South Africa’s potential role in foreign aid policy in Sub-Saharan Africa

South African President Jacob Zuma, left, and Chinese President Xi Jinping, right, attend a signing ceremony at the Great Hall of the People in Beijing Thursday, Dec. 4, 2014. (AP Photo/Wang Zhao, Pool)South African President Jacob Zuma, left, and Chinese President Xi Jinping, right, attend a signing ceremony at the Great Hall of the People in Beijing Thursday, Dec. 4, 2014. (AP Photo/Wang Zhao, Pool)

South Africa is widely considered the most industrialized economy in Africa with a highly developed and competitive financial and private sector. Moreover, the country is a burgeoning democracy with a robust constitution and judicial institutions (Mckinsey and Company, 2015). Given this, this article will examine South Africa’s potential role for foreign aid policy in Sub Saharan Africa (SSA), the different approaches to aid taken by China and the US respectively before concluding by examining opportunities for China-US collaboration in Africa.

South Africa and its potential role for aid policy in Sub Saharan Africa

South Africa’s development path is currently stuck the middle-income trap. That is, growth has slowed to 1.5% and unemployment gravitates around 25% (Central Intelligence Agency, 2015). This is relatively low when comparing China and the US, which has been growing at 9.7 and 1.6% respectively in the last ten years. (The World Bank, 2016).

South Africa’s integral role in SSA as an economic and political power is without doubt. That said, the country should err away from trying to negotiate unilateral foreign aid conditions. South Africa only represents 4 and 2% of China and the US’s GDP respectively and has less power to negotiate alone. However, SSA represents 18.8 and 10% of the aforementioned country’s GDP and represents a significant opportunity (The World Bank, 2016). South Africa’s robust institutional framework and position within the international system provides the country with a unique opportunity create a unified SSA approach to aid. There is an abundance of natural resources in SSA that is needed to sustain economies around the world. These include metals like bauxite, which is used for aluminum; platinum, used in catalytic converters, lab equipment and dentistry tools and finally nickel, which is used in batteries, magnets and stainless steel (Lyman, 2005).

Effective and targeted foreign aid can provide a stable and prosperous SSA. South Africa will benefit from less spillover effects from political instability across the region and bigger markets for its goods and services. Moreover, both the US and China will both be able to protect their vested economic interests within the region and increase trade with these states.

China’s approach to aid in SSA

China arrives in Sub Saharan Africa (SSA) as a wealthy partner providing aid and investments with both economic and political objectives. In economic terms, China has now surpassed the US as Africa’s biggest trading partner. Politically, China intends on getting Africa to lend its support a on a range of policy matters that include Vietnam and China’s human rights violations (Lyman, 2014).

China has approximately 800 companies currently operating in Africa with government’s support. China largely sees Africa as a source of food and raw materials that will decrease its dependence on the West. It has thus made major loans to oil producing Angola, bought control of two major copper mines in Zambia, and sought oil and mineral concessions or resource-related trade agreements across the continent. China remains the largest importer of African timber, which bears large costs on the environment through deforestation (Lyman, 2014).

China’s aid packages bypass international rules for which the country does not belong. Rather than imposing stringent conditions to aid, China makes bids for oil and mineral resources. China also asks African countries collateralize its loans with commitments of future oil or other mineral exports (Dreher, Fuchs, & Hodler, 2016). African states such as Nigeria and Sudan are two of the top three aid benefactors of Chinese aid. The vast majority of this aid is geared towards the building of pipelines and energy infrastructure (Amusa, Monkam, & Viegi, 2016).

US approach in SSA

It is estimated that the US contributes approximately 0.19% of Gross National Income to foreign aid. More specifically, SSA receives approximately 80 million dollars in aid annually from the US. Beyond that, the country contributes significantly to institutions like the African Development Bank and the International Monetary Fund (IMF) that have a significant impact on the current international political system (Amusa, Monkam, & Viegi, 2016, p. 5).

A vast majority of US aid in SSA is prioritized to the health, education and agricultural sectors. Unlike China, transport, storage, energy and communications are secondary priorities for the US (Amusa, Monkam, & Viegi, 2016, p. 5). The US has strong value-oriented policies that prevent Washington from engaging regimes with poor human rights records. More specifically, the US aid generally promotes democracy and the creation of robust institutions that can assist in overcoming the middle-income trap.

