Sunday, December 06, 2009

Chinese aid not working?

I have been wondering why the many infrastructure projects have seemingly had so little impact on the lives of the population. Despite all the money being spent incomes and employment don't seem to have improved.

I assumed that since most of the projects were outstation the impact must have been felt in the regions. A report in today's Sunday Times offers another explanation - that there is in fact very little impact.

The problem is that most of the material and labour are imported from China. Typically infrastructure projects generate a lot of employment and use some local resources such as transport, even if the bulk of the material is imported. According to the Sunday Times even the labour is imported.

I was discussing this with another friend of mine who worked for many years in Botswana. He had seen similar things in Africa, with Chinese projects running almost entirely on imported labour, down to the cooks and cleaners. Difficulties in communicating with local labour is one reason why Chinese contractors use their own labour but it is also apparently a method by which the Chinese government creates employment for their people.

This means that all the recipient country is left with is the physical infrastructure (roads, ports or whatever else was built). Infrastructure is necessary and will deliver benefits provided it is properly planned. Bridges to nowhere, most notoriously built in Japan, and gold plated infrastructure of the type seen in Nigeria will bring little or no benefit to the population. They are however enormously profitable to the contractors and the people involved arranging the deal.

Had the projects been done on concessionary terms, the benefits would be much greater (in terms of costs against benefits) but it appears that the projects are being done on commercial terms and at many times the actual cost due to various fingers being stuck in the pie.

The criticism being leveled at 'Western NGO's' and the development agencies is that there is too little local component in the projects being offered. In the case of Chinese aid the situation appears to be even worse, especially given that the donor agencies offer loans at lower interest terms while much of the Government financed or Chinese financed infrastructure is on commercial terms.

Why not simply use the development agencies or the NGO's to finance projects instead? The problem is that these projects come with a lot of strings - read oversight, which makes it a bit more difficult to cream something off. Commercial borrowings are free of strings, but they must be repaid at commercial rates, by taxpayers.


Serendib_Isle said...

I guess the recipients should be as smart as (if not smarter than) the donors. A friend of mine attending the annual GTZ funding sessions once told me how the Thai Government once demanded a certain technical university to be put up in their country and one condition was to include a certain world-class professor in the faculty. The Thai’s didn’t want the university or the funds to build it without the German professor. They were quite adamant about that, it seems. Sri Lanka, on the other hand, just returned home with whatever that was given, with whatever the conditions imposed by the Germans.

That is the difference.

True, the Chinese are going where the West is reluctant to go. True, the Lankans had very little choice in sourcing funds due to “unfriendly” climate with the West during the escalation of the war. But, we still could’ve been smarter – if only the decision makers were proper brains, if only they were smart people – not some “not-pot politicos.”

Jack Point said...

Agreed but I believe even things that were available from the West were ignored in favour of Chinese participation be cause of the 'no questions asked' policy.