What Works for Africa? - Analysing the Chinese and World Bank Models by Tobias Caspersen

What Works for Africa?

May 2009

List of Contents 1. INTRODUCTION

1.1 Defining the Problem 1.2 Structuring the Study

4 5

2. THEORIES ON ECONOMIC DEVELOPMENT

2.1 Market-led Growth; comparative advantage

2.1.1 THE PROFITABLE INVISIBLE HAND

2.2 State-led Growth; building industries

2.3 Stairway to Heaven; theoretically derived variables 3.1 The Beijing Consensus

14 16

3.2 World Bank Growth Strategy

4. METHODS; SEARCH FOR CAUSALITY

4.1 The Dependent Variables 4.2 Chinese Cases 4.3 World Bank Cases

28 31 31

5. ECONOMIC EFFECTS

5.1 Impacts of the Chinese Model

5.2 Impacts of the World Bank Model

6. CONCLUSION

7. FURTHER PERSPECTIVES; DEVELOPING DEVELOPMENT

8. REFERENCES

9. APPENDIX

9.1 Case selection – World Bank Model

2.2.1 THE ACTING STATE 3.1.1 STATEMENTS 3.1.2 IMPLEMENTATION 3.1.3 THE MODEL 3.2.1 STATEMENTS 3.2.2 IMPLEMENTATION 3.2.3 THE MODEL

5.1.1 ANGOLA 5.1.2 SUDAN 5.1.3 CAUSAL CLAIMS 5.2.1 UGANDA 5.2.2 RWANDA 5.2.3 CAUSAL CLAIMS

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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33 35 37 39 41 43

What Works for Africa?

May 2009

1. Introduction The Chinese advance on the world stage and their influence in the developing world has been widely studied, but Chinese commitment in Africa in particular is often seen to lack a genuine Chinese motivation for Africa’s development – politics solely based on its own interests (Tull, 2006). This is problematic in the sense that even though such motivation might be present, it does not change the outcome of their actions. The effect of their infrastructural and traderelated investments with no strings attached is still an object worth studying. The development doctrine of the World Bank and its specific policy recommendations for Africa has also been the subject of extended research and evaluation, resulting in the addition of democratic institutional conditions and a certain acceptance of government trade facilitation to the otherwise exclusively free trade and economic laissez-faire policies of the former Washington Consensus. Nevertheless, the two models have rarely been set up against one another in any way, but as incompatible examples of different motives. It is taken for granted that the World Bank model is altruistically better for Africa’s development – in spite the fact that studies have shown the economic consequences of some of their former policies to be directly harmful for African progress (Laird, 2007; UNECA, AfDB & WTO, 2007). Further critique points to the fact, that most of Africa has not shown the same results as the speedy advance of the Asian tigers. The main puzzle of this is what actually works for Africa? We try to pursue this through the following problem: How do the Chinese and World Bank models affect the economical development of Africa? In answering the problem, two key challenges are present. Initially, it is fundamental to clearly define what economic development is. If not, it will be all but impossible to choose the correct dependent variables to look at, and argue for causal mechanisms. Secondly, it is essential to determine the concrete nature of our explanatory variables – what the models consist of – to be able to determine any causal link and answer how they affect economical development.

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

What Works for Africa?

May 2009

1.1 Defining the Problem The main paradigm of economic development today is economic growth led by exporting goods – that is by increasing production of goods to be exported and converted to income (Gibson et al., 1992: 342). Hence, economic development is seen as the value of the goods produced, and exports as a way of generating income to increase this value. Even though exports are not the only way of achieving economic growth, it is the dominant view. Because of this, we have to look at the theories within this export-led growth paradigm to identify our variables and theorems for the analysis. To identify what the models actually do in Africa 1, it is necessary to establish what constitutes a model as such. Here, we define a model as: a coordinated set of implemented policies on a variety of areas.

As a consequence of the definitions made, a model’s effect on economic development is the variation on the variables derived as the exhaustive theoretical elements of economic growth caused by the policies of the model.

We have no intension of pursuing the question of motivation since this is not relevant for the problem posed. The effect of a model is the same whether it was implemented for development purposes or not. Consequently, the reasons for them doing as they do are not important here. The choice of China and the World Bank must be seen in the light of their differences. Today, with development procedures more or less standardised across the DAC countries2, their multilateral organisation, the World Bank, stands increasingly out from the non-DAC countries acting bilaterally. Of this latter category China attracts the most attention because of their potential importance as they continue their economic and political rise. Thus, they might not be equally important in numbers, but as two distinct models, they are the frontrunners.

By Africa we mean sub-Saharan Africa (SSA), which include the 48 countries of continental Africa except the North-African countries, which have a very distinct culture, foreign and trade relations from those of SSA. 1

Member countries of the Development Assistance Committee (DAC): Australia, Austria, Belgium, Canada, Denmark, Finland, France, European Union, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States. 2

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1.2 Structuring the Study The analysis will focus on assessing causality between the models’ policies and the variables acknowledged as exhaustive in describing economic growth. This requires looking at theorems from across the continuum of export-led growth theories, identifying the concrete policies that make up the two models and performing a case-study to clarify any co-variation between these, as well as a discussion of the short and long run aspects of these causalities. An essential element for causal claims to be made on the problem posed is chronology. Since both models include relatively new strategies, dating back to the turn of the millennium, this will be the reference point of the analysis. This makes for the following structure: Review of the two poles within export-led growth theories to derive our dependent variable, which are all the relevant variables relating to economic development.

Examination of the stated and implemented policies of China and the World Bank to determine the precise contents of their models which makes up our explanatory variable. Discussion of the need for a qualitative case study to decrease the risk of influence from neglected external factors and execute an operationalisation of the dependent variables for a consistent analysis frame. Assessment of co-variations over the last decade between the model and the dependent variables present in both cases of each model and theoretical explanations to claim causality. Evaluation of the prospects for longer run effects of the Chinese focus on infrastructure and the World Bank’s focus on institutions. Conclusion on the advantages of the Chinese model in the short run, and its probable shortcomings in the long run compared to the World Bank broad focus on institutional capacities. Mads Nørgaard Jørgensen & Tobias Rune Caspersen

What Works for Africa?

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2. Theories on Economic Development Economic development is often unclearly noted as a combination of lots of different variables, even though the combined value of goods produced divided by the size of the population (GDP per capita) seems to be the favoured single measurement (Meier, 1995: 7). Here, we accept the GDP per capita as the definition of economic development. We acknowledge that the broader term of development has to include more aspects, but in the world of economics GDP per capita is the macro aspect. Further, the main paradigm of economic development today is that growth is to be achieved by increasing exports. To understand the effects of models operating within this trade-oriented paradigm we have the privilege of not having to deliver numerically precise effects and thus be bound to a single theoretical set of rules. To understand how models work within the paradigm of export-led growth, and which variables they focus on to achieve higher GDP, we can look at theories from both sides of the continuum to get the full inclusive picture - the free trade market-led arguments and the protectionist stateguided thoughts.

2.1 Market-led Growth; comparative advantage The idea behind market-led growth theory came in Wealth of Nations where the Scottish economist Adam Smith answered the question of what makes an economy grow. He concluded that economic growth is achieved through capital accumulation, free trade, an appropriate (limited) role for the government, and a system of justice, however most importantly, individual entrepreneurship (Greenspan, 2008: 249). If a nation is to achieve greater wealth people must be permitted to freely pursue their own interests. Competition is crucial because it motivates everyone to be more productive, usually through specialisation and labour division. If every individual competes for private wealth, they act as if controlled by an invisible hand for the benefit of society (Greenspan, 2008: 249). The absolute essential ingredient in this classical capitalism is the power of competition, since this is the driving force for technological gains and new procedures, which constantly increase productivity and thus wealth. Outdated and uncompetitive production gives way to what is new and improved. This has been termed creative destruction (Greenspan, 2008: 248).

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The international trade dimension of this classical capitalist view stems from the English economist David Ricardo, who envisaged the idea of comparative advantage. The idea is that if every country produces the type of commodity which it can manufacture with a comparative advantage to other countries, everyone will benefit (Meier, 1995: 455). The traditional example of this theorem is an illustration of possible trade policies of Portugal and England in the early 19th century. The Portuguese are better at producing both wine and cloth for every unit of labour, but they are relatively more productive (“more better”) at wine production. This means that the ratio of wine production per unit of labour between Portugal and England would be higher than the cloth ratio, even though both favour Portugal. England thus faces a disadvantage in both commodities but is relatively less disadvantageous in the cloth production, their comparative advantage. It would then be mutually beneficial if Portugal produced wine and England cloth with a free trade agreement allowing Portugal to export wine and import cloth, and vice versa. Thus, they could both consume more goods because they are able to import commodities at a lower opportunity cost than if they produced it themselves. The Ricardo model produces the basic argument for the benefits of free trade. However, it does not incorporate more than a single factor of production (labour) and it requires technological differences between countries in order to produce comparative advantages. With equal technological progress in the Ricardo model there would be no reason for trade, and all countries would become autarkies. The Swedish neo-classical economist Bertil Ohlin came up with another model built around the principle of Ricardo. It explained the comparative advantage by endogenous variables instead of the exogenously given technology. The model focuses on the relative endowments of labour, capital and natural resources. A country has a comparative advantage in commodities requiring factors of production which are relatively abundant locally. Hence, free trade would be beneficial if countries produced goods in whose production they had a natural advantage, be it because of natural resources, cheap labour, or easy accessible capital – the HeckscherOhlin theorem (Meier, 1995: 455). This model includes more factors than Ricardo, but it builds on the premise of equal production technology in all countries, meaning that the specialisation heralded by Ricardo would be impossible. Even though industries with increasing returns to scale have proven specialisation useful, thus promoting the classical model, the Ohlin model is Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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May 2009

none-the-less extremely relevant in showing the potential benefit of trade, and thus free trade, even between countries of equal technological level.

2.1.1 THE PROFITABLE INVISIBLE HAND The free trade theories see development in the light of the sophistication and thus income of each unit of export. Countries enter the world market exporting natural resource-intensive products, and then by the profits of trade, move on to more profitable commodities, from unskilled labour-intensive, skilled labour-intensive, capital-intensive to knowledge-intensive products. In general, classical and neo-classical economists alike tend to focus solemnly on the trade benefits derived from the import-side. Internal resource allocations are prerequisites for the comparative advantage to maximise imports as described above. However, Adam Smith originally envisaged another starting condition for international trade more aligned to Ohlin’s factor of production theorem; countries enter the world market with idle land and labour. This surplus vent or excess factors of production (as we might call it to stress similarity with the natural resource advantage postulated by Ohlin) are unused because of a lack of demand from the domestic market. By opening up the market the labour division can work to its fullest and have further incentives to improve its production powers, and to augment its annual produce to the utmost (Smith, 1937: 415). Exports can thus increase without a decrease in domestic production. This theorem does however rest on the assumption that domestic consumption holds back production technology. Another key facet of the classical economists’ view on the market’s ability to improve production is the availability of natural resources. The classical free trade view is that these are of no significant permanent importance since the production capacities of a country are the sole determinant of its wealth, present or future. Having natural resources as the main source of export income is of course useable but the income is best when it is utilised via investment in future production facilities that can generate more income per unit of labour. Nonetheless, the output must be regulated very skilfully to be beneficial in this matter. The potentially large inflows of income can be very harmful on ascent up the ladder. This is so due to the so-called Dutch disease – a fast increase of international demand for a certain product paid for in local Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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currency will drive up the exchange rate thus damaging the exports of the otherwise more profiting production sectors. On top of this, there is the risk of inflation caused by an overheating economy and a reduction in the gained purchasing power of the population. However, if such a rise in the exchange and/or inflation rate can be controlled, e.g. by altering the interest rate or reversing a budget deficit, the availability of natural resources does provide for a comparative advantage in the longer run according to the Ohlin model and a means of income to be used on production facilities in the short run. The fear of Dutch disease brings up regulation as another element. Naturally, free trade theorists see a very limited role for state intervention, but market failures such as rapid inflation, monopolies, external costs and benefits and dysfunctional infrastructure and market institutions do justify government interference. Price control, tariffs and similar acts do not. Institutions are understood broadly as the existence of a number of linked rules and routines that define and determine a connection between a role and a case as a proper action. The main point is that state interventions are accepted to fix severe problems, not to meddle with trade relations in general. If the state were to intervene in trade relations by protectionist policies, the effect would be a deadweight loss (Pindyck and Rubinfeld, 2005: 328). The free market is formidable at weeding out the inefficient companies through creative destruction. It is an immensely difficult task for a government administration to copy (and improve) these beneficial parts of the free market to predict which industries will turn out to have growth potential. Even if this is obtained, the administration would have to calculate the correct level and period of time for the protection of domestic industries. Further, if companies are never fully released and domestic markets kept in a permanent state of protectionism because of a lingering perception of exploitation, all the documented benefits of free trade would be lost. The theorems presented rest on the assumption of capital mobility internally in order for the market-led best allocation of resources. If this is not the case, internal competition as well as production costs will suffer resulting in difficulties competing internationally and damaging the technological progress of the domestic industrial sector.

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What Works for Africa?

May 2009

Variables derived from market-based export-led growth theory •

Trade flows (import and export)

•

Productiveness (investment in production)

•

Labour (sector of occupation)

•

Government role (corruption, tariffs)

•

Financial institutions (exchange rate, interest rate, budget balance, inflation)

•

Infrastructure

2.2 State-led Growth; building industries The other pole on the export-led growth theory spectrum is state-based theory and is as most economic theory, built on the widespread critique of the classical argument presented above (Singer, 1950: 476). The greatest problem of comparative advantage is its static nature. It does not incorporate the dynamic effects of trade, such as economies of scale, increased competition and new technology (Vylder, 2007: 37-38). This critique took off especially in the 1950’s fuelled by the work of Hans Singer and Raul Prebisch. They independently presented an empirical study examining the terms of trade between developed and developing countries claiming that not only was the benefits from trade not equally shared, but in some cases actually harming the developing countries (Toye and Toye, 2003: 437-8): “The specialisation of underdeveloped countries on export of food and raw materials to industrialised countries, largely as a result of investment by the latter, has been unfortunate for the underdeveloped countries” (Singer, 1950: 477). Singer identifies three reasons related to this fact. His first point is that it is not the developing countries that benefit from the main multiplier effects of the foreign investment, but the investing countries themselves. The reason is that the investment aims at increasing productivity of the export-sector of raw materials and food, which, by lowering prices, benefit the investing countries who import these commodities (Singer, 1950: 474-5). Furthermore, the productive facilities are often foreign owned as a result of the investment and are therefore often not included in the internal economic structure of the developing countries (Singer, 1950: Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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475). The multiplier effects of increased employment, education, capital, technical knowledge, creation of new demand, etc therefore mostly end up in the investing countries. Secondly, he discusses Keynes’ principle of opportunity cost, and argues that specialisation on exports of food and raw materials offers less scope for technological progress than manufacturing industry (Singer, 1950: 477). Thirdly and most important are the terms of trade. Prebisch and Singer found that the terms of trade between commodities and manufacturing goods deteriorate over time from the perspective of the former (Singer, 1950: 477). For a given level of exports, developing countries exporting commodities and importing manufacturing goods will be able to import less and less. This is first of all because of low product diversity on commodities. The only thing producers hereof can compete on is price, so when productivity rises the price will go down and most of the surplus will go to the buyer, not the producer. The opposite is the case for manufacturing goods, which means the producer will be able to keep a share of the surplus from a rise in productivity. Even though prices on commodities fall, the demand does not rise proportionately, because of low price elasticity on demand for commodities (Singer, 1950: 479). Consequently Singer concludes that: “The industrialised countries have had the best of both worlds, both as consumers of primary commodities and as producers of manufacturing goods, whereas the underdeveloped countries had the worst of both worlds” (Singer, 1950: 479). The critique stresses that a move towards more profitable export commodities is highly doubtful with respect to the market mechanisms, which will instead work to keep countries firmly at their initial type of export commodity. With free markets someone will always be at the bottom. Instead of spurring a supply-side industrialisation response, it prevents it. To change the situation created by the free market both Singer and Prebisch agreed that the state ought to intervene in the economy. They discard the development process in free trade, accepting the theoretical benefits at the moment of trade, but claiming a polarising and escalating unequal distribution of world resources in the longer run.