The US however, remains the largest investor within SSA. Moreover, “Up to tens of thousands of American jobs are supported every time we expand trade with Africa”, said President Obama when referring to America’s African Growth and Opportunities Act (Agoa). AGOA offers tax breaks to support manufacturing in a select group of SSA countries. This has led to an increase in competitiveness; export income and jobs for these countries and could provide a base for negotiations between SSA and the US (Harding, 2015).

In contrast to China whose strategy revolves around resource extraction, the U.S. aims to be a meaningful partner in Africa. That is, America mixes economic investment with an agenda that promotes democracy, individual liberties and respect for the law (Burnett, 2015). These policies, if implemented right, could have a significant impact on Africa’s long term sustainability.

Collaboration between China and the US in SSA

There have been growing calls for the US and China to cooperate in SSA. That said, this article has already highlighted the contrasting approached taken by both countries in SSA. China and the US  largely see collaboration as a zero-sum game where the winner takes all. It is highly presumptuous to think that South Africa and SSA can get the US and China to actively collaborate on anything other than lowest common denominator issues. Examples include Sudan/South Sudan and severe non-traditional threats such as the Ebola outbreak, which are few and far between (Sun, 2015). Therefore, it is necessary for South Africa and SSA to create an aid approach that takes these realities of contrasting economic and political agendas in SSA and measures the two competing approaches off against each other to get better aid packages.

Africa should chose a partner that will enable it to obtain long term growth and development

Robert Solow’s model on economic development has proven to be a powerful pedagogical tool used to analyze the sources of economic growth. Paul Krugman (1994) used this model to analyze the Chinese growth model that many SSA states find alluring. Krugman’s conclusion was that they have ultimately been adding labor and capital inputs to spur growth rather than increasing productivity. Assuming this trend is likely to continue, the law of diminishing returns would imply that China would inevitably experience the middle income trap. It would be very difficult for any SSA state to follow the Chinese growth miracle given the scale of labor inputs available to the continent. Therefore, it is important that in aid negotiations, SSA highlight skills development and institutional building as key priorities for the individual states.

Most SSA economies have been caricatured by economic mismanagement and political turmoil. These economies rely on mining and foreign aid as a source of government income (Ohno, 2010 ). Countries within the continent are not unified and negotiate with powerful states unilaterally. This has resulted in large-scale resource extractive investments from powerful countries and political instability that spills over to other SSA states.

SSA needs to undertake sustainable long-term growth to maintain political stability and increase its power within the international system. In order for sustainable economic growth to occur, a country would need to ensure that is through coalition building. That is, to ensure that all sectors of the economy are able to operate without instability. Aid packages should be linked to the creation of institutions and capacity building. These include judicial services to enforce contracts, research and development sectors, functional hospitals and vocational training facilities. Such institutions provide for specialized information and skills that are imperative in coalition building and long-term development (Doner & Ross, 2016).

Given the nature of the globally interactive world SSA currently operates in, it would be beneficial to create and sustain these social coalitions and effective institutions as soon as possible. Foreign aid and cooperation among SSA states can assist in creating an environment where this is possible.

Beyond China’s inevitable slowdown in economic growth, it has also proven to be to be “colonial” in its approach to doing business in SSA. The country ahs continuously given aid to states with underwhelming human rights records like Zimbabwe and Sudan. Moreover, the Chinese economy is still half the size of the US. Given the nature of the needs in SSA, it would be wise for the cooperation to ensure that if countries are to take aid from China, then the stringent conditions for providing institutional capacity are met .

If it is to align with the US, it should insist on skills development and democracy that largely reflects the economies for which that aid is received. If the US is willing to create institutions and a democracy that works for SSA states, then it will provide the platform for growth that China’s investments cannot buy. This in turn will be good for the regions economic and political interests in the international system.

In order for South Africa to have a more significant role to play in the world system, it is imperative that it commits resources to ensuring that cooperation is maintained across SSA. Given its record of robust democracy and affiliations with various international institutions, it has an important role to play. That is, it needs to be at the center of a SSA approach to aid. Thereafter, South Africa and the region could extend the cooperation to other international economic and political issues which will extend its ability to have its say in the future of the international system.

 

About the Author

Carlos Baeta
Proudly South African. Masters student at Fordham University in New York. Entrepreneur, young leader, coffee addict and an avid Liverpool fan. Let's change the world.

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