Thursday, 24 July 2014

How is China changing the international donor landscape?

With the establishment of the BRICS Bank, plans for which were being consolidated at the recent BRICS Summit, and the Asian Infrastructure Development Bank, South-South collaboration is changing the global development architecture.

At the same time, these new development banks will have a complementary role by providing additional loans to developing countries with enormous infrastructure investment needs. The creation of these institutions is can be seen one aspect of South-South cooperation, and also part of a wider process of fragmentation of development cooperation.

For emerging development partners, this form of engagement is distinctly different to  traditional donor-recipient relations, who often focus on the Paris Declaration, and emphasise issues such as the use of national systems and un-tying of aid.

Credit: GovernmentZA (CC BY-ND 2.0)
South-South cooperation focuses on a different set of principles, including equal partnerships, respect for national sovereignty, and non-interference in domestic affairs or recipient countries. Other characteristics of South-South cooperation are that aid should be mutually beneficial (which is often translated as “tied aid”), whereby development funds are channelled to domestic firms from donor countries.

China’s Growing Role in Africa

The expansion of South-South cooperation has provided additional development opportunities for Africa. Indeed, China has become a key driver of growth in Africa. Together with an improved policy environment in Africa, this has led to the branding of Africa as the “emerging continent” with an average growth rate of nearly 5 per cent in 2013 and possessing three of the ten fastest growth economies of the world.

China is not only investing in the extractive sectors, but Chinese SMEs are also becoming more active in African markets, which demonstrate the business opportunities on the continent. However, it should be emphasised that it is the responsibility of African governments to translate this growth into sustainable development and poverty reduction.

It is clear that there are clear complementarities between the development modalities of traditional donors and China, although this would require strong and effective leadership from aid recipient countries. One good example of how different aid modalities can be effective in building value chain production process and expanding the manufacturing base , which could be supported through infrastructure development financed by China, while overall competitiveness will be supported by policy reforms through a budget support operation by traditional development partners.

China, Africa and Triangular Development?

These kinds of complementarities are also reflected in the triangular development cooperation models, which aim to foster cooperation between traditional donors, emerging development partners and recipient countries. From the perspective of African recipients, triangular development cooperation also means opportunity to share best practices and learn lessons from other developing countries. For example, China high growth rates over the last three decades have reduced poverty in historical terms and this admired by many developing countries.

For fragile states, both China and traditional donors are complementary in reconstruction and peacebuilding process, although this can differ widely for individual African countries depending on the resource endowment and existing investment, trade and development cooperation relationships.

Credit: UN Photo (CC BY-NC-ND 2.0)
One recent trend is that China is moving beyond trade and investment opportunities, and increasingly is participating more widely in UN peacekeeping operations in Africa.

One of the conditions for this is that there is clear African mandate, as expressed by the African Union and other Regional Economic Communities.

This fits well with the Chinese win-win approach that respects the principles of national sovereignty and non-interference in the domestic affairs of a country.

The Capacity for Coordination

However, to ensure that these additional development financing opportunities provided by South-South cooperation are harnessed requires the capacity to align all development partners with the national development plan of Africa both at regional and national level. This is a challenge for many fragile states which, at least in the early phase of post conflict recovery, lack the capacity to coordinator donors.

Two policy options can be considered:

1.    All development partners could support fragile states by improving transparency of their interventions, thereby facilitating coordination of development cooperation.

2.    Fragile states can designate a lead development partner to support the coordination activities in the country, although once capacity is sufficient, this should be undertaken by Government itself. These approaches will support the successful transition from fragility to sustainable development.

Richard Schiere is Chief Results Officer in the Quality Assurance and Results Department of the African Development Bank Group. He authored the article entitled "The Impact of China on the Donor Landscape in African Fragile States' in the recently published IDS Bulletin, "China and International Development: Challenges and Opportunities". The findings, interpretations, and conclusions expressed in this article are entirely those of the author and do not necessarily represent the view of the African Development Bank, its Board of Directors, or the countries they represent.

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