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Official Development Assistance to Sub-Sahara Africa; Preference and Sector Development Skewness Prior and during COVID-19 Pandemic

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The aftermath of the Financial Crisis has seen an increase in China Official Development Assistance (ODA) extended to Sub-Sahara Africa (SSA) countries. This paper falls under literature that addresses changes in the structure and functioning of participants in international financial flows. It shows SSA countries’ preference of China ODA as opposed Western ODA that ties aid to stringent conditionality among other reasons. The paper shows a build-up in China ODA as opposed to a low steady assistance flow from Western countries over time. With the recent influx of China ODA on the SSA market that is termed to be obscured by Western countries, we correlate the annually disbursed China ODA on the Africa market with the intended infrastructure development. The outcome indicates a link between China ODA and growth in the SSA infrastructure and construction sector. However, despite an increase in China ODA to SSA infrastructure and construction sector, the growth rate is slow as compared to the huge amounts injected in the sector given the capital nature of the projects that will only actualise economic gains after some time. On the backdrop of United Nations (2019) reporting Sub-Saharan Africa (SSA) facing a dilemma between financing development needs and addressing debt vulnerabilities, we formulate China ODA to SSA debt ratio. The results show that China cheap loans and investment extended to Sub-Sahara Africa have contributed to the surged-up debt in the region. The highest ratio was recorded at 55 percent in 2016 when China offloaded US$ 30 billion on the SSA market. In light of financing development needs at the expense of addressing debt vulnerabilities, we conclude by postulating how SSA countries may address the dilemma.
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OFFICIAL DEVELOPMENT ASSISTANCE TO SUB-SAHARA AFRICA;
PREFERENCE AND SECTOR DEVELOPMENT SKEWNESS PRIOR AND DURING COVID 19 PANDEMIC
ORCID No: 0000-0003-1074-8752
DOI: ORG/10.2139/SSRN.3788098
Nchimunya Ndiili - PhD
bridgetndlli@yahoo.com
Researcher University of Lusaka
Research Fellow Stellenbosch University
02-18-2021
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Abstract
This paper evaluates Sub-Sahara African countries (SSA) preference of Official Development
Assistance (ODA) from Western Countries and China prior and during the COVID -19 pandemic.
Using time series analysis, the paper shows increased preference of China’s ODA as opposed to
Western countries’ ODA prior to the COVID-19 pandemic. The trend changed during the 2020
pandemic as countries received aid regardless of underlying conditions due to economic distress
experienced by SSA countries. International Monetary Fund (IMF) and the World Bank that
represent the Western countries accounted for 60% and 30 % of social - economic aid disbursed to
SSA countries as opposed to 12% disbursed by China. The paper further depicts sector preference
as Western countries’ ODA was skewed towards the social - economic sectors with China’s ODA
skewed towards the construction sector. The paper concludes by advocating for a hybrid of Western
and China ODA to foster balanced economic growth in SSA countries.
KEY WORDS; Sub-Sahara Africa, Official Development Aid, COVID-19
JEL: E6, F3, G2, G4, H5
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Introduction
ODA flows to SSA stems way back from the 2008 Financial Crisis to the current 2020 COVID-19
era. The 2008 Financial Crisis, termed to be one of the biggest crises in history affected many sectors
and economic variables including international financial flows (Mishkin, 2009; Cismaş and Donath,
2008; Allen and Giovannetti, 2011; Bussiere et al, 2014). The effects on financial flows were evident
in the declined lending by foreign financial institutions (Van Bergeijk, 2012; Jones and Ocampo,
2009; Naude, 2009). Foreign banks’ lending came to a stall as the headquarters based in developed
economies were facing market illiquidity.
Acceding to the preceding argument, Cali et al (2008) attested to western Development Finance
Institutions (DFIs) having challenges in finding good projects despite having sufficient capital. DFI
potential portfolios were riskier due to illiquid markets and lower returns. In this regard, DFIs such as
International Financial Corporation (IFC) developed a new mechanism to sustain trade with
emerging markets by boosting the IFC Global Trade Finance Programme by 50 % to a ceiling of $1.5
billion (Cali et al, 2008). This measure guaranteed payment risk of issuing banks and sustained
trades. IMF also availed $200 billion towards emerging markets lending. Such measures availed
SSA Countries with the much-needed funds for social- economic development during the crisis.
