The Roles of Aid in Politics Putting China in Perspective

Woods, Ngaire (2005), “The Shifting Politics of Foreign Aid,” in International Affairs, Vol. 81, No. 2, pp. 393-411

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Woods, Ngaire (2005), “The Shifting Politics of Foreign Aid,” in International Affairs, Vol. 81, No. 2, pp. 393-411.

Development assistance which prioritizes the achievement of human development goals is at risk. A rapid increase in aid has been channelled to meet new security imperatives. But with acute budgetary pressures besetting Japan, France, Germany and the United States (among others), it is virtually a fiscal certainty that much of the new aid flow (generated largely to fund the ‘war on terror’, as defined by the United States) will dry up. Development agencies, with their more stable budgets, will then be urged to give priority to the development needs of countries at the front line of the ‘war on terror’.

Paradoxically, previously rational efforts to enhance coordination and coherence among donors may now in some instances be counterproductive. The case of the EU highlights the possibility that while greater European coordination and coherence could in theory direct very significant aid flows towards the shared commitments of the Millennium Development Goals, in practice, current institutional shifts and political pressures suggest that the common European agenda will instead be driven by foreign policy concerns. This is but one case where, in the name of coherence, a greater diversion of aid flows for geostrategic purposes may take place, and increased coordination would magnify that effect. This is the global security scenario for foreign aid.

An alternative scenario is one in which development agencies continue to prioritize human development and the achievement of the Millennium Development Goals, which include human security, leaving to other agencies preoccupations with counterterrorism and WMD. Rather than attempting greater ‘coordination and coherence’ of foreign, aid and security policies in general, this scenario calls for a better differentiation and allocation of goals at the global level. This would require a commitment by donors to use existing multilateral institutions rather than perpetuate the erosion of multilateralism evident at present in increasing bilateral aid budgets. It would also require some protection within donor governments of the development assistance remit, to prevent a return to the Cold War patterns of almost purely geostrategically led aid which so obstructed rather than facilitated human development.

The development-led scenario requires two further things from donors. First, they must rationalize the demands they place on recipient governments. A recent study by major donors details the duplication and gaps left by donors imposing a plethora of different financial audits on recipients. Most damning it concludes that although the ‘World Bank and IMF would continue to take the lead in conducting most assessments of public expenditure management’, all other parties should have access to information and ‘the views of governments (and other local stakeholders)’ should be taken into account.41 That finding highlights the extent to which donor efforts have increased auditing of their own loans, but failed to build capacity and accountability in public finances within recipient countries. The wider aid picture reveals a multiplicity of donors not only failing to strengthen governmental processes within countries, but probably even hindering their development. Amid a growing cacophony of donors, very little space is left for local agencies to build, coordinate among themselves and strengthen local governance. Scarce resources are used up strengthening and maintaining external relations with donors and undertaking externally demanded actions, some of which are contradictory. The problem is likely to increase as the number of goals and institutions involved in development assistance increases. At the very least what is needed here is a very focused form of coordination among groups of donors—such as shared, streamlined reporting requirements—so as to lessen diversion of local resources to managing donors.

A second area where better coordination within the development assistance community is sorely needed concerns the timescale and predictability of aid flows. Donors need to join together in providing a long-term financial compact between themselves and recipients. Volatile or unpredictable aid flows do little to bolster good governance, coherent government expenditure planning, or the development of sound institutions of accountability in recipient countries. Yet aid is proving to be even more volatile than fiscal revenues in most developing countries,42 in spite of the evidence that shortfalls in aid produce poor policies.43 The new security-driven aid flows are already proving to be volatile and short-term. But in other sectors as well where new resources are being promised—such as the global fight against HIV/AIDS—there is little guarantee that new flows will be sustained in the long term, or that the multiplicity of donor institutions which are supposed to disburse the assistance will not change priorities. What is needed is specific donor coordination with a view to committing long-term, predictable flows of resources.

Finally, a development-led foreign aid system kept separate from global security concerns needs to be part of an overarching mechanism which holds international agencies and governments to account for a range of shared international goals, including the downstream effects of security on development goals and vice versa. Such a mechanism might be led by the G8, or by a wider grouping such as the Leaders-20 group favoured by Canada’s prime minister. It will become all the more crucial as the international development architecture begins to straddle a greater mixture of security and development goals.

