What Works for Africa? - Analysing the Chinese and World Bank Models

List of Contents

1. INTRODUCTION 3

1.1 Defining the Problem 41.2 Structuring the Study 5

2. THEORIES ON ECONOMIC DEVELOPMENT 6

2.1 Market-led Growth; comparative advantage 62.1.1 THE PROFITABLE INVISIBLE HAND 82.2 State-led Growth; building industries 102.2.1 THE ACTING STATE 122.3 Stairway to Heaven; theoretically derived variables 143.1 The Beijing Consensus 163.1.1 STATEMENTS 163.1.2 IMPLEMENTATION 183.1.3 THE MODEL 213.2 World Bank Growth Strategy 223.2.1 STATEMENTS 223.2.2 IMPLEMENTATION 243.2.3 THE MODEL 26

4. METHODS; SEARCH FOR CAUSALITY 27

4.1 The Dependent Variables 284.2 Chinese Cases 314.3 World Bank Cases 31

5. ECONOMIC EFFECTS 33

5.1 Impacts of the Chinese Model 335.1.1 ANGOLA 335.1.2 SUDAN 355.1.3 CAUSAL CLAIMS 375.2 Impacts of the World Bank Model 395.2.1 UGANDA 395.2.2 RWANDA 415.2.3 CAUSAL CLAIMS 43

6. CONCLUSION 51

7. FURTHER PERSPECTIVES; DEVELOPING DEVELOPMENT 53

8. REFERENCES 55

9. APPENDIX 64

9.1 Case selection – World Bank Model 64

What Works for Africa? May 2009 2

Mads Nørgaard Jørgensen & Tobias Rune Caspersen

1. Introduction

The Chinese advance on the world stage and their influence in the developing world has been

widely studied, but Chinese commitment in Africa in particular is often seen to lack a genuine

Chinese motivation for Africa’s development – politics solely based on its own interests (Tull,

2006). This is problematic in the sense that even though such motivation might be present, it

does not change the outcome of their actions. The effect of their infrastructural and trade-

related investments with no strings attached is still an object worth studying.

The development doctrine of the World Bank and its specific policy recommendations for

Africa has also been the subject of extended research and evaluation, resulting in the addition

of democratic institutional conditions and a certain acceptance of government trade

facilitation to the otherwise exclusively free trade and economic laissez-faire policies of the

former Washington Consensus.

Nevertheless, the two models have rarely been set up against one another in any way, but as

incompatible examples of different motives. It is taken for granted that the World Bank model

is altruistically better for Africa’s development – in spite the fact that studies have shown the

economic consequences of some of their former policies to be directly harmful for African

progress (Laird, 2007; UNECA, AfDB & WTO, 2007). Further critique points to the fact, that

most of Africa has not shown the same results as the speedy advance of the Asian tigers. The

main puzzle of this is what actually works for Africa? We try to pursue this through the

following problem:

How do the Chinese and World Bank models affect the economical development of Africa?

In answering the problem, two key challenges are present. Initially, it is fundamental to clearly

define what economic development is. If not, it will be all but impossible to choose the correct

dependent variables to look at, and argue for causal mechanisms. Secondly, it is essential to

determine the concrete nature of our explanatory variables – what the models consist of – to

be able to determine any causal link and answer how they affect economical development.



1.1 Defining the Problem

The main paradigm of economic development today is economic growth led by exporting

goods – that is by increasing production of goods to be exported and converted to income

(Gibson et al., 1992: 342). Hence, economic development is seen as the value of the goods

produced, and exports as a way of generating income to increase this value. Even though

exports are not the only way of achieving economic growth, it is the dominant view. Because

of this, we have to look at the theories within this export-led growth paradigm to identify our

variables and theorems for the analysis.

To identify what the models actually do in Africa1, it is necessary to establish what constitutes

a model as such. Here, we define a model as: a coordinated set of implemented policies on a variety

of areas.

We have no intension of pursuing the question of motivation since this is not relevant for the

problem posed. The effect of a model is the same whether it was implemented for development

purposes or not. Consequently, the reasons for them doing as they do are not important here.

The choice of China and the World Bank must be seen in the light of their differences. Today,

with development procedures more or less standardised across the DAC countries2, their

multilateral organisation, the World Bank, stands increasingly out from the non-DAC

countries acting bilaterally. Of this latter category China attracts the most attention because of

their potential importance as they continue their economic and political rise. Thus, they might

not be equally important in numbers, but as two distinct models, they are the frontrunners.



1 By Africa we mean sub-Saharan Africa (SSA), which include the 48 countries of continental Africa except the North-African countries, which have a very distinct culture, foreign and trade relations from those of SSA.

2 Member countries of the Development Assistance Committee (DAC): Australia, Austria, Belgium, Canada, Denmark, Finland, France, European Union, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States.

As a consequence of the definitions made, a model’s effect on

economic development is the variation on the variables derived as

the exhaustive theoretical elements of economic growth caused by

the policies of the model.

1.2 Structuring the Study

The analysis will focus on assessing causality between the models’ policies and the variables

acknowledged as exhaustive in describing economic growth. This requires looking at theorems

from across the continuum of export-led growth theories, identifying the concrete policies that

make up the two models and performing a case-study to clarify any co-variation between these,

as well as a discussion of the short and long run aspects of these causalities.

