China - Helping or Hindering Economic Development in Africa

Y13 Business- following on from the video and discussion last week:

If Africa was a physical battleground between east & west during the cold war of the 20th Century, it can arguably be seen today as the ideological 21st Century battleground between the difference approaches to promoting economic development: the western aid model versus the Chinese trade model. Is the Sino-Africa relationship mutually beneficial? I certainly don’t claim to have a comprehensive answer to this but it has been interesting talking to Africans on my journey so far about their perception of this, particularly in Zambia…
China’s relationship with Zambia dates back to the building of the ‘Tanzam’ (Zambia to Tanzania) Railway in the 1970s. However, it is in the last 10 years that Sino-Zambian trade has really taken off, growing from just $100m (£63m) in 2000 to $2.8bn last year, according to the BBC. Last year China invested more than $400m (£250m) in Zambia’s mining industry, which is one of the major employers in the private sector.
Proponents of China’s approach rely on David Ricardo’s 19th Century theory of Comparative Advantage. Reformulated in modern trade theory as the Heckscher-Ohlin theorem, it states that a country has a comparative advantage in the production of a product if the country is relatively well-endowed with inputs that are used intensively in producing the product. Zambia’s comparative advantage lies in the resource sector, China’s in manufacturing and infrastructure construction. Copper in return for cheap toys, bicycles & new roads. The new infrastructure in particular should enable Zambia to more efficiently boost economic growth through trade both international & local.
A good deal for Zambia? In theory yes but it of course depends upon the terms of trade (the ratio of import to export prices) and over what time horizon we try to judge the relationship. In the short term, economic growth statistics (the World Bank estimates 6.4% real GDP growth in 2009-10 compared 1.7% for sub-saharan Africa) suggest a positive outcome. Over the longer term, sustainable economic development surely requires local employment & skill creation, in turn helping to boost the local economy through the multiplier effect.
As well as a question mark over the quality of Chinese imports (I commonly heard complaints of bicycles falling apart, for example!), the main criticism of Chinese investment in Zambia is that the benefits are not shared equally. The Zambian elite, with control over the valuable mining contracts, are enriched while the benefits to the poor are less obvious. In theory it should mean more jobs & income but the propensity of the Chinese managers to employ their compatriots rather than local labour, especially for construction projects, dilutes this benefit.
I’ve struggled to find any reliable statistic on employment creation, not helped by the fact that the ministry of finance official that I spoke to (fresh with a Masters from Birmingham University) was drunk! Evidence is therefore more anecdotal. The copperbelt region, host to the community schools that I’m supporting, has seen improved roads and a massive new football stadium. The latter, due to be opened ahead of last year’s world cup, has been built primarily using Chinese labour and is still incomplete.
As such, support for the Chinese at grassroots level amongst the people I spoke to is limited. It is no surprise that this is where Michal Sata, the Patriotic Front’s newly elected president, enjoys popular support.
Whilst Zambians have arguably answered the question with their ballot papers, the debate about China’s involvement will nevertheless continue. As Dambisa Moyo has eloquently argued, the Western aid model supported by the Washington Consensus has failed Africa, weighed down by burdensome conditionality and self-interest amongst the ruling elite. Whilst the conditionality is no longer, it seems that self-interest amongst the politicians remains. It is this that arguably remains the major constrain on development in sub-saharan Africa. Let’s hope Mr Sata is different. I’m now in Malawi for the next few
weeks. It enjoyed a similar per capita GDP to singapore in 1960. Today, the east Asian tiger is some 20 times richer than its African cousin, with the latter currently having to re-negotiate another IMF aid package. During my Journey around this ‘warm heart of Africa’, I’ll be trying to understand why.