However, in the recent past decade prior to COVID-19 era, SSA countries have also been flooded by
non-western DFIs financing from the Asian market such as China Development Bank (Dreher and Fuch,
2011; Fuch and Vadlamannati, 2013). As at mid 2018, China Development Bank channeled finance to a
tune of US$50 billion as reported by China Development Bank chief economist, Liu Yong (Xinhua net,
2018). The beneficiaries amounted to 500 projects in 43 African countries. The pronounced figures are
presumed to be estimates by researchers as China DFIs do not conform with the Organization for
Economic Cooperation Development (OECD) Creditor Reporting System that supports transparency and
accountability (Walz and Ramachandran, 2011). The West fears that China non- membership to the
OECD Development Assistance Committee (DAC) and non-adherence to the OECD Creditor
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Reporting System makes China’s ODA obscure as well as a threat to transparency (Walz and
Ramachandran, 2011).
Using SSA countries, the first section of the paper articulates the funding conditions for major
Western and China DFIs prior to COVID -19 era. Applying time series analysis, the subsequent
section analyses growth trajectory for the Western and China ODA to establish the preferred ODA
source in SSA. The preference outcome is aligned to the pinioned financing conditions. Stemming
from the source of flows, the next section establishes the sector development skewness by employing
correlation comparison analysis of China’s ODA to SSA infrastructure GDP and Western Countries
ODA to SSA social - economic GDP. COVID-19 financial flows to SSA countries from the Western
countries and China are analyzed in the sub-sequent section to determine ODA preference during the
pandemic. In conclusion, the last section postulates how SSA countries can resolve the financing
need amidst rising debt sustenance dilemma devised by receipted flows.
Western and China ODA conditionalities to African countries Prior to the COVID -19 era
Contrary to western DFIs that tie development assistance to initiatives such as structural adjustment, good
governance, liberalization, privatization, to mention but a few, non-western DFIs particularly from China
attach no conditions to development assistance (Condon, 2012). China DFIs provide cheap loans and
investments with no attachment bordered on the principles of non-intervention and respect for
sovereignty. Export-Import (EXIM) Bank of China and China Development Bank are the driving
institutions that channel cheap loans and investments to African countries (Institute of Economic and
Resource Management, 2003). In support of the global development assistance, other Chinese banks such
as Construction Bank, Industrial and Commercial Bank of China (ICBC), and Bank of China set up
offices in Africa to support Chinese companies’ business (Bräutigam, 2011). Overall, China
developmental assistance focused on infrastructure, jobs creation and economic growth motivated by
a concept of mutual benefits, where the cheap loans and investments with no attachment are in
exchange of African countries’ natural resources (Condon, 2012).
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For decades, Western countries’ ODA to African countries has been tied to conditional initiatives or
policies (Baah, 2003; Bräutigam, 2011). This spans back to the early 1980’s when the World Bank and
IMF tied ODA to Structural Adjustment Program (SAP) (World Bank Report, 1981). African countries in
receipt of ODA were made to embark on state owned company privatization, economic liberalization and
fiscal austerity (Stiglitz, 2002). The failure of these policies to address the escalated poverty levels, huge
debt levels and weakened African economies during SAP implementation forced the World bank and
IMF to come up with the Heavily Indebted Poor Countries (HIPC) initiative in the late 1990s (Easterly,
2000). In order to be granted debt relief and access to the IMF Poverty Reduction and Growth Facility as
well as the World Bank concessional loans and grants, poor countries inclusive of African countries were
required to prepare Poverty Reduction Strategy Papers (PRSPs) (World Bank report, 1996). This
condition bordered on commitment to democratic governance, transparency, accountability, poverty
reduction in return for debt relief and increased assistance.
