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Dambisa Moyo: Right and Wrong About China in Africa

Dambisa Moyo recently wrote an op-ed in the New York Times asserting that the surge in investment by China in Africa has been a positive development for the continent.  A lot of people take issue with Moyo’s oversimplification of highly complex problems, sweeping generalizations, and lack of analytical rigor.  I tend to agree with many of her points, as I have discussed in this blog, with the exception of a few critical assertions.

First, Moyo, the development economics pugilist who believes that foreign aid undermines democracy and growth in the third world, discusses China’s motivations for investing in Africa, explaining why, unlike other exchanges between governments, it is a mutually-beneficial relationship between two countries:

Despite all the scaremongering, China’s motives for investing in Africa are actually quite pure. To satisfy China’s population and prevent a crisis of legitimacy for their rule, leaders in Beijing need to keep economic growth rates high and continue to bring hundreds of millions of people out of poverty. And to do so, China needs arable land, oil and minerals. Pursuing imperial or colonial ambitions with masses of impoverished people at home would be wholly irrational and out of sync with China’s current strategic thinking.

Moreover, the evidence does not support a claim that Africans themselves feel exploited. To the contrary, China’s role is broadly welcomed across the continent. A 2007 Pew Research Center survey of 10 sub-Saharan African countries found that Africans overwhelmingly viewed Chinese economic growth as beneficial. In virtually all countries surveyed, China’s involvement was viewed in a much more positive light than America’s; in Senegal, 86 percent said China’s role in their country helped make things better, compared with 56 percent who felt that way about America’s role. In Kenya, 91 percent of respondents said they believed China’s influence was positive, versus only 74 percent for the United States.

Moyo is correct about China’s motivations.  As the world’s manufacturer and home to one of the fastest-growing consumer classes in the world, they have an insatiable demand for raw materials to ensure their factories are running.  Oil, natural gas, timber, and other materials are abundant in Africa and available to the highest bidder.  In the colonial era, European countries divided up Africa along arbitrary lines at the Berlin Conference, and used the newly-created countries as repositories raw materials without regard for the native populations.  As a result of severe mismanagement on the part of the colonial powers and poor governance after independence, populations not only saw none of the rewards of the natural resources taken from their countries, they were penalized in the form of inflation as one country after another succumbed to what is known as Dutch Disease, or the natural resource curse.

China, in contrast, frequently trades in-kind with African governments, building roads and hospitals in exchange for exclusive resource contracts.  By improving infrastructure and delivering results, the Chinese largely circumvent the traditional channels of corruption – no-bid contracts with firms started by politicians, for example – and ensure that the people benefit.  I saw this firsthand when driving along Thika Road, one of the largest Chinese infrastructure projects in Sub-Saharan Africa, which cut a two-hour commute down to 30 minutes for a huge number of people working in Nairobi.  I have written in the past about the impression these developments have left on Africans.  There is little doubt in my mind that, despite bouts of shady activity, the Chinese are a positive force in Africa.

Had Moyo stopped there, we would have been entirely in agreement.  But, I think she has a tendency in her essays and her books to view the world in binary, drawing clear lines of causality amid complex systems.  In the op-ed, she assigns blame for Africa’s governance problems on the influx of aid, which supposedly undermines the ability of the people to hold their leaders accountable for failures of government.

China’s critics ignore the root cause of why many African leaders are corrupt and unaccountable to their populations. For decades, many African governments have abdicated their responsibilities at home in return for the vast sums of money they receive from courting international donors and catering to them. Even well-intentioned aid undermines accountability. Aid severs the link between Africans and their governments, because citizens generally have no say in how the aid dollars are spent and governments too often respond to the needs of donors, rather than those of their citizens.

In a functioning democracy, a government receives revenues (largely in the form of taxes) from its citizens, and in return promises to provide public goods and services, like education, national security and infrastructure. If the government fails to deliver on its promises, it runs the risk of being voted out.

The fact that so many African governments can stay in power by relying on foreign aid that has few strings attached, instead of revenues from their own populations, allows corrupt politicians to remain in charge. Thankfully, the decrease in the flow of Western aid since the 2008 financial crisis offers a chance to remedy this structural failure so that, like others in the world, Africans can finally hold their governments accountable.

This is a relatively common theory of why Africa’s leaders are so unbelievably corrupt.  But I disagree for several reasons.  First, it shifts the blame from corrupt politicians to the supposedly enabling factors that entice them to steal.  This is ridiculous.  Corrupt leaders – African or other – steal because they are bad leaders and, I would say, bad people.