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2.2.1 THE ACTING STATE In 1991 Krugman identified three conditions for a manufacturing-friendly environment: labour-supply, infrastructure and product-demand (Krugman, 1991: 487). The labour-supply needs to be cost-efficient, meaning as educated and cheap as possible. To ensure this, the state can provide education and security for basic needs, which will keep wages down (Stein, 1995: 6-7). Furthermore, to keep company-expenditures down, the state can provide infrastructure such as telegraphs, postal service, water supply, coastal shipping, ports, harbors, bridges, lighthouses, railways, electricity, gas and technical research (Stein, 1995: 7-8). Thirdly, the factor of productdemand is listed because of the savings on transportation costs by selling nearby. However, since Krugman wrote this in 1991 transportation costs have gone considerably down, indicating that the condition of product-demand might be superfluous (Postrel, 2006). Krugmans theory is not a development theory but a trade theory, and consequently do not discuss development. Besides the conditions for industry presented above, the state can pursue other means to build up an industry. The first tool is trade policy. Both Singer and Prebisch argued for the use of Import Substitution Industrialisation (ISI)3. ISI is theoretically grounded on the “infant industry argument” and holds that state protectionism is needed when the domestic costs of production exceeds the product’s import price (Baldwin, 2003: 5). Infant industries do not have the economies of scale to compete with already established companies. The crux of the ISI is to support strategic substitutes for foreign manufactured goods for which there already is a domestic demand, by installing tariffs on these manufactured goods. In theory this will shift demand in favour of domestic producers and limit the import to capital goods (e.g. machinery) and essential intermediate inputs needed for the industry (Baldwin, 2003: 4). When the specific industry has gained competitiveness the trade barriers should again be removed. However, ISI is only supplementary when building up an industry. Research has shown that in cases (mainly Latin America) where the ISI have been extended to all manufacturing it has negatively affected the government budget, inflation and balance of trade (Baldwin, 2003: 10). A second tool is the exchange rate. The common policy to gain competitiveness is to devalue the currency. This however is not a permanent path to development, so the aim should be to The argument was first introduced by Alexander Hamilton in 1791, and later formalised in economic terms by John Stuart Mill 3

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pursue a policy of stable or only slightly deteriorating nominal rate of exchange (Stein, 1995: 12). The third tool is investment. According to the Solow growth model, investment is the key determinant of growth. If capital added by investment exceeds the depreciation of existing capital it will result in a growth in output and the stock of capital (Mankiw, 2007: 195). In Solow’s model it is the private saving rate that determines the level of investment. However, at an initial state of development the private sector may be unable to save up capital and therefore capital may be of short supply. To initiate development, capital can be made available either by state loans, development aid (in the case of developing countries) or by foreign capital in the form of foreign direct investment (FDI) (Stein, 1995: 16). In the case of FDI, it is important to ensure that the capital is not used to deplete natural resources, but is invested in industrial programmes. It is therefore important for the state not to pursue a laissez-faire policy. State loans are not without problems either since public debt must be paid off eventually and with interest. Finally, to ensure that investment is not crowded out, it is essential to maintain low inflation through macroeconomic stability (Stein, 1995: 13-14). A crucial condition for successful state intervention is the presence of a strong state without corruption and the influence of selfish stakeholders (Stein, 1995: 19-20). The state needs capacity and skill to steer the economy and to implement and sustain an industrial strategy.

Variables derived from state-based export-led growth theory •

Trade flows (import and export)

•

Productiveness (investment in production, export diversification)

•

Labour (sector of occupation)

•

Government role (corruption, tariffs)

•

Financial institutions (exchange rate, interest rate, budget balance, inflation)

•

Infrastructure

•

Education

•

Capital flows (aid, debt, FDI)

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2.3 Stairway to Heaven; theoretically derived variables The theories agree as far as trade is the path to economic development through the profits of exporting goods. And further, that a better production technology means more profitable exports. Thus, to increase gains from trade and experience a continuous rise in economic development a country needs to move up from resource-intensive products. This move up the ladder towards the developed world’s profitable knowledge-intensive industries is illustrated below in the ladder of comparative advantage. The climb on the ladder is seen as a sign of economic and technological progress earning more and more income per unit of export goods produced.

Knowledge-intensive (computers) Capital-intensive (machinery)

“Created” comparative advantage: Krugman-type exports

Skilled labour-intensive (electronics) Unskilled labourintensive (textiles) Ressource-intensive (rice, timber)

”Natural” comparative advantage: Ricardo- and Ohlin-type exports

The ladder of comparative advantage (Meier, 1995: 458)

The move up the ladder is determined by an effective allocation of domestic production resources. However, the path to achieving this is much contested. Both views agree that some sort of state regulation is required, but they disagree about the scope and nature hereof. In the market-led growth theory the state should act to secure macroeconomic stability but regulate only to address severe and concrete obstacles for the market to function, whereas the state according to the state-led growth theory should steer the economy in a certain direction. Bottom line: laissez-faire or faire. Below is the sum of the variables presented in the two theoretical poles. Together they represent the dependent variables to be looked at when determining the Chinese and World

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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Bank models’ affect on economic development. They will be operationalised when discussing the analysis methods.

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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3. Model Identifications To analyse the effects of the Chinese and World Bank models using the variables found above, requires clarification of the concrete contents of both, and whether we can actually talk of two distinct models. To identify the two models as such using our definition (a coordinated set of implemented policies on a variety of areas), it is necessary to address a number of initial obstacles. First, it is more or less impossible to go about it entirely inductive. Which data should be collected? With 48 countries in sub-Saharan Africa, how would one set the minimum standard for scale variables defining Chinese or World Bank commitment? Second, if we only fix our eyes on the output, it would be very difficult to determine analytically whether a possible pattern in variables would be the actual course of a Chinese or World Bank model or simply random similarities as a result of external factors. To avoid these problems we find it prudent to look at the linkage between the stated official models and the actual implementations. Not that the outcome has to equal the objectives set by Beijing or Washington bureaucrats. The idea is that if the published visions match the actual policies we can talk of an actual model, including both a coordinated theoretical background and a will to implement it. Any mismatch herein will mean either a dysfunctional bureaucracy or empty rhetoric. In this way we get around looking for unknown data and can determine that an identified pattern was actually coordinated. However, it does pose another problem; the stated objectives and the actual objectives might not be the same, resulting in parts of the model being left out because of them missing in the official documents. We do acknowledge this difficulty, and accept that the inductive approach is needed in cases where a pattern of action is found and absent from Chinese or World Bank statements even though it would require central coordination. This is not the optimal solution but it will minimise errors compared to other methods, and is necessary since we cannot expect every part of the models to be explicitly formulated.

3.1 The Beijing Consensus 3.1.1 STATEMENTS The starting point of Chinese-Africa relations is stated as historically determined by years of friendship with a mission of South-South cooperation to preserve their own interests to the fullest

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possible extent in the process of globalization (FMPRC, 2003a), the interests of the developing countries as a whole (Hu Jintao, FMPRC, 2004) and the establishment of a just and equitable new international political and economic order (Beijing Declaration, 2000). The concrete meaning of this new political and economic order is the mutual respect of sovereignty stated in every FOCACdeclaration, the White Paper and numerous speeches (FMPRC, 2003b; FMPRC, 2006). Besides these proclamations of common interest and friendship, high-level contacts and state visits have been stated as a way to enhance cultural understanding and consolidating comradeship within the developing bloc (FMPRC, 2009b).

Variables derived from export-led growth theory

•

Trade flows (import and export)

•

Productiveness (investment in production, export diversification)

•

Labour (sector of occupation)

•

Government role (corruption, tariffs)

•

Financial institutions (exchange rate, interest rate, budget balance, inflation)

•

Infrastructure

•

Education

•

Capital flows (aid, debt, FDI)

The most debated of the official Chinese objectives in concern to Africa is trade relations. The fact that China sees a huge potential for mutual benefit in expanding trade with Africa is seen in a number of speeches by Chinese officials (FMPRC, 2009a). They do however acknowledge in joint Afro-Sino statements that the inter-dependency of globalised economies benefits developed countries to a higher degree and that it severely challenges the economic security of the least developed countries (FMPRC, 2006). As a consequence, China reports that it is willing to take preferential measures to increase imports from Africa and further encourage wellestablished Chinese enterprises investing in Africa to create more local jobs, increase technology transfer and shoulder greater social responsibilities (Hu Jintao, FMPRC, 2004; FMPRC, 2009b). Another additional reason for the afore mentioned emphasise to trade with Africa is described by Hu Jintao as the economies being fairly complementary giving that Africa is rich in natural

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and human resources and China has applicable know-how and experience (…) the potential for cooperation is enormous (Hu Jintao, FMPRC, 2004).

3.1.2 IMPLEMENTATION The Chinese statements of friendship and the importance of South-South cooperation have been duly realized in regard to high-ranking Chinese officials visiting and signing deals with African countries as well as the doctrine of non-interference in internal matters (Zhiqun, 2007: 6; Davies, 2008a: 134; Abramowitz, 2007). In fact, the absolute majority of the FOCAC deals have been made by high-ranking officials in closed negotiations prior to the summits in which they are revealed (Davies, 2008b: 10). Chinese political support in Africa has been growing steadily since the introduction of FOCAC – in 2000 eight African countries recognised Taiwan as the Chinese Republic, today only four are left, of which all are small and politically insignificant (Davies, 2008b)4. With regard to the objectives of encouraging investments by Chinese firms in infrastructure projects, it has been widely pursued. 674 Chinese state owned enterprises operate in Africa (Wilson, 2005: 9). The important point for understanding the economic causal mechanism is not whether the number is high or not, but the fact that these investments are made by state owned companies and is of focus in the Chinese model. The most significant investments outside of the oil sector, to which we shall return, have been made in infrastructure. The Chinese companies have been able to deliver projects 25-50 percent cheaper than competitors, partly because of cheaper materials, inexpensive Chinese labour, access to government subsidies and cheaper capital than locals, and less pressure by the Chinese Government (…) to adhere to strict environmental and labor standards (Besada, 2008: 13) More, Chinese state owned companies do not face the same pressure for short-term profits as do their Japanese and Western competitors (Kaplinsky, 2006: 3). The distinction between aid and trade-related matters is not quite clear in China’s dealings with Africa. The definition of foreign aid itself is not apparent but the Ministry of Commerce does have a separate fund to be disbursed as grants, interest subsidies for interest-free and African political support was a crucial factor in China taking the permanent seat in the UN Security Council from Taiwan in 1971 (Taylor, 1998). 4

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concessional loans, or technical assistance, which is aggregated as Chinese official development aid (ODA) to be around US$ 2.3 bn. in 2006 (Davies, 2008b: 1; Besada, 2008: 13). One diplomat estimates the ratio of grants to loans to be around 50/50 (Davies, 2008b: 11). The concessional loans and interest-subsidies that allows for very favourable loaning conditions are met with conditionality from China EXIM Bank which administer these loans on the basis of promoting economic development and trade with China (Davies, 2008b: 21, Glosny, 2006: 19). The basic criteria is that “Chinese enterprises should be selected as contractors/exporters and equipment, materials, technology or services needed for the project should be procured from China ahead of other countries – no less than 50 percent of the procurement shall come from China” (Davies, 2008b: 57). EXIM Bank dominates Chinese assistance to Africa and by 2006 the World Bank estimated that over US$ 12.5 bn. had been used to finance the earlier mentioned infrastructure projects in SSA (Davies, 2008b: 7) – a huge cut of the total Chinese aid. A further characteristic is that most of this aid is dealt bilaterally from government to government (Glosny, 2006: 22). Another aspect of this trade-related assistance is the FDI which is to be separated from ODA, although most of the Chinese enterprises active in Africa are state owned which makes the difference between concessional loans to infrastructure projects and FDI supported manufacturing a bit cloudy. Nonetheless, FDI from Chinese enterprises has surged within the last 15 years, with Chinese FDI outward stock in Africa increasing from US$ 49.2 million in 1990 to US$ 2.56 bn. in 2006 – a 2,800 percent increase, albeit from a low level (Besada, 2008: 3). The investors have established around 480 joint ventures, primarily within oil, textile, infrastructure, and agriculture. The latter being of particular importance with African governments committed to food security. Resource extraction is by far the largest investment object. About 80 percent of African export to China consists of five key commodities (oil, iron ore, logs, diamonds and cotton) (Besada, 2008: 7). Even though the trade boom is largely a result of energy and mineral products, it also reflects Chinese trade policies such as removing tariffs on 196 imports from the 28 least developed countries in 2005, expanded to 454 items in 2007. With the latter expansion, preferential Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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treatment now includes light industrial, mechanical and agricultural products. The 2005 deal was aimed at raw materials, e.g. copper, cocoa, sesame etc., which included only US$ 350 million worth of duty-free goods, or one percent of African exports to China. By now most African exports receive duty-free access to China’s market resulting in increased African export revenues (Besada, 2008: 6). Even taking the five key commodities out of the equation, 20 percent of the current US$ 60 bn. is much higher than 50 percent of US$ 4 bn. Further, Chinese bilateral trade and investment agreements have been signed with three quarters of SSA countries (Chan, 2007: 2). Even though the Chinese go to great lengths to uphold the principle of mutual respect for sovereignty, after their accession in the WTO they push for removal of import and export restrictions on the international scene (Holslag, 2006: 134). In Africa the situation is somewhat more delicate. Here, the Chinese seek to institute Special Economic Zones (SEZ), which they themselves initiated with Deng Xiaoping’s reforms (Davies, 2008a: 134). The idea is to open a given area for advantageous business opportunities but not to open up the entire society. Two zones have been announced to be located at the copper belt in Zambia, and the Indian Ocean Trading Hub in Mauritius. The last three are in the process of being established in Nigeria, Egypt and Tanzania, with several other African countries planning such zones to attract investment to labour-intensive manufacturing industries (Davies, 2008b: 25). Zambian President Mwanawasa declared that Chinese companies would be allowed to operate without having to pay import or value-added taxes, whilst the Chinese invested US$ 250 million in a copper smelter at the Chambisi mine (Chan, 2007: 4; Davies, 2008b: 27). Even though a wave of Chinese immigrants was not explicitly formulated in the policy statements it is however a pattern seen all over Africa, with numerous new Chinatowns housing 80,000 Chinese nationals who are working primarily in the retail business (Zhiqun, 2007: 4). It is not in direct contradiction with the notions of cultural and economic exchange, which also includes an enormous increase in the number of Chinese tourists, but the immigration could be classified as a case that would require official coordination and approval from the Chinese authorities. Therefore, immigration of Chinese nationals can be considered part of the model.