The trend of conditional initiatives has continued with the most recent initiative in the 21st century
being the Millennium Development Goals (MDGs) that was championed by the United Nations (UN)
in 191 member countries inclusive of African countries till the end of 2015 (UN, 2020). As a
continuation of MDG initiative, a new initiative with 17 goals called Sustainable Development Goals
(SDG) was ushered beginning 2016 to run till 2030 (UN, 2020).
Logarithm Time Series Analysis: Growth Trajectory for Western and China Official
Development Assistance to Sub-Sahara African Countries prior COVID -19 Era
With 2008 as the base year in the analysis when the 2008 Financial Crisis had its toll on the global
financial markets, 2008 to 2017 ODA yearly figures for Western and China ODA were obtained
from the World bank, IMF, and Aid data website. China’s ODA figures were derived from the
Chinese state-owned EXIM bank and China Development Bank while the Western ODA figures are
a summation of IMF and World Bank (inclusive of DAC countries) figures.
The time series analysis in Figure 1 shows low ODA flows in the immediate aftermath of GFC from
both Western ODA and China ODA. Over time, there was a build-up in China’s ODA as opposed to
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a low steady assistance flow from Western countries prior to the COVID-19 era. Western countries’
ODA extended to SSA is noted to be restricted between 10 % and 20 % from 2009 to 2016, an era of
pro - poor Millennium Development Goals (MDG) implementation that focused on poverty
alleviation. With the locked in allocations towards the program, revision of the flows was only
recommended during the implementation to enhance attainment of MDG goals (Heller and Gupta,
2002). As a continuation of the MDG initiative, implementation of the new Sustainable Development
Goals (SDG) initiative tallied with the ODA growth increase recorded at 30 % in the subsequent
year, 2017.
Figure 1; Log Time Series Trajectory of Western and China ODA to Africa Prior COVID-19 Pandemic
Log. ODA growth, 2008 base year
WESTERN AND CHINA ODA TO AFRICA TRAJECTORY PRIOR
COVID -19 ERA
7.0
6.0
5.0
4.0
4.0
3.0
2.7
2.6
2.7
2.6
3.0
2.0
1.5
0.9 1.1
1.2
1.2
1.2
1.1
1.1
1.3
1.1
1.1
1.0
0.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
CHINA ODA
Western ODA
China ODA; EXIM bank and China Development Bank Western
ODA; IMF and World Bank (DAC countries inclusive)
Source: Computed by Author, based on China Africa Research Initiative 2017, IMF database 2020, World
Bank database 2020, Aid data 2020.
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During the period under review, China was aggressively building up ODA flows to Africa as shown in
Figure 1. The ODA growth stood at 160 % in 2017 from a low of 50 % in 2009. Between 2009 and 2017,
the build-up hit a high of 620 % in 2016 when both EXIM Bank and China Development bank offloaded
US$ 30.41 billion from a low flow of US$ 3.92 billion in 2008 (Aid data, 2020; Atkins et al, 2017, Ndiili,
2020). China was aggressively targeting infrastructure projects in Africa such as road networks, schools,
hospitals, production as opposed to social programs implemented under Western countries’ ODA
(Condon, 2012). The timing and huge flows was in tandem with the dawn of increased appetite for
developmental projects funding embarked on to transform the face of Africa. China’s cheap loans and
investments also supplemented the proceeds from the rising Euro bonds issuance by African governments
(The Economist, 2018).
Official Development Assistance Preference in Sub-Sahara Africa Prior Covid-19 and Debt
Implications
Based on the ODA trajectory in the preceding section, China’s ODA proved to be a preferred source
among SSA countries as opposed to Western countries’ ODA prior COVID-19 era. With China cheap
loans and investments at their disposal, African countries were architects of their own programs and the
ODA helped in actualizing developmental projects (Bräutigam, 2011). The projects were designed by
Africans based on the local needs and the prevailing developmental needs.
Lack of stringent conditionalities and easy access to China ODA also propelled the appetite for these
funds as attested by Abdoulaye Wade (2008). The agreements were mutually inclusive and concluded in
a short period of time as evidenced in the Angola case (Condon, 2012). The quantities and modalities are
not imposed but negotiated between counterparties to both parties’ satisfaction.