The international development community has not yet been swept up into the war on terror, but it stands on the threshold. The international development architecture is already being transformed. Donor governments must act quickly to ensure that their development aid mission to deliver effective aid and to meet specific human development goals—even as they pursue other goals—stays at the forefront of the emerging aid regime.

Woods, Ngaire (2008), “Whose Aid? Whose Influence? China, Emerging Donors and the Silent Revolution in Development Assistance,” in International Affairs, Vol. 84, No. 6, pp. 1205-1221.

A silent revolution is taking place in the development assistance regime. This article has argued that the development assistance offered by established donors has become less generous and less attractive (on its own terms), while emerging donors’ aid has become more generous and more attractive. Since the 1980s most established donor aid has failed to address developing countries’ demand for aid and investment which expands the productive parts of poor countries’ economies. Recent trends seem only to have increased donor deafness to this call. Furthermore, where changes in conditionality have been promised, donors seem to have been unable to confer promised degrees of ‘ownership’ on aid-receiving countries.

By contrast, emerging donors robustly defend sovereignty and non-intrusion in the politics of recipients of their aid—although in several cases there is a geopolitical conditionality that accompanies their assistance, such as requiring support for an emerging donor’s foreign policy. The emerging donors offer aid amid trade and investment and against a background of flourishing growth within their own economies. Alongside their aid they offer technology, advice and professional assistance that many aid-receiving countries find more useful and more appropriate to their needs than that offered by established donors. It is no surprise, then, that emerging donors are stepping into relations with the ‘development partners’ of established donors.

This is a silent revolution because emerging donors are not overtly attempting to overturn rules or replace them. Rather, by quietly offering alternatives to aid-receiving countries, they are introducing competitive pressures into the existing system. They are weakening the bargaining position of western donors in respect of aid-receiving countries—with a mixture of implications. On the one hand, the competition exposes standards that are either out of date or ineffectual. It also highlights the extent to which some donor ‘standards’ are more about aspirations than reality. While DAC donors have agreed to meet standards to facilitate coordination among themselves, they have said much more than they have done. On untying aid (from the requirement that it must be spent in the donor’s own economy), as the head of the DAC notes, not all DAC donors have made requisite progress, while some non-DAC donors (such as Middle Eastern funds) already meet the benchmarks.67 Better standards of donorship are important but still very much in their infancy.

The silent revolution is unlikely to be manageable from within the existing multilateral development assistance regime. While some hold up increased donor coordination as part of a solution, this seems unlikely. Established donors are finding coordination among themselves very challenging. Multilateralism in the international development assistance regime is weakening; and there are very few incentives in the existing governance structure of multilateralism to give emerging donors an incentive to engage.

Wright, Joseph and Winters, Matthew (2010), “The Politics of Effective Foreign Aid,” in Annual Review of Political Sceince, Vol. 13, pp. 61-80.

Since Burnside & Dollar (2000) opened the aid/growth floodgate a decade ago, we have seen a profusion of cross-country regression analysis trying to determine what effect, if any, foreign aid has on economic growth. In this vast literature, scholars have changed model specifications, first-stage instruments, treatments of outliers, lag structures, definitions of aid, interaction terms, and more in attempts to find a robust link between aid and growth. In this article, we have emphasized that, for all that has been done already, much works remains, especially in explicitly recognizing how politics enters into the aid/growth relationship.

First, we pointed out that international politics affects aid allocation as well as the credibility of aid conditions. In looking for a relationship between aid and growth, we need to be attentive to whether or not international politics constrains how aid money can be used and whether or not a recipient government thinks future aid money will be forthcoming.

Second, we discussed the ways in which governments might use an influx of revenue, depending on the political institutions that exist. From studying the politics of redistribution and the politics of rent-seeking, political scientists have a comparative advantage in analyzing the causal pathways through which aid might lead (or not) to capital investment, economic reform, and ultimately economic growth. We have stressed throughout this article that many studies in the aid/growth literature have come up short in specifying exactly how aid could lead to growth. Future research must pay more attention to what happens to the money once it enters a country’s national budget. This becomes more pressing if aid agencies do not even know where their aid money goes, much less how it is spent (Ravishankar et al. 2009).