An essential element for causal claims to be made on the problem posed is chronology. Since

both models include relatively new strategies, dating back to the turn of the millennium, this

will be the reference point of the analysis. This makes for the following structure:

Review of the two poles within export-led growth theories to derive our dependent

variable, which are all the relevant variables relating to economic development.

Examination of the stated and implemented policies of China and the World Bank

to determine the precise contents of their models which makes up our explanatory

variable.

Discussion of the need for a qualitative case study to decrease the risk of influence

from neglected external factors and execute an operationalisation of the dependent

variables for a consistent analysis frame.

Assessment of co-variations over the last decade between the model and the

dependent variables present in both cases of each model and theoretical explanations

to claim causality.

Evaluation of the prospects for longer run effects of the Chinese focus on

infrastructure and the World Bank’s focus on institutions.

Conclusion on the advantages of the Chinese model in the short run, and its

probable shortcomings in the long run compared to the World Bank broad focus on

institutional capacities.



2. Theories on Economic Development

Economic development is often unclearly noted as a combination of lots of different variables,

even though the combined value of goods produced divided by the size of the population

(GDP per capita) seems to be the favoured single measurement (Meier, 1995: 7). Here, we

accept the GDP per capita as the definition of economic development. We acknowledge that

the broader term of development has to include more aspects, but in the world of economics

GDP per capita is the macro aspect. Further, the main paradigm of economic development

today is that growth is to be achieved by increasing exports. To understand the effects of

models operating within this trade-oriented paradigm we have the privilege of not having to

deliver numerically precise effects and thus be bound to a single theoretical set of rules. To

understand how models work within the paradigm of export-led growth, and which variables

they focus on to achieve higher GDP, we can look at theories from both sides of the continuum

to get the full inclusive picture - the free trade market-led arguments and the protectionist state-

guided thoughts.

2.1 Market-led Growth; comparative advantage

The idea behind market-led growth theory came in Wealth of Nations where the Scottish

economist Adam Smith answered the question of what makes an economy grow. He

concluded that economic growth is achieved through capital accumulation, free trade, an

appropriate (limited) role for the government, and a system of justice, however most

importantly, individual entrepreneurship (Greenspan, 2008: 249). If a nation is to achieve

greater wealth people must be permitted to freely pursue their own interests. Competition is

crucial because it motivates everyone to be more productive, usually through specialisation and

labour division. If every individual competes for private wealth, they act as if controlled by an

invisible hand for the benefit of society (Greenspan, 2008: 249). The absolute essential

ingredient in this classical capitalism is the power of competition, since this is the driving force

for technological gains and new procedures, which constantly increase productivity and thus

wealth. Outdated and uncompetitive production gives way to what is new and improved. This

has been termed creative destruction (Greenspan, 2008: 248).



The international trade dimension of this classical capitalist view stems from the English

economist David Ricardo, who envisaged the idea of comparative advantage. The idea is that if

every country produces the type of commodity which it can manufacture with a comparative

advantage to other countries, everyone will benefit (Meier, 1995: 455). The traditional example

of this theorem is an illustration of possible trade policies of Portugal and England in the early

19th century. The Portuguese are better at producing both wine and cloth for every unit of

labour, but they are relatively more productive (“more better”) at wine production. This means

that the ratio of wine production per unit of labour between Portugal and England would be

higher than the cloth ratio, even though both favour Portugal. England thus faces a

disadvantage in both commodities but is relatively less disadvantageous in the cloth

production, their comparative advantage. It would then be mutually beneficial if Portugal

produced wine and England cloth with a free trade agreement allowing Portugal to export

wine and import cloth, and vice versa. Thus, they could both consume more goods because

they are able to import commodities at a lower opportunity cost than if they produced it

themselves.

The Ricardo model produces the basic argument for the benefits of free trade. However, it does

not incorporate more than a single factor of production (labour) and it requires technological

differences between countries in order to produce comparative advantages. With equal

technological progress in the Ricardo model there would be no reason for trade, and all

countries would become autarkies.

The Swedish neo-classical economist Bertil Ohlin came up with another model built around

the principle of Ricardo. It explained the comparative advantage by endogenous variables

instead of the exogenously given technology. The model focuses on the relative endowments of

labour, capital and natural resources. A country has a comparative advantage in commodities

requiring factors of production which are relatively abundant locally. Hence, free trade would

be beneficial if countries produced goods in whose production they had a natural advantage,

be it because of natural resources, cheap labour, or easy accessible capital – the Heckscher-

Ohlin theorem (Meier, 1995: 455). This model includes more factors than Ricardo, but it builds

on the premise of equal production technology in all countries, meaning that the specialisation

heralded by Ricardo would be impossible. Even though industries with increasing returns to

scale have proven specialisation useful, thus promoting the classical model, the Ohlin model is



none-the-less extremely relevant in showing the potential benefit of trade, and thus free trade,

even between countries of equal technological level.

2.1.1 THE PROFITABLE INVISIBLE HAND

The free trade theories see development in the light of the sophistication and thus income of

each unit of export. Countries enter the world market exporting natural resource-intensive

products, and then by the profits of trade, move on to more profitable commodities, from

unskilled labour-intensive, skilled labour-intensive, capital-intensive to knowledge-intensive

products.

