Friday, 12 August 2011

Indicators of Hard and Soft Infrastructure in China-Heavy Africa

The New Structural Economics developed and promoted by  World Bank Chief Economist Justin Jifu Lin grants an important role of the government in growth facilitation, through the provision of hard (adequate networks of road, rail and air transport and communications, electricity grids and other public utilities) and soft (basic governance including competitive market institutions, financial  system and regulation, basic health, and primary and secondary education services including vocational training) infrastructure. Because of externalities and their public good character, this is indeed the core legitimate domain of the government. The adequacy of physical facilities and the cost-effectiveness of operation and delivery of corresponding public services cut down transaction costs for the private sector and strengthen its competitiveness.



Variation of Indicators of Hard and Soft Infrastructure in China-Heavy Africaa                                                                                                
Country Group
WORLD BANK GOVERNANCE INDICATORS, change 2008vs2005                                                                           

IFC Cost of Doing Business,
2010 vs 2006   

Regulatory quality
Government effectiveness
Rule of law
Corruption control 
Days to export
Days to import
Average variation China-heavy Africa

0.11

0.18

0.10

0.14

-7.0

-12.0
Average variation
all-Africa

0.06

0.03


0.04

0.06

-5.4


-7.9
a) Countries where China dominated foreign investment in the mid 2000s (Benin, Congo DR, Ethiopia, Guinea, Libya, Niger, Rwanda, Sudan, Zambia) according to the Heritage investment tracker.

      
The Table focuses on identifying possible differences in ‘soft’ (governance) and ‘hard’ (the ease of foreign trading, as a proxy for transport infrastructure)  between country groups with heavy Chinese investment and an averag for all-Africa. The data are derived by the World Bank World Governance Indicators and the IFC Cost of Doing Business Indicators. Note that the underlying averages are unweighted and hide a lot of country variation;  they should not be taken as  statistically significant results. Yet they serve to put into context pronouncements such as by the US Secretary of State Hillary Clinton at a recent state visit to Zambia who warned again ‘new colonialism’ in Africa, refering to China:

“We don’t want them to undermine good governance in Africa.”

The Table shows that African countries qualified as China-heavy (where China dominated foreign investment in the mid 2000s according to the Heritage investment tracker) did clearly better in terms of changes in  ‘soft’ infrastructure:  regulatory quality; government effectiveness; rule of law; and corruption control. Also the IFC Cost of Doing Business data that are not distorted by US dollar variations and can be taken to at least partly represent changes in transport infrastructure, namely days needed to import, resp. export, indicate greater improvements in countries where China engaged more strongly than elsewhere. While this does not tell us anything about causation, it can be assumed that these data reflect the impact of China’s development cooperation.

A new OECD Development Centre Working Paper (#302) by Myriam Dahman Saidi and Christina Wolf analyses the Asian mode of development co-operation that is progressively gaining momentum in poor countries. Asian mode development co-operation usually relies on project rather than programme aid and targets infrastructure and industrial rather than social sectors. Chinese ‚Aid‛ is in fact perceived more as one of several tools aiming at laying the ground for enhanced bilateral trade and private-sector activity, enabling governments to reduce the risk of market entry for companies and to provide the necessary infrastructure to reduce operational costs.

Being largely complementary to the actions of established donors, this new philosophy is associated to a range of new opportunities for African countries, notably with respect to filling the infrastructure gap, the development of the rural hinterland, finance modalities that combine the longer-term horizon of public actors with the profit-oriented private sector and the possible spill-over effects from the new entrepreneurial diaspora.

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