Researchers such as Condon (2012) and Bräutigam (2011) highlight China non-interference in
counterparty’s politics. Such a stance makes African countries settle for China’s ODA. Regardless of
prevailing political injustice and violation of human rights, African countries access to China’s ODA is
uncompromised.
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Over time, China’s investments and loans loosely termed as ODA have led to high debt levels in SSA
countries as shown in Figure 2. China’s ODA increased to a high of US$ 18 billion in 2013 from a low of
US$ 6 billion in 2009 depicting 46 % China ODA / SSA debt ratio in 2018 from a low ratio of 17 % in
2009. The highest ratio was recorded at 55 % in 2016 when China offloaded US$ 30 billion on the SSA
market. The highest recipient country of these flows is the oil endowed Angola that backs the loans and
investments with oil depository (Eisenstein & Smith, 2019). The country receipted $42.8 billion of China
cheap loans and investment over 17 years as at end 2019. Other recipients such as Zambia have recently
been in the limelight of backing loans and investments with national assets (Solomon, 2018). As at end
2017, Chinas loans and investment to Zambia’s debt ratio stood at 32 % (Reuters, 2018).
Figure 2; China’s ODA to Sub-Sahara Africa debt ratio
China ODA to Sub-Sahara Africa debt ratio
35
55%
60%
30
30
46%
50%
25
36%
37%
40%
20
28%
18
27%
15
30%
13
13
15
21%
17%
10
16%
20%
10
7
9
6
5
10%
0
0%
2009
2010
2011
2012
2013
2014
2015
2016
2017
China ODA(annual)
China ODA/ SSA Debt
Source; Computed by Author, based on China Africa Research Initiative 2017, IMF database 2020, World
Bank database 2020, Aid data 2020
Structuring the debt accrued from the official creditors, China had the highest weight of 39%, followed
by the World Bank at 32%, and IMF stood at 21% with Paris club depicting the lowest at 8% in 2018 as
shown in Figure 3.
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Figure 3: Official Creditors Debt weight in Sub-Sahara African Countries
World bank
32%
Other Multilateral
(IMF)
21%
China
39%
Paris Club
8%
Official Creditors Debt Weight in Sub-Sahara Africa Countries
World bank Other Multilateral (IMF) China Paris Club
Source; Computed by Author, based on China Africa Research Initiative 2018, IMF database 2020, World
Bank database 2020, Aid data 2020.
Sector Analysis Correlation: China and Western Countries Official Development Aid Correlation
to Sub-Sahara Africa Gross Domestic Product Prior Covid-19 Era.
The Western countries and China focus on different sectors development and their support is skewed
towards their areas of interest. Western countries’ ODA is channeled towards social- economic activities
such as health, water and sanitation while China’s ODA goes into infrastructure development. In the
recent past, the massive infrastructure and construction projects that African countries have embarked on
is in tandem with the receipted China’s ODA. Table 1 indicates an increase in China’s ODA that
correlates to the growth in the construction sector. The correlation value of 0.68 prior COVID-19 is clear
indication of the trajectory link between China’s ODA and growth in the infrastructure and construction
sector. This outcome is collaborated by Figure 4a where China’s ODA extended to infrastructure
development led to an increase in infrastructure and construction growth with the highest value added
recorded at 92% in 2017.
