I read Mr. Gumede's analysis with great interest. But I do not agree with much of it. China's recent interest in increasing its aid to, investment in and trade with Africa is not worth getting particularly excited or agitated about. The West is doing just fine.
At the G8 Summit at Gleneagles, Western countries pledged to double aid to Africa over the next decade. They also agreed to cancel most African nations' debts. With increased aid and canceled debt, Western aid to Africa has significantly increased, not decreased in recent years. China isn't doing anything new or different; it is only following in the West's footsteps, down a path that's not particularly productive.
More aid to Africa, whether it comes from the West or China, should not give us too much hope because, at root, foreign aid is an ineffective instrument that distorts recipients' incentives for the worse. Aid is given with the assumption that its recipients lack the necessary resource base to generate tax revenue to meet their public expenditure needs. Yet in many African countries, the problem of insufficient tax revenue is caused by poor tax administration, bad policies, and institutions that undermine growth. Then, once taxes come in, there is poor prioritization of expenditures.
The failure of Western aid in Africa has little to do with the conditions attached to it, but a lot to do with poor governance on the continent. Look at China giving Sudan money to build a multi-million dollar presidential palace. That surely does not promote economic growth and development in that poor and conflict ridden republic. You might criticize China, but over the years, Western aid to Africa has done more or less the same thing helping corrupt African rulers build palaces, fly executive jets, and acquire prime real estate in New York while the citizens of their country go hungry and die of disease.
It is also misleading to think that China's loans are particularly generous. Most Western aid to Africa is given as grants, or as highly concessionary loans. Countries like Rwanda, Zambia, Tanzania, Ghana, Mozambique, Mali and Uganda get almost 60 percent of their aid as grants (i.e. free money). The rest is given as concessionary loans by multilateral and bilateral aid organizations as 40 year loans at an interest rate of 0.78 percent per annum. That's fairly generous.
Furthermore, arguments that Chinese aid is good or bad because it does not have conditionality is misplaced. Conditionality has consistently failed to work. A lot of studies on Africa have demonstrated this. What China is doing in Africa is not changing direction, but offering more of the same.
Likewise, Africa's inability to trade itself out of poverty is not due to bad trading practices by the Western world. That is only an excuse that is theoretically convincing but analytically and empirically false. The real cause of Africa's trade predicament is mismanagement of policies and institutions that form the relationship between government and exporters. For example, Africa's major exports are agricultural. Governments in Africa have for many years pursued policies that reduced farmers' incentives to produce both food crops and export crops. Bad government is to blame for the continent increasingly becoming a food importer.
Thus, even when the West has given Africa preferential trade arrangements, the continent has failed to take advantage of them. For example, the EU reached the Cotounou Agreement (formerly the Lome Convention) under which African countries receive quotas on selected goods to export duty free to the EU. Under the Beef Protocol of this agreement, no African country (including Africa's success story - Botswana) has met their quota. Under the same agreement, Uganda has a quota to export 50,000 metric tons of sugar, and has never exported one kilogram.
Under the Africa Growth and Opportunities Act (AGOA), African countries have 6,000 products they can export duty free to the U.S. market. Most African countries have failed to take advantage of this opportunity, and their benefits have been limited. This is because external trade - whether with China or the West - only offers an opportunity. Which country will take advantage of the opportunity depends on its internal institutional capacity.
Unfortunately for Africa, this internal capacity is lacking all around. We need to stop looking outside of the continent for solutions. Africa needs internal reform before it can benefit from the rest of the world - regardless of what China offers.
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