Some scholars have thought a lot about how aid affects the governing institutions and politics of recipient countries. This work is and will continue to be a crucial part of studying aid and growth. Foreign aid is not only exogenously affected by political institutions but also—particularly in countries with a sizeable aid-to-GDP ratio—endogenously determines the form of those institutions.

Younas, Javed (2008), “Motivation for Bilateral Aid Allocation: Altruism or Trade Benefits,” in European Journal of Political Economy, Vol. 24, No. 3, pp. 661–674, Elsevier.

This paper argues that bilateral aid from developed OECD countries is disproportionately allocated to recipient nations who have a greater tendency to import goods in which donor nations have a comparative advantage in production. We first develop a theoretical model to derive simultaneous optimization decisions of donors. To verify the predictions in the theoretical model, we empirically estimate the determinants of aid allocation by simultaneously controlling for altruistic and self-interest motives of donors. This approach aims to correct the ad hoc econometric treatment and to appropriately assess the determinants of aid allocation.

The empirical results largely confirm the theoretical predictions in our model. The estimations indicate that a substantially larger amount of bilateral aid per capita is provided to the recipients who import capital goods, while imports by other individual category groups have no significant effects. Given that developed donor nations are major producers and exporters of capital goods, this result at least partially supports their trade benefits motive. On the other hand, aid may also be given as a reward to the recipient nations for promoting imports of capital goods and removing trade restrictions. The recipient nations also gain because greater imports of machinery and transportation equipment help increasing their production (and subsequently consumption), and in turn, they receive more aid. On the flip side, poor countries lacking resources, both private and public, to import capital goods get penalized in two ways: First, their production capacity remains low without importing those goods and, second, they receive a lower amount of aid.

Our findings also suggest that donors are more concerned about alleviating physical miseries (infant mortality) and rewarding good human rights conditions, but they are less focused on reducing economic hardships (low income per capita). This implies that residents of the recipient nations with bad human rights conditions endure sufferings both at the hands of their rulers who deny them basic freedoms, and also by donors who curtail aid. Our study also indicates that economic and political self-interests of donor countries dominate their stated objectives for reducing poverty and promoting development through aid in developing countries. This also provides some insight into the fact that why the majority of the authors seem to agree that aid has no significant effect on growth. This study does not delve into the political economy aspects of trade and aid allocation, however, this can be an interesting area for future research.

Zahariadis, Nikolaos, Travis, Rick and Ward, James B. (2000), “U.S. Food Aid to Sub-Saharan Africa: Politics or Philanthropy?” in Social Science Quarterly, Vol.81, No.2, pp.663–76, Austin: University of Texas Press.

We have examined the impact of two motives, politics and philanthropy, on two food aid programs in Sub-Saharan Africa, expecting differences to be pronounced as each serves different objectives. We have found this to be the case. Food under Title I [PL 480, Title 1 focus is Economic Assistance and Food Security] is more subject to political or philanthropic motives than under Title II [PL 480, Title 2 focus is Emergency and Private Assistance Programs]. Food power and recipient need are most influential in determining whether, rather than how much, a state will receive in food aid. Moreover, different administrations treat Title I aid differently.

Our findings lend partial support to but also refine both the food power and basic human needs perspectives. Three points are of particular significance. The first is that allocation decisions differ by program. Both perspectives tend to make sweeping generalizations about food aid, but our analysis reveals a more complicated picture. What makes allocations more sensitive either to food power or to recipient need is the ability of the U.S. government to exert direct influence on the recipient. Title I disbursements, which consist of mostly direct government-to-government aid, are more sensitive to political manipulation. Title II aid, on the other hand, which consists primarily of food given to and distributed by private organizations, was supposed to put food aid above politics. Our findings confirm it has succeeded. Democracy plays a role in Title II disbursements. Maintaining a democratic polity brings positive rewards in the form of higher levels of emergency relief because private organizations are able to function more efficiently and effectively in more politically open environments. The point remains that the study of food aid should be nuanced.