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Table 1; China ODA/ SSA Construction value added Correlation
2007-2017: China ODA/ SSA Construction value added Correlation
China ODA (annual)
SSA Construction value added
China ODA (annual)
1
SSA Construction value added
0.68
1
Source: Computed by Author, based on China Africa Research Initiative 2017
Figure 4a; China’s ODA and SSA Construction value added Annual position
100
88%
92%
90
85%
81%
76%
80
70%
70
57%
63%
60
53%
50
40
30
30
18
20
13
15
13
10
9
7
10
6
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
China ODA(USD bn)
SSA Construction value added %
Source; Computed by Author, based on China Africa Research Initiative 2017, IMF database 2020, World
Bank database 2020, Aid data 2020
Notwithstanding an increase in infrastructure and construction growth, Figure 4b depicts a steady annual
growth. Infrastructure and construction sector displays a progressive constant annual growth from 2009 to
2012 and a decline in subsequent years. Despite an increase in China’s ODA to African countries, the rate of
growth is slow as compared to the huge amounts injected in the sector. This is explained by the nature of
capital construction projects implemented that take years to completion and realization of economic gains. For
example, Angola used the funds to re-construct rail lines that are vital to Angola’s mineral exports, a new
airport and low-income houses (Condon, 2012). Similarly, Zambia has commenced the extension and
upgrading of the Kenneth Kaunda International airport, construction of the Kafue Gorge hydroelectric dam
and road networks (The Guardian, 2019, Rosen, 2018). These are capital projects in nature that will only fully
realize the economic gains in the long run. This position is depicted in the steady SSA Construction growth in
Figure 4b.
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Figure 4b; Annual % change; SSA Construction value added
12%
11%
11%
10%
9%
8%
8%
8%
7%
6%
5%
5%
4%
4%
2%
0%
2009
2010
2011
2012
2013
2014
2015
2016
2017
% change SSA Construction value added (annually)
Source: Computed by Author, based on China Africa Research Initiative 2017, IMF database 2020, World
Bank database 2020, Aid data 2020
On the health front, Western countries depict a positive correlation value of 0.57 between the disbursed
ODA and SSA health sector prior COVID-19 as indicated in Table 2 and Figure 5.
Table 2; Western Countries ODA/ SSA Health value added Correlation
2011-2018: World Bank Contribution/ SSA Health value added Correlation
SSA Health Value added
World Bank Social -Economic
Sector Contribution
World Bank Social -Economic
Sector Contribution
0.57
1
SSA Health Value added
1
0.57
Source; Computed by Author, based on World Bank database 2021
Utilizing the social - economic financial inflows as a proxy for SSA Health sector flows, the World Bank
was the major contributor towards health development with contributions accounting for 58% of health
value added in 2011 that surged up to a high of 76% in 2018 as shown in Figure 6. Other contributors
comprising IMF, China and PARIS Club accounted for 42 % SSA health contribution in 2011 that
declined to a low of 24% in 2018.
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Figure 5; World Bank Social Economic Contribution and SSA Health Sector correlation prior to COVID -
19 Era.
76.00
78.00
80.00
82.00
84.00
86.00
88.00
90.00
- 10.00 20.00 30.00 40.00 50.00 60.00 70.00
Health Sector GDP
WB Social - Economic Expenditure
Field: WB Social - Economic Expenditure
and Field: Health Sector GDP appear highly
correlated.
Source; Computed by Author, based on World Bank database 2021
Figure 6; Western Countries ODA Contribution to Sub-Sahara Social -Economic Sector; Health
Sector Proxy
Source: Computed by Author, based on World Bank database 2021
Official Development Assistance Preference in Sub -Sahara Africa during COVID-19
History attest to Western countries ODA being channeled towards socio- economic activities such as
health, water, and sanitation, education in SSA countries, contrary to China’s focus on infrastructure
development. With the health sector adversely affected by the pandemic, most aid has been channeled to
this sector. The World Bank Group (WBG) and IMF has allocated above USD 2 billion to aid SSA
countries in the prevention, detection and treatment of coronavirus (IMF, 2020). A comparison analysis
in Figure 7 shows more aid flowing from Western Countries than China during the pandemic.
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Figure 7; Trajectory of Western and China ODA to Africa during COVID-19 Pandemic
Source; Computed by Author, IMF database 2020, World Bank database 2020, RWR advisory group 2020.
