainable in the long term.
It is evident from the above analysis that China provides an additional development opportunity, but that traditional development
partners will also play an important role in Africa for the foreseeable future even in the aftermath of the 2008 financial crisis.
This highlights the importance of recipient African countries in coordinating the various development modalities so as to ensure
that aid is transformed into productive investments and enhances social welfare. Moreover, African governments have a key
role in ensuring financial sustainability and maintenance of projects. A good example is the flagship Tanzania-Zambia railway
project which was from an engineering perspective a big achievement, as the over 1,800 km tracks were laid through mountainous
terrain and 320 bridges were built. The railway was completed by China a few months before schedule in 1975. However, due to
mismanagement and underinvestment over the last three decades, the railway company is faced with financial difficulties and the
railway was under-utilized due to the lack of functioning locomotions. This highlights the responsibility of the recipient African
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country to ensure sustainability of investments and maintenance irrespective if these projects were financed by the Chinese or by
traditional development partners.
6. Conclusion and Recommendations
It is evident that rapid growth of Sino-Africa trade and investment relations provide an additional development opportunity for
Africa, in particular in the aftermath of the 2008 financial crisis that will likely reduce the aid budget by traditional development
partners. However, it is equally evident from the analysis of the different development cooperation modalities and trends in
terms of aid, debt relief, general budget support, trade, preferential trade access agreements and investment flows that traditional
development partners still have a critical role in supporting development of the continent for the foreseeable future. Therefore the
key issue is to build complementarities on the national, regional and global level.
On a national level this would require coordination of the various development cooperation modalities. For example, a Chinese
Special Economic Process Zone could be supported by infrastructure development financed by multilateral development banks
while policy reforms will enhance overall competitiveness through a budget support operation by traditional development partners.
Such an approach would create complementarities between various aid and investments instruments and would create additional
win-win situations.
On a regional level African countries could create a core group of African countries within the FOCAC framework that would
advocate and follow up on issues of regional interests, such as regional infrastructure projects, untying of aid, coordination of debt
relief and expansion of preferential trace access. This would strengthen the implementation framework of the FOCAC. Moreover,
such an approach would strengthen capacity for regional integration by addressing issues such as the building of regional
North-South infrastructure corridors, and support global public goods such as climate change and environmental management.
On a global level, there could be closer collaboration between African countries, traditional development partners and China
on key issues of common concern. For example, in the last 2009 FOCAC meeting China announced that it would write off 168
debts owed by 33 African countries. As mentioned earlier debt sustainability of African countries is just as important to China, as
this country is a creditor, as to any other traditional development partners that provides loans or multilateral development banks.
Therefore China could work more closely on debt sustainability issues with the Paris Club (on sovereign debt) and London Club
(on commercial debt). This would ensure that the Chinese debt write off would be coordinated with the Enhanced HIPC initiative.
Such cooperation could avoid tensions as in the Democratic Republic of Congo in which debt relief would not be granted if the
terms of a Chinese investment deal were not amended by the recipient country.
Finally, it should be noted that development modalities are not static but evolve over time. China is going through its own
development cooperation learning curve and traditional development partners can also be enhanced in terms of aid effectiveness and
efficiency. Collaboration on the national, regional and global level on development cooperation between African countries, China
and traditional development partners would assist in creating complementarities between the different development cooperation
modalities and thereby create win-win situations for all.
Notes
1. The DAC member countries are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Japan, Korea, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United
Kingdom and Commission of the European Communities.
2. The benchmark month is August 2008 as the financial crisis was triggered by the collapse of Lehman Brothers in September
2008.
3. This is the average annual population growth rate based on the period 1999 to 2009.
4. African countries classified as very highly vulnerable are: Zimbabwe, Eritrea, Gambia, Djibouti, Sao Tome & Principe, Niger
and Mauritania.
5. African countries classified as highly vulnerable are: Ghana, Senegal, Mozambique, Cape Verde, Morocco, Burkina Faso,
Cameroon, Rwanda, Congo Republic, Kenya and Nigeria.
