New friends, old friends? World Bank and Africa when the Chinese are coming dr Dominik Kopiński University of Wrocław and Polish Center for African Studies Roadmap • • • • What is my motivation? What are my reservations? World Bank vs. China/Chinese policy banks Conclusion What is my motivation? 1/2 • China Development Bank and China Export-Import Bank signed loans of at least $110bn to other developing country governments and companies in 2009 and 2010. The World Bank made loan commitments of $100.3bn from mid-2008 to mid-2010 – Financial Times Research Team • China Export-Import Bank extended $12.5 billion more in loans to sub-Saharan Africa in the past decade than the World Bank. EXIM bank lent about $67.2 billion to the world’s poorest region between 2001 and 2010 compared with the World Bank’s $54.7 billion - Fitch Rating What is my motivation? 2/2 • Finance: China is countering the financial power of the World Bank and challenges its position as a preferred creditor in Africa • Knowledge: Chinese financial leverage in Africa is undermining credibility of the World Bank’s advice and expertise • Ideology: China is undercutting policy reforms and development strategies prescribed by the World Bank (good governance, human rights, environmental sustainability); „Beijing Consensus” vs. „Washington Consensus”? What are my reservations? • Comparing the World Bank with Chinese policy banks (EXIM Bank and China Development Bank) is a bit like counting „apples and lychees” (D. Brautigam) ≠ • What volume of financial flows/aid from China we are actually talking about? How many lychees? • Even if figures are correct (apples are lychees?!) – does it really matter for development/poverty reduction? Programme vs. project support • World Bank uses both modalities - programmes (development policy lending) and projects (investment loans) • China does not sponsor programmes or budget support or balance of payment support and offer only project-type of aid • Projects are easier to implement, especially in countries lacking good governence • … but projects are falling out of grace in the aid community because of the aid prolifaration problem (too many projects, duplication, lack of coordination, blame-sharing) Investing in infrastructure • Desperate state of African infrastructure (see the last report by WB Africa’s Infrastructure. A Time for Transformation) • World Bank and other Western-driven aid agencies have long ago moved to financing “soft” expenditures • China chooses to finance „hard” development (not so original by the way – e.g. World Bank in 1950s and 60s) • Example: infrastructure is the core of China Exim Bank’s concessional lending - approximately 80 percent of projects approved have involved infrastructural development No strings attached vs. conditionality and ownership • Non-interference principle: China does not interfere in domestic affairs and responds to needs articulated by recipient governments • Quite ironically, China may be a champion of ownership principle (?) enshrined in the Paris Declaration, which states that aid recipients forge their own national development strategies with their parliaments and electorates (although, China does not believe in cash aid) • China: a demand-driven approach, whereas in Bank… both (supply and demand interplay with different outcomes) • World Bank: PRSP (Poverty Reduction Strategy Papers) and country ownership; World Bank as a vintriloquist Fast-tack implementation, lack of bureaucracy Issue of corruption • China's ties with Africa have been a magnet for critics worried about corruption • However, most of Chinese aid/loans seems to be corruption-neutral. Why? • With projects financed by China (policy banks) usually recipient government does not even see the money (there are exceptions though) + grants are „in kind” • World Bank usually issues aid funds to bank accounts controlled by the government • „Donors are still giving on agarage of 68 percent of their aid to countries ranked at the bottom of the corruption scale” • The picture is more murky with Chinese companies; Chinese saying: „if the water is too clear,you don’t catch any fish”, corruption in bidding for tenders Structure of Concessional Loans by China EXIM Bank Signing agreement Submitting an application to China EXIM Bank Signing a project loan agreement with the EXIM Bank Submitting the invoice and progress report Submitting a drawing application, invoice and progress report M. Davies, How China is influencing Africa’s development, Background Paper for the Perspectives on Global Development 2010 Shifting Wealth, OECD, Paris, April 2010 Conclusion • China has been challenging the World Bank position as a preferred creditor in Africa (finacially, ideologically and knowledge-wise) • Cooperation? – Memorandum of Understanding signed between the World Bank and China EXIM Bank in 2007 • Competition? – The World Bank in 2011 launched a new instrument called Programme-for-Results Lending which would allow countries to sidestep “dozens of tough, and expensive, social and environmental safeguards which recipients of World Bank loans must normally meet”. Cooperation or competition? Thank you!