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3.1.3 THE MODEL The first step of the Chinese model is made of speeches of friendship, mutual benefit, interests and solidarity along with many frequent high-level visits both ways. The second step of the model cannot be disintegrated chronologically but consists of the following key components: •Debt relief, grants and low-interest loans (ODA). •

Concessional loans by China EXIM Bank to be used on large infrastructure investment deals, primarily by Chinese infrastructure firms (ODA/FDI).

•

Chinese investments and subsidies to Chinese firms that invests in Africa – primarily in the infrastructure, energy, mineral and agricultural sectors (FDI).

•Trade deals including removal of Chinese import tariffs on African goods. •Establishment of SEZ’s to attract and focus foreign investment. •Energy deals granted to Chinese state owned enterprises. The fact that this second step consists of a whole variety of FDI, ODA and trade, simply reflects a situation with negotiations behind closed doors at the most senior level. The linking between these has been shown in several studies (Davies, 2008b: 52; Davies, 2008a: 134; Zhiqun, 2007: 15). It is not always possible to prove these links between state-granted aid and energy deals to companies. Often, we cannot dismiss the fact that the energy or raw material deals are caused by the simple fact that the Chinese Enterprises’ bids were simply more competitive. One does not have to exclude the other however. They may well have lower bids for the contracts and deals as we have seen and still use these in the documented package deals including aid, trade, investments and political support. The bottom line is that the Chinese model focuses to a very high degree on infrastructural development and investments in business sectors with no serious political strings (apart from the one-China policy and a certain push for SEZ’s). The final step is the massive immigration of Chinese workers to the investment projects and for job-seekers to the African retail business together with surging trade volumes, mainly in the five key commodities, but African exports have also experienced growing demand from the Chinese markets outside minerals and energy.

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3.2 World Bank Growth Strategy 3.2.1 STATEMENTS According to the World Bank Operational Manual, “the Bank's mission is sustainable poverty reduction [and] a critical priority is promoting broad based growth, given its proven importance in reducing poverty” (The World Bank, 2004a: OP 1.00). They make low-interest loans available on favourable terms to middle-income countries that could not, due to their poor creditworthiness, be able to obtain them on the free market. Countries, who cannot afford these loans, are eligible instead to interest-free loans or grants. Their model for economic growth has shifted a lot on the continuum between market and state-led growth theories since the institution’s birth. This has broadly followed the intellectual debate as when John Williamson framed the World Bank model as a part of a Washington Consensus. At that time the World Bank loans were distributed through the Structural Adjustment Program (SAP) setting up conditions, which the developing countries should comply to in order to acquire loans (Ohkubo, 2009). Williamson summarized the conditionality in policies that followed the dictums of liberalization, stabilization, deregulation and privatization (Williamson, 1989). Since then the World Bank model has changed, and we will therefore not elaborate on the SAP any further. Nonetheless, having the SAPs in mind is important when examining the present model for economic growth. The present World Bank model was initiated in the late 1990s, with Joseph Stiglitz as Chief Economist and James Wolfensohn as President of the World Bank Group5 . Stiglitz was very critical of the former Washington Consensus model. According to him, it was based on doctrines and ideology that completely ignored the presence of market failures (Stiglitz, 2001: 57). Nevertheless government failures exist as well, and Stiglitz therefore advocated for a middle way with market forces at the centre of the economy but including government intervention (Stiglitz, 2001: 71). Stiglitz points out

The group consists of five institutions: The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The IBRD and IDA make up the World Bank, while the three others are independent affiliates created and working in collaboration with the World Bank. 5

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“…that there are numerous cases where government policies can make an enormous difference for the better. Almost all the success stories in terms of economic development, such as East Asia, were cases where government had assumed a very strong role.” (Stiglitz, 1998: 71) The question is then how big a part the government should play. Stiglitz puts it this way: “The issue is one of balance, and where that balance is may depend on the country, the capacity of its government, and the institutional development of its markets” (Stiglitz, 1998: 8). This is a withering away of the former concept of ‘one size fits all’. There is a need for a specific development strategy for each country (Stiglitz, 1998: 16). These have been named Poverty Reduction Strategy Papers (PRSPs). In relation hereto Stiglitz and Wolfensohn believed that for the strategy to be successful the developing country should itself own and manage the strategy (Wolfensohn, 1999: 9), because an “…attempt to impose change from the outside is as likely to engender resistance and give rise to barriers to change, as it is to facilitate change. At the heart of development is a change in ways of thinking, and individuals cannot be forced to change how they think” (Stiglitz, 1998: 20). Ownership basically means that the developing country draws up the PRSP. The role of the World Bank is therefore one of partnership. With the PRSP as the starting point, the developing country and the World Bank in collaboration compose a Country Assistance Strategy (CAS) pinpointing which areas the World Bank should aid (Stiglitz, 1998: 32). The CAS will include not only transferring capital, but also providing knowledge that is essential for development and capacity building (Stiglitz, 1998: 32). In the CAS the World Bank strives for a holistic framework (Wolfensohn, 1999: 8). This is outlined in the World Bank’s Comprehensive Development Framework (CDF) introduced by Wolfensohn in 1999. Wolfensohn recognizes the multidimensional nature of providing economic growth, and writes that:

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“We cannot adopt a system in which the macroeconomic and financial is considered apart from the structural, social and human aspects, and vice versa.” (Wolfensohn, 1999: 7) The World Bank therefore aims to scatter the loans to developing countries between both sides of the coin; investment and adjustment. Wolfensohn emphasizes that the strategy should be results-oriented; the reforms should not be ends in themselves, but serve as means to foster economic development (Wolfensohn, 1999: 2).

3.2.2 IMPLEMENTATION As explained above, Wolfensohn and Stiglitz advocate for the developing country to be in the driver’s seat (Wolfensohn, 1999: 9; Stiglitz, 1998: 21). Even though the developing country fills out the PRSP, it has to be approved by the World Bank together with the IMF who writes a Joint Staff Assessment (JSA) pointing out their disagreements with the PRSP (Bretton Woods Project, 2003). The judgment of the JSA indicates whether the World Bank will support the country, which undermines the idea of ownership. This view was presented in an independent evaluation of the PRSP initiative: “The Bank management’s process for presenting a PRSP to the Board undermines ownership. Stakeholders perceive this practice as ‘Washington signing off ’ on a supposedly country-owned strategy.” (The World Bank, 2004b: 8) Furthermore the evaluators point out that “The content of Bank assistance strategies formulated subsequent to PRSPs overlaps with the content of PRSPs. But PRSP programs are broad and not well prioritized, so this overlap has not entailed major changes in Bank programs.” (The World Bank, 2004b: 8) It is therefore the Worlds Bank’s Country Assistance Stategy (CAS) and not the country’s PRSP that guides the World Bank’s model. As mentioned above the CAS is negotiated between the World Bank and the developing country (at least officially). The negotiations are conducted behind closed doors, making it hard to evaluate the process. However, the World Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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Bank does not leave its view on economic development (the CDF), and the conditions (specific policy actions) attached to its loans therefore persist (Bretton Woods Project, 2003). This suggests a ‘take it or leave it’ approach, which questions the element of partnership. Stiglitz holds that “Although the particular priorities will differ from country to country, there are some common elements.” (Stiglitz, 1998: 31) These common elements are outlined in the CDF. Within the field of macroeconomics, there has not been much debate since the days of SAPs. In Stiglitz’ paper he accentuate the importance of an outward orientation, including free trade and encouraging foreign direct investment (FDI) (Stiglitz, 1998: 37). Free trade, according to Stiglitz, first of all enables specialization as explained by the comparative advantage theorem and secondly benefit the developing country with “management expertise, technical human capital, product and process technologies, and overseas marketing channels” (Stiglitz, 1998: 37). How much has changed since the SAPs? According to Dani Rodrik, the spectrum of conditionality has gotten even bigger, and he argues that there exists an augmented Washington Consensus (Rodrik, 2001, 15). However, the contents are somewhat changed towards a slightly more interventionist view on market failures and particularly a change from decentralisation towards demands of good governance. In general the policies which the government, according to the World Bank’s CDF, should pursue in order to create a strong, competitive, stable and efficient private sector (Stiglitz, 1998: 24) include •

Education. Should be provided by the state. (Stiglitz, 1998: 31)

•

Infrastructure. Especially communication and transportation. These should preferably be provided by the private sector (Stiglitz, 1998: 31), which require a

•

Legal and regulatory structure. This includes taxation, “competition laws, bankruptcy laws, and more broadly commercial law.” (Stiglitz, 1998: 24)

•

Good governance. State capacity building and fighting corruption. This covers “creating political accountability, strengthening civil society participation (…) and establishing institutional constrains on power” (The World Bank, 2003: 112-113).

•

Social protection and health. This not only helps the functioning of the private sector, but

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also “contribute to the solidarity, social cohesion, and social stability of a country” (The World Bank, 2003: 133). Even though the afore mentioned implementation of policy recommendations follows the principle of the SAP era, two main implementation changes have occurred on top of the moderations of the Washington Consensus. First, the realization that the loans given though the SAPs had not provided the target for economic growth meant that the World Bank initiated a debt relief program for the Heavily Indebted Poor Countries (HIPC). The requirement to participate in the HIPC program, except being heavily indebted, is that the country through its PRSP shows a strategy for reallocation of the government funds freed by debt relief (The World Bank, 2003: 114). Second, the balance between investment and adjustment is explicitly articulated and statistics show that 75 to 80 percent is investment lending providing funds for institution building, social development, and the public policy infrastructure needed to facilitate private sector activity (The World Bank, 2003: 49).

3.2.3 THE MODEL The World Bank model consists of both funding and technical assistance. The funding comprises of loans below market rate, development aid and debt cancellation. The technical assistance is specific policy recommendations provided in the World Bank’s Country Assistance Strategies (CASs). As discussed above the CAS is greatly tied by the World Bank’s ideological view on development, the Comprehensive Development Framework (CDF). The overall categories of these policies are summarized below: •

Broad strategy. Both macroeconomic stability, and structural and social policies.

•

Good governance. Capacity building and anti-corruption policies.

•

Trade-facilitating state intervention. The state should regulate the market economy in a way that encourages trade, FDI and private sector entrepreneurship

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4. Methods; search for causality The focus of this paper is, as mentioned initially, on how and not how much the models of China and the World Bank affect economic growth. Or more precisely, which causal links can be claimed between the implemented policies of the models and the variables derived as the exhaustive theoretical elements of economic growth. To claim causal links four preconditions are needed (Agresti & Finlay, 1997: 357): Co-variation between implemented policies and changes on the dependent variables. Chronology in the claimed causal direction – the models’ policies must be implemented before any co-variation can be acclaimed as their doing. Absence of spurious factors from external factors in the causal line. Theoretical explanation of the variation as a cause of the explanatory variable. This calls for a qualitative method of case analysis because of the ability to include theory in the assessments. This helps to focus on the precise variables influencing the particular outcome thus limiting the likelihood of spurious effects. In dealing with complex processes such as the economy, which includes a great many interacting variables and indicators, the extent and limiting of spurious effects are of vital importance. As a result, the ability to determine that an outcome is due to a particular cause is rarely possible in such circumstances. However, by looking in depth at specific cases we are able to narrow down the likely cause. With regard to the chronology, the first FOCAC meeting of the Chinese model was held in 2000 while the World Bank CDF strategy was introduced in 1999 making the reference point of our analysis the year 2000 and the time frame of changes in the dependent variables the years 2000 to 2008. In the data collection we strive to get data as close to these two target years as possible. If we were to study the models quantitatively, there would be a need for more cases than the 48 countries in sub-Saharan Africa to get a statistically valid answer on the level of economic Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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impact. This is so because several SSA countries cooperate with both China and the World Bank simultaneously, which makes it difficult to conclude which model is causing the outcome. This is a further complication of the many interacting variables of the complex real world. This is not a point exclusively for a hypothetical quantitative study. This still needs to be addressed in qualitative case studies. Consequently, the case selection should be aimed at countries that apply distinctively to only one of the models, or as close as possible although this greatly decreases the number of available cases. Having only a few cases is not analytically problematic but it raises the question of external validity and whether the findings apply to other contexts (Bryman, 2004: 30). For each model we have chosen to select two cases based on the SSA countries application of the respective model. We have chosen two cases partly because of the limited number of cases available and partly because it reflects a middle ground between on the one hand; too many cases resulting in information overload with a greater risk of actual effects being neglected, and on the other hand; a greater risk of the before mentioned spurious effects from external factors if just a single case were to be examined. The cases are chosen with the objective that the explanatory variable, the implemented models, should be as similar as possible. Finally, to include further perspectives on the changes in dependent variables, meetings were held in Kampala, Uganda and Kigali, Rwanda in April 2009 with various actors within the field. The ones quoted in the paper are the USAID Mission Director in Kampala and the FDC presidential candidate and opposition leader in Uganda, Kizzy Besigye. These meetings should not be seen within the analysis framework set up, but rather as a way to substantiate the theoretically deduced theorems in praxis.

4.1 The Dependent Variables To meet the criteria of measurement validity, the systematisation of economic development was carried out by creating a broad and inclusive set of theoretically deduced variables to capture the concept (Adcock & Collier, 2001: 531). Using the growth theories in this process furthermore gives an element of objectivity (Bryman, 2004: 30).

