Home| Pictures

Pictures

Pictures

American Scholar Deborah Brautigam: China-Africa Cooperation and Structural Transformation

 

Greetings from Washington DC. I very much wish that I could have been with you in person. I hope that becomes possible in the near future. I'd like to thank the organizers of this forum for inviting me here today. I'm going to speak on China-Africa cooperation and Structural Transformation. My interest in structural transformation goes back to my own graduate studies when development economics was about how countries move up the value chain. Although I was a China-Study student, I was interested in development and interested in Africa. For my dissertation, as some of you know, I went off to west Africa to study China's impact on African rice farming, and whether or not the Chinese model from the 1970s has been transferred to African countries.

 

At the time, a common theme in China was agriculture as the foundation and industry as the leading edge, and shifting both of those areas up, adding value to them in spite of what underpinned the Chinese success. Here's another slide taken on a Liberian rice seed farm that was built by China's aid program. When the slide was taken and when I was doing this research, the Chinese technicians on this farm were actually using rice seed that had been developed in the Philippines, because China didn't have the kinds of seeds that could really be helpful in this particular non-irrigated rice farming situation, but that rice farm is still in operation today after the end of their civil war. About 2009 or so, Liberia leased it to the late professor, Yuan Longping's company, Yuan Longping High-Tech, and they invested in the production of hybrid seeds in order to expand rice production and help Liberia become self-sufficient in rice.

 

That's me, there in the middle. I know, I look a little different these days. So about 15 years ago, at the time of the third meeting of the FOCA, the Forum on China-Africa Cooperation, the international media started to report on China's growing engagement in Africa. These media reports were almost always critical. This alarmed me. Much of what I was reading at the time did not reflect what I knew from my own research. So I wrote The Dragon's Gift in part to respond to that, and I’ve gone on to write other things that have looked at the conventional wisdom. I've traveled across at least 15 African countries done research in all of these. I set up the China Africa Research Initiative at John Hopkins University to foster evidence-based analysis of China-Africa economic cooperation. And that's what I’m going to draw on today in my talk.

 

 

Now, there are concerns in Africa about some of the problems and challenges with the China-Africa relationship. These concerns are also present with other actors, but the scale and the rapid growth of Chinese engagement and China's own nature as a developing country, which is still putting in place of rules and the institutions to foster sustainable development inside China. It exacerbates these concerns.

 

For example, there are environmental pollution problems connected with natural resource investment in some instances. Labor relations between Chinese employers and African workers can be contentious. There are also credible reports of illegal fishing and purchase of illegally harvested timber by Chinese middlemen and Chinese importers and there's very little effort to try to stop these things yet on the side of Beijing. Many in Africa are concerned that their government officials negotiating with Chinese companies have not gotten the best deals for their countries because of corruption. And the surveys of perceptions of corruption show that African countries are some of the most corrupt in the world, at least I perceived to be that way, and there's probably a lot of truth to that. At least that's what African citizens believe. Finally, rapid growth in Chinese lending has raised fears about a new debt crisis, although the data here only goes to 2019. So we can see here across Africa, Chinese lending has been growing, but it's still smaller on the continent as a whole than that from bondholders or from the World Bank. If you look at the slide, the purple is a bond issues that are held by African governments. The red is Chinese lending. The turquoise is other bilateral, and the World Bank is there in green. So the Chinese lending is getting larger. And it's finally visible since about 2008 or so in all of this data. But the debt problems that African countries have are still nowhere near as large as the ones that they suffered from in the 1980s and the 1990s. So I think on the whole this is not a widespread concern across the continent, although this data is from before the pandemic.

 

 

But in a few countries about maybe ten, even a dozen, the Chinese lending has become more problematic as a proportion. In about ten African countries that are at risk or close to debt distress, Chinese debt is over 20 % of the total debt. That means that many of them have a lot of other lenders as well, but the Chinese lending is significant. And in two of these Djibouti and the Republic of Congo, it's over 50 %. This slide here shows debt to China as a percentage of external debt and the darker the colors get, the higher the percentage owed to China is. But then we also have countries that are at risk of or are already in debt distress, and those are shown by little dots. You can see there are many countries that are in debt distress, but they owe to a lot of other countries and lenders, not just Chinese. Those countries include Chad, the Central African Republic and Sudan. So in those countries, China is one of a number of different creditors and not necessarily the most important one. There are over a dozen African countries that are at risk of debt distress or already in debt stress, distress where Chinese lending is very small or nearly absent. For example, the Gambia and Burundi, the Central African Republic. There's a lot of variety here. Ultimately, Africa’s debt problems are much more to do with its lack of structural transformation, then lending by any one of these actors here.

 

 

The bottom line is that there are many challenges in the relationship. So given these challenges, what do Africans think about China? It may be surprising to see that on the whole, the evidence suggests that the people who are pulled by AFRO Barometer, the public opinion polling project are positive. For years, AFRO Barometer has asked Africans what they think about China and other countries’ political and economic influence on their countries. It turns out that in the 34 countries that they pulled in the last round, which was 2019, 2020 and 2021, 63 % of people thought China's influence was mostly positive. And I’m sure this surprise very many people in my country, because only 60 % thought the same of us. Given this finding, AFRO Barometer speculated that in their view, this is because Africans want control over their own development, and China doesn't dictate to them or tell them what they need to do to become prosperous. So they appreciate us. I think there's another reason. It's because China's development experience is attractive. As an African diplomat said to me, on one of my trips to Beijing. He said, “We believe we can learn something from China.” So let's take a look at China for a moment here and structural transformation.