The second point is that predictions by either perspective must be qualified by reference to time period and administration. Food aid allocations can be explained on the basis of both perspectives but not equally well in the short term. Our analysis of Title I disbursements found variation between administrations, illustrating the point that presidents respond to different stimuli depending partly on their ideological predilection and partly on contextual factors, such as the occurrence of famines. In the long term, however, assistance under Title I appears amenable to both explanations.

The third point refers to the spheres of influence effect. U.S. policy makers expect patrons with colonial links to Sub-Saharan African countries to be large food aid donors. As a result, Washington ties its contributions to that of other countries. Such a finding in Title II but not Title I aid is significant. Although U.S. policy makers do respond to African disasters consistently, they loosely divide the continent into spheres of influence depending on the manipulability of the program. Washington uses food aid effectively by funding programs susceptible to donor interests, irrespective of what others are doing. In contrast, the level of American humanitarian response is tempered not only by the size of the disaster and the intensity of need, but also by colonial ties and the level of aid offered by others.

Concerning the policy implications of our study, it is unfair to accuse aid of not achieving objectives it is not disbursed to achieve. Current Republican hostility to aid stems from the charge that it does not promote U.S. interests. Such assertions are based on the assumption that food aid is allocated primarily with this objective in mind. We tested for this and found it to be partially untrue, and in the case of Title II aid, inaccurate. Food aid may not promote U.S. interests because it is not always allocated to do so. What matters is not the program itself but the willingness of politicians to use it to such ends. Regan’s early years in office illustrate this willingness and contrast nicely with Carter’s unwillingness.

Our focus on Africa illustrates most vividly the apparent paradox of food aid. The decision to disburse Title I aid in response to U.S. interests and recipients needs in a continent where need is greatest would lead one to suspect that food aid has come of age as a program that balances both political and philanthropic motives. Yet, with the waning of the Cold War, the ability to use food aid as a foreign policy tool seems to have ceased. From 1994 to 1998, Title II aid allocations remained constant while Title III allocations fell from $230 million to $30 million. For Title II aid, this is an indication that food aid has been placed above politics. For Title II aid, which is the successor to Title I in terms of government-to-government aid, the recent cuts show that there will be little opportunity to use it to pursue political goals. The factor that propelled food aid to success has also brought its failure because it undermined the rationale for continued heavy U.S. involvement abroad. It is precisely the inability of critics to formulate concrete interests around the globe in the post-Cold War era that has seriously weakened the rationale to pursue such interests through food shipments. Similarly, advocates of need have been unable to convince an introverted and tax-leery American public that meeting recipient needs abroad is a humanitarian goal worthy of a few pennies from their tax dollars. So, paradoxically, in these times of budget cuts, the programs to be saved are not the ones that fulfill their mandates most successfully but those that can simply justify their existence.

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Opportunities and Challenges

For some of the studied countries, foreign debt portfolio is improving. The significant improvement in the ratio of Angola’s external debt stock is explained in part by high oil prices and China’s ever increasing consumption.

China and Zambia signed a protocol on remitting partial debt in 2001 with the aim of supporting Zambia’s efforts in developing its national economy and reducing the debt burden. However, a substantial amount of Chinese loans to Zambia still require reconciliation.

Observers suggest that China has encroached the traditional domain of influence and control of the African economies by IFIs through their less stringent lending terms. The traditional control of domestic policy and affairs of the debtor nations is undermined by flexible Chinese loaning terms. This is both a challenge and an opportunity. On the one hand it makes Chinese aid more attractive and beneficial in the short term to the huge infrastructural needs of the continent, even creating a renewed interest in African markets but on the other hand can threaten the sustainability of these developments within regimes that repress fundamental freedoms and human rights.

Chinese capital in the continent, especially the financial assistance, is an important opportunity for topping up resources and financing poverty reduction strategies, especially infrastructure projects. The Export Credit arrangement under the mutual benefit approach ostensibly allows recipient countries to exploit untapped resources thereby accelerating growth. To benefit from opportunities pushed by Chinese capital emergence, countries require clear programmatic visions and strategy for Chinese financing.