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However, the operationalisation of economic development into the eight variables from the theories still needs precise indicators to fulfil the criteria of internal reliability, or the relation between the variables and their indicators (Hellevik, 2002: 53). This operationalisation is presented below. Trade flows. Import and export values for the particular case (and bilaterally with China if affected by the Beijing model) are fairly simple and comprehensive within the variable of trade. Productiveness. This variable is best summed up by GDP per capita (Meier, 1995: 7). We use GDP per capita measured by purchasing power parity to compensate for the differences in consumer prices, thus giving a better ability to compare data across cases. Further, the percentage of GDP invested is, according to the Solow model described earlier, essential for future production. Finally, export diversification is measured by the country’s primary export good as a share of total exports. Labour. The percentage of labour occupied by the agricultural, manufacturing and service sectors and the contribution of these sectors to the GDP will provide the indicators for the labour market variable. Government role. Tariffs/quotas on foreign products and possible subsidies to domestic production as well as scores on international corruption charts would indicate the level and nature of government interference. In addition, the size of the state budget as a percentage of GDP would indicate the government’s partition and influence on the economy. Financial institutions. The skill of the financial institutions to facilitate flows in the economic system would be indicated by the rate of inflation and the interest rate. This in turn would require the exchange rate and budget surplus/deficit to get the full picture. Infrastructure. This includes a great many things. Here, the important part from the theory was the ability to efficiently allocate internal resources. Hence, our indicator is the amount of transportation infrastructure present (kilometres of railways and paved roads). Education. The educational level which serve as a tool to establish whether investment in this area promotes more capital-intensive jobs. The literacy rate would work very fine as an indicator on the degree of education. It is very broad and hence works very well on the general educational level, especially in Africa where the rate still varies much more than in the West. Capital flows. External capital flows can be split into three categories of inwards flows; the amount of development aid, FDI and state loans. In addition to the latter however, we have to

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include public debt to be repaid. Indicators for aid volumes are not easily found in the Chinese model, since they are reluctant to deliver this information. However, when possible, for example when published as part of a larger deal, this indicator can be included. This is of course not the optimal solution, but it is an unfortunate necessity event though it decreases the internal reliability.

Indicators of Economic Development

•

Trade flows:

Import volume, export volume

•

Productiveness:

GDP per capita, percentage of GDP invested, export diversification

•

Distribution of labour on sectors, sectors’

Labour:

percent of GDP, unemployment •

Government role:

Tariffs/quotas on foreign products, subsidies to domestic production, scores on international corruption charts, state budget percent of GDP

•

Financial institutions:

Exchange rate, interest rate, budget balance, inflation

•

Infrastructure:

Km of railways, and paved roads

•

Education:

Literacy rate

This covers our theories’ premises for their theorems, which makes us confident in the internal validity of our framework for analysis (Hellevik, 2002: 51). To secure the reliability of the indicators, they are obtained from official statistical databases such as the CIA World Fact Book and the World Bank (Adcock & Collier, 2001: 531). In addition the indicators help to ensure transparency and replicability (Bryman, 2004: 30).

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4.2 Chinese Cases To choose cases that demonstrate the Chinese model we search for the ones fitting the key components described in section 3.1.3 to the highest degree. In addition, the Chinese involvement must be more profound than the World Bank members on the majority of these variables. Several countries fit some of the Chinese model’s components. The planned SEZ’s give an initial overview. However, Egypt and Mauritius, chosen as two of the spots for these zones, are not part of our definition of SSA standing out culturally and developmental. The other three proposed SEZ’s; Tanzania, Zambia and Nigeria, would be of more interest. A part from these SEZ-countries trade volumes have been particularly high between China and South Africa, Angola, Ethiopia, Congo (Brazzaville), Zimbabwe and Sudan (Alden, 2007: 20). All these countries have had high-ranking Chinese visits within the last couple of years and a surge in trade with China (FOCAC, 2006). However, some of these do not fit the intension of being a place using the Chinese model instead of the World Bank. South Africa are simply too rich and productive and has been so for many years back which excludes them as a developing economy in the SSA context. On top of this, their involvement with China is minor to the DAC-countries of the World Bank. Nigeria, Zambia, Ethiopia, Tanzania and Congo too have extensive deals and policy consultations with the World Bank and IMF dwarfing their trade and aid volumes with China (CIA World Fact Book, 2008). In Zimbabwe, the expulsion of most white farmers has had too much influence on the economic situation to allow for any causal claims derived from the Chinese model. The civil war in the Sudan is an analytical obstacle, but the Chinese are immensely bigger than any other state on all the criteria and any economic development following the circumstances of internal unrest have been tested under the harshest conditions making it scientific acceptable. The two countries to be examined and analysed on the variables found are thus Sudan and Angola.

4.3 World Bank Cases The aims of the loans provided by the World Bank are very scattered. It is therefore not possible to select cases by looking at the policies of the countries. Instead we have to work on the assumption that the countries most under the influence of the World Bank are the ones that

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receive the most funding. This is defended by the fact that if countries do not align to the conditions of the World Bank they will not receive the funding. To measure this, the loans are summarized and divided by the country’s GDP. Furthermore, it is important that the World Bank is the biggest donor, and that the country has participated in the PRSP program since the beginning in the late 1990s. These two criteria are checked beforehand. Lastly, cases where China is a large trade partner are deselected. The selection process is somewhat complicated because of the larger quantity of possible countries involved. The criteria presented above are used as filters to remove the countries least fit for analysis. These filtrations are shown in appendix 9.1. Having removed the cases, where the World Bank is not the biggest donor or the country have not participated from the start, four countries remain in focus with a World Bank ODA/GDP ratio above 1 percent. These are Ethiopia, Rwanda, São Tomé & Príncipe, and Uganda. Ethiopia is ignored because of its relations with China. China is Ethiopia’ biggest trading partner and many of the characteristics of the Chinese model are present in Ethiopia (Lin, 2006). São Tomé & Príncipe is two small islands in the Gulf of Guinea. For that reason, and because the World Bank only have launched two projects over the last five years, São Tomé & Príncipe would not be representative of the countries of Sub-Saharan Africa, and is therefore left out. The cases selected to analyze the World Bank model is therefore Uganda and Rwanda.

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5. Economic Effects All data collected are shown in the appendix. If an indicator is not presented in the case studies, the data are not available and thus not directly included in the analysis.

5.1 Impacts of the Chinese Model 5.1.1 ANGOLA Angola was the scene of repeated civil wars in the 1990s, but with a peace agreement coming into effect in 2002 the economy started a recovery process. This is reflected in the increase in productiveness measured by GDP per capita, which rose by a massive 780 percent between 1999 and 2008 to US$ 8,800. This recovery was led by huge investments peaking at 34.5 percent of GDP in 2004 encouraged by the 2003 ‘Law on Private Investment’, but has since gradually decreased to 9 percent in 2008. The investment was mainly made in the petroleum sector, of which Angola has a natural comparative advantage with huge reserves. Since the millennium the dominant role of the petroleum sector and its supporting activities has increased, contributing 45 percent of GDP in 1999 and about 85 percent today (CIA, 2000; CIA, 2008). The same story goes for the export sector, to which oil accounted for 96 percent in 2005 up from 90 percent in 2000. This follows from both rising oil prices and increased production due to a higher world demand (CIA, 2008). However, subsistence farming still provides the main livelihood for most people. If we look at the labour variable over the period of the Chinese model, the distribution of labour on sectors has not changed much. The industry and service sectors still only holds 15 percent of the workforce. The trade deals signed with Beijing have lifted Angolan exports to China from less than US$ 400 million in 1999 to US$ 23.23 bn. in 2007, while trade the other way increased from less than US$300 million to US$ 1.6 bn. amounting to around a quarter of Angolan GDP. This is a 3450 percent increase in Chinese-Angolan trade volume while the same number for the general trade volume was 1,000 percent. The government’s role has increased a great deal measured by the increase of its budget up from 8 percent of GDP to 24.6 percent. Its role in the Angolan economy is highly influenced Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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by the dominance of the petroleum industry, which is under great control by the government (USTR, 2009: 10). Recently, to enable the revival “of domestic production of non-petroleum goods” the government has postponed the implementation of harmonized regional policies including lower tariffs (USTR, 2009: 7), as the state-led growth theory prescribes. In spite of this, the import duties on intermediate goods for industries were removed in 2008, resulting in a slight decrease in the average tariff from 8.5 percent in 2000 to 6.4 percent in 2008, which places Angola much lower than an average SSA country. (USTR, 2009: 7) With regards to infrastructure, much was destroyed doing the civil war and the government has allocated a lot of resources to deal with the problem – US$ 7.5 bn. in 2007, or 9.2 percent of GDP that year (USTR, 2009: 11). The data for our indicators on the transportation infrastructure are not available, meaning that we have no way of assessing whether the money spent has made an actual difference. The size of the allocation however, suggests that it has, or will do. In continuation hereof, the financial institutions ability to facilitate capital flows have been fairly successful over the time period chosen. The inflation rate have gone down from 270 to 12.5 percent, the interest rate have been cut somewhat but still lies at almost 20 percent, and the budget deficit of 169.4 percent have been turned into a 24.2 percent surplus. The latter of course is due to the fact that state expenditures have risen not nearly as much as the value of production. The exchange rate of the Angolan new kwanza increased rapidly from over half a million NKz per US$ at the end of the civil war to around 75 today. Since 2003 it has been fairly stabile though due to a stabilisation programme using foreign exchange reserves to buy kwanzas out of circulation. This policy that has kept the kwanza stable and remarkably reduced the interest rate but is very expensive in terms of foreign exchange but because of high oil income, it has been sustainable since 2005. The institutions are however still under heavy criticism for not having the regulatory and legal capacity to facilitate much foreign direct investments outside the petroleum sector – a persistent critique in the past as well (USTR, 2009: 9). A further problem regarding corruption is that Angola has improved very little on average in international corruption measurements since 2000 – from a score of 11.8 to 21.4 (100 being the best). When it comes to the last variable, capital flows, the amount of aid received by Angola today is not easily accessible since the Chinese do not give away this type of information. However, if we are to believe the Chinese diplomat who states, that around half the funds from the Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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Ministry of Commerce is disbursed as grants and the other half as loans, we get a decent overall view. Before the FOCAC rounds began in 2000, Angola received US$ 383 million in foreign aid, accounting for 3.3 percent of GDP. If the Chinese line of credit to Angola is any measurement for their grant aid, the original US$ 2 bn., later increased to US$ 7 bn., would amount to roughly 2-6 percent of GDP that in the meantime has increased ten fold (Servant, 2005). These data are still very dubious but even if we were to look only at the loans, these 1.5 percent interest rate credits are well below the two digit inflation rate making a part of them pure grant aid, and showing a considerable increase of capital inflow since 2000. This loan was even interest free for the first five years but as mentioned earlier, included a clause to use Chinese firms for some of the considerable infrastructure projects initiated (Sautman, 2006: 26). At the same time, the Chinese cancelled previous Angolan debt that now stands at only 7.2 percent of GDP, down from 90.5 percent in 1999.

5.1.2 SUDAN The economic situation in the Sudan is heavily connected to the oil industry and fairly peaceful relations between Khartoum and South Sudan. The Darfur province, however humanitarian and politically important, is not of crucial importance to the Sudanese economy, the population, production and natural resources being very limited (Prier, 2006). Today, China is Sudan’s leading trade partner (ECOS, 2007: 11). Between 1998 and 2008 China’s share of Sudanese export went from 1 to 82 percent, while the share of import remained at 28 percent. In real terms however, imports rose from US$ 1.4 bn. to US$ 7.6 bn. and exports from US$ 0.6 bn. to US$ 13.6 bn. This steep rise in exports of 1260 percent is due to higher oil production. In 2008 oil accounted for 92.6 percent of Sudan’s exports. As the leading developer of Sudan’s oil industry, China has invested over US$ 15 bn. since 1996 heavily in infrastructure and facilities to increase oil output (Alden, 2007: 61). In 1998 the Chinese National Petroleum Company (CNPC) participated in a pipeline project of 1500 kilometre linking some of the oil fields to Port Sudan, which was extended in 2005 (Human Rights Watch, 2003; Energy Information Administration, 2007). China furthermore provided US$ 1.15 bn. in 2007 to build a railroad connecting the capital and the largest port, Port Sudan (Save Darfur, 2007: 3). However, the statistics show that the kilometres of railroad did not rise remarkably, due to the fact that much investment is going into replacing old tracks Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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(Encyclopedia of the Nations, 2009). A further important aspect is that many of the Chinese projects are not only controlled by Chinese contractors but also carried out by Chinese workers. To complete the pipeline to Port Sudan, 10.000 Chinese workers were brought in and in daily affairs approximately one third are Chinese (Human Rights Watch, 2003). Turning to productivity, GDP per capita increased from US$ 940 in 1999 to US$ 2,200 in 2008. Nonetheless, Sudan remains predominantly agricultural, employing 80 percent of the work force over the last decade, but only contributing 32.8 percent to GDP in 2008. The size of the state budget grew from 3.7 percent of BNP to 13.6 percent from 2000 to 2008, indicating a larger role for the government in the economy. Unfortunately, corruption in Sudan is still a major problem, with only a minor improvement in the corruption score from 15 in 2000 to 18 in 2007. The wealth is not distributed to the population. The Save Darfur Coalition holds that “it is obvious that, in the context of the crony nature of the Khartoum regime and the historic concentration of wealth among Sudan’s ruling elite, that ‘a rising tide does not lift all boats’ ” (Save Darfur, 2007: 3). However, the investment rate of 18.1 percent is not low. On the other hand it is hard to tell what it is invested in. A former minister of Finance for Sudan has stated that as much as 70 percent of the oil revenues have been spent on arms and arms production for to the current conflict in Darfur and skirmishes with South Sudan (Save Darfur, 2007: 3). The funds provided by China to spur the economic development are unconditional, and China does therefore not intervene with Sudan’s financial allocations. However, because China is Sudan’s largest provider of arms, international pressure pushed China to agree to UN Resolution 1769 to demand peace in Darfur, but China rejected sanctions of any kind (Save Darfur, 2007: 1-3). Looking at the financial institutions, some of the institutional indicators have worsened and some have simply not improved within the last decade. From 2000 to 2008 the state budget deficit increased tenfold in real terms to 9.4 percent and external debt increased to US$ 30.5 bn. The inflation rate today is high, though lower than in 2000. Furthermore the Sudanese pound got more expensive as a result of the boom in exports of oil, making the country less internationally competitive, the Dutch disease as mentioned earlier.

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The private sector is further constrained by costs related to poor domestic logistics and high fees at Port Sudan (The World Bank, 2008g: 2). The failure to diversify its exports is also due to the trade restrictions imposed by the Western powers following the crisis in Darfur and the previous civil war (The World Bank, 2008g: 1). Fortunately for Sudan, China on the other hand has signed a zero-tariff agreement on 44 Sudanese commodities (Save Darfur: 2007: 4), albeit the share of the population employed in the agricultural sector has not improved at all. The industrial sector’s increasing share of GDP is the only indicator of a changing labour market although the increased value of oil and the larger oil production might be the sole cause of this. Further evidence that Sudan has become more closed is evident in the fact that the average tariff increased to 16 percent in 2008 from 4.2 in the late 1990’s.

