The Dragon s Gift Deborah Brautigam Overseas Development Institute London March 17, 2010
Once upon a time
Goals of the Book Provide historical & comparative context Explain how Chinese aid & economic cooperation actually work today Impact of Chinese engagement on development in Africa Evidence-based analysis of conventional wisdom
Why is China Different? Foreign policy framework Core ideas about development Experience as recipient of aid & loans East Asian developmental state
Today s Focus: Two Tools of Chinese Engagement (1) Resource-backed infrastructure loans (2) Overseas economic zones Hybrid Public-Private Partnerships Not ODA But still development
Our cooperation with Africa today, as well as aid, has shifted from direct financial assistance to the output of development experience. Mr. Fung, Deputy General Manager of Tianjin TEDA Investment Holding, Egypt Suez Economic and Trade Cooperation Park, October 16, 2008 http://www.cec.mofcom.gov.cn/ciweb/cec/info/article.jsp?
1994 Reforms: Chinese Policy Banks China Export Import Bank (Eximbank) China Development Bank China Agricultural Development Bank
A. Eximbank s Instruments Export Sellers Credits (Huawei, ZTE) Export Buyers Credits (issued in $$) Preferential Export Buyers Credits ($$) Concessional Aid Loans (issued in rmb) Guarantees B. China Development Bank
Export Buyer s Credit: Varieties 1. Normal line of credit: Mauritius, Nigeria 2. Resource-secured line of credit: Angola, Ghana 3. Package: export credit plus resource investment: Chile, DRC
I. Resource-backed Infrastructure Credits & Loans Market-rate line of export buyer s credit Non-transparent Tied to Chinese goods & services Request based Secured by resources
Eximbank Resource-Backed Credits & Loans Confirmed Sudan 2001 Congo-B 2001 Nigeria 2004 Angola 2004 E. Guinea 2006 Ghana 2007 DRC 2008 About $14- $16 billion (excluding Sudan) Negotiations in Gabon, Guinea, Zimbabwe
Angola: Oil-Backed Line of Credit Terms (2004) Amount Interest rate Maturity Grace Period China Eximbank $2.0 bil LIBOR plus 1.5 12 years Until end of each project Standard Chartered $2.35 bil LIBOR plus 2.5 5-7 years none
Angola: 33 Projects for $1b (2004-2007) Ag. Machinery & equipment $22m 4 Irrigation systems $93m Luanda s electricity system: $45m Water treatment system repair in 3 provincial cities: $21m 5 agricultural training institutions 6 polytechnical colleges 5 secondary schools: $26m Kifangondo-Caxito road: $211m 86 ambulances 6 provincial health centers Rehabilitate 7 regional hospitals etc. etc.
Fig. 5.2 China Eximbank Loan Cycle 3. Sign Framework Agreement Borrowing Government (Borrower) Chinese Government (Ministry of Commerce) 1. Apply for Loan 4. Sign Project Loan Agreement 2. Preliminary Appraisal Report China Eximbank (Lender) 7.Send Withdrawal Application along with Documents, Report Process 6.Submit Documents, Report Process 9.Repay Principal, Pay Interest and Fees 8.Disburse Loan Foreign Executing Agency (Owners or Importers) Commercial Contracts 5.Submit Documents According to Contract, Request Payment Chinese Executing Agency ( Contractors or Exporters)
Risks and Benefits Risks: Value for money Project selection/ feasibility Kickbacks Maintenance Double-mortgage Benefits: Agency of restraint Eliminates embezzlement risk Can expand debt servicing capacity Infrastructure
II. Overseas Economic Zones Lekki Economic Cooperation Zone, Lagos State, Nigeria
2006 Goal: 50 Overseas Zones 1. reduce trade frictions and barriers 2. assist China s domestic restructuring 3. increase demand for Chinese machinery, & local supply of construction materials 4. economies of scale for overseas investment 5. SMEs to venture overseas in groups 6. diplomacy: transfer China s success to other developing countries
Tanzania s Friendship Textile Factory, 2008 a former aid project
Holley Pharmaceutical s Artemisinin Factory, Tanzania.
Nnewi, Nigeria
Enugu: Joint Venture Tire factory
Nnewi, Nigeria: Instant Noodle Factory
Two Competitive Tenders 2006: 60 submissions of interest 30 invited to submit proposals 12 invited to Beijing => panel 8 selected (Zambia, Mauritius, Ogun) 2007: 50 submissions of interest 20 invited to submit proposals 11 selected (Algeria, Egypt, Ethiopia, Lekki) 19 Zones selected as experiments
China s First Seven Overseas Zones in Africa
Chinese Developers Mainly Provincial & Municipal SOEs Zhejiang --Guangdong Tianjin --Shanxi etc. But also Minying ( private firms) A few National SOEs -- CCECC -- China Railways
Design of Zones Infrastructure at world-class standards But much varies: Can be export processing, import substitution, services PPP Model & 100% Private Follow local incentive framework
Benefits for Chinese Companies Developing Approved Zones Grants: RMB 200 to 300 million ($29 to $44 m) Long-term loans of up to RMB 2 billion ($294 m) MOFCOM: Trade and Economic Cooperation Zone Development Fund Subsidies for up to 30 % of some development costs MOFCOM: Economic and Technical Cooperation Special Fund rebates on interest for Chinese bank loans Support from provinces & municipalities
Risks and Benefits Risks: White elephant Enclave Technology transfer (?) Labor & environmental standards Local Learning of Zone model (?) Benefits: Backing of Beijing Company as developer Local employment Infrastructure Flying Geese
Competing with China Can Chinese companies in Africa compete with Chinese companies in China for the African market?
Innocent Chukwuma
Nigerian Official The West comes here, and it s oil, oil, nothing but oil. But the Chinese come, and they are interested in everything.