Tuesday, January 29, 2013

School Construction: World Bank versus China

In The Dragon's Gift, I made the argument that the Chinese approach to funding aid projects employs a high degree of financial control. As one African official told me: "with the Chinese, you never see the money." This has drawbacks for ownership, but is likely to mean that corruption and embezzlement is lower with Chinese aid, and the promised projects actually get built. Maintenance of course is another issue, something I also addressed in the book.
A school in Tanzania         credit: Worldcrunch.org
      Over the past six years, the Chinese government has been fulfilling a commitment to build 100 (or so) primary schools across Africa. My (so far minimal) anecdotal research in two countries on this has turned up an interesting phenomenon: at least one school out of the typical three built in a given country has been located in the home town of the country's leader. The schools are also typically of a much higher, gold-plated standard, something that is a showpiece, but difficult to sustain.
Both of these findings support my argument that Chinese aid is all about politics, symbolism, and soft power -- and not a simple swap-for-resources, as it has often been portrayed. 
     How do we do it in the West? This morning I've been reading a dissertation by one of my students, Ryan Briggs. At one point he gives the startling example of a World Bank funded school construction project in Malawi. 
     Briggs reports that of the World Bank's target of 1600 classrooms, half were never built, and according to the World Bank's own report, 340 of the 858 classrooms that were built were "left unfinished ... implementation of this component was unsatisfactory and contributed to the premature depletion of funds" (World Bank, 2001: 8).  Further, "the Government failed to provide the necessary oversight ... accounts were not well maintained ... records were not properly kept ..." (2001: 15). 
     Neither approach seems terribly satisfactory for making an impact on education. But in terms of financing school construction, the Chinese at least are dealing pragmatically with governance as it is, rather than governance as we wish it to be.

A h/t to Ryan Briggs.

Source:  World Bank (2001) "Implementation completion report (IDA-28100; pp -p9380)
primary education project on a credit in the amount of SDR 15.1 (US$ million
equivalent) to the Republic of Malawi for a primary education project." Technical
report, World Bank.

Saturday, January 26, 2013

Eastern Promise (and Eastern Errors) in Little Africa

Kit Gillett at The Global Mail interviewed me for a January 25, 2013 feature story on Africans in China, "Eastern Promise in Little Africa." The article is extremely well-written. Kit took a lot of care, and created a fascinating piece of work, with a number of interviews and photos. It looks like a good, balanced human interest story. However, even a careful reporter like this can get things wrong in presenting the big picture that frames the story. 

credit: Jeffrey Lau           Guangzhou's Little Africa
Early in the article, Kit writes "In recent years China has invested heavily in infrastructure projects across Africa, often in exchange for subsidies on natural resources." Yes, many Chinese companies have been building infrastructure projects, some $35 billion per year, but these are rarely Chinese "investments" -- they're construction contracts. Only about 20 to 25 percent are financed by Chinese banks or the Chinese government. As for the idea that this is "often" done "in exchange for subsidies on natural resources", I have yet to see a case where a Chinese firm got a subsidy on natural resources in exchange for building infrastructure. (If anyone has seen such a case, please comment). When natural resource exports enter into a construction deal (and this is quite rare) they enter in as a way to secure the loan with an export stream. In the cases I have seen, the exports are priced by the market**. We can't call this an off-take arrangement, as often there is no relation between the export stream and the construction project. But it operates in a parallel manner.

Toward the end of the article, Kit makes another error, in saying that "China has made efforts to promote friendship. China directly invested USD45 billion in the region in the first six months of 2012 alone."

Anyone who tracks FDI figures knows this is way wrong. In all of 2012, according to official figures at MOFCOM, China's entire overseas investment to the world amounted to USD77 billion:
 In 2012, Chinese investors made direct investment overseas in 4,425 enterprises in 141 countries and regions. Direct investment overseas amounted to US$ 77.22 billion, up by 28.6% year-on-year. Of which equity investments and other investments were US$ 62.82 billion, accounting for 81.4%, and earnings reinvested were US$ 14.4 billion, accounting for 18.6%.
As I noted in a recent presentation at New York University, Chinese direct investment in Africa is generally only a small fraction of that in the rest of the world: on average, maybe 5 percent. The total stock of Chinese FDI in Africa amounts to about USD14.5 billion, by official figures (unofficially it is likely higher, but not enormously so). I don't know where Kit got the preposterous figure of USD45 billion for just six months of flows. Possibly it was in Foreign Policy Journal, where a similar figure was posted. But it's a reminder that even when doing great micro-level research, it's important to make equal effort to present the big picture correctly.