New standards pertaining to labour and employment conditions, tax regulations, environmental standards, and export standards are required. These would also require increased collaboration between inter-governmental agencies (i.e. finance, planning, standards, procurement) to reduce incidences of corruption and improve implementation modalities.

Another challenge relates to the need for more analysis, information disclosure and transparency on Chinese development assistance and its impact on the African continent.

But also African governments have the opportunity to undertake further research around China’s engagement with their respective economies and regions so that they can maximise their benefits. More information should be shared amongst the governments on their relations with China to facilitate beneficial relations. This framework can be driven by a continental interlocutor such as the NEPAD secretariat. If well implemented, this would result in greater development impact from China’s involvement in African economies. This can also be a recommendation.

Conclusions and Recommendations

Chinese involvement in Africa seems to be of major benefit to the continent. On a positive note, it appears to have led to huge investments with some good impacts. China is assisting African countries to rebuild their infrastructure and provide support to sectors like agriculture, water, health and education. Increased exports of raw materials to China have also earned them much needed foreign exchange revenue. However, the Chinese windfall has ignored necessary reforms in administrative and governance systems of African countries that would enhance policy making autonomy and better oversight over development assistance. Although important distinctions exist in Chinese model of foreign investment and infrastructure loans lauded as a model of development that takes seriously developing state aspirations ignored by the West, African countries have failed to exploit this apparent alternative.

China is perceived as different in that it provides some investments of direct benefit beyond elite circles (such as access to a broad range of cheaper consumer goods); does not insist that Africa’s political economy steer a required course; and contributes to Africa’s talent pool rather draining it.

China’s assistance to Africa is linked to commodity production; mostly raw materials and minerals like oil and diamonds. The concessional loans also provide opportunities to Chinese companies and immigrant labor. The Chinese have also entered high value-added sectors like telecommunications (networks, equipments and exploration), and also capital equipment for the electricity sector and for hospitals. In return for those commodities, China shares its knowledge in the areas of infrastructure, construction, and public works.

The political and diplomatic relations between Africa and the People’s Republic of China date back to the days of the liberation struggles in the continent. This history makes the People’s Republic of China a natural alternative in the face of conditionality laden development financing by Western Countries.

China boasts that its relationship with Africa is based on a win-win formula, gained on an equal partnership and reinforced with its historical solidarity with the continent in the common struggle against colonialism. In return, Africa’s trade with China has increased tremendously although the balance of trade still favours China. There remain reasonable doubts that Chinese aid offers meaningful, widespread and long term benefits to ordinary citizens of recipient countries. African trading partners with China must still make the necessary institutional and governance reforms to transform Chinese investments into maximum benefits for their countries.

In actual sense, China’s trade benefits in Africa do not give it the incentive to go against the liberal international order, especially the overall system dense with multilateral rules and institutions. According to Ikenberry (2008), not only is China on its way to becoming a formidable global power, it is also aware that integrating into the globalised capitalist system; WTO and other multilateral economic institutions, is healthy for its prosperity. As such, it also wants the protections that the system’s rules and institutions provide (Ibid: 32)

This view dilutes the fears expressed by many scholars whose main question about Chinese ties to Africa is whether it is meant to overthrow the existing western dominated world order. In other words, if the rise of China is equivalent to a declining hegemony to the western order, represented by United States and other multilateral economic institutions like the World Bank and IMF that have been very active in African economies. This is hopeless and short-sighted. Although China has been using its growing influence to reshape certain rules and institutions that run African governments, the ascendance of Sino-African relations, if managed properly, should assist in the development of the countries involved without any hostile opposition to the relative balance in global power system.

China’s engagement of the continent can be leveraged positively to offer significant development opportunities for the uplifting of African economies. However the African countries need a coherent understanding of the main determinants of China’s strategies. China’s investment in the countries in this study takes care of China’s foreign commercial policy projection. African countries should therefore make necessary policy responses and regulatory frameworks comparable to the People’s Republic of China foreign commercial policies in these states. These should be key to enabling environment in terms of local private sector growth and skills and technology transfer that will contribute to long term benefit for those countries. This will maximize and reinforce more broad based benefits for engagement.