Results from the Corruption Perceptions Index

The fact that foreign governments provide the money for the education system does not mean that politicians are obligated to steal it.  They could, for example, use to it to build schools and pay teachers.  But, unfortunately, they often don’t, opting to steal the money instead.  This isn’t always the case, as Ellen Johnson Sirleaf in Liberia, John Atta Mills and Ghana, and other good democratic leaders have shown.  But, when it does happen, the donors are not to blame.  The blame rests solely with officials – elected and unelected – who chose to steal the money.

Second, Moyo believes that if countries stop giving foreign aid to corrupt governments, those governments will cease to be able to provide basic services to their people.  The people, in turn, will then rise up to overthrow the government, replacing it with a better, more honest government.  In theory, this is how democracy works.

In practice, the reason African leaders are not held accountable has less to do with foreign aid and more to do with their unwillingness to relinquish power after their term has ended.  In the days of the cold war, when the U.S. and Soviet Union purchased influence from corrupt autocrats like Mobutu Sese Seko in Zaire (now the DRC), you could possibly make this point.  But, today, I think that is hardly the case.  Take Zimbabwe.  Robert Mugabe violently represses all dissent, and has remained in power for 30 years.  His longevity has nothing to do with his ability to deliver services to his people (he doesn’t).  Laurent Gbagbo in Cote D’Ivoire killed hundreds of people to stay in power (he didn’t).  In the last year alone, the president of Mali, Ahmadou Toumani Toure, was overthrown in a coup, and the president of Uganda, Yoweri Museveni, brutally repressed protesters and political opponents.  Today, the leading candidate for president in Kenya, Uhuru Kenyatta, is currently on trial at the Hague for war crimes.  He was sent to the ICC for his role in the post-election violence of 2007.  If he is elected, it will have nothing to do with foreign aid.

In contrast, one leader who cites Dambisa Moyo as a offering a model path for Africa is known for systematic repression of dissent.  Paul Kagame, the president of Rwanda, has undoubtedly done great things for the country, in terms of economic development, healthcare, and other public services.  But his record on human rights has been questioned, at best, making his actions difficult for some stomach.  (As a caveat, the reasons underlying Kagame’s approach to governance are complex and can be discussed in another post.  My intent is not to take a stand – only to show that it is not cut-and-dry.)

The fact is that Chinese investment in Africa is a good thing.  But to draw a straight line of causality connecting foreign aid with prevalence of corruption and malfeasance in government is ludicrous.

Develop Economies’ Music Recommendation

Perceptions of China and the United States

A guaranteed way to bait someone into a contentious discussion in Nairobi is to ask for their opinion on the value of China’s activities in Africa and how the massive investment in infrastructure and buildings has and will contribute to the development of the continent.  Most are quick to dismiss the role of foreign aid in development, accusing the West of possessing ulterior strategic motives and exacerbating the problems by distorting the market for goods and services and propping up corrupt and unaccountable governments.  But many also believe that China’s approach to securing land and natural resources in exchange for building roads and hospitals is bad for the countries in the long-run.  They cite the poor quality of work and even accuse the Chinese of emptying their prisons and sending their criminals to work on infrastructure projects in exchange for their freedom and a guarantee that they will never return to China.  This is hearsay, of course, and may well be false.

Other people – businesspeople and educated Africans – praise the Chinese for investing in Africa.  They cite the sheer volume of foreign direct investment and China’s method of holding the money in escrow until it is released for Chinese construction firms to quickly and efficiently complete the projects.  When you press these people about China’s “no questions asked” policy when it comes to dealing with autocratic and repressive governments, or the no-bid contracts given to Chinese state-owned construction firms, or the lopsided deals heavily weighted toward China, they understand that you have to take the good with the bad.  Africa might be getting a raw deal now, but wait a few decades until the economic returns of investments today give the continent a position of leverage and the tables might just turn, they say.  The other day I had drinks with an editor from the Nation Media Group, a Kenyan media conglomerate that publishes the Daily Nation and the East African.  After sustaining a drubbing as a stand-in for my country, I asked how she felt about the Chinese.  “I think what they’ve done for the continent is remarkable,” she said.

As it turns out, she isn’t the only one who thinks that.  In fact, most of Africa and Latin America are pretty happy with China, considering them a move valuable partner in development than the United States.  Or maybe these countries just have long memories and haven’t forgotten the fact that the U.S. catalyzed the coup against the first leader of independent Ghana and father of pan-Africanism, Kwame Nkrumah, or propped up Mobutu Sese Seko in the Congo and other dictators during the Cold War, or that the CIA trained military dictators how to overthrow the leftist governments in power, also during the Cold War.  Either way, much of the developed world seems to prefer China’s approach to foreign policy, geopolitical relations, and trade to that of the United States.

