Book-Blogging: Dead Aid – Chapter Seven

This is part of my effort to read through a number of development-focused books. Previous chapters of Dead Aid: onetwothreefour, five/six

The title of this chapter is “The Chinese Are Our Friends,” of which I’ll have a bit more to say later. It’s concerned with Foreign Direct Investment (FDI) – more or less, sovereign wealth funds and private international corporations investing in foreign countries – and the comparatively-meager amount the continent of Africa takes in. The data is a bit dated, but Moyo states that in 2006, sub-Saharan Africa received only $17 billion of the $400 billion invested in developing countries, and of $1.4 trillion total. A drop of a drop in the bucket.

The Solow Model holds that significantly more investment should be occurring in much of Africa – a dollar is supposed to be extremely productive there, as physical capital is sparse and labor costs are low. But it’s not happening. Why? Moyo holds that a combination of poor infrastructure and a high cost of doing business holds back foreign suitors – it’s too much work to set up shop there. This broadly makes sense; Hernando de Soto was here decades ago, documenting much of the same in Peru – if it takes a year’s time and wages just to start a business, most businesses won’t start. It seems like there’s some spurious causation in Moyo’s figures (she ascribes Uganda’s improving economy in the 90s to the regulatory climate improving, but doesn’t show it’s the proximate cause), but the basic argument holds. None of this precludes foreign assistance, though; if you have qualms with Washington D.C. or London advising foreign governments on regulatory structure, perhaps it’s worth it to help entrepreneurs in African countries develop the tools to navigate through the labyrinthine regulatory structure, or to keep tabs on their government.

But that’s not the meat of the chapter – an extended soliloquy to China is. In explaining China’s benevolence, Moyo makes a rather strange argument in two parts; first, she highlights on-the-ground development work:

“In an effort to help fast-track Africa’s development, China has in recent years pledged to train 15,000 African professionals, build thirty hospitals and 100 rural schools, and increase the number of Chinese government scholarships to African students from the current 2,000 per year to 4,000 per year by 2009.”

I’m going to make two disparate arguments against this. First, try replacing “China” with “America” in that quote, and see if you think that Moyo would be near as enthused; probably not, right? This sounds suspiciously like the same aid that Moyo disparages throughout the other 155 pages of the book. But put that aside for a minute, and think about the numbers she cites: 15,000 Africans hired, thirty hospitals started, 100 schools built – in a continent with a billion people. This isn’t to say that I think it’s a bad thing that China is supporting this type of development – just the opposite, actually – but merely that it’s strange to hear Moyo ring bells over it.

Next, Moyo  praises China for forgiving African debt and providing aid – in all, a few billion dollars of each.  She’s hit the West for doing both of these, and it is unclear why Chinese money is different than the West’s.  The same rules should apply. It’s this type of cherry-picking that frustrates me about Dead Aid – when the West does it, it’s paternalistic, demoralizing, and stultifying to the African countries; when China does it, it’s praise-worthy.

Moyo spends the rest of the chapter defending China against the criticisms leveled against it by others. She makes some excellent points – the West can be extremely hypocritical when criticizing’s China’s actions in Africa – but criticism can be accurate even as it is hypocritical.  America’s mistakes shouldn’t be used as a bulwark against criticizing China – wrong is wrong, and we (in the global sense) can’t improve unless we admit it.

All of which brings me back to this: it seems wrong to call the over-generalized relationship between Africa and China “friendly” – China’s there for the oil, the diamonds, the coltan, and whatever else it can pull out of the ground to support its insatiable appetite for natural resources. If it needs to build roads to facilitate transport; hospitals to ensure a healthy population; and schools to train employees, it will. And that’s great! But (to strain a phrase) who will watch the buyers? African governments  have an incentive to overlook human rights when Chinese firms are under-bidding African and Western corporations; Chinese corporations have an incentive to hire Chinese workers over African workers, overlook conflicts in a country (see: Sudan), and to take as much resource wealth away as they can. There’s a place for oversight, and Western aid agencies are uniquely positioned to help African countries create the infrastructure to support it.

On top of all that, another basic issue with expecting FDI to lead to huge improvements is that the improvements don’t go to the worst-off countries which don’t have industries or resources to invest in. Moyo pays lip service to this and argues that China is investing in non-resource rich countries, but this is antithetical to her argument that FDI will go where the returns are highest; if a resource-poor country lacks infrastructure and resources, FDI will go elsewhere. Eventually FDI would find its way to the resource-poor countries – resources run out at some point, and the cost-benefit analysis would shift – but how long would that take? Are we willing to wait that long? She ends the chapter hinting at a solution:

“For these countries, less favored by nature, there is yet another route to finance development that they should pursue”

Here’s to hoping.

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