China's Approach to Africa in post-COVID age

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China's Approach to Africa in post-COVID age

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How Chinese investment can support sustainable growth in Africa
The pandemic has shown developing countries that they must build their own assets and tackle infrastructure bottlenecks in sustainable ways
Now is a good time to revamp China-Africa collaboration to reflect the pandemic’s lessons, to ensure aid or development cooperation is demand-driven
The eighth Forum of China-Africa Cooperation took place recently in Dakar, Senegal. At past forums, China has announced large development-financing packages.

But this year, President Xi Jinping opened the forum by pledging another billion doses of Covid-19 vaccines and more private-sector equity investment to Africa. This is just one sign of how profoundly the development landscape has changed in the pandemic’s wake. Covid-19 has forced policymakers and development professionals to regroup and rethink their approaches. The continued emergence of new variants, together with the increasingly obvious consequences of climate change, has reminded us of how little control over nature humans really have. Travel restrictions and trade disruptions have highlighted the risks that lie in global interdependence. This brings us to the first critical lesson of the pandemic: development starts at home. Rather than depending on cross-border flows, countries must recognise and build their own wealth – that is, the assets and endowments that lie within their borders.

In the past, wealth has not received nearly enough attention from economists and policymakers. For starters, evaluations of debt sustainability – such as the joint International Monetary Fund-World Bank Debt Sustainability Analysis framework – tend to focus narrowly on liabilities without taking adequate account of the asset side of the public-sector balance sheet. On the positive side of the ledger, flows such as GDP have attracted far more attention than stocks of assets and net worth.

This reflects the predominance of short-term thinking. While GDP indicates how much monetary income or output a country produces in a year, wealth also covers the value of the underlying national assets, including the human, natural and produced capital that form the foundations of a country’s comparative advantages.

As such, wealth accounting provides essential insights into a country’s prospects for maintaining and increasing its income over the long term. Yet, there is a shortage of information on the value of public-sector assets and net worth. The World Bank’s Changing Wealth of Nations report goes some way towards filling this knowledge gap, making it an invaluable resource for policymakers.

Supply chain disruptions have inflicted severe pain on the world. However, a second lesson of the pandemic is that many low- and lower-middle-income countries continue to suffer more fundamental deficiencies, such as a lack of health care personnel and resources, from hospital beds to ventilators. For some, it is the inability to deliver clean water, electricity and sanitation that is choking the economy.

After 70 years of development aid and cooperation, how is it possible that many countries remain stuck in low- or lower-middle-income traps without sufficient capacity to meet their citizens’ basic needs? Both market and government failures can be blamed.

A core problem is that all that aid did not adequately address infrastructure bottlenecks. This partly explains why African countries have often welcomed Chinese investment.

As Foreign Minister Wang Yi noted in his 2020 speech at the China-Africa forum, China has financed and constructed many hard and soft infrastructure projects in Africa in the first two decades of this century. This includes more than 6,000km of railways, with roads covering roughly the same distance. China has also constructed almost 20 ports and more than 80 large-scale power plants. This has gone a long way towards supporting Africa’s structural transformation. According to our study, some 75 to 78 per cent of China-financed projects completed in 54 African countries between 2000 and 2014 addressed one of five key bottlenecks. In other words, seven out of 10 completed projects met the basic needs of the continent’s people. Moreover, in as many as 18 African countries, the manufacturing sector has been trending upwards since 2011.

But there is still much room for improvement. Targeting problems afflicted 22 per cent of completed hard infrastructure projects and 26 per cent of soft infrastructure projects, meaning they were not genuinely demand-driven. This can lead to “white elephants”.

The good news is that China has committed to stop financing coal-fired power plants abroad and to invest more in renewables. According to updated Chinese aid data, more than 60 per cent of Chinese investment projects are in green sectors. The bad news is that China’s two large policy banks have reduced their overseas lending sharply since 2017, and there is still ample room to improve targeting.

The China-Africa forum is a good place to start addressing these issues and revamp cooperation to reflect the lessons of the pandemic. This means committing to ensure that aid or development cooperation is demand-driven, addressing each country’s specific needs.

A market-based approach combining trade, aid and investment could be integral to success as it would help ensure incentives are aligned among equal partners. Crucially, all China-financed projects must meet environmental, social and governance standards. Soft infrastructure projects that bolster health care, education and governance should be top priorities. More broadly, China must boost standardisation and transparency in its foreign-aid and cooperation projects. This requires the enactment of a comprehensive foreign aid law, focused on ensuring transparency and accountability. It is also critical to engage more actors, including the private sector and multilateral development banks, with a view towards blended financing. Given the long-term nature of the needed investments, all participants need to embrace the concept of “patient capital”.
The post-pandemic agenda is clear: countries must build on their endowments and tackle infrastructure bottlenecks. With the right approach to policy and financing, countries can mobilise the resources needed to clear a path toward sustainable development.

Written by
Justin Yifu Lin, a former chief economist at the World Bank, is dean of the Institute of New Structural Economics and dean of the Institute of South-South Cooperation and Development
Yan Wang, a former senior economist at the World Bank, is a senior researcher at the Boston University Global Development Policy Centre. Copyright: Project Syndicate
https://www.scmp.com/comment/opinion/ar ... wth-africa

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