19 August 2008
Since the Chinese economy has taken off and it has increasingly looked to Africa to provide raw materials, the World Bank and IMF have been confronted with the question of how to respond. Recent statements by the institutions have shown that these responses are careful and at times contradictory.
At the same time that the World Bank congratulates China for investing billions in addressing Africa’s significant infrastructure gap, its sister institution the International Monetary Fund (IMF), Reuters reports, “has said it must examine the implications of a $9 billion deal between China and the Democratic Republic of Congo before deciding on its own debt relief package.”
During a recent visit to the DRC, the Bank’s regional Vice President for Africa Ngozi Okonjo-Iweala told journalists when asked about the deal that “the World Bank has no problem,” though cautioned that “each financial backer” financing development projects in Africa “must be transparent in its deals” – a clear reference to critiques that the terms of deals with Chinese investors have largely remained undisclosed.
In response to these persistent concerns, African finance ministers and central bankers issued a statement pledging transparency in their countries’ deals with China after meetings with the World Bank and IMF in Mauritania. The IMF’s Managing Director told Reuters, “It's good news that there are new sources of financing, but we have to be very careful in order that this new financial help does not destroy the original policies of the Bretton Woods institutions that aim to cancel debt.” Indeed, whether or not the World Bank approves of these major news deals such as the $9 billion for the DRC, it will be up to the IMF to decide whether a country qualifies for debt relief from the World Bank and others.
According to Reuters, the $9 billion Chinese loan and investment package to the DRC will primarily finance the development of infrastructure, mainly for much needed roads and power supply, in exchange for access to the DRC’s abundant mineral wealth. The deal would put China’s financial contribution to the country well above that of the Bank, which recently pledged $1.5 billion over the next three years.
In fact, a recent World Bank report has highlighted China’s role in building Africa’s infrastructure, particularly for transportation and power. While acknowledging that 70 percent of China’s investments are directed toward the four countries on which it depends most for oil and raw materials – Nigeria, Sudan, Ethiopia and Angola – the report notes that when it completes the ten hydropower plants it is currently constructing, China will have increased sub-Saharan Africa’s power generation capacity by 30 percent.
This becomes all the more critical when the World Bank has fallen well short of its own pledges to ramp up financing for infrastructure on the continent under its Africa Action Plan, which were based on optimistic projections of new resources following the G-8’s commitments to double aid to Africa in 2005. However, the Bank has recently unveiled plans to scale up finance for infrastructure over the next three years, and much of the anticipated increase for Africa is likely to come in the form of public-private partnerships (PPPs). Many of the Bank’s most controversial projects in Africa have been PPPs, such as the Bujagali Dam in Uganda, the West African Gas Pipeline between Nigeria and Ghana, and the Chad-Cameroon pipeline.
Since the Chinese economy has taken off and it has increasingly looked to Africa to provide raw materials, the World Bank has been confronted with the question of how to respond. For the most part, the Bank has appeared to welcome China’s renewed involvement on the continent, as evidenced by its laudatory new infrastructure report and overtures by Bank President Robert Zoellick last year to collaborate on projects with the Export-Import Bank of China (China Exim). However, it is unclear whether the much touted initiative has led to any joint projects, and some observers have speculated that the Bank’s decision to team up with China Exim is part of its strategy to avoid competition with its rapidly growing Chinese counterpart.
Meanwhile, there has been much speculation that China’s search for raw materials could be behind the recent decision by the Government of Guinea to rescind its agreement with Rio Tinto in its Simandou iron ore concession (see “IFC considers record mining investment in Guinea as its Simandou concession comes under dispute”). The decision to cancel the project – in which the Bank’s private lending arm, the IFC, holds a 5 percent stake – came just days after a delegation of Chinese investors visited the country and the government announced it was negotiating a multi-billion dollar investment in exchange for mineral rights. Reuters reports that China had earlier agreed to build a $1 billion hydropower plant for access to Guinea’s extensive bauxite deposits.
Resources
- IMF to study Congo’s China deal before any accord by Pellet Kipela, Reuters, July 2, 2008
- World Bank: We must focus on the enormous opportunities in the DRC by Eoin Young, UN Mission in DR Congo, July 28, 2008 (MONUC website)
- Africa finance chiefs vow transparency on investment by Daniel Magnowski and Vincent Fertey, Reuters, August 2, 2008
- China leads new financiers in Africa-World Bank by Lesley Wroughton, Reuters, July 10, 2008
- New Financiers are Narrowing Africa's Infrastructure Deficit, World Bank, July 10, 2008
- World Bank Group to Scale Up Infrastructure Investments Significantly, World Bank, July 30, 2008
- World Bank and China Exim bank team up on lending to Africa, Bank Information Center, June 4, 2007
- IFC considers record mining investment in Guinea as its Simandou concession comes under dispute, Bank Information Center, August 11, 2008
- Guinea, China study mines-for-infrastructure deal, Reuters, July 31, 2008