In general, classical and neo-classical economists alike tend to focus solemnly on the trade

benefits derived from the import-side. Internal resource allocations are prerequisites for the

comparative advantage to maximise imports as described above. However, Adam Smith

originally envisaged another starting condition for international trade more aligned to Ohlin’s

factor of production theorem; countries enter the world market with idle land and labour. This

surplus vent or excess factors of production (as we might call it to stress similarity with the

natural resource advantage postulated by Ohlin) are unused because of a lack of demand from

the domestic market. By opening up the market the labour division can work to its fullest and

have further incentives to improve its production powers, and to augment its annual produce to the

utmost (Smith, 1937: 415). Exports can thus increase without a decrease in domestic

production. This theorem does however rest on the assumption that domestic consumption

holds back production technology.

Another key facet of the classical economists’ view on the market’s ability to improve

production is the availability of natural resources. The classical free trade view is that these are

of no significant permanent importance since the production capacities of a country are the

sole determinant of its wealth, present or future. Having natural resources as the main source

of export income is of course useable but the income is best when it is utilised via investment

in future production facilities that can generate more income per unit of labour. Nonetheless,

the output must be regulated very skilfully to be beneficial in this matter. The potentially large

inflows of income can be very harmful on ascent up the ladder. This is so due to the so-called

Dutch disease – a fast increase of international demand for a certain product paid for in local



currency will drive up the exchange rate thus damaging the exports of the otherwise more

profiting production sectors. On top of this, there is the risk of inflation caused by an

overheating economy and a reduction in the gained purchasing power of the population.

However, if such a rise in the exchange and/or inflation rate can be controlled, e.g. by altering

the interest rate or reversing a budget deficit, the availability of natural resources does provide

for a comparative advantage in the longer run according to the Ohlin model and a means of

income to be used on production facilities in the short run.

The fear of Dutch disease brings up regulation as another element. Naturally, free trade

theorists see a very limited role for state intervention, but market failures such as rapid

inflation, monopolies, external costs and benefits and dysfunctional infrastructure and market

institutions do justify government interference. Price control, tariffs and similar acts do not.

Institutions are understood broadly as the existence of a number of linked rules and routines

that define and determine a connection between a role and a case as a proper action.

The main point is that state interventions are accepted to fix severe problems, not to meddle

with trade relations in general.

If the state were to intervene in trade relations by protectionist policies, the effect would be a

deadweight loss (Pindyck and Rubinfeld, 2005: 328). The free market is formidable at weeding

out the inefficient companies through creative destruction. It is an immensely difficult task for

a government administration to copy (and improve) these beneficial parts of the free market to

predict which industries will turn out to have growth potential. Even if this is obtained, the

administration would have to calculate the correct level and period of time for the protection of

domestic industries.

Further, if companies are never fully released and domestic markets kept in a permanent state

of protectionism because of a lingering perception of exploitation, all the documented benefits

of free trade would be lost.

The theorems presented rest on the assumption of capital mobility internally in order for the

market-led best allocation of resources. If this is not the case, internal competition as well as

production costs will suffer resulting in difficulties competing internationally and damaging the

technological progress of the domestic industrial sector.



2.2 State-led Growth; building industries

The other pole on the export-led growth theory spectrum is state-based theory and is as most

economic theory, built on the widespread critique of the classical argument presented above

(Singer, 1950: 476). The greatest problem of comparative advantage is its static nature. It does

not incorporate the dynamic effects of trade, such as economies of scale, increased

competition and new technology (Vylder, 2007: 37-38). This critique took off especially in the

1950’s fuelled by the work of Hans Singer and Raul Prebisch. They independently presented

an empirical study examining the terms of trade between developed and developing countries

claiming that not only was the benefits from trade not equally shared, but in some cases

actually harming the developing countries (Toye and Toye, 2003: 437-8):

“The specialisation of underdeveloped countries on export of food and raw materials to

industrialised countries, largely as a result of investment by the latter, has been unfortunate

for the underdeveloped countries” (Singer, 1950: 477).

Singer identifies three reasons related to this fact. His first point is that it is not the developing

countries that benefit from the main multiplier effects of the foreign investment, but the

investing countries themselves. The reason is that the investment aims at increasing

productivity of the export-sector of raw materials and food, which, by lowering prices, benefit

the investing countries who import these commodities (Singer, 1950: 474-5). Furthermore, the

productive facilities are often foreign owned as a result of the investment and are therefore

often not included in the internal economic structure of the developing countries (Singer, 1950:



• Trade flows (import and export)

• Productiveness (investment in production)

• Labour (sector of occupation)

• Government role (corruption, tariffs)

• Financial institutions (exchange rate, interest rate, budget balance, inflation)

• Infrastructure

Variables derived from market-based export-led growth theory

475). The multiplier effects of increased employment, education, capital, technical knowledge,

creation of new demand, etc therefore mostly end up in the investing countries.

Secondly, he discusses Keynes’ principle of opportunity cost, and argues that specialisation on

exports of food and raw materials offers less scope for technological progress than

manufacturing industry (Singer, 1950: 477).

Thirdly and most important are the terms of trade. Prebisch and Singer found that the terms of

trade between commodities and manufacturing goods deteriorate over time from the

perspective of the former (Singer, 1950: 477). For a given level of exports, developing countries

exporting commodities and importing manufacturing goods will be able to import less and less.

This is first of all because of low product diversity on commodities. The only thing producers

hereof can compete on is price, so when productivity rises the price will go down and most of

the surplus will go to the buyer, not the producer. The opposite is the case for manufacturing

goods, which means the producer will be able to keep a share of the surplus from a rise in

productivity. Even though prices on commodities fall, the demand does not rise

proportionately, because of low price elasticity on demand for commodities (Singer, 1950:

479). Consequently Singer concludes that:

“The industrialised countries have had the best of both worlds, both as consumers of primary

commodities and as producers of manufacturing goods, whereas the underdeveloped countries

had the worst of both worlds” (Singer, 1950: 479).