This chart is from the 2007, so it may be a bit dated.  But, given that China’s foreign direct investment in Africa has increased substantially since the data was published, I can’t imagine the opinions have changed much.  Below are a few more instructive graphs show the perceptions of China by other countries around the world and other interesting charts.

(H/T Dani Rodrik)

The China-Africa Trade Boom

The following is a guest post by Joseph Cox, an MA candidate at the Georgetown Public Policy Institute and managing editor of the The Inductive, a blog about U.S. economic and foreign policy.

When polled, Americans always cite foreign aid as the budget item most in need of a good hatcheting, yet, there is also a deep suspicion of Chinese investment in Africa.

The fact is that Chinese investment in Africa dwarfs U.S. aid.  The Chinese have over $100 billion in trade with Africa a year(admitted, not the same thing as direct foreign investment), while the U.S. musters about $4.5 billion in aid.

Source: The Economist

This aid is not without controversy, especially on the ground. The Financial Times (warning gated) recently reported on Zambian miners upset at low wages paid by their Chinese bosses.  However, the end of the article gave the game away:

Despite simmering anger over October’s shooting and labour conditions, workers do not want Collum Coal Mine to close. In a country where two-thirds of the population lives on less than $1 a day, a poorly paid job is better than none at all.

“We’re not happy with the Chinese investment,” says Bernard Dolopo, local representative of the Mineworkers’ Union of Zambia. “But unfortunately we don’t have better investors than the Chinese.”

I have no doubt that working for a Chinese owned mine in Zambia is a miserable experience, but the fact that people are willing to work in those mines anyway demonstrates their benefit.  Likewise, I can understand why Africans are skeptical of Chinese immigration (its not like people from other countries have ever exploited Africans before).  But a decade of 5% GDP growth is a pretty powerful statement that something is working.

I think there is sustainability in this model since the Chinese also directly benefit, and the Africans can negotiate for a better deal later.

A basic truth in investing is that returns and risk are directly related, so the more risk the more return.  Otherwise, the available arbitrage would attract investors and drive down the return. Africa has been dramatically underdeveloped for years leading to massive investment opportunities with huge political risks.  Chinese government run companies are able to reap large rewards and mitigate the risk by (1) not destablizing incumbant governments no matter how illegitimate, it is all ice cream and no spinach for who ever is running the country when the Chinese come in and (2) if there was regime change, the Chinese would just pay the new person to keep the business rolling.

For all the talk from the west about how the Chinese should pressure the Africans on political goals, I think the Chinese have proven to be good examples on other fronts.  The Chinese government’s philosophy is that growth brings legitimacy and that it is possible to create the economic prerequisites for growth (property rights, economic opportunity, infrastructure, working markets, investment) without losing political control.  So, and this is just speculation, even if the Chinese aren’t encouraging political development I think they are (at least implicitly) encouraging growth.  If you look at growth in the developing world over the last decade it has been very strong.  I think this is basically because a lot of poor countries saw what China was doing and copied it. And the Chinese were happy to help them in exchange for access to resources.

So bravo China, here’s to a country with an economic strategy!

Why China’s Model of Development in Africa is Working

The answer to the title of this post is that China is using the same model of development to develop other countries that it used to develop itself.  And China is a shining example of why its own model works.  China has lifted hundreds of millions of its own people out of poverty and grown to be the second-largest economy in the world.  Its growth in GDP is only matched by its increasing global influence around the world – an alternative superpower to deal with.

Every day, on my drive on the highway from Accra to the Eastern region, I see the bridges and roads being built.  Caterpillar trucks and big crews of Ghanaian construction workers being supervised by a Chinese foreman in a floppy hat.  I have heard and read about China in Africa, and its strategic interest in the continent from a natural resource perspective.  I knew they were involved in infrastructure projects, but I didn’t think it would be every single project.

Today I read an article in NextBillion titled “Why Africa is Open for Business.” The article closes with this paragraph:

Probably the greatest challenge resides in the U.S. and the Western world. That challenge is to change the perception of Africa and encourage young entrepreneurs and investors to look at Africa as a place to do business. Business is probably a better way out of poverty than philanthropy. And I can’t wait for Business Schools to lead the way by developing curriculums on business in Africa.

I agree, but there are two things I want to unpack about this statement.   Continue reading