By Nnanda Kizito Sseruwagi
There is a competition. A spending competition. The spending is in trillion dollars. Developing countries are participants. Participating from an interesting position. Participating as recipients. Imagine that. Being at the receiving end of a spending competition!
Whereas both foreign aid and development finance are projects that pursue development objectives in developing countries, we should distinguish them. Unlike foreign aid, development finance comprises an extensive range of financial instruments and interventions intended to support long-term economic growth and infrastructure development in underdeveloped countries.
Foreign aid often tends to address immediate humanitarian needs, support social welfare programs and alleviate poverty in poor countries. It has also suffered profound criticism as deleterious and counterproductive to the development of African countries.
The biggest foreign aid providers are historically Western countries including the countries under the European Union, the United States, Germany, United Kingdom, France, Sweden, Netherlands, Italy, Canada and Norway. Japan is also a major foreign aid giver. China is noticeably absent from this list. It has unwaveringly pursued a unique strategy borne out of its shared historical experience with Africa. This was partly the spirit in which the Belt and Road Initiative (BRI) was initiated.
While the G7 countries launched the Build Back Better World (B3W) in 2021, they were reactively ushering in an alternative to China’s BRI. It had been almost a decade earlier since China had recognised the primacy of infrastructure development in low- and middle-income countries. Observed, that it could also have been a quiet concession that foreign aid was not as impactful as it had been magnified to be.
The B3W initiative focuses on addressing infrastructure needs in developing countries. It is planned that by 2035, this initiative will have contributed about $40 trillion worth of infrastructure in recipient countries.
By contrast, the cumulative BRI engagement in the 147 countries undertaking the project since its inauguration in 2013 is $962 billion. Out of that, about $573 billion was invested in construction contracts while $389 billion went into non-financial investments. It is also estimated that BRI will likely increase the world GDP by $7.1 trillion per annum by 2040. Its benefits are also expected to be “widespread” because of the efficiency likely to be experienced in world trade as a result of improved infrastructures across the world.
But here is the catch. Whereas both initiatives sound ambitious, a close examination of their current contribution is very revealing. Out of the gigantic promise of $40 trillion, the B3W has so far yielded a paltry $6 million in global infrastructure construction. Whereas China’s BRI did not promise trillions of funds to China’s friends and allies, it has already sunk almost a trillion dollars in brick-and-mortar infrastructure projects around the world.
Let’s turn the focus to Africa. The majority of the world’s poorest and developing countries are spread across this continent. We are the central focus of this development finance competition between the West and China. If we need to choose a reliable partner, given the above delineation of how the B3W and BRI promise versus how they have performed, where should we fall?
As we seek to unlock our development potential by tapping into financial assistance to jumpstart our industrialisation, let us not lose sight of the dynamics involved by the two major development finance funders, China and the United States.
The BRI is already directly seen to be bridging the gap of Africa’s infrastructure deficit which is reported to be about $130-170 billion annually. We need all the financing we can find to close this gap since our development needs are many.
This is where the B3W initiative would come in. It presents us with an opportunity to diversify our sources of development finance. The problem only arises from the signature conditions that come with Western funding. The well-meaning, well-sounding terms that espouse democratic governance values and transparency as prerequisites for qualifying to receive this finance. A lot has been written and said about the mismatch between the focus on these values as opposed to the impact which that focus makes on the ground. Unless the West is capable of learning from the futility of its conditional foreign aid to Africa and is willing to risk a blind investment with the understanding that different societies evolve with different norms and habits which may change as they achieve economic development, insisting on these preconditions will yield nought.
As Africa, we need to leverage both the BRI and the B3W initiatives by aligning the investment that comes from them with our national development priorities. If we are not clear on those priorities, it doesn’t matter how much money will be thrown at us, it won’t impact our people. But the choice is in our hands.
The Writer is a senior research fellow at the Development Watch Centre.