The critique stresses that a move towards more profitable export commodities is highly

doubtful with respect to the market mechanisms, which will instead work to keep countries

firmly at their initial type of export commodity. With free markets someone will always be at

the bottom. Instead of spurring a supply-side industrialisation response, it prevents it.

To change the situation created by the free market both Singer and Prebisch agreed that the

state ought to intervene in the economy. They discard the development process in free trade,

accepting the theoretical benefits at the moment of trade, but claiming a polarising and

escalating unequal distribution of world resources in the longer run.



2.2.1 THE ACTING STATE

In 1991 Krugman identified three conditions for a manufacturing-friendly environment:

labour-supply, infrastructure and product-demand (Krugman, 1991: 487). The labour-supply

needs to be cost-efficient, meaning as educated and cheap as possible. To ensure this, the state

can provide education and security for basic needs, which will keep wages down (Stein, 1995:

6-7). Furthermore, to keep company-expenditures down, the state can provide infrastructure

such as telegraphs, postal service, water supply, coastal shipping, ports, harbors, bridges, lighthouses,

railways, electricity, gas and technical research (Stein, 1995: 7-8). Thirdly, the factor of product-

demand is listed because of the savings on transportation costs by selling nearby. However,

since Krugman wrote this in 1991 transportation costs have gone considerably down,

indicating that the condition of product-demand might be superfluous (Postrel, 2006).

Krugmans theory is not a development theory but a trade theory, and consequently do not

discuss development. Besides the conditions for industry presented above, the state can pursue

other means to build up an industry.

The first tool is trade policy. Both Singer and Prebisch argued for the use of Import

Substitution Industrialisation (ISI)3. ISI is theoretically grounded on the “infant industry

argument” and holds that state protectionism is needed when the domestic costs of production

exceeds the product’s import price (Baldwin, 2003: 5). Infant industries do not have the

economies of scale to compete with already established companies. The crux of the ISI is to

support strategic substitutes for foreign manufactured goods for which there already is a

domestic demand, by installing tariffs on these manufactured goods. In theory this will shift

demand in favour of domestic producers and limit the import to capital goods (e.g. machinery)

and essential intermediate inputs needed for the industry (Baldwin, 2003: 4). When the specific

industry has gained competitiveness the trade barriers should again be removed. However, ISI

is only supplementary when building up an industry. Research has shown that in cases (mainly

Latin America) where the ISI have been extended to all manufacturing it has negatively

affected the government budget, inflation and balance of trade (Baldwin, 2003: 10).

A second tool is the exchange rate. The common policy to gain competitiveness is to devalue

the currency. This however is not a permanent path to development, so the aim should be to



3 The argument was first introduced by Alexander Hamilton in 1791, and later formalised in economic terms by John Stuart Mill

pursue a policy of stable or only slightly deteriorating nominal rate of exchange (Stein, 1995:

12).

The third tool is investment. According to the Solow growth model, investment is the key

determinant of growth. If capital added by investment exceeds the depreciation of existing

capital it will result in a growth in output and the stock of capital (Mankiw, 2007: 195). In

Solow’s model it is the private saving rate that determines the level of investment. However, at

an initial state of development the private sector may be unable to save up capital and therefore

capital may be of short supply. To initiate development, capital can be made available either by

state loans, development aid (in the case of developing countries) or by foreign capital in the

form of foreign direct investment (FDI) (Stein, 1995: 16). In the case of FDI, it is important to

ensure that the capital is not used to deplete natural resources, but is invested in industrial

programmes. It is therefore important for the state not to pursue a laissez-faire policy. State

loans are not without problems either since public debt must be paid off eventually and with

interest. Finally, to ensure that investment is not crowded out, it is essential to maintain low

inflation through macroeconomic stability (Stein, 1995: 13-14).

A crucial condition for successful state intervention is the presence of a strong state without

corruption and the influence of selfish stakeholders (Stein, 1995: 19-20). The state needs

capacity and skill to steer the economy and to implement and sustain an industrial strategy.




• Productiveness (investment in production, export diversification)




• Infrastructure

• Education

• Capital flows (aid, debt, FDI)

Variables derived from state-based export-led growth theory

2.3 Stairway to Heaven; theoretically derived variables

The theories agree as far as trade is the path to economic development through the profits of

exporting goods. And further, that a better production technology means more profitable

exports. Thus, to increase gains from trade and experience a continuous rise in economic

development a country needs to move up from resource-intensive products. This move up the

ladder towards the developed world’s profitable knowledge-intensive industries is illustrated

below in the ladder of comparative advantage. The climb on the ladder is seen as a sign of

economic and technological progress earning more and more income per unit of export goods

produced.

The move up the ladder is determined by an effective allocation of domestic production

resources. However, the path to achieving this is much contested. Both views agree that some

sort of state regulation is required, but they disagree about the scope and nature hereof. In the

market-led growth theory the state should act to secure macroeconomic stability but regulate

only to address severe and concrete obstacles for the market to function, whereas the state

according to the state-led growth theory should steer the economy in a certain direction.

Bottom line: laissez-faire or faire.