6. ASEAN+3 are the ten countries of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, the Philippines, Singapore, Thailand and Vietnam) together with China, Japan and the Republic of Korea.
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Building Complementarities in Africa
7. The other six principles are: (1) provide economic aid in the form of interest-free or low-interest loans; (2) support selfreliance and independent economic development; (3) prioritize investment with quick results; (4) support best quality
equipment provided by Chinese materials and manufacturing at international market prices; (5) techniques must be mastered
by the recipient country; and (6) Chinese experts live in the same conditions as workers of recipient countries.
8. The OECD-DAC definition of ODA, includes, among others, that ODA has the objective to promote welfare and economic
development in the recipient country and should comprise concessional funds with a minimum grant element of 25 per cent.
9. The multilateral institutions are: African Development Fund, European Commission, Global Fund to fight Aids, Tuberculosis
and Malaria, International Development Association (IDA), International Fund for Agricultural Development (IFAD),
UNAIDS, UNDP, UNFP and UNIFEC.
10. FOCAC statement 2003, ‘Report by H.E. Mr. Li Zhaoxing Minster of Foreign Affairs of the People’s Republic of China to
the Second Ministerial Conference of the China-Africa Cooperation Forum’.
11. FOCAC statement 2006, ‘Address Hu Jintao President of People’s Republic of China at the Opening Ceremony of the Beijing
Summit of the Forum on China-Africa Cooperation’.
12. FOCAC statement 2009, ‘Address Web Jiabao on Building the New Type of China-Africa Strategic Partnership’.
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Source: Bloomberg
C 2010 The Author. African Development Review C 2010 African Development Bank
CASE30 (Egypt)
TUNINDEX
NSE-Kenya
SEMDEX (Mauricius)
JALSH (South Africa)
BRVM CI (Ivory Coast)
NSE-Nigeria
DJ Index (USA)
2/19/2010
3/5/2010
1/22/2010
2/5/2010
1/8/2010
12/25/2009
11/27/2009
12/11/2009
10/30/2009
11/13/2009
10/2/2009
10/16/2009
9/18/2009
9/4/2009
8/7/2009
8/21/2009
7/10/2009
7/24/2009
6/12/2009
6/26/2009
5/29/2009
5/15/2009
4/17/2009
5/1/2009
3/20/2009
4/3/2009
Source: Bloomberg
2/20/2009
3/6/2009
2/6/2009
1/23/2009
12/26/2008
1/9/2009
11/28/2008
12/12/2008
10/31/2008
11/14/2008
10/17/2008
10/3/2008
9/5/2008
9/19/2008
11/27/2009
12/11/2009
12/25/2009
1/8/2010
1/22/2010
2/5/2010
2/19/2010
3/5/2010
10/2/2009
10/16/2009
10/30/2009
11/13/2009
12/12/2008
12/26/2008
1/9/2009
1/23/2009
2/6/2009
2/20/2009
3/6/2009
3/20/2009
4/3/2009
4/17/2009
5/1/2009
5/15/2009
5/29/2009
6/12/2009
6/26/2009
7/10/2009
7/24/2009
8/7/2009
8/21/2009
9/4/2009
9/18/2009
10/31/2008
11/14/2008
11/28/2008
9/5/2008
9/19/2008
10/3/2008
10/17/2008
%
Building Complementarities in Africa
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Appendix
Figure A1: Evolution of stock markets in Africa
50
30
10
-10
-30
-50
-70
Figure A2: Evolution of commodity prices
130
80
30
-20
-70
Crude Oil (Brent)
Gold $/OZ
Silver $/OZ
Platinum $/OZ
Copper $/T
Cotton $/lb
Cocoa $/bag
Arabica Coffee $/bag
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Figure A3: Various aid instruments of DAC countries in US$ billions (general budget support, debt relief and
other ODA flows)
Figure A4: Various aid instruments of multilaterals in US$ billions (general budget support, debt relief and
other ODA flows)
C 2010 The Author. African Development Review C 2010 African Development Bank
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