China Provides Another $20 Billion to Africa

At the opening of the 5th Forum on China Africa Cooperation (FOCAC) in Beijing on 19 July 2012, President Hu Jintao announced that over the next three years China will provide $20 billion in credits to African countries to assist them in developing infrastructure, agriculture, manufacturing and small- and medium-sized enterprises.

The BBC asked me to comment on the announcement. I noted that this has become a traditional announcement at the triennial FOCAC summit, although the amount this year was double the amount of three years ago. Most of the money will probably be used for loans that are attractive by commercial standards but will not necessarily be equivalent to those offered by the International Development Association of the World Bank. If the past is any indication, much of the money will be used for large infrastructure projects desired by African leaders in resource-rich countries that can afford to pay back the loans by sending oil and/or minerals to China. Chinese companies will almost certainly build the projects and some of them will include a significant component of Chinese labor. This formula has worked well for China in the past but has also permitted African governments to meet their infrastructure needs at a time when private Western companies have had difficulty finding funding.