Below is the sum of the variables presented in the two theoretical poles. Together they

represent the dependent variables to be looked at when determining the Chinese and World



Ressource-intensive (rice, timber)

Unskilled labour-intensive (textiles)

Skilled labour-intensive (electronics)

Capital-intensive (machinery)

Knowledge-intensive (computers)

”Natural” comparative advantage: Ricardo- and Ohlin-type exports

“Created” comparative advantage: Krugman-type exports

The ladder of comparative advantage (Meier, 1995: 458)

Bank models’ affect on economic development. They will be operationalised when discussing

the analysis methods.



3. Model IdentificationsTo analyse the effects of the Chinese and World Bank models using the variables found above,

requires clarification of the concrete contents of both, and whether we can actually talk of two

distinct models. To identify the two models as such using our definition (a coordinated set of

implemented policies on a variety of areas), it is necessary to address a number of initial obstacles.

First, it is more or less impossible to go about it entirely inductive. Which data should be

collected? With 48 countries in sub-Saharan Africa, how would one set the minimum standard

for scale variables defining Chinese or World Bank commitment? Second, if we only fix our

eyes on the output, it would be very difficult to determine analytically whether a possible

pattern in variables would be the actual course of a Chinese or World Bank model or simply

random similarities as a result of external factors.

To avoid these problems we find it prudent to look at the linkage between the stated official

models and the actual implementations. Not that the outcome has to equal the objectives set by

Beijing or Washington bureaucrats. The idea is that if the published visions match the actual

policies we can talk of an actual model, including both a coordinated theoretical background

and a will to implement it. Any mismatch herein will mean either a dysfunctional bureaucracy

or empty rhetoric. In this way we get around looking for unknown data and can determine that

an identified pattern was actually coordinated. However, it does pose another problem; the

stated objectives and the actual objectives might not be the same, resulting in parts of the

model being left out because of them missing in the official documents. We do acknowledge

this difficulty, and accept that the inductive approach is needed in cases where a pattern of

action is found and absent from Chinese or World Bank statements even though it would

require central coordination. This is not the optimal solution but it will minimise errors

compared to other methods, and is necessary since we cannot expect every part of the models

to be explicitly formulated.

3.1 The Beijing Consensus

3.1.1 STATEMENTS

The starting point of Chinese-Africa relations is stated as historically determined by years of

friendship with a mission of South-South cooperation to preserve their own interests to the fullest



possible extent in the process of globalization (FMPRC, 2003a), the interests of the developing countries

as a whole (Hu Jintao, FMPRC, 2004) and the establishment of a just and equitable new international

political and economic order (Beijing Declaration, 2000). The concrete meaning of this new

political and economic order is the mutual respect of sovereignty stated in every FOCAC-

declaration, the White Paper and numerous speeches (FMPRC, 2003b; FMPRC, 2006).

Besides these proclamations of common interest and friendship, high-level contacts and state

visits have been stated as a way to enhance cultural understanding and consolidating

comradeship within the developing bloc (FMPRC, 2009b).

The most debated of the official Chinese objectives in concern to Africa is trade relations. The

fact that China sees a huge potential for mutual benefit in expanding trade with Africa is seen

in a number of speeches by Chinese officials (FMPRC, 2009a). They do however acknowledge

in joint Afro-Sino statements that the inter-dependency of globalised economies benefits

developed countries to a higher degree and that it severely challenges the economic security of the

least developed countries (FMPRC, 2006). As a consequence, China reports that it is willing to

take preferential measures to increase imports from Africa and further encourage well-

established Chinese enterprises investing in Africa to create more local jobs, increase technology

transfer and shoulder greater social responsibilities (Hu Jintao, FMPRC, 2004; FMPRC, 2009b).

Another additional reason for the afore mentioned emphasise to trade with Africa is described

by Hu Jintao as the economies being fairly complementary giving that Africa is rich in natural




• Productiveness (investment in production, export diversification)




• Infrastructure

• Education

• Capital flows (aid, debt, FDI)

Variables derived from export-led growth theory

and human resources and China has applicable know-how and experience (…) the potential for

cooperation is enormous (Hu Jintao, FMPRC, 2004).

3.1.2 IMPLEMENTATION

The Chinese statements of friendship and the importance of South-South cooperation have

been duly realized in regard to high-ranking Chinese officials visiting and signing deals with

African countries as well as the doctrine of non-interference in internal matters (Zhiqun, 2007:

6; Davies, 2008a: 134; Abramowitz, 2007). In fact, the absolute majority of the FOCAC deals

have been made by high-ranking officials in closed negotiations prior to the summits in which

they are revealed (Davies, 2008b: 10). Chinese political support in Africa has been growing

steadily since the introduction of FOCAC – in 2000 eight African countries recognised Taiwan

as the Chinese Republic, today only four are left, of which all are small and politically

insignificant (Davies, 2008b)4.

With regard to the objectives of encouraging investments by Chinese firms in infrastructure

projects, it has been widely pursued. 674 Chinese state owned enterprises operate in Africa

(Wilson, 2005: 9). The important point for understanding the economic causal mechanism is

not whether the number is high or not, but the fact that these investments are made by state

owned companies and is of focus in the Chinese model. The most significant investments

outside of the oil sector, to which we shall return, have been made in infrastructure. The

Chinese companies have been able to deliver projects 25-50 percent cheaper than competitors,

partly because of cheaper materials, inexpensive Chinese labour, access to government

subsidies and cheaper capital than locals, and less pressure by the Chinese Government (…) to adhere

to strict environmental and labor standards (Besada, 2008: 13) More, Chinese state owned

companies do not face the same pressure for short-term profits as do their Japanese and

Western competitors (Kaplinsky, 2006: 3).