IMF and World Bank representing the Western countries have rendered larger support to SSA countries
during the pandemic than China. As shown in Figure 7, US$ 2.42 billion was disbursed to SSA countries
in 2020 to curb the spread of the virus and aid in treatment activities. IMF and World bank’s contribution
summed up to US$ 2.14 billion with China depicting a low contribution of US$ 0.28 billion which is
88.5% and 11.5% respectively. The COVID -19 support profile collaborates with the skewed sector
preference analysis in the proceeding section where Western countries rendered vast support towards
social economic activities, unlike china that is more skewed towards the construction sector. With SSA
countries experiencing stalled economic activities and growth due to COVID -19 adverse repercussion on
all social economic sectors, SSA countries have recorded increased flows of 88.5 % from the Western
countries in 2020 as shown in Figure 7 from a low of 76 % in 2018 as depicted in Figure 6.
As an entity, the World Bank disbursed US$ 0.69 billion to thirty SSA countries via the FastTrack
Facility Program (World Bank, 2020). Nigeria receipted the highest disbursed amount of US$ 0.114
billion with Sao Tome e Principal accessing the lowest amount of US$ 0.03 billion as shown in Figure 8.
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Figure 8; World Bank Fast Track Facility COVID -19 Funding to Sub -Sahara Africa Countries
USD0.69 Bn
Source; World Bank database 2021
IMF disbursed the highest funds amounting to US$ 1.5 billion to eligible member countries under the
Rapid Credit Facility. Uganda accessed the highest fund of US$ 0.5 billion with Lesotho recording the
lowest US$ 0.016 billion as shown in Figure 9.
Figure 9; IMF Rapid Credit Facility COVID -19 Funding to Sub -Sahara Africa Countries
USD1.5 Bn
0
100
200
300
400
500
1
152
68
148
16
169
100
111
143
498
Millions
IMF Rapid Credit Facility Awarded to Sub Sahara African Countries
Cameroon Chad Guinea Lesotho Liberia
Madagascar Malawi Rwanda Sierra Leone Uganda
Source: Computed by Author, based on IMF database 2020
With China’s support skewed towards construction, it contributed the least amount of US$ 0.3 billion
mainly disbursed by companies. The Chinese government disbursed 17% of the China COVID-19 flows
SSA Countries
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with Companies and Charity organizations contributing the largest 50% and 21% respectively as shown
in Figure 10.
Figure 10: China COVID -19 Funding to Sub -Sahara Africa Countries - USD 0.28 Bn
Source: Computed by Author, based on RWR advisory group
The official China loans and investment amount extended to SSA stood at US $143 billion from 2000 to
2017 (China Africa Research Initiative, 2017). The announced debt positions by African countries in
respect to China loans and investment are noted to be obscured on account of lack of transparency on
contracted loans. Mozambique has been cited as an example due to omitting US$ 2 billion of China loans
and investment (Condon, 2012). Therefore, China cheap loans and investment to SSA debt ratio may be
more than what is depicted in Figure 3.
Addressing Financing Development Needs amidst Debt Sustainability
Though Western ODA was unpopular among SSA Countries prior COVID-19 pandemic due to stringent
conditions tied to extended ODA, the change in the trend during the pandemic calls for SSA countries
and Western countries to review the nature of partnerships that will yield mutual benefits. With a focus
on different sectors, Western countries ODA is channeled towards socio- economic activities such as
health, water, and sanitation while Chinas ODA goes into infrastructure development. Therefore, a
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hybrid of both is cardinal to foster economic growth in SSA Countries. In this regard, Western countries’
ODA may devise a new approach on the delivery of ODA in SSA countries. These may be tailored in
partnership with the ultimate recipient based on the needs identified by the respective SSA countries.
Consented efforts to this effect were elaborated at the recent Senegal conference held in December 2019
(UN, 2020). With stakeholders drawn from both developed and developing countries, one of the
discussed issues pertained to how borrowers and lenders can achieve greater debt transparency and
develop new modes of private financing. With more of such initiatives that foster bilateral dialogue
between Western and SSA countries, the ODA platform may take new inclusive, mutual, and local needs
targeted programs.
Notwithstanding the need to contract debt below the 40 % international debt to GDP ratio (IMF, 2010),
natural resources sustenance management is a concern that needs to be addressed by SSA Countries.
