Big commitments, big energy, and big turnout all characterized last week’s Forum on China-Africa Cooperation. Some 50 African heads of state showed up to Beijing, and China pledged to invest nearly $51 billion on the continent: about $10 billion in foreign direct investment, $30 billion in loans, and $10 billion in traditional aid or grants.
That will fund 30 infrastructure projects, 30 clean energy and green development projects, Chinese businesses creating at least 1 million jobs, some 1,000 of what Chinese President Xi Jinping calls “small and beautiful” development projects to improve livelihoods, and more.
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There was a sense that China is upgrading Africa in its foreign policy, and the overall feeling at the summit “was one of optimism and excitement and a sense that China’s back and Africa’s open for business,” Hannah Ryder, CEO of Development Reimagined, tells Adva.
Chinese investment and engagement on the continent has dipped in recent years. While some had chalked it up to Chinese economic and domestic issues, Ryder says it was more of a pipeline problem as COVID-19 limited travel and deal-making.
One phrase that came up again and again — and made its way into the final agreements — was “value addition.” African leaders were pushing for investment to shift up the value chain and build more local processing for key industries and natural resources.
“There’s a feeling that there is a new window of opportunity in terms of value addition and this is the time to grab it,” she says, adding that China is now including value addition in its Africa policy, which means both state institutions and the private sector are likely to make it a greater priority.
“What I didn’t hear is ‘help deal with our debt.’ It was not part of the narrative or story,” Ryder says.
Still, most countries in the region are at or near debt distress. That means new loans must be taken with caution, according to Kevin Gallagher, the director of the Global Development Policy Center at Boston University. But Chinese loans “do not appear to be exorbitantly expensive,” he says — the rates China is lending at are significantly cheaper than the rates African countries can get from Western bondholders that hold the majority of African debt.
It’s important that Chinese finance be used for productive investments such as roads, rail, or clean energy and that funds don’t “leak” to pay back Western bondholders. Countries need to use the loans to grow and make money that they can use to pay back debt, Gallagher says.
Many of the investments will be in public goods, which will require low interest rates and long maturities, so African governments will need to negotiate for the best terms possible, Ryder says.
African financial institutions — the African Export-Import Bank, the Trade and Development Bank, the Africa Finance Corporation, and others — were also pushing for continued Chinese support and increased Chinese lending and credit lines through those institutions, Ryder says.
Related: How is China’s foreign aid changing? (Pro)
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‘Links not dependencies’?
At last year's Belt and Road Forum for International Cooperation in Beijing, China talked about how it was changing tack and moving to do smaller, greener projects, which still appears to be part of the development cooperation agenda.
But the outgoing head of the European Commission's development department, Jutta Urpilainen, said last week that she hasn't seen much change and that debt relief from China was still “very limited.”
So what exactly is the difference between a European loan and one from China? “We are not creating dependencies, we are creating links,” Urpilainen said during a hearing of the European Parliament's development committee.
Err, what does that mean?
“We are respecting all high-quality standards in terms of [the] environment, in terms of social standards,” Urpilainen said. “We know that, unfortunately, China is not doing that.”
That type of argument — or the common refrain of U.S. lawmakers that China is engaging in “debt trap diplomacy” — doesn’t sit well with leaders on the African continent. Why? Because there’s an implication that African governments can’t govern, and it's quite patronizing, Ryder says.
+ Devex Pro members can dig deeper into Chinese aid priorities over the past 24 years with this primer.
Funding gap
The development committee hearing was also the chance for Urpilainen's colleague, Janez Lenarčič — who is ending his five-year term at the helm of the commission's humanitarian aid department — to sound off against what he sees as the underfunding of human development compared to the EU's newfound interest in infrastructure.
“I don’t have a problem with infrastructure projects,” said the Slovenian. “But they should not come at the expense of assistance to people to get on their own feet, get their livelihoods, and no longer depend on humanitarian aid.”
Lenarčič seemed to be talking to his own superiors at the commission at times — a reminder that whoever gets confirmed in the commission's aid and development portfolios in the coming weeks, their mightiest challenge might not be Beijing, but convincing their own president, Ursula von Leyen, that truly disinterested foreign aid is not dead yet.
Read: EU aid boss takes aim at infrastructure-driven development
Background reading: How to read Europe's future development vision (Pro)
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The World Bank is working more closely with civil society groups as it prepares for the replenishment of the International Development Association, its fund for low-income countries, Akihiko Nishio, the World Bank vice president for development finance, writes in an opinion piece for Devex.
Across regional civil society forums, World Bank leadership and donors have met with local civil society to better understand what IDA borrowers want to see in the replenishment. More than 800 organizations attended the forums.
“CSOs have made valuable observations on the impact of development finance,” Nishio writes, adding that IDA shares many of the concerns raised by the civil society organizations.That includes that the global debt crisis is hindering governments from providing essential services and how IDA financing could be structured given those challenges.
Opinion: Why IDA is deepening its partnership with civil society
ICYMI: African leaders set out IDA funding priorities at World Bank summit
What we’re reading
Development funding is sidelining true impact investing. [Devex Opinion]
Germany plans billions in cuts to development, humanitarian aid. [Devex Pro]
U.K. aid to hit 17-year low with “significant new cuts” feared. [Devex]
World Bank chief visits Tuvalu, a front line in battle against rising sea levels. [Reuters via Yahoo News]
About the authors
Adva Saldinger@AdvaSal
Adva Saldinger is a Senior Reporter at Devex where she covers development finance, as well as U.S. foreign aid policy. Adva explores the role the private sector and private capital play in development and authors the weekly Devex Invested newsletter bringing the latest news on the role of business and finance in addressing global challenges. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.
Vince Chadwickvchadw
Vince Chadwick is a contributing reporter at Devex. A law graduate from Melbourne, Australia, he was social affairs reporter for The Age newspaper, before covering breaking news, the arts, and public policy across Europe, including as a reporter and editor at POLITICO Europe. He was long-listed for International Journalist of the Year at the 2023 One World Media Awards.