The distinction between aid and trade-related matters is not quite clear in China’s dealings with

Africa. The definition of foreign aid itself is not apparent but the Ministry of Commerce does

have a separate fund to be disbursed as grants, interest subsidies for interest-free and



4 African political support was a crucial factor in China taking the permanent seat in the UN Security Council from Taiwan in 1971 (Taylor, 1998).

concessional loans, or technical assistance, which is aggregated as Chinese official

development aid (ODA) to be around US$ 2.3 bn. in 2006 (Davies, 2008b: 1; Besada, 2008:

13). One diplomat estimates the ratio of grants to loans to be around 50/50 (Davies, 2008b:

11).

The concessional loans and interest-subsidies that allows for very favourable loaning

conditions are met with conditionality from China EXIM Bank which administer these loans

on the basis of promoting economic development and trade with China (Davies, 2008b: 21,

Glosny, 2006: 19). The basic criteria is that

“Chinese enterprises should be selected as contractors/exporters and equipment, materials,

technology or services needed for the project should be procured from China ahead of other

countries – no less than 50 percent of the procurement shall come from China” (Davies,

2008b: 57).

EXIM Bank dominates Chinese assistance to Africa and by 2006 the World Bank estimated

that over US$ 12.5 bn. had been used to finance the earlier mentioned infrastructure projects in

SSA (Davies, 2008b: 7) – a huge cut of the total Chinese aid. A further characteristic is that

most of this aid is dealt bilaterally from government to government (Glosny, 2006: 22).

Another aspect of this trade-related assistance is the FDI which is to be separated from ODA,

although most of the Chinese enterprises active in Africa are state owned which makes the

difference between concessional loans to infrastructure projects and FDI supported

manufacturing a bit cloudy. Nonetheless, FDI from Chinese enterprises has surged within the

last 15 years, with Chinese FDI outward stock in Africa increasing from US$ 49.2 million in

1990 to US$ 2.56 bn. in 2006 – a 2,800 percent increase, albeit from a low level (Besada, 2008:

3). The investors have established around 480 joint ventures, primarily within oil, textile,

infrastructure, and agriculture. The latter being of particular importance with African

governments committed to food security. Resource extraction is by far the largest investment

object. About 80 percent of African export to China consists of five key commodities (oil, iron

ore, logs, diamonds and cotton) (Besada, 2008: 7).

Even though the trade boom is largely a result of energy and mineral products, it also reflects

Chinese trade policies such as removing tariffs on 196 imports from the 28 least developed

countries in 2005, expanded to 454 items in 2007. With the latter expansion, preferential



treatment now includes light industrial, mechanical and agricultural products. The 2005 deal

was aimed at raw materials, e.g. copper, cocoa, sesame etc., which included only US$ 350

million worth of duty-free goods, or one percent of African exports to China. By now most

African exports receive duty-free access to China’s market resulting in increased African export

revenues (Besada, 2008: 6). Even taking the five key commodities out of the equation, 20

percent of the current US$ 60 bn. is much higher than 50 percent of US$ 4 bn. Further,

Chinese bilateral trade and investment agreements have been signed with three quarters of

SSA countries (Chan, 2007: 2).

Even though the Chinese go to great lengths to uphold the principle of mutual respect for

sovereignty, after their accession in the WTO they push for removal of import and export

restrictions on the international scene (Holslag, 2006: 134). In Africa the situation is somewhat

more delicate. Here, the Chinese seek to institute Special Economic Zones (SEZ), which they

themselves initiated with Deng Xiaoping’s reforms (Davies, 2008a: 134). The idea is to open a

given area for advantageous business opportunities but not to open up the entire society. Two

zones have been announced to be located at the copper belt in Zambia, and the Indian Ocean

Trading Hub in Mauritius. The last three are in the process of being established in Nigeria,

Egypt and Tanzania, with several other African countries planning such zones to attract

investment to labour-intensive manufacturing industries (Davies, 2008b: 25). Zambian

President Mwanawasa declared that Chinese companies would be allowed to operate without

having to pay import or value-added taxes, whilst the Chinese invested US$ 250 million in a

copper smelter at the Chambisi mine (Chan, 2007: 4; Davies, 2008b: 27).

Even though a wave of Chinese immigrants was not explicitly formulated in the policy

statements it is however a pattern seen all over Africa, with numerous new Chinatowns

housing 80,000 Chinese nationals who are working primarily in the retail business (Zhiqun,

2007: 4). It is not in direct contradiction with the notions of cultural and economic exchange,

which also includes an enormous increase in the number of Chinese tourists, but the

immigration could be classified as a case that would require official coordination and approval

from the Chinese authorities. Therefore, immigration of Chinese nationals can be considered

part of the model.



3.1.3 THE MODEL

The first step of the Chinese model is made of speeches of friendship, mutual benefit, interests

and solidarity along with many frequent high-level visits both ways. The second step of the

model cannot be disintegrated chronologically but consists of the following key components:

•Debt relief, grants and low-interest loans (ODA).

• Concessional loans by China EXIM Bank to be used on large infrastructure

investment deals, primarily by Chinese infrastructure firms (ODA/FDI).