5.1.3 CAUSAL CLAIMS An initially pressing critique of the Chinese model involves the selection of the countries for the model. Even though motivation is excluded on the grounds that it does little to change the outcome of the model, the question arises of whether the effects of the Chinese model only applies to countries with natural resources. The critique is valid as far as the cases chosen for the Chinese model are only ones with massive amounts of natural resources. This does not change the procedures however, and the absolute majority (if not every country but city-states) have various natural resources. Some more valuable than others of course, but nonetheless something that can be produced more of and exported if investments are made in infrastructure and production facilities. Hence the model is relevant at a broader basis, albeit it might be on a smaller scale than is the case with Angola and Sudan. In both cases, oil is of significant importance and the massive exports of this commodity are directly linked to the Chinese trade deals that are completely dominant as a trade partner for both countries. The market-led theory explains the trade benefits in the short run of exporting raw materials. Further, the effective allocation of internal resources to the commodities that can be sold with a comparative advantage, be it natural or technological, is of major importance for achieving the benefits of trade. This is especially true when the resources and labour lay idle beforehand. This point provides the theoretical background for the Chinese model’s cause of the surge in both infrastructural investments and production of raw materials. The emphasis on the petroleum sector has resulted in its increasing relevance to GDP and Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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dominance of exports above 90 percent. However, the limited dispersion of investments has also caused stagnation in the division of Labour. Within the field of economics these are the only direct effects of the Chinese model. The indirect effects of a much larger state budget are somewhat more complex. The financial institutions have in both cases been able to show some progress, but this can not be linked to the explanatory variable, the Chinese model, due to its principle of non-interference. The income does make it easier to get a surplus on the state budget of course, but whether the decline and stabilisation of the exchange and inflation rate is only due to the Chinese model or whether they gained financial experience from dealing with the money is not clear enough to make any causal claims. However, their dismissal of influence on the countriesâ&#x20AC;&#x2122; internal matters makes the quite stabile and very low corruption scores of both countries understandable. If we look at further co-variation, the last decade has meant a more educated population in both cases, but the internal distribution of Chinese loans are not just because of the Chinese model. They take pride in not advising countries of what to do with the loans, except the choosing of Chinese contractors for infrastructural projects.6 The direct causal links are presented in the table below.

Explanatory variable (The Chinese model)

Dependent variable (Effects)

Mutual preferential treatment (trade deals)

Huge increase in trade

Chinese investment in infrastructure and production facilities of a naturally comparative advantageous sector

Exponential growth in GDP per capita Stable sector division of labour Low export diversification

Politically untied state loans and grants6

Except a designated percentage to be used on products from Chinese firms.

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5.2 Impacts of the World Bank Model 5.2.1 UGANDA Uganda’s PRSP was first put forward in early 2000 and later revised in 2005. The key points hereof are supported in the World Bank’s Country Assistance Strategy. The data for World Bank lending does not go further back than 2005, but since then it has been lending US$ 325 million annually to Uganda, which accounted for 11.4 percent of state budget in 2008 (The World Bank, 2009a). Uganda has long since removed all quantitative trade restrictions with the encouragement of the World Bank, leaving tariffs as the only trade barrier today (WTO, 2001). Through the ‘Regional Trade and Facilitation Project’ the World Bank has supported the creation of the free trade area among the countries of the Common Market for Southern and Eastern Africa (COMESA), of which Uganda is a member (The World Bank, 2006: 31). Despite this, average tariffs have risen from 5.8 to 11.9 percent since 2000. This is due to the fact that in 2005 Uganda joined the East African Community (EAC), and adopted its Common External Tariff (The World Bank, 2008a: 1). However, the efforts of regional integration have contributed to steady rise in trade: Exports (US$ 471 million in 1999 to US$ 2.3 bn. in 2008) and imports (US$ 1.1 bn. in 1999 to US$ 3.58 bn. in 2008). An important remark is that that the tariffs deviate a lot from product to product. They are high on finished goods and products that Uganda produces itself, while low on non-domestic agricultural products, machinery and transport equipment (WTO, 2008b: 1). Looking at the government role, its budget has increased from 4 to 7.7 percent of GDP. The overall productiveness, measured by GDP, increased a lot but because of Uganda’s population growth rate of 3.4 percent, the third largest in the world (Uganda Ministry of Finance, 2005: 5), the GDP per capita only rose slightly from US$ 1,060 to US$ 1,100. Still relying on agriculture, Uganda has an aim of enhancing product diversification (Uganda Ministry of Finance, 2005: 23). Consequently, the labourers employed in industry and service sectors have gone up from 18 percent in 1999 to 30.1 percent in 2003. By extension the industry and service sectors have increased their contribution to GDP from 65 percent in 1997

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to 71 percent in 2008. Furthermore, coffee, Uganda’s main export product, has gone down from 45.5 percent of export earnings in 1997 to 19 percent in 2007. In contribution hereto the World Bank furthermore “provides funding to poor farmers to adopt improved technology and management practices in their farming enterprises to enhance the productivity” (The World Bank, 2006: 33). Macroeconomic stability is essential to the World Bank, for which it provides technical assistance and training (The World Bank, 2006: 17). A key point is to ensure a low government budget deficit to avoid increased inflation or crowding out the private sector by appreciating the exchange rate and driving up the interest rate (Uganda Ministry of Finance, 2005: 34). This has been moderately successful. The deficit has increased slightly since 2000 from 8.4 to 10.8 percent of GDP in 2008, and the inflation has likewise increased from 7 percent in 1999 to 10.5 in 2008, but fortunately for the private sector the interest rate has gone down from 25 percent in 2000 to 19 in 2008, and the exchange rate has been stable, with a slight depreciation. To help minimise the state budget, the World Bank furthermore provides debt relief. In 1999 Uganda received US$ 2 bn. in debt relief from the HIPC programs, of which the World Bank has provided nearly half (The World Bank, 2009e). In addition economic aid, most of which is provided by World Bank IDA grants, has increased to Uganda from 6 percent of GDP in 1999 to 11.5 in 2008 The World Bank supports infrastructure projects to reduce the cost of doing business – e.g. US$ 100 million to enhance the power grid (The World Bank, 2006: 23-25). Because Uganda is landlocked, transportation infrastructure is especially important, but even though the World Bank has provided US$ 263 million, this only constitutes to 0.7 percent of GDP (The World Bank, 2006: 29). This has led to improvements though; between 2000 and 2008 the number of kilometres of paved highways rose by a factor of 9. The education variable has been a focus area with 8 percent of the capital borrowed from the World Bank since 2005 invested in education (The World Bank, 2009a). The effects hereof are incremental, but our indicator, the literacy rate, rose by five percentage points from 2000 to 66.8 percent in 2008.

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The private sector receives by far the biggest amount of funding (The World Bank, 2009a). To stimulate private sector investment support is provided for privatisation of state enterprises and the strengthening of the commercial regulatory environment (The World Bank, 2006: 21). Looking at the statistics, this plan has succeeded. Domestic investment has risen from 13.7 percent of GDP in 1999 to 26.5 in 2008 and FDI has gone up from US$ 82 million in 1999 to US$ 368 million in 2007. To facilitate the above the World Bank provides credit and technical assistance to improve the capacity of the government and good governance (The World Bank, 2006: 15). A key factor here is fighting corruption (Uganda Ministry of Finance, 2005: 26), but even though Uganda has improved on the international ratings, it is still ranked low at a score of 27.

5.2.2 RWANDA The Rwandan genocide 15 years ago devastated the economy. Since then, the aid volumes have increased greatly. After the completion and approval of their PRSP in 2002, the World Bank has on average been lending Rwanda US$ 94 million annually, in 2008 corresponding to 13.5 percent of GDP (The World Bank, 2009a). In 2005 Rwanda qualified for debt relief under the HIPC program with a debt of US$ 1.4 bn. in 2004 (The World Bank, 2009c). They received US$ 810 million, with World Bank assisting half (The World Bank, 2002, 24). A central objective in the World Bank’s Country Assistance Strategy is a transformation from subsistence agriculture into commercial agriculture (The World Bank, 2002: 20). In the World Bank’s ‘Rural Sector Support Project’ it provides “the technology, infrastructure, credit and other support services, and the institutional capacity to foster this transition, improve productivity, and expand and diversify exports” (The World Bank, 2002: 22). Trade was identified as an important tool in getting there. From 1999 to 2008 import and export grew steeply, but is still very low in real terms. In 2008 export per capita was only US$ 21 compared to more than US$ 150 on average in SSA, but the statistics further show that the non-agricultural sectors grew, measured by its contribution to GDP, from 56 percent in 1998 to 65 in 2008 (Samen, 2005: 11). To increase the volume of trade, Rwanda joined the regional trade unions of COMESA and EAC, supported by the World Bank (The World Bank 2009h). This has greatly increased the Rwandan regional exports (The World Bank, 2009d: 2). Exports were also improved by the Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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deterioration of the exchange rate within our time frame. To further improve the conditions for a climb up the ladder of comparative advantage, the government increased import tariffs on finished goods while keeping them low on intermediate goods and commodities, that Rwanda does not possess (WTO, 2008a: 1). On average the tariffs increased from 9.6 percent in 2000 to 17.9 in 2006. With regards to the diversification of export products, Rwanda is improving but still relies on agriculture and minerals (Bureau of African Affairs, 2009). In 1994 coffee was the main export product accounting for 60 percent. Today, this position has been taken over by minerals, but only covers 35.9 percent of the export earnings. Another mean of achieving increased trade and move away from subsistence farming is transportation infrastructure through linking rural areas to markets and thereby increasing the returns to producers of commercial crops. The statistics show that from 2000 to 2008 the kilometres of paved road increased from 1,000 to 2,662, albeit the country still faces very high transportation costs (Seman, 2005: 9). To spur the process of reform, the World Bank seeks to strengthen the governance through capacity building: Rwanda decentralised the government in 2001 and adopted a new constitution in 2003 (Ministry of Finance and Economic Planning, 2002: 10). Looking at the government’s role, its influence measured by the state budget share of GDP grew steeply from 3.4 percent of GDP in 1998 to 9.6 in 2008. Further, the corruption fell remarkably from 1998 to 2007. In continuation of the institutional support above, the ‘Competitiveness and Enterprise Development Project’ aims at strengthening the institutional settings, both the commercial legal system and the financial sector (The World Bank, 2009c). This is reflected in the statistics, showing that inflation fell half a percentage-point from 1998 to 9.5 percent in 2008. More, the government has gotten control over the budget deficit, reducing it from 79 percent in 1999 to 14 in 2008. The more liberalised private sector also caused an incline in FDI from US$ 5 million in 1999 to US$ 67 million in 2007.

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Another aspect of the change in this institutional capacity is the increased investment in education (CIA, 2000; CIA, 2008). This indicator of the literacy rate, has gone from 60.5 percent in 1995 to 70.4 in 2008. Looking at the statistics, the overall evaluation of the Rwandan economy shows that the economic policies of the government have been positive: The interest rate was kept stable from 2002 to 2008 at around 16 percent, which facilitated a high investment rate of 22.5 percent of GDP. Within our time frame, GDP per capita grew from US$ 720 to 900.

5.2.3 CAUSAL CLAIMS In general, the policies and outcomes of the two cases are very similar, which makes room for causal claims if supported by theoretical explanation. In line with the state-led growth theory, the World Bank supports interventionist projects to ensure conditions for economic development that are not facilitated by the market. This includes Krugman’s conditions for a manufacturing-friendly environment; infrastructure and education. In the two cases, both indicators improved, though not dramatically. Furthermore it includes institutional settings for the private sector; commercial law, legal enforcement herewith and financial institutions, for which the World Bank provides technical assistance. Last but not least is macroeconomic stability. By minimising the states budget deficit, also helped by debt relief by the World Bank, the inflation was kept at acceptably low levels, which ensured a low interest rate in both cases. This facilitated high private investment above 20 percent of GDP in both cases and the good conditions for the private sector managed to increase the foreign direct investment significantly. Supported by the state-led growth theory it is fair to draw a causal link from these state policies to the increase in BNP per capita of 4 percent in Uganda and 25 percent in Rwanda. In both cases state budget grew and corruption diminished. A causal link hereto is the World Bank’s strategy of enhancing the role of the government though capacity building and principles of good governance. In relation to the ladder of comparative advantage, the non-agricultural sectors grew in their Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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contribution to GDP in both cases. The causal explanation is the steps taken in Rwanda to move from subsistence agriculture to commercial agriculture and the strategies in both cases of increasing the industrial sector, which are all supported by the World Bank. The theoretical explanation for these policies is the improvement in terms of trade by building up an industry to process raw materials and food instead of exporting non-processed products. Following this, the policies to diversify the export base, supported by the World Bank, has also succeeded. Today the main export product accounts for only 19 percent in Uganda and only 35.9 percent in Rwanda. The World Bank supports trade liberalisation and reduction of tariffs. The argument behind this is the one presented in market-led growth theory; that specialisation in comparatively advantageous sectors will increase returns. Nonetheless, to be less vulnerable to price shocks the World Bank supports projects to diversify the export base. By looking at the Herfindahl index of export diversification, this policy has succeeded to a much higher degree in Uganda and Rwanda than is the case with Angola and Sudan. The data only show the change from 1998 to 2002 but the fact remains that the move towards export diversification are much more profound in the World Bank cases (Xiaobao Chen et al., 2005: 73). Both Uganda and Rwanda have considerably higher average tariffs today than in 2000. The causal explanation behind is the influence of the regional unions EAC and COMESA. The World Bank supports these organisations, but it cannot be justified to fully link this policy shift to the World Bank. The higher average tariffs reflect an increase in tariffs on finished goods and commodities also produced domestically. On the other hand, free trade is encouraged within the regional unions, and in relation to the rest of the international economy the tariffs on non-domestic commodities and intermediate goods are kept low. These strategic tariffs are, according to state-led growth theory, a necessity for a country under development to not be ousted by the more competitive developed countries. The members of the unions are at a somewhat similar developmental stage, which makes the competition fairer. The competition ensures specialisation and the low worldwide tariffs on intermediate goods ensure competitiveness of the domestic industries. Even though protectionism has increased, it is still very limited. Rwanda has a maximum tariff of 30 percent (WTO, 2008a: 1), while Ugandaâ&#x20AC;&#x2122;s are more scattered, most being at 25 percent (WTO, 2008b: 1). Furthermore the statistics show that import and export volumes Mads NĂ¸rgaard JĂ¸rgensen & Tobias Rune Caspersen

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increased in both cases. These increases are however not directly linked to World Bank policies, but indirectly we do see a connection in the World Bank support for the before mentioned regional trade unions and the production growth following macroeconomic institutional stability. Lastly, it is important to mark that the World Bank, like the Chinese model, pursues a path between state- and market-led theories. The World Bank supports the governments to intervene in the economy and provide institutional settings, but overall the economy is driven by private sector entrepreneurship. The direct causal links are presented in the table below.

