China to use another $20 billion to buy influence in Africa

Section:

China Pledges $20 Billion for Africa

By William Wallis
Financial Times, London
Thursday, May 17, 2007

http://www.ft.com/cms/s/a94d5e86-04a1-11dc-80ed-000b5df10621.html

SHANGHAI -- China intends to provide about $20 billion in infrastructure and trade financing to Africa during the next three years, eclipsing many of the continent's traditional big donors by a single pledge.

The scale of China's accelerating financial flows were revealed to the Financial Times on Thursday by Donald Kaberuka, president of the African Development Bank (AfDB).

The sums involved are beginning to outstrip individual contributions from traditional donors, including multilateral development agencies.

Their combined pledges -- toward a special fund intended to assist sub-Saharan Africa to tackle shortfalls in electricity supply, roads, and other infrastructure – are about $7 billion, Mr Kaberuka said in an interview with the FT.

China has hosted the AfDB meeting, which closed in Shanghai on Thursday, in an effort to consolidate ties with Africa, born from the pursuit of oil and mineral resources to fuel its booming domestic economy.

The scale of China's plans are beginning to assume imperial proportions, some observers contend.

During the course of meetings this week, officials from China’s Exim bank told Mr Kaberuka they were looking to spend "in the neighbourhood of $20 billion" over three years. "That is quite something, because it shows you what traditional donors are up against," he said.

But Africa's needs were so great, Mr Kaberuka added, the $7 billion so far promised still represented only "a drop in the ocean."

While grants and soft loans to Africa from Europe, the US, and Japan still exceed China's, they come with conditions attached and often fail to materialise when these are not met.

African countries endowed with natural resources but emerging from civil war would be treated by multilateral agencies as candidates for debt relief and grants.

China, however, looked at their potential in the long term, rather than assessing their immediate ability to repay loans.

This posed a challenge, Mr Kaberuka acknowledged, to traditional donors in Europe, the US and indeed the AfDB who are attempting to impose stricter criteria for debt management in the wake of their recent write-off of some $50 billion in African debt.

China's willingness to lend money on demand, where it suits its mercantile interests, appeals to some African governments starved of short-term credit.

But there are concerns some countries may be locking in their commodity exports to deals that could prove disadvantageous in the long-term.

China's Exim bank provides funding in various forms, sometimes in straight financing, or -- in Angola's case -- in return for oil.

Its lending is on top of China's planned $5 billion development fund for Africa.

The $20 billion would go partly toward projects already announced, including the rehabilitation of railway networks in Angola and Nigeria, and the building of a hydroelectric dam in Ethiopia.

Mr Kaberuka, a former Rwandan finance minister, said Chinese premier Wen Jiabao had assured him China was alert to the dangers of a new debt pile-up. But the Chinese took a longer-term approach to debt sustainability, he said.

"The chairman of the Exim bank used a word which is very interesting. He said: 'Yes, debt sustainability is important but development sustainability is what we are after.'"

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