• Chinese investments and subsidies to Chinese firms that invests in Africa –

primarily in the infrastructure, energy, mineral and agricultural sectors (FDI).

•Trade deals including removal of Chinese import tariffs on African goods.

•Establishment of SEZ’s to attract and focus foreign investment.

•Energy deals granted to Chinese state owned enterprises.

The fact that this second step consists of a whole variety of FDI, ODA and trade, simply

reflects a situation with negotiations behind closed doors at the most senior level. The linking

between these has been shown in several studies (Davies, 2008b: 52; Davies, 2008a: 134;

Zhiqun, 2007: 15). It is not always possible to prove these links between state-granted aid and

energy deals to companies. Often, we cannot dismiss the fact that the energy or raw material

deals are caused by the simple fact that the Chinese Enterprises’ bids were simply more

competitive. One does not have to exclude the other however. They may well have lower bids

for the contracts and deals as we have seen and still use these in the documented package deals

including aid, trade, investments and political support.

The bottom line is that the Chinese model focuses to a very high degree on infrastructural

development and investments in business sectors with no serious political strings (apart from

the one-China policy and a certain push for SEZ’s).

The final step is the massive immigration of Chinese workers to the investment projects and for

job-seekers to the African retail business together with surging trade volumes, mainly in the five

key commodities, but African exports have also experienced growing demand from the

Chinese markets outside minerals and energy.



3.2 World Bank Growth Strategy

3.2.1 STATEMENTS

According to the World Bank Operational Manual, “the Bank's mission is sustainable poverty

reduction [and] a critical priority is promoting broad based growth, given its proven importance in

reducing poverty” (The World Bank, 2004a: OP 1.00). They make low-interest loans available on

favourable terms to middle-income countries that could not, due to their poor creditworthiness,

be able to obtain them on the free market. Countries, who cannot afford these loans, are

eligible instead to interest-free loans or grants.

Their model for economic growth has shifted a lot on the continuum between market and

state-led growth theories since the institution’s birth. This has broadly followed the intellectual

debate as when John Williamson framed the World Bank model as a part of a Washington

Consensus. At that time the World Bank loans were distributed through the Structural

Adjustment Program (SAP) setting up conditions, which the developing countries should

comply to in order to acquire loans (Ohkubo, 2009). Williamson summarized the

conditionality in policies that followed the dictums of liberalization, stabilization, deregulation

and privatization (Williamson, 1989). Since then the World Bank model has changed, and we

will therefore not elaborate on the SAP any further. Nonetheless, having the SAPs in mind is

important when examining the present model for economic growth.

The present World Bank model was initiated in the late 1990s, with Joseph Stiglitz as Chief

Economist and James Wolfensohn as President of the World Bank Group5. Stiglitz was very

critical of the former Washington Consensus model. According to him, it was based on doctrines

and ideology that completely ignored the presence of market failures (Stiglitz, 2001: 57). Nevertheless

government failures exist as well, and Stiglitz therefore advocated for a middle way with

market forces at the centre of the economy but including government intervention (Stiglitz,

2001: 71). Stiglitz points out



5 The group consists of five institutions: The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The IBRD and IDA make up the World Bank, while the three others are independent affiliates created and working in collaboration with the World Bank.

“…that there are numerous cases where government policies can make an enormous difference

for the better. Almost all the success stories in terms of economic development, such as East

Asia, were cases where government had assumed a very strong role.” (Stiglitz, 1998: 71)

The question is then how big a part the government should play. Stiglitz puts it this way:

“The issue is one of balance, and where that balance is may depend on the country, the

capacity of its government, and the institutional development of its markets” (Stiglitz, 1998:

8).

This is a withering away of the former concept of ‘one size fits all’. There is a need for a

specific development strategy for each country (Stiglitz, 1998: 16). These have been named

Poverty Reduction Strategy Papers (PRSPs). In relation hereto Stiglitz and Wolfensohn

believed that for the strategy to be successful the developing country should itself own and

manage the strategy (Wolfensohn, 1999: 9), because an

“…attempt to impose change from the outside is as likely to engender resistance and give

rise to barriers to change, as it is to facilitate change. At the heart of development is a

change in ways of thinking, and individuals cannot be forced to change how they

think” (Stiglitz, 1998: 20).

Ownership basically means that the developing country draws up the PRSP. The role of the

World Bank is therefore one of partnership. With the PRSP as the starting point, the

developing country and the World Bank in collaboration compose a Country Assistance

Strategy (CAS) pinpointing which areas the World Bank should aid (Stiglitz, 1998: 32). The

CAS will include not only transferring capital, but also providing knowledge that is essential for

development and capacity building (Stiglitz, 1998: 32).

In the CAS the World Bank strives for a holistic framework (Wolfensohn, 1999: 8). This is

outlined in the World Bank’s Comprehensive Development Framework (CDF) introduced by

Wolfensohn in 1999. Wolfensohn recognizes the multidimensional nature of providing

economic growth, and writes that:



“We cannot adopt a system in which the macroeconomic and financial is considered apart

from the structural, social and human aspects, and vice versa.” (Wolfensohn, 1999: 7)

The World Bank therefore aims to scatter the loans to developing countries between both sides

of the coin; investment and adjustment. Wolfensohn emphasizes that the strategy should be

results-oriented; the reforms should not be ends in themselves, but serve as means to foster

economic development (Wolfensohn, 1999: 2).