A hat-tip to Yanyin Zi.
**Angola presents an exception, where from what I can tell, CIF, a Hong Kong-based broker enjoying a joint venture with Sonangol, Angola's state-owned oil company, seems to have gotten oil cheaply and sold it on at market rates to the Chinese -- but that's not "China" getting a subsidy)

Tuesday, January 22, 2013

New Report on China Development Bank

Adina Matisoff has come up with another hard-hitting look at Chinese development bank's overseas financing for Friends of the Earth and BankTrack: China Development Bank’s overseas investments: An assessment of environmental and social policies and practices. Here's a synopsis of the report, from a blog posting by Michelle Chan: 
"As one might guess, CDB is a major financier of natural resource and infrastructure projects abroad. The report dives into four examples of CDB’s overseas transactions: the Alberta tar sands, the Shwe oil and gas project in Burma, Reliance Power’s ultra mega coal power plants in India, and Asia Pulp and Paper’s notorious logging activities in Indonesia. As evidenced by these ‘Dodgy Deals,’ CDB’s portfolio is as full of environmentally and socially risky projects as any of its international peers. But critically, CDB’s environmental and social policies fall short compared to its competitors.
However, a new China Banking Regulatory Commission Directive offers some hope. A few years ago, the CBRC launched an impressive new policy, the Green Credit Policy, which essentially requires Chinese banks to ensure that large, environmentally risky projects are in compliance with environmental laws before the banks lend them money. The policy was the first of its kind in the world, but it was really oriented towards ensuring that projects in China were compliance with Chinese law. But in February 2012, the CBRC issued a new Directive to the Green Credit Policy, which specifically instructs Chinese banks to adhere to international environmental and social financing standards in overseas transactions.

The new directive provides an opportunity for communities around the world affected by Chinese bank-financed deals -- such as the massive Rio Blano mine in Peru or the Merowe dam in Sudan -- with a leverage point to stop or improve an environmentally and socially sensitive project.The Directive also offers sustainable finance advocates both in China and internationally a chance to promote the implementation of this pioneering new banking regulation, and to work with a new group of globally important banks.
Finally, it allows those promoting international social, environmental and financial norms -- such as the Extractive Industries Transparency Initiative on revenue transparency, the Equator Principles for project finance, and the UN Declaration on the Rights of Indigenous Peoples --  to enlist the participation of powerful Chinese players that have been generally absent from these initiatives."
It's high time that the big Chinese banks step up to the plate on the Equator Principles. A hat-tip to Richard Carey.

Saturday, January 19, 2013

Sweet and Sour: China and Africa Behind the Headlines

Here's a link to an interview highlighting some of my general work on China and Africa, broadcast by the Australian program Up Close. There still seems to be strong demand for this kind of overview topic. Old news for the small group of people now doing research on China's African engagement. Frankly, much more interesting to drill down into specific topics: agricultural engagement and special economic zones are two I'm working on now.

Monday, January 7, 2013

Is US FDI to Africa more transparent than China's?

Guess which country, the United States or China, refused to release official data on its firms' investments in resource-rich Libya, Chad, Gabon, Guinea, Mozambique, Uganda and Zimbabwe in 2010?

If you guessed China, you'd be wrong. Yes, it was the U.S.

I have long made the point that the Chinese data on foreign direct investment (FDI) to Africa does not reflect the reality. Yes, official data is openly published (unlike aid, which remains very secretive). And yes, since 2002, the Chinese Ministry of Commerce has reported outward FDI using the standard OECD/IMF definitions of FDI. Yet because of exchange controls, and because so much FDI goes through tax havens (like Hong Kong, the British Virgin Islands, and the Cayman Islands) it is nearly impossible to track the ultimate

I always assumed that the US was a lot better in this regard. I was wrong. At least as posted on the website of the OECD's statistics bureau, the US claimed that 2010 FDI data by US companies in twelve African countries (almost all resource-rich) was "confidential". What's more, in 2010 the second most popular destination for US FDI flows to Africa was ... Mauritius (a tax haven) where US firms sent $1860 million.

Surely we can do better than this!

Friday, January 4, 2013

Links I Liked

Happy New Year from China in Africa: The Real Story. Here are a few recent links to interesting material on China in Africa, China and Global Governance, and one (short) new piece of mine:

Michael Geiger and Chorching Goh, "Chinese FDI in Ethiopia" World Bank. A report of a survey taken in mid-2012 of 69 Chinese enterprises active in Ethiopia. This is a good example of real information, painstakingly collected via fieldwork. Too often analyses of Chinese FDI simply report figures from African offices of investment promotion. These can bear little resemblance to actual investment.

Li Liu,  "Land Acquisition in Africa for Agricultural Purposes: The case of sugar cane plantation and sugar mill in Ethiopia," master's thesis at the Swedish University of Agricultural Sciences. This case study analyzes the potential profitability of an investment that has, in fact, not (yet) gone forward. It's technically sophisticated but from my end, raises more interesting questions: if it was so profitable on paper, why didn't this investment go forward?

Herman Wasserman, "China in Africa: A Long Affair," Rhodes Journalism Review, No. 32 Reports on a content analysis of South African media reporting on China, other BRICs, and European/Western powers. Content was more balanced than expected.

Deborah Brautigam, "Is China Causing Africa's Free Press Problem?" a short commentary published by Rhodes Journalism Review, No. 32. If you're interested in this issue, see my commentary on "Winds from the East," at Pambazuka (January 2011).

Global Governance 2022 Fellows Program:  While not specifically on China-in-Africa, this interesting program has two groups of fellows focused on China's role in international energy governance, and in international development assistance. A hat tip to Richard Carey.