Explanatory variable (The World Bank model)

Dependent variable (Effects)

Technical assistance

Increased and improved government role

Tied financial loans and grants Conditions: - Government capacity building - Principles of good governance - Macroeconomic stability - Structural policies - Social policies

Diminishing dependence on the agricultural sector Increased export diversification Macroeconomic stability Better private sector conditions - Commercial law - Financial system - Infrastructure - Education Moderate GDP per capita growth

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5.3 Model Evaluations As we have seen, there are certain similarities between the two models and the resulting economic effect. As the Chinese and the World Bank models use logic from both poles of the spectrum of export-led growth theory, this is not surprising. The differences are however, more interesting. We have shown that the World Bank model’s focus on institutions that facilitate free trade, huge aid packages in debt cancellation and low-interest loans conditioned by good governance have caused growth in GDP per capita, trade and good governance over the last decade. This focus on institutions capable of following a free market, which the Chinese model neglect, has caused the value of trade volumes to follow the level of industrialisation neatly because of diversity in specialised products. The smaller but institutional more solid investments in a broader portfolio of products are more stable to changing market conditions. However, the construction of infrastructure and capacity building here within are hampered by these institutional standards and the costly and difficult administration of state planning compared with the Chinese as commented by a USAID Mission Director: “Capacity building with full accountability is extremely difficult and inefficient. If the Chinese say they’ll build a road, they’ll build it. With the World Bank it just doesn’t get build.”7 The Chinese model of colossal trade deals and preferential trade treatment, no political interference and relatively smaller grants delivered very fast as infrastructure for production and trade, have caused very high GDP growth per capita over the past decade as well as massive growth in trade volumes. It seems that the Chinese model of addressing infrastructure and production facilities limitations first instead of the World Bank model’s focus on primarily institutional limitations are more effective on GDP in the short run. This is not only true internationally but also regionally:

This comment was stated during a meeting with the USAID Mission Director in Kampala, Uganda on April 14,

2009. We were granted permission to quote this statement but in general the meeting was off record and the Mission Director asked that his name would not be mentioned. Also see Wilson, 2005.

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“Infrastructure will also not only make Africa more accessible to Chinese and other foreign commercial partners, but will enable increased intra regional trade in Africa. Poor infrastructure has been a major impediment to economic development in sub-Saharan Africa.” (Davies, 2008b: 40). The big question is what causes industrialisation in the longer run and thus a more permanent level of higher economic development. One view on this question is founded upon the lack of industrialisation in the Chinese model cases seen over the last decade upon the indicators of labour force distribution in sectors and these sectors’ contribution to GDP. Combined with the lack of progress in good governance and very limited export diversity, the argument goes that economic development with infrastructural focus is present only in the short run. The value of production is artificially high at the moment as the institutions are simply not capable of absorbing these amounts of capital inflow properly. The poor institutions waste the money, use it on arms, fail to invest it in production facilities and diversified portfolio of products and therefore the natural resources are quickly wasted in corruption and civil war (Chan, 2007: 6). Raw material prices will eventually fall in relative value compared to manufactured goods as described in the state-led growth theory and the question then is; can these countries’ institutions keep facilitating investment in industrialisation and infrastructure? The immediate response is, that it is always possible to criticise that not enough is spent on investments, but even though the cases of the Chinese model presents investments percentages relatively lower than the cases of the World Bank, in absolute terms per capita they are higher, 10 percent of 100 is larger than 20 percent of 10. Furthermore, without these extraordinary inflows of infrastructure and trade income it would take a very long time to invest enough surplus vents within the country to industrialise, especially when 80 percent of the population are living as subsistence farmers. Jeffrey Sachs puts it a similar way in the Millennium Project: “Many reasonable governed countries are too poor to make the investments to climb the first steps of the ladder [of comparative advantage]” (UN, 2005: 34). The capital flows granted by the extensive trade deals allow for a larger absolute level of investment. If they were to wait for their own surplus as the primary basis for investments then

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market-led theory argues that the low level of free trade available with their biggest potential markets in the West makes this extremely slow and difficult. Chinese agricultural tariffs averaged 15.8 percent, compared to 73 percent in the EU and 23 in the US. More, state support for American and European farmers was 18 and 33 percent of their income respectively, while in China it lay at only 1.5 percent (Sautman, 2006: 35). To the proposed lack of industrialisation, it can be pointed out that the population growth and Chinese demand for raw materials hides the industrialisation process. The same percentage of people work in the industry and service sectors, although one could argue that this ought to have seen a rise as with the cases of the World Bank. The Chinese demand for raw materials however does grant a justified excuse for having a large extraction industry. If there is demand, there is profit from sales, which can be invested. This is a natural resource comparative advantage if inflation and exchange rate is kept fairly stable, as we have seen until now in the cases of the Chinese model. In the SSA the five key commodities of oil, iron ore, logs, diamonds and cotton increased from 50 percent to more than 80 percent of exports to China. The relative increase is understandable since China accounts for nearly the entire increase in global demand for nickel, steel and copper (Besada, 2008: 7). In absolute terms the non-‘key commodities’ have risen dramatically but it is nonetheless problematic that 5 key commodities still constitutes such a great proportion of the export. To accommodate for market fluctuations in certain sectors this should be diversified as with the World Bank model. Aside from the institutional facilitation of investment from which it is difficult to conclude much within this short time frame, another important aspect derived from the state-led theory lies in the preferential trade treatments. The African countries might move up the ladder of comparative advantage by investing the inflows of capital, but this would happen extremely slowly and at an enormous opportunity cost because of the local entrepreneurship being kept down caused by cheap imports from the already industrialised preferential trade partner. This critique is applicable for both the World Bank and China, but has primarily been directed at China because of the overlap of exports products in China and Africa. An example of this can be seen in the footwear and textile industry whose representatives concluded that Africa had lost more than a quarter of a million jobs over the past few years because of cheap imports from China (Chan, 2007: 6). Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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On the other hand, the inflows of capital for infrastructure and industrial facilities do transfer production technology allowing for more profitable exports from Africa (Besada, 2008: 8). Furthermore, the critical point regarding the imports from China is not directly relevant in a macro perspective. The products are generally complementary to African products with the textile sector being almost the sole exception. The critique within this field is valid even though 60 percent of the Chinese exports are foreign owned. But half the exports comprise of machinery and electronic equipment which is cheaper than Western counterparts and benefits African consumers (Sautman, 2006: 4). In assessing long term effects, the indirect effects of the models are highly relevant as well. For instance, the countries of the Chinese model do not follow the same level of good governance principles as the World Bank conditions. This could lead some countries to unwisely lend more money to cover sudden deficits (a sort of Chinese free-riding on the huge World Bank debt cancellations). This is hypothetical at the moment though since the Chinese have accepted to cancel a lot of the African countries’ debt as well as lending money at very favourable interest rates. But on the longer run there is no guarantee for this policy, as is more or less the case with the World Bank who unlikely to quickly forget the criticism of their previous lending policies. Another aspect of the good governance discussion evolves around the afore mentioned market fluctuations and the fact that we have seen the level of governance improving at the World Bank model as opposite to the Chinese. One could argue that the actual picture of the economic effects is easier seen after a financial downturn when the Chinese stop buying more raw materials which are pressing GDP per capita up at the moment, hiding industrialisation levels and bringing absolute investments to a high level. This speculative argument is supported further by the steady deteriorating relative value of raw materials, vis-à-vis manufactured goods. The weaker institutions in the Chinese cases will likely be incapable of sustaining the present level of absolute investments per capita. This might lead them to fall behind the World Bank cases in absolute investments thus making the more institutionally focussed World Bank model more attractive in the long run. However, these critical points do not alter the concluding fact that the Chinese model delivers a higher GDP growth and absolute higher investment in the short run, rather they simply refer to the likeliness that in due time this advantage will be smaller and might be surpassed by the World Bank model.

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Before ending the discussion about the possible long term economic effects, the political issues are essential to address. Politically it is very problematic if the models followed in Africa does nothing but economic growth. This is not a case for rejecting the economical development view, but rather an acceptance derived from above that governance and democratic procedures are interlinked with long term economical progress. We have seen that the World Bank model does improve good governance with non-official conditions, but the Chinese involvement with regimes for which non-democratic procedures are a necessity for staying in power are dubious. In Zimbabwe and Sudan the flows of income from trade with China are a considerable source of income for leaders that use state resources, thus indirectly from China, on human right violations (Wilson, 2005: 15). However, it is an open question whether African wealth in the longer run subsidises and leads to democratic reforms or not8. This is a much debated topic and a complete inclusion is neither relevant nor possible here, but in continuation of the economic importance of institutions in the long run it is a subject worth studying over a longer timeframe as with non-democratic institutions’ capacity to facilitate investments. Hitherto we have seen no indication that African regimes have become more corrupt since China’s presence began to rise around 2000 (Xiaobao Chen, 2005: 39), but neither any improvements from an initially very low level. So the bottom line is that the World Bank model is the only model with proved democratic progress, which is vital for the best relative allocation of investment in future production and thus economic development. Even if the poor institutional handling in the Chinese model causes absolute less investment in the long run than with well-functioning institutions and thus a lower economic development than with the World Bank model, it is still helping Africa with crucial financing and quick and very necessary infrastructure. The analysis shows that a more rapid economic growth is possible in the short run even though the income might be capable of better relative use.

The opposition leader and presidential candidate in Uganda, Kizza Besigye, commented that “no wealth can subsidise freedom” during a meeting in Kampala, Uganda on April 18, 2009. We were granted permission to quote this statement but in general the meeting was off record. 8

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6. Conclusion The Chinese and World Bank models for Africa are indeed qualitatively distinct models and even though neither follows one of the two idealistic poles within export-led growth paradigm in which they both operate, their effects are very different. The Chinese model causes very high growth in GDP per capita in the short run, while the World Bank model through its broad institutional focus is slow and inefficient initially but absolutely necessary in sustaining economic progress in the longer run. Beijing’s model focuses on loans and grants to be used primarily on infrastructure and production facilities constructed by Chinese firms, while signing very large trade deals that include preferential treatment in tariff matters between China and the recipient country. The absolute majority of these immense trade volumes are within the energy and raw material sectors. By looking at the two cases most aligned to the contents of the Chinese model, Angola and Sudan, we have seen a pattern in the dependent variables in both cases. The recipient countries’ GDP have increased greatly due to the high export volumes, and the infrastructural focus of the Chinese grants and loans seem to have been the facilitator by a more efficient allocation of internal resources and investment in the industries facing international demand. The immediate effect is however somewhat compromised in the longer run. As raw material prices deteriorate compared to manufactured goods over time, the government institutions will face their test. Have the huge inflows of capital been spent wisely? As we have seen, it has been turned into a higher absolute level of investment than their neighbouring countries, but a relative lower one and a labour market without a movement towards the industrialised and more profitable sectors. In the longer run, one can fear that the neglected focus on institutions in the Chinese model have fostered inefficiency. Even though corruption in itself does not seem to have increased, the level of governance has not improved either, making these countries worse off relative to the countries of the World Bank model. The World Bank includes a high degree of institutional perspective in their model for Africa. Even though their stated objectives of recipient control of the funds through the PRSPs do not appear to be the actual case, their policy and institutional conditions together with huge aid packages and aid cancellation have proved relatively successful. When looking at Rwanda and Uganda we have seen a number of effects on economic development in both cases consistent Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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with the model and theories. The macroeconomic stability policies have caused a steady economic growth, significant improvements in institutional capacities, increased trade volumes and a move towards a more industrialised and diversified export portfolio. The improvements have been present in all variables identified as important to economic development, but have spurred some criticism of bureaucratic slowness in investments. Compared to the Chinese model, the pace of investment in infrastructure has been low. While the effects of the Chinese model on economic development in Africa seems to be superior in the short run, it still stands as a postulate whether the Chinese model can actually be used effectively outside countries with highly valued natural resources. Theoretically it is highly dubious whether they can keep their lead in the longer run with an institutional lack. Because of this, the World Bankâ&#x20AC;&#x2122;s model looks like the better of the two. However, the analysis does show that the immediate limiting factor in African countries is infrastructure, and that this is simply prioritised too low and implemented far too slowly and inefficiently by the World Bank. If this lesson could be learnt from the Chinese model and actually included in a new model, economic development could be improved in both the short and the long run.

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What Works for Africa?

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7. Further Perspectives; developing development Although the World Bank model seems to be superior in the long run, our case analysis concludes that infrastructural focus rather than further resources to democratic institutions are beneficial in the short run. Below are some additional perspectives on how to improve the better model (and possibly the one which is easier to change) with this lesson in mind. The accountability and inefficiency problem that severely hampers the World Bank investments is seen as a necessity in the long run because of it being the only way to build African institutional capacity. This, however, might not be the case. The academic debate on planned development versus a search, or ‘trial and error’, approach is perhaps a way to include some of the positive elements of the Chinese model into a newer World Bank model. The cliché of the ‘best of two worlds’ does have a connotation of certain indifferent neutrality but the different effects of the models provide for something to be learned and perhaps improved. The search development, as opposed to the over-planned nature of current development procedures, resemble the critique put forth by the market-led theorists; the absence of a single efficient system of evaluation, feed-back and accountability between the policy makers and the policy objects make the planned system wasteful. Consequently, the objects, or the aidreceiving countries, must be included in the development process to allow for a more decentralised search for the best solutions by trial and error (Easterly, 2008: 19). Through joint financing projects directed by the government of the developing country we would have some degree of domestic accountability. Such a shift in paradigm is underway and the resemblance to the government-to-government policies of the past is strikingly going back to the future9. These thoughts are not new, but as we have seen, the World Bank has a gap between rhetoric and outcome. An organisational study of where this problem lies is outside the scope and relevance here, but the fact remains, the World Bank’s detailed conditions for policies and institutions are still present. While the Chinese’s limit the conditions to a development-wise insignificant one-China policy, their lack of concrete institution building are too far in the other direction though.

This comment was stated during a meeting with the USAID Mission Director in Kampala, Uganda on April 14, 2009. We were granted permission to quote this statement but in general the meeting was off record and the Mission Director asked that his name would not be mentioned. 9

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Accepting and implementing receiving country autonomy does however, evoke the dilemma of cooperation between the World Bank and the developing countries. Democracy must be a firm demand from the World Bank keeping in mind the economic consequences without. What stops an approach solely focused on domestic accountability from avoiding the mistakes of free trade and lending sprees of the 1970s and 1980s? The Western lenders to which the World Bank is accountable simply cannot accept developing countries to ‘trial and error’ on these issues. The conditions on democratic and economic institutions and concrete economic policies do not have to be linked however. The World Bank could ease up their conditions on concrete policies in the economic area thus allowing for the flexibility and autonomy in economic affairs needed for ‘trial and error’ policies in the developing countries, while still maintaining fixed conditions on the nature of the domestic democratic process. The latter is the basis for a functioning accountability system to ensure policymakers decision are within reason. Even though this might cause policy mistakes along the way, the ideal is a process of creative destruction, only not on businesses as described in section 2.1, but instead on ideas and concrete approaches. This would allow for a learning process and theoretically the best policies in the long run. This may jeopardise some of the concrete policies desired by the World Bank and sometimes result in unwise spending, which again would make such a shift unrealistic because of the World Bank’s accountability to the donor countries. For the sake of the argument however, without having to go through two sets of bureaucracy – domestic and World Bank, infrastructural projects could be built, and built faster, which we have seen is a present problem and the short run limiting factor for economic growth. An explicit World Bank acceptance of policies that increase tariffs and subsidies to foster infant industries and fix market failures could enable the developing countries to seek advice and the expertise of the World Bank to overcome the worst obstacles within such state led growth initiatives. This is no more than Stiglitz has spoken of as the role of the World Bank. Thus, the idea is to maintain an institutionally conditioned basis, institutional learning progress in concrete policies through trial and error that includes a bigger focus on fast investments in infrastructure as the Chinese have shown as a way for rapid increases of production, at least in the short run.