Chinese rise should find room for more African countries at the table of key global economic and political institutions, bringing emerging countries into the governance of the international order. Even if it is not the four countries discussed in this study, Zimbabwe, Angola, Zambia and Mozambique, African countries such as South Africa and Nigeria can together play substantive roles in these international institutions than is presently the case. Less formal bodies, including the G-20 can provide alternative avenues for this representation.

In conclusion, China has offered a number of African countries an alternative from the Paris Club. However, it is not obvious that China recognizes that her medium term interest may not be in the best interests of African countries in terms of stability and sustainability. Nevertheless, it is also imperative that these countries maintain strategies for other sources of development financing even as they secure new aid from China. But the strength of China’s position with respect to many of its African partners – even those that can b considered as pariah states – is a reality and an opportunity. It can still balance its defensive insistence on solidarity with these countries with greater role as a broker between them and the international community for sustained international understanding and development.

Alden, Chris (2005), “China in Africa,” in Survival, Vol. 47, No. 3, pp. 147-164.

At a time when the world seems preoccupied by events in the Middle East and the ‘global war on terror’, China’s growing engagement with Africa has gone little noticed in the West. Yet in a span of less than a decade trade between the two regions has increased from US$10 billion in 2000 to US$28bn in 2005. China has expended significant resources in foreign assistance towards African states, has started negotiations towards a regional economic free trade area with the Southern African Customs Union, and has embarked on an unprecedented peacekeeping mission in Liberia. These activities are all bolstered by a steady stream of high-profile diplomatic and commercial missions.

For most analysts, the drive to secure energy resources is behind Beijing’s renewed engagement with Africa.1 This certainly captures an important dimension of Chinese interests in the continent, but it would be a mistake to ascribe a single motive to the relationship. Conversely, the impetus for Africa’s embrace of China has not been adequately examined.

China’s Interests in Africa

During then-President Jiang Zemin’s tour of Africa in May 1996, he presented a ‘Five Points Proposal’ establishing the terms of a new relationship with Africa, centring around a reliable friendship, sovereign equality, non-intervention, mutually beneficial development and international cooperation. Jiang’s position was a deliberate contrast to the period between 1963 and 1976, when ideological considerations shaped China’s Africa policy. There was now a shift towards ‘diversity of form and mutual benefit’ accompanying the economic reforms of the post-Mao era.2 The one continuity, to be sure, is Beijing’s insistence on a ‘one China’ recognition policy, which has led a number of African states to cut off diplomatic relations with Taiwan.3 Four factors in particular shape Beijing’s contemporary approach to the African continent: China’s drive for resource security, new markets and investment opportunities, symbolic diplomacy and development cooperation, and forging strategic partnerships. […]

Africa’s Interests in China

Africa’s interests in China complement much of the agenda being promoted by Beijing. Governing and business elites within Africa see new opportunities in China: trade and investment opportunities, ways to bolster regime stability, and strategically significant partnerships.

The steady deterioration in foreign direct investment (FDI) in Africa, especially when compared to Asia, is widely perceived to be a major factor in Africa’s persistent low level of development.30 With a dramatic fall in foreign assistance after the end of the Cold War, the introduction of Chinese FDI is welcome. There is genuine enthusiasm on the part of African governments for providing the requisite licensing for Chinese entrepreneurs investing in their countries and the opening of new businesses in heretofore neglected areas.31 […]

Asche, Helmut and Schüller, Margot (2008), China’s Engagement in Africa – Opportunities and Risks for Development, Eschborn: Deutsche Gesellschaft für Technische Zusammernarbeit (GTZ) GmbH.

Description of the Situation

The People’s Republic of China’s (PRC) interest in obtaining supplies of energy and raw materials is the driving force behind China’s rapid economic expansion on the African continent which is accompanied by a wholes series of political initiatives. The exponential growth in foreign trade, direct investment and development cooperation (DC) between China and Africa since the end of the 1990s has shocked the Western public.

Although the block of Western industrialised countries as a whole will remain Africa’s most important trading

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