Commodity- exports are cardinal for SSA commodity- exports based countries like Angola, Zambia,
Nigeria to mention but a few. On the backdrop of China cheap loans and investment being exchanged for
Africa’s natural resources, SSA countries need to devise policies on the quantities of natural resource
contracted in this barter-system arrangement to avoid depletion for future debt financing and suppressed
growth in other sectors. For most of SSA countries, commodity export is the main source of forex flows
and driving force to economic growth. Hence, the exchange of natural resources for China cheap loans
and investment may compromise on other sector’s growth that thrives on commodity export earnings.
Further, quantities of natural resources exchanged for the contracted loans may lead to natural resources
extinct for future export revenues and debt financing. This calls for SSA countries to negotiate
sustainable quantities of natural resources exchanged for China loans that will not compromise on other
sector’s growth that thrive on commodity export earnings as well as preserve natural resource for future
exports revenue and debt financing.
The nature of resources exchanged for China loans should also be addressed by SSA Countries.
According to Solomon (2018), resource - rich countries like Angola easily service the loans by mutual
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benefit barter-trade of oil for infrastructure, unlike non - oil endowed countries that may struggle to settle
the loans. Non - oil endowed countries unable to generate adequate revenue from commodities export
given the frequent trend of falling prices on the global market may struggle to service their debt in the
long term. An example is the recent incident reported by Phiri (2018) where the African copper top
exporter Zambia’s debt of US$22 million (150 million RMB) was partially cancelled by China by
exempting Zambia from its obligation of paying back one batch of interest free loan that matured in
December 31, 2018. The looming concern is the exchange of the China loans with state owned assets that
may compromise on state security and sovereignty in case of a default. Therefore, the nature of resources
exchanged for China loans needs to be considered when contracting the cheap loans.
Finally, caution must be applied when accessing China loans where SSA governments strive to balance
between infrastructure financial needs and debt sustenance given China’s lack of interest in sovereign
issues inclusive of debt sustainability. This can be attained by government’s commitment to debt
accountability and establishment of control for the contracted debt to be below the 40 % international
debt to GDP ratio amidst economic growth. Though most African countries have adopted the Public
Financial Management System (PFMS) to address budgeting, accountability and establishment of control
structures deficiencies for government funds, the execution component still has challenges as opposed to
the budgeting that has improved (Andrews, 2010). With the existing execution deficiencies in
government financial management, the concealed China loans and investment augments the existing
problem. Therefore, governments should foster formal receipt of all China loans in the PFMS and
strengthen accountability as well as control systems. In this regard, contracted debt and intended
programs are in the public domain. This will foster transparency and accountability, unlike contracting
obscured China loans that are also poorly managed. Furthermore, this will curb the moral hazard of
increased appetite for developmental projects funding at the expense of debt sustainability. Most
importantly, the success of debt sustenance is dependent on government’s level of commitment and strict
adherence to budgeting, accountability and controls amidst infrastructure development. Without
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government’s commitment to debt accountability and establishment of control, debt sustainability in SSA
countries will continue to be compromised.
CONCLUSION
China has transformed the ODA system in SSA countries from aid to trade arrangement where ODA is
exchanged for natural resources. With no stringent conditions attached to the ODA, SSA country’s
appetite for China ODA for infrastructure development surged up prior the pandemic. However,
economic stall during the pandemic propelled SSA countries access to Western ODA. Notwithstanding,
the popularity of Western ODA in SSA Countries during COVID -19 pandemic, a hybrid of Western and
China ODA is cardinal to foster economic growth in SSA Countries. This is due to Western ODA being
channeled towards socio- economic activities that compliments China ODA that is utilized for infrastructure
development. In this regard, Western countries and SSA Countries need to re-visit the stringent conditionality
ODA arrangement that is straining the developmental partnerships. Further, SSA countries need to negotiate
sustainable quantities of natural resources exchanged for China loans that will not compromise on other
sector’s growth that thrive on commodity export earnings as well as preserve natural resource for future
exports and economic growth.
Page 19 of 23
Acknowledgements: Maboshe Mashewa for proof-reading and editorial aid provided
Funding: This research did not receive any specific grant from funding agencies in the public,
commercial, or not-for-profit sectors.
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