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8. References Abramowitz, Morton; Kolieb, Jonathan (2007): Why China Won’t Save Darfur. Foreign Policy. Located March 17, 2009 on WWW: http://www.foreignpolicy.com/story/cms.php? story_id=3847 Pages: 1 Adcock, Robert; Collier, David (2001): Measurement Validity: A Shared Standard for Qualitative and Quantitative Research. In American Political Science Review, vol. 95(3). Pages: 18 (529-546) Africa Studies Center (2009): Rwanda – Economy. Located May 20, 2009 on WWW: http:// www.africa.upenn.edu/NEH/rweconomy.htm Pages: 1 Agresti, Alan; Finlay, Barbara (1997): Statistical Methods for the Social Sciences (Third Edition). New Jersey: Pearson Education. Pages: 17 (356-372) Alden, Chris (2007). China in Africa. New York: St Martin's Press Pages: 136 (1-136) Baldwin, Robert E. (2003): Openness and Growth: What's the Empirical Relationship?. NBER Working Paper No. W9578. Available at SSRN: http://ssrn.com/abstract=389449 Pages: 1 Beijing Declaration (2000): Located March 16, 2009 on WWW: http://www.fmprc.gov.cn/ eng/wjdt/2649/t15775.htm Pages: 1 Besada, Hany; Wang, Yang; Whalley, John (2008): China’s growing economic activity in Africa. Located March 17, 2009 on WWW: http://asiandrivers.open.ac.uk/China percent20Africa.pdf Pages: 20 (1-20) Bretton Woods Project (2003): Poverty Reduction Strategy Papers (PRSPs): A Rough Guide. . Located April 24, 2009 on WWW: http://www.brettonwoodsproject.org/art-16298 Pages: 1 Bryman, Alan (2004): Social Research Methods (Second Edition). New York: Oxford University Press. Pages: 58 (3-60) Bureau of African Affairs (2009): Background Note: Rwanda. Located May 4, 2009 on WWW: http://www.state.gov/r/pa/ei/bgn/2861.htm Pages: 1

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Chan, Cheryl (2007): China in Africa - Spreading the Wealth. Canada Asia Commentary. Located March 19, 2009 on WWW: http://www.asiapacific.ca/analysis/pubs/pdfs/ commentary/cac44.pdf Pages: 8 (1-8) CIA (2000): World Fact Book; Angola, Rwanda, Sudan, Uganda. Located May 4, 2009 on WWW: www.theodora.com/wfb/abc_world_fact_book.html Pages: 4 CIA (2008): World Fact Book; Angola, Rwanda, Sudan, Uganda. Located May 17, 2009 on WWW: https://www.cia.gov/library/publications/the-world-factbook/ Pages: 4 Davies, Martyn (2008a): China's Developmental Model Comes to Africa. Review of African Political Economy, 35, 115, pp. 134- 137. London: Routledge. Pages: 4 (134-137) Davies, Martyn (2008b): How China delivers development assistance to Africa. Located March 16, 2009 on WWW: http://www.dfid.gov.uk/Pubs/files/china-dev-africa.pdf Pages: 60 (1-60) Dobler, G. (2008): Solidarity, Xenophobia and the Regulation of Chinese Businesses in Namibia. In Alden, Chris; Large, D.; Soares de Oliveira, R. (Eds.): China Returns to Africa. A rising power and a Continent Embrace (pp. 237-256). London: Hurst & Company. Pages: 20 (237-256) Easterly, William (2008): Reinventing Foreign Aid. Cambridge, Massachusetts: The MIT Press. Pages: 38 (3-40) Encyclopedia of the Nations (2009). Sudan: Infrastructure, power, and communications. Located May 18, 2009 on WWW: http://www.nationsencyclopedia.com/economies/Africa/ Sudan-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html Pages: 1 Energy Information Administration (2007): Country Analysis Briefs: Sudan. Located May 18, 2009 on WWW: http://www.eia.doe.gov/emeu/cabs/Sudan/Full.html Pages: 1 ECOS - European Coalition on Oil in Sudan (2007): Fact Sheet II: The Economy of Sudan’s Oil Industry. Located May 18, 2009 on WWW: http://www.ecosonline.org/back/pdf_reports/ 2007/Oil/ECOS%20factsheetII%20October%202007.pdf Pages: 18 (3-20) ECOS – European Coalition on Oil in Sudan (2008). Sudan’s Oil Industry – Facts and analysis, April 2008. Located May 21, 2009 on WWW: http://www.ecosonline.org/back/pdf_reports/2008/dossier%20final%20groot%20web.pdf Pages: 8 (3-10)

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FMPRC (2003a): China's Stand on South-South Cooperation. Located March 16, 2009 on WWW: http://www.fmprc.gov.cn/eng/wjdt/wjzc/t24884.htm Pages: 1 FMPRC (2003b): China's Position on Establishing a New International Political and Economic Order. Located March 16, 2009 on WWW: http://www.fmprc.gov.cn/eng/wjdt/wjzc/t24883.htm Pages: 1 FMPRC (2006): China’s African Policy. Located March 16, 2009 on WWW: http:// www.chinaembassy.ee/eng/dtxw/t230733.htm Pages: 1 FMPRC (2009a): Malawi President Meets with Yang Jiechi. Located March 17, 2009 on WWW: http://www.fmprc.gov.cn/eng/zxxx/t532950.htm Pages: 1 FMPRC (2009b): Hu Jintao Delivers an Important Speech in Dar es Salaam. Located March 17, 2009 on WWW: http://www.fmprc.gov.cn/eng/wjdt/wshd/t537784.htm Pages: 1 FOCAC (2006): FOCAC Beijing Summit (Nov. 3-5, 2006). Located May 14, 2009 on WWW: http://www.china.org.cn/english/features/focac/183389.htm Pages: 4 Gibson, Martha Liebler, and Michael D. Ward (1992): Export Orientation: Pathway or Artifact? International Studies Quarterly 36.3: 331-43. Located May 18, 2009 on WWW: http:// jstor.org/pss/2600776 Pages: 13 (331-343) Glosny, Michael A. (2006): Meeting the Development Challenge in the 21st Century: American and Chinese Perspectives on Foreign Aid. National Committee on United States–China Relations. Pages: 29 (2-30) Greenspan, Alan. (2008): I en turbulent tid – muligheder i en ny verdensorden. København: Jyllands-Postens Forlag. Pages: 15 (241-255) Haglund, D. (2008): Regulating FDI in weak African states: a case study of Chinese copper mining in Zambia. Journal of Modern African Studies, 46(4), 547-575. Pages: 29 (547-575) Hellevik, Ottar (2002): Forskningsmetode i sosiologi og statsvitenskap. 7. udgave. Oslo: Universitetsforlaget. Pages: 17 (68-85) Holslag, Jonathan (2006): China’s New Mercantilism in Central Africa. African and Asian Studies, volume 5, no. 2. Leiden Pages: 38 (1-38) Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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Hu, Jintao (FMPRC) (2004): Consolidating China-Africa Traditional Friendship and Deepening China-Africa All-round Cooperation. Located March 16, 2009 on WWW: http:// www.fmprc.gov.cn/eng/wjdt/2649/t61853.htm Pages: 1 Human Rights Watch (2003): China’s Involvement in Sudan. Located May 18, 2009 on WWW: http://www.hrw.org/reports/2003/sudan1103/26.htm Pages: 1 ISS – Institute for Security Studies (2005): Rwanda economy. Located May 21, 2009 on WWW: http://www.iss.co.za/AF/profiles/Rwanda/Economy.html Pages: 1 Kaplinsky, Raphael; McCormick, Dorothy; Morris, Mike (2006): The Impact of China on Sub Saharan Africa. Universities of Sussex, Nairobi, and Cape Town. Pages: 34 (2-35) Kragelund, P. (2008): The return of Non-DAC donors to Africa: New prospects for African Development? Development Policy Review, 26(5), 555-584 Pages: 30 (555-584) Krugman, Paul (1991): Scale Economies, Product Differentiation, and the Pattern of Trade. American Economic Review, 70 (5), pp. 950-959. Pages: 10 (950-959) Laird, Sam (2007): Aid for Trade: Cool Aid or Kool-Aid? G-24 Discussion paper Series No. 48. United Nations Conference on Trade and Development, UN. Pages: 26 (1-26) Lin, Lin (2006): Interview with Chinese Ambassador. Located April 4, 2009 on WWW: http:// et.chineseembassy.org/eng/zagx/t282694.htm Pages: 1 NationMaster (2009): World Statistics – Country Comparisons. Located May 20, 2009 on WWW: http://www.nationmaster.com Pages: 1 NBR – National Bank of Rwanda (2009): Statistics – interest rate. Located May 20, 2009 on WWW: http://www.bnr.rw/docs/statistics/Interest%20rate.pdf Pages: 3 Mankiw, N. Gregory (2007): Macroeconomics (Sixth Edition). New York: Worth Publishers. Pages: 27 (186-212) Meier, Gerald M. (1995): Leading Issues in Economic Development (Sixth Edition). New York: Oxford University Press. Pages: 20 (5-14, 454-463) Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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Ministry of Finance and Economic Planning (2002): Poverty Reduction Strategy Paper. Located May 18, 2009 on WWW: http://www.imf.org/external/np/prsp/2002/rwa/01/063102.pdf Pages: 7 (6-12) OECD - Organisation for Economic Co-operation and Development (2009): Aid Statistics, Recipient Aid Charts. Located May 20, 2009 on WWW: http://www.oecd.org/countrylist/ 0,3349,en_2649_34447_25602317_1_1_1_1,00.html Pages: 14 Ohkubo, Saori (2009). Structural Adjustment Programs. Located April 24, 2009 on WWW: http://wwwnew.towson.edu/polsci/ppp/sp97/imf/SAPTITLE.HTM Pages: 1 Pindyck, Robert S. and Rubinfeld, Daniel L. (2005): Microeconomics (Sixth Edition). New Jersey: Pearson Education. Pages: 33 (299-332) Postrel, Verginia (2006): The Container That Changed the World. Located March 19, 2009 on WWW: http://www.nytimes.com/2006/03/23/business/23scene.html?_r=2 Pages: 1 Prier, Pierre (2006): Génocide au Darfour : le calcul économique du gouvernement soudanais. Le Figaro. Located May 19, 2009 on WWW: http://www.lefigaro.fr/debats/ 20060905.FIG000000057_genocide_au_darfour_le_calcul_economique_du_gouvernement_so udanais.html Pages: 1 Rodrik, Dani (2001): The Global Governance of Trade. Located April 24, 2009 on WWW: http://ksghome.harvard.edu/~drodrik/undptrade.pdf Pages: 27 (9-35) Samen, Salomon (2005): Rwanda: Diagnostic Trade Integration Study. Located May 18, 2009 on WWW: http://www.integratedframework.org/files/english/rwanda_DTIS_final.pdf Pages: 7 (7-13) Sautman, Dr. Barry V. (2006): Friends and Interests: China’s Distinctive Links with Africa. Hong Kong: The Hong Kong University of Science and Technology. Pages: 38 (3-40) Save Darfur (2007): China in Sudan: Having it both ways. Located May 18, 2009 on WWW: http://darfur.3cdn.net/2573d6e338d592b4a0_csm6beuk7.pdf Pages: 6 (1-6) Servant, Jean-Christophe (2005): China’s trade safari in Africa. Le Monde diplomatique. Located March 19, 2009 on WWW: http://mondediplo.com/2005/05/11chinafrica Pages: 1

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Singer, Hans W. (1950): The Distribution of Gains Between Inventing and Borrowing Countries. American Economic Review, 40, pp. 473-485. Pages: 13 (473-485) Smith, Adam (1937): The Wealth of Nations. In: Meier, Gerald M. (1995): Leading Issues in Economic Development (Sixth Edition). New York: Oxford University Press. Pages: 1 Stein, Howard (1995): Asian Industrialization and Africa. New York: St. Martin’s Press. Pages: 21 (1-21) Stiglitz, Joseph (1998): Towards a New Paradigm for Development: Strategies, Policies, and Processes. Located April 24, 2009 on WWW: http://siteresources.worldbank.org/CDF/Resources/ prebisch98.pdf Pages: 46 (1-46) Stiglitz, Joseph (2001). In: Snowdon, Brian (2001). Redefining the Role of the State. World Economics, vol. 2, no. 3. Located April 24, 2009 on WWW: http://www2.gsb.columbia.edu/ faculty/jstiglitz/download/2001_World_Economics.pdf Pages: 42 (1-42) Taylor, Ian (1998): China's foreign policy towards Africa in the 1990s. The Journal of Modern African Studies, 36, 3, pp. 443-460. Cambridge University Press. Pages: 18 (443-460) Toye, John and Toye, Richard (2003): The Origins and Interpretation of the Prebisch-Singer Thesis. History of Political Economy, 35:3, pp. 437-467. Duke University Press. Pages: 31 (437-467) Tull, D. M. (2006): China’s engagement in Africa: scope, significance and consequences. Journal of Modern African Studies, 44(3), 459-479. Pages: 21 (459-479) Uganda Ministry of Finance (2005): Poverty Eradication Action Plan. Located May 4, 2009 on WWW: http://siteresources.worldbank.org/INTPRS1/Resources/UgandaPEAP(2005Apr).pdf Pages: 11 (1-11) UNECA, AfDB & WTO (2007): Mobilizing Aid for Trade: Focus Africa – Report and Recommendations. United Nations Economic Commision for Africa (UNECA), the African Development Bank (AfDB) and World Trade Organization (WTO). Pages: 7 (2-8) UNCTAD – United Nations Conference on Trade and Development (2009): Search by country/ economy. Located May 20, 2009 on WWW: http://www.unctad.org/Templates/Page.asp?intItemID=3198&lang=1 Pages: 1

