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Thursday, September 21, 2006

Money flowing into Africa from China and India

SINGAPORE - U.S. Treasury Secretary Henry Paulson calls it “irresponsible borrowing.” But many of Africa’s poor countries say the money they get from China and India is vital in their quest to fight poverty and raise living standards.

Many Western governments have forgiven loans to African nations, but fresh funds have been slow in coming. That’s prompting many African countries to turn to China, and to a lesser extent India, for money to finance development projects.

But Paulson and the World Bank are worried that without careful monitoring, such lending could burden these nations with enormous debts again.

The debate is as much about those concerns as it is about the changing dynamics in a global economy where China and India are assuming a greater role in Africa, which has traditionally relied on Europe and the United States.

China and India investing
Without singling out any nations, Paulson went so far as to recommend the World Bank clamp down on such practices.

“We are already receiving anecdotal evidence of creditors providing large loans, the terms of which are unknown, to countries that have recently received debt relief,” he told the World Bank’s policy panel earlier this week.

“We need effective incentives or penalties to deter irresponsible borrowing or lending,” he said.

Hungry for resources to feed their growing economies, China and India are strengthening their economic and political ties with Africa by boosting loans and investments to the region.

During a trip to Africa this summer, Chinese Premier Wen Jiabao agreed to give Ghana, one of the countries benefiting from the Group of Eight’s debt relief deal earlier this year, a loan of about $66 million for its communication network and other projects. He also signed an agreement to gave Egypt a $50 million loan and a $10 million grant.

India’s state-run oil exploration firm Oil & Natural Gas Corp. is investing $6 billion in building a power plant and railroads in Nigeria.

African nations happy to get money
African nations, pressed for funds to build their infrastructure — in many cases destroyed by years of warfare, are happy to get the money.

“We should look toward the East instead of looking toward the West because we believe we will benefit more from the relationship with countries like China and India,” said Nigerian Finance Minister Nenadi E. Usman. “India and China will be more sympathetic to what we are going through now because they have been down that road themselves.”

Trade and investment flows between Africa and Asia have soared in recent years as India and China’s growth has accelerated.

Asia’s share in Africa’s exports doubled to 27 percent in the past five years, almost the same as Europe and the United States, a World Bank study said. Europe’s share, however, has dropped by half.

Asia’s exports to Africa are also growing fast, about 18 percent annually.

A different relationship
Africans say their engagement with China and India is different from the region’s ties to their former colonial rulers.

“Ours is an equal partnership. The trade is two-way,” said Amos Kimunya, Kenya’s finance minister. “It wasn’t like this” with countries that dominated trade with Africa in the past, he said.

African nations, home to a third of the world’s poor who live on $1 a day, also complain that funds from the World Bank come with conditions such as fiscal reforms and steps to privatize the economy that cause delays.

While the World Bank and donor countries have pledged more funds, these have come “far too slowly and the conditions are far too many,” said Abdoulaye Diop, Senegal’s economy minister.

A recent study commissioned by Britain-based aid group Oxfam International found that 15 out of 20 developing countries assessed in 2006 had privatization-related conditions attached to their World Bank lending contracts.

Loans and help from China and India, however, come with few conditions.

Changing global landscape
China and India are also helping African countries to add value to their products, moves that are crucial to making trade a two-way street, said Kamal Nath, India’s trade minister.

African countries are increasingly exporting manufactured goods and processed commodities instead of the traditional agricultural goods like cotton, he said.

“The global economic architecture is changing,” Nath said.

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