 

Structural transformation in China shows very clearly that China's development is not just about rapid growth, but it's about moving up the ladder. Between 1978 and the present, China's economy shifted away from the primary sector of agriculture and mining to manufacturing, and now to high tech and services. You can see in this slide here. The blue triangles, show agriculture, mining and another contributor in the primary sector going down from about 30 % to under 10 % of the economy, while services start out around 20 % and marches all the way up to over 50 %, which is where Chinese planners want it to be now because that shows China is a more developed economy, and a lot of its income now comes from services, from high tech and financial services and other things in the service economy. That really is climbing the ladder.

 

 

Now, what about infrastructure? What role did that play? Infrastructure helped. It's controversial. We don't know, for example, whether or not China is going to have its own debt crisis. Many people think that China is too heavily that different parts of the country have taken on too much debt for infrastructure and Chinese perhaps overbuilt. We can certainly see, though, that there's a correlation between a high investment in fixed assets in infrastructure and the kind of growth and structural transformation that we've seen in China. China stock of infrastructure assets per person, as the chart on the left shows, is about the same as Germany and Britain. It's much greater than other countries at its income level. India, for example, or countries that are more middle income. It's not a proof, but it shows that that China did a lot of infrastructure investment as it was climbing up the value chain, and African countries are interested in that experience.

 

 

So what about structural transformation in Africa? How does Chinese engagement in infrastructure appear there? Many Africans are now familiar with the Chinese saying, “If you want to become prosperous, first build a road”, or “要想富,先修路”. The African Development Bank says that the infrastructure gap in Africa is 130 to 170 billion per year. The slide here is from Liberia, and it shows a destruction of one of the bridges after the civil war. But this kind of post conflict reconstruction is happening across the continent, and it is a very big example of that. But the climate and the constant rainy seasons in many parts of the continent are really tough on maintaining roads, so building them and maintaining them need investment. China's been helping out here. So Chinese companies are quite visibly building a lot of roads and other infrastructure now for account, averaging about 50 billion in contract revenues per year. This is big for Chinese companies, whereas Africa represents only about 4 or 5 % of Chinese global trade and Chinese global investment. For engineering and contract revenues, it's about 30 % of the global revenues for Chinese engineering companies. So Africa really is a big market for these firms.

 

 

Not all of this infrastructure is built and financed by China. It's only about 20 % or so. In this slide, we showed Chinese loan commitments to Africa, and I’ve separated up Angola from the other countries here, because Angola is really a special case, and I think it’s because the loans are so large and because there is some refinancing in 2016, it kind of swamps the data. So in the next slide, we show the Chinese lending without Angola, and you can get a better idea here of the growth from 2005 up to a peak in 2013, and then as African growth represented by the orange line, has been flat and then falling, Chinese lending with a little bit of a lag stayed flat, and then it fell as well. This is certainly going to continue as a result of the pandemic.

 

 

However, the loans that China has provided have gone to build Africa for the present and for the future. For infrastructure sectors, transport, power, communications, and water, account for 70 % of all lending. So you can see in this slide here, it's 32 % of Chinese loans that have gone into roads and ports and rail and other transport infrastructure, airports as well, and 25 % has gone into electricity, whereas about 7 % has gone into telecom, so Chinese lending is partly underwriting the telecoms and the digital revolution in Africa, and about 5 % into water. Now there's an issue which relates back to the corruption issue. Chinese president Xi Jinxing in April 2019, noted that the Belt and road initiative was going to become an even better and improved version, and it was going to be open, clean, and green. This refers to some of the accusations and the concerns that some of the projects had not been as clean as they could have been.

 

 

I want to explore this a little bit in the in the last few minutes of what I’m saying. So President Xi said that there would be zero tolerance for corruption. And I think that's a really good thing. We're hoping now to see some firm commitment, something that shows just how that zero tolerance is going to be working in Africa. I'd like to make a suggestion here. Now, China in 2011, I believe it is, ratified the UN Convention Against Corruption (the UNCAC). This slide here is a picture of all the countries that have ratified the UN convention. As you can see it’s fairly universal, and there are just a few exceptions here to that. One of the things that the UN Convention Against Corruption asks countries to do is to make corruption by their companies operating overseas illegal. This is something that China has done. They've changed the Chinese code and I’ll show you what that looks like.

 

 

Article 164 of the Chinese criminal code now says that whoever for the purpose of seeking illegitimate commercial benefit gives property to any foreign public official or official of an international public organization shall be punished. And I think it's a fine and maybe up to 10 years of imprisonment. But so far, we haven't really seen much in the way of enforcement of this. I think publicizing this and maybe having some high-profile cases are showing that China is really enforcing its obligations under the UN convention would be helpful for China, and it would be helpful for Africa as well.