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UN Millennium Project Report (2005): Investing in Development: A Practical Plan to Achieve the Millennium Development Goals: Main Report. In Easterly, William (2008): Reinventing Foreign Aid. Cambridge, Massachusetts: The MIT Press. Pages: 1 Unwin, Tim (2005): Partnerships in Development Practice: Evidence from multi-stakeholder ICT4D partnership practice in Africa. UNESCO, Paris; France. Pages: 39 (5-30, 63-75) USTR – United States Trade Representative (2009): Angola: Trade Summary. Located May 18, 2009 on WWW: http://www.ustr.gov/assets/Document_Library/Reports_Publications/ 2009/2009_National_Trade_Estimate_Report_on_Foreign_Trade_Barriers/ asset_upload_file310_15452.pdf Pages: 11 (1-11) Vylder, Stefan De (2007): The Least Developed Countries and World Trade (Second Edition). Sida Studies. Pages: 41 (36-76) Williamson, John (1989): Latin American Readjustment: How Much has Happened, Washington: Peterson Institute for International Economics. Pages: 16 Wilson, Ernest J. (2005): China’s Influence in Africa – Implications for U.S. Policy. Located March 17, 2009 on WWW: http://www.cidcm.umd.edu/wilson/ wilson_congressional_testimony_2005_07_28.pdf Pages: 20 (1-20) Wolfensohn, James (1999). A proposal for a Comprehensive Development Framework. Located April 24, 2009 on WWW: http://siteresources.worldbank.org/CDF/Resources/cdf.pdf Pages: 35 (1-35) Woods, N. (2008): Whose aid? Whose influence? China, emerging donors and the silent revolution in development assistance. International Affairs, 84(6), 1205-1221. Pages: 17 (1205-1221) The World Bank (2002): Rwanda: Country Assistance Strategy (CAS). Located May 18, 2009 on WWW: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/ 2002/12/14/000094946_02120304010763/Rendered/PDF/multi0page.pdf Pages: 30 (1-30) The World Bank (2003): A guide to the World Bank. Washington: The World Bank. Pages: 98 (7-68, 109-144) The World Bank (2004a): Operational Manual. Located April 24, 2009 on WWW: http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/EXTPOLICIES/ EXTOPMANUAL/0,,contentMDK:20064696~menuPK:64701763~pagePK: 64709096~piPK:64709108~theSitePK:502184,00.html Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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Pages: 1 The World Bank (2004b): The Poverty Reduction Strategy Initiative – An Independent Evaluation of The World Bank’s Support Through 2003. Located April 24, 2009 on WWW: http://lnweb90.worldbank.org/oed/oeddoclib.nsf/ 24cc3bb1f94ae11c85256808006a0046/6b5669f816a60aaf85256ec1006346ac/$FILE/ PRSP_Evaluation.pdf Pages: 124 (1-124) The World Bank (2006): The World Bank in Uganda – Country Brief 2005-2006. Located May 18, 2009 on WWW: http://siteresources.worldbank.org/UGANDAEXTN/Resources/ WorldBankinUganda2006.pdf Pages: 48 (5-52) The World Bank (2008a): Uganda: Trade Brief. Located May 4, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/brief196.pdf Pages: 2 The World Bank (2008b): Uganda at a glance. Located May 19, 2009 on WWW: http://devdata.worldbank.org/AAG/uga_aag.pdf Pages: 1 The World Bank (2008c): Governance matters 2008. Located May 18, 2009 on WWW: http://info.worldbank.org/governance/wgi/pdf_country.asp Pages: 8 The World Bank (2008d): Angola: Trade At-A-Glance. Located May 20, 2009 on WWW: http:// info.worldbank.org/etools/wti2008/docs/taag6.pdf Pages: 2 The World Bank (2008e): Sudan: Trade At-A-Glance. Located May 20, 2009 on WWW: http:// info.worldbank.org/etools/wti2008/docs/taag179.pdf Pages: 2 The World Bank (2008f): Angola: Trade Brief. Located May 20, 2009 on WWW: http:// info.worldbank.org/etools/wti2008/docs/brief6.pdf Pages: 2 The World Bank (2008g): Sudan: Trade Brief. Located May 18, 2009 on WWW: http://info.worldbank.org/etools/wti2008/docs/brief179.pdf Pages: 2 The World Bank (2009a): Country Aggregate Reports. Located May 19, 2009 on WWW: http:// go.worldbank.org/TT3JHWEID0 Pages: 4 The World Bank (2009b): Country Papers and JSANs/JSAa – Sub-Saharan Africa. Located May 20, 2009 on WWW: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ Mads Nørgaard Jørgensen & Tobias Rune Caspersen

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EXTPOVERTY/EXTPRS/0,,contentMDK:20195487~menuPK:384207~pagePK: 148956~piPK:216618~theSitePK:384201,00.html Pages: 1 The World Bank (2009c): Rwanda Country Brief. Located May 4, 2009 on WWW: http:// go.worldbank.org/YP79K5BDT0 Pages: 4 The World Bank (2009d): Rwanda: Trade Brief. Located May 4, 2009 on WWW: http:// info.worldbank.org/etools/wti2008/docs/brief159.pdf Pages: 2 The World Bank (2009e). Heavily Indebted Poor Country Initiative (HIPC). Located May 4, 2009 on WWW: http://go.worldbank.org/XEFZ3PAJ20 Pages: 1 World Press (2005): Uganda and Foreign Aid. Located May 20, 2009 on WWW: http://www.worldpress.org/Africa/2074.cfm Pages: 4 WTO - World Trade Organization (2001): Uganda: December 2001. Located May 4, 2009 on WWW: http://www.wto.org/english/tratop_e/tpr_e/tp182_e.htm Pages: 1 WTO - World Trade Organization (2008a): Rwanda Tariff Profile. Located May 4, 2009 on WWW: http://www.wto.org/english/tratop_e/tariffs_e/tariff_profiles_2008_e/rwa_e.pdf Pages: 7 (1-7) WTO - World Trade Organization (2008b): Uganda tariff profile. Located May 4, 2009 on WWW: http://www.wto.org/english/tratop_e/tariffs_e/tariff_profiles_2008_e/uga_e.pdf Pages: 7 (1-7) Xiaobao Chen, Michael; Goldstein, Andrea; Pinaud, Nicolas; Reisen, Helmut (2005): China and India: What’s in it for Africa? Located May 18, 2009 on WWW: http://www.die-gdi.de/CMS-Homepage/openwebcms3.nsf/(ynDK_FileContainerByKey)/ ADMR-7B7HWH/$FILE/Reisen.pdf ?Open Pages: 95 (1-95) Zhu, Zhiqun (2007): China’s New Diplomacy in Africa. Located March 17, 2009 on WWW: http://sloc.cafe24.com/upload/publication01/2007B06.pdf Pages: 36 (1-36) Total pages: 1737

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9. Appendix 9.1 Case selection – World Bank Model (X) means that the criterion is not met, and the country therefore is deselected. Criteria The World Bank The country has The World Bank China is not a is the biggest participa-ted in lending large trade donora the PRSP procompared to the partnerd gramme from the country’s GDP is startb highc Countries Angola

Benin Botswana

X X 0,56% X 0,91%

Burkina Faso Burundi

Cameroon

Cape Verde

Central African Republic

Chad

Comoros

Congo, Rep.

Congo, Dem.

Cote d’Ivoire

Djibouti

Eritrea

X 1,07%

Ethiopia Gabon

Gambia

X X 0,92%

Ghana Guinea

Guidea-Bissau

Kenya

Lesotho

X X

Liberia Madagascar

X 0,82%

Malawi

X 0,88%

Mali

X 0,29%

Mauritius

X X 0,50%

Mozambique Namibia

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Other

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X 0,66%

Niger X

Nigeria

X 0,12%

Rwanda

1,35%

Sao Tome and Principe Senegal

2,16%

Seychelles

X X 0,25%

Somalia

South Africa

Sudan

Swaziland

X X 0.93%

Tanzania X

1.39%

Zambia

X 0.27 % X

Uganda Zimbabwe

X 0,37%

Sierra Leone

Togo

Sources: (a) OECD, 2009; (b) The World Bank, 2009b; (c) The World Bank, 2009a (Calculated for 2008); (d) FOCAC, 2006

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9.2 Case data – Angola DEPENDANT VARIABLES

BEFORE (2000)

NOW (2008)

Trade Imports - from China Exports - to China

US$ 3 bn. (1999 est.)e NA% (<10%)e US$ 5 bn. (1999 est.) e NA% (<9%)e

US$ 15.3 bn. (2008 est.)f 10.5% (2007)f US$ 72.6 bn. (2008 est.)f 32% (2007)f

15% (1997 est.)e

15% (2003 est.)f

87% (1998 est.)e

90,8% (2008 est.)f

US$ 1 030 (1999 est.)e 34.5% of GDP (2004 est.)e

US$ 8 800 (2008 est.)f 9% of GDP (2008 est.)f

90% (Oil)e

96% (Oil) (2005)q

2,952 km (1997)e 5,349 km (2001)e

2,761 km (2006)f NA

270% (1999 est.)e NA

12.5% (2008 est.)f 19.6% (31 December 2007)f

577,304e

75.023 (2008 est.)f

-169.4%e

+24.2% of GDP (2008 est.)f

8.0% of GDPe 11.8 (1998)g

24.6% of GDPf 21.4 (2007)g

8.5%h

6.4%h

42% (1998 est.)e

US$ 383.5 million (1999)e NA US$ 10.5 bn. (1999 est.)e

NA NA US$ 7.9 bn. (2008 est.)f

US$ 19.5 bn. (2008 est.)f

Labour market distribution Industry & service sectors share of employment Industry & service sectors' contribution to GDP Productiveness GDP per capita (PPP) Investment Export diversification (primary export good as % of total exports) Infrastructure Railways Highways (paved) Financial institution Inflation Interest rate (central bank) Exchange rate (National currency per US$1) Budget balance Government role Budget Corruption (Score 0-100) Tariffs (MFN applied tariff trade weighted avg) Education Literacy rate Capital flows Economic aid - recipient State loans External debt Foreign Direct Investment (FDI)

Sources: (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c: (h) The World Bank, 2008d: 1; (q) The World Bank, 2008f: 2

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

What Works for Africa?

May 2009

Mads NĂ¸rgaard JĂ¸rgensen & Tobias Rune Caspersen

What Works for Africa?

May 2009

9.3 Case data – Sudan DEPENDANT VARIABLES

BEFORE (2000)

NOW (2008)

Trade Imports - from China Exports - to China

$1.4 bn. (1999 est.)e 27%e 0.6 bn. (1999 est.)e 1% (1998)e

$7.8 bn. (2008 est.)f 27.9%f $13.6 bn. (2008 est.)f 82.1%f

20% (1998 est.)e

20% (2007 est.)j

59% (1997 est.)e

67.2% (2008 est.)f

US$ 940 (1999 est.)e NA

US$ 2 200 (2008 est.)f 18.1% of GDP (2008 est.)f

92.6% (Oil) (2007)j

5,311 kme 4,320 km (2000)e

5,978 kmf NA

20% (1999 est.)e NA

16.5% (2008 est.)f NA

2.5e

2.1f

-8.3%e

-9.4%f

3.7% of GDPe 0.15g

13.6% of GDPf 0.18 (2007)g

4.2% (1995-99)i

16.0%i

Education Literacy rate

46.1% (1995)e

61.1%

Capital flows Economic aid - recipient State loans External debt Foreign Direct Investment

US$ 187 million (1997)e NA US$ 24 bn. (1999 est.)e US$ 1.5 millione

NA NA US$ 30.5 bn. (2008 est.)f US$ 2.1 million (2007)f

(2003)f

Sources: (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (i) The World Bank, 2008e: 1 (j) ECOS, 2008: 7-8

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

What Works for Africa?

May 2009

9.4 Case data – Uganda DEPENDANT VARIABLES

BEFORE (2000)

NOW (2008)

Trade Imports Exports

US$ 1.1 bn. (1999)e US$ 0.5 bn. (1999)e

US$ 3.6 bn. (2008 est.)f US$ 2 bn. (2008 est.)f

18% (1999 est.)e

30.1% (2003)k

65% (1997 est.)e

71% (2008 est.)f

US$ 1 060 (1999 est.)e 13.7% of GDP (1999)e

US$ 1 100 (2008 est.)f 26.5% of GDP (2008 est.)f

45.5% (Coffee) (1997)s

19% (Coffee) (2007)s

1,241 kme 1,800 kme

1,244 kmf 16,272 kmf

7% (1999)e 25.1 %e

10.5% (2008 est.)f 19.1% (December 2007)f

15.258e

16.581 (2008 est.)f

-8.4%e

-10.8%f

4% of GDPe 21 (1998)g

7.7% of GDP (2008 est.)f 27.8 (2007)g

5.8%l

11.9%

61.8%e

66.8%f

Economic aid - recipient

6% of GDP (1999)e

State loans

11.5% of GDP (2005)m US$ 313,7 million (2008) (from

External debt Foreign Direct Investment

US$ 3.1 bn. (1998 est.)e US$ 82 million (1999)n

US$ 368 million (2007)n

(2007)l

Capital flows

the World Bank)c US$ 1.7 bn. (2008 est.)f

Sources: (c) The World Bank, 2009a; (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (k) NationMaster, 2009; (l) The World Bank, 2008a: 1; (m) World Press, 2005; (n) UNCTAD, 2009; (s) The World Bank, 2008b: 2

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

What Works for Africa?

May 2009

9.5 Case data – Rwanda DEPENDANT VARIABLES

BEFORE (2000)

NOW (2008)

Trade Imports Exports

US$ 242 million (1999 est.)e US$ 70.8 million (1999 est.)e

US$ 759 million (2008 est.)f US$ 219 million (2008 est.)f

10% (2000 est.)e

56% (1998 est.)e

65% (2008 est.)f

US$ 720 (1999 est.)e NA

US$ 900 (2008 est.)f 22.5% of GDP (2008 est.)f

60% (Coffee) (1994)t

35.9% (Minerals) (2007)r

NA 1,000 kme

NA 2,662 kmf

10% (1998)e 16.1% (Januar 2002)p

9.5% (2008 est.)f 16.2% (Januar 2008)p

349.5e

550 (2008 est.)f

-78,8%e

-14,4%f

3.4% of GDP (1998 est.)e 25 (1998)g

9.6% of GDP (2008 est.)f 38 (2007)g

9.6%o

17.1%o

Education Literacy rate

60.5% (1995 est.)e

70.4%f

Capital flows Economic aid - recipient

US$ 372,9 (1999)e

State loans

US$ 576 (2005)k US$ 122 million (2008) (From

External debt Foreign Direct Investment

US$ 1.2 billion (1998)e US$ 5 million (1999)n

US$ 1.4 billion (2004 est.)f US$ 67 million (2007)n

the World Bank)c

Sources: (c) The World Bank, 2009a; (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (k) NationMaster, 2009; (n) UNCTAD, 2009; (o) The World Bank, 2009d: 1; (p) NBR, 2009; (r) Bureau of African Affairs, 2009; (t) Africa Studies Center, 2009

Mads Nørgaard Jørgensen & Tobias Rune Caspersen