3.2.2 IMPLEMENTATION

As explained above, Wolfensohn and Stiglitz advocate for the developing country to be in the

driver’s seat (Wolfensohn, 1999: 9; Stiglitz, 1998: 21). Even though the developing country fills

out the PRSP, it has to be approved by the World Bank together with the IMF who writes a

Joint Staff Assessment (JSA) pointing out their disagreements with the PRSP (Bretton Woods

Project, 2003). The judgment of the JSA indicates whether the World Bank will support the

country, which undermines the idea of ownership. This view was presented in an independent

evaluation of the PRSP initiative:

“The Bank management’s process for presenting a PRSP to the Board undermines

ownership. Stakeholders perceive this practice as ‘Washington signing off ’ on a supposedly

country-owned strategy.” (The World Bank, 2004b: 8)

Furthermore the evaluators point out that

“The content of Bank assistance strategies formulated subsequent to PRSPs overlaps with

the content of PRSPs. But PRSP programs are broad and not well prioritized, so this

overlap has not entailed major changes in Bank programs.” (The World Bank, 2004b: 8)

It is therefore the Worlds Bank’s Country Assistance Stategy (CAS) and not the country’s

PRSP that guides the World Bank’s model. As mentioned above the CAS is negotiated

between the World Bank and the developing country (at least officially). The negotiations are

conducted behind closed doors, making it hard to evaluate the process. However, the World



Bank does not leave its view on economic development (the CDF), and the conditions (specific

policy actions) attached to its loans therefore persist (Bretton Woods Project, 2003). This

suggests a ‘take it or leave it’ approach, which questions the element of partnership. Stiglitz

holds that

“Although the particular priorities will differ from country to country, there are some

common elements.” (Stiglitz, 1998: 31)

These common elements are outlined in the CDF. Within the field of macroeconomics, there

has not been much debate since the days of SAPs. In Stiglitz’ paper he accentuate the

importance of an outward orientation, including free trade and encouraging foreign direct

investment (FDI) (Stiglitz, 1998: 37). Free trade, according to Stiglitz, first of all enables

specialization as explained by the comparative advantage theorem and secondly benefit the

developing country with “management expertise, technical human capital, product and process

technologies, and overseas marketing channels” (Stiglitz, 1998: 37).

How much has changed since the SAPs? According to Dani Rodrik, the spectrum of

conditionality has gotten even bigger, and he argues that there exists an augmented

Washington Consensus (Rodrik, 2001, 15). However, the contents are somewhat changed

towards a slightly more interventionist view on market failures and particularly a change from

decentralisation towards demands of good governance. In general the policies which the

government, according to the World Bank’s CDF, should pursue in order to create a strong,

competitive, stable and efficient private sector (Stiglitz, 1998: 24) include

• Education. Should be provided by the state. (Stiglitz, 1998: 31)

• Infrastructure. Especially communication and transportation. These should preferably be

provided by the private sector (Stiglitz, 1998: 31), which require a

• Legal and regulatory structure. This includes taxation, “competition laws, bankruptcy laws,

and more broadly commercial law.” (Stiglitz, 1998: 24)

• Good governance. State capacity building and fighting corruption. This covers “creating

political accountability, strengthening civil society participation (…) and establishing institutional

constrains on power” (The World Bank, 2003: 112-113).

• Social protection and health. This not only helps the functioning of the private sector, but



also “contribute to the solidarity, social cohesion, and social stability of a country” (The World

Bank, 2003: 133).

Even though the afore mentioned implementation of policy recommendations follows the

principle of the SAP era, two main implementation changes have occurred on top of the

moderations of the Washington Consensus. First, the realization that the loans given though

the SAPs had not provided the target for economic growth meant that the World Bank initiated

a debt relief program for the Heavily Indebted Poor Countries (HIPC). The requirement to

participate in the HIPC program, except being heavily indebted, is that the country through its

PRSP shows a strategy for reallocation of the government funds freed by debt relief (The

World Bank, 2003: 114). Second, the balance between investment and adjustment is explicitly

articulated and statistics show that 75 to 80 percent is investment lending providing funds for

institution building, social development, and the public policy infrastructure needed to facilitate private

sector activity (The World Bank, 2003: 49).

3.2.3 THE MODEL

The World Bank model consists of both funding and technical assistance. The funding

comprises of loans below market rate, development aid and debt cancellation.

The technical assistance is specific policy recommendations provided in the World Bank’s

Country Assistance Strategies (CASs). As discussed above the CAS is greatly tied by the

World Bank’s ideological view on development, the Comprehensive Development Framework

(CDF). The overall categories of these policies are summarized below:

• Broad strategy. Both macroeconomic stability, and structural and social policies.

• Good governance. Capacity building and anti-corruption policies.

• Trade-facilitating state intervention. The state should regulate the market economy in a

way that encourages trade, FDI and private sector entrepreneurship



4. Methods; search for causality

The focus of this paper is, as mentioned initially, on how and not how much the models of

China and the World Bank affect economic growth. Or more precisely, which causal links can

be claimed between the implemented policies of the models and the variables derived as the

exhaustive theoretical elements of economic growth.

To claim causal links four preconditions are needed (Agresti & Finlay, 1997: 357):

Co-variation between implemented policies and changes on the dependent variables.

Chronology in the claimed causal direction – the models’ policies must be

implemented before any co-variation can be acclaimed as their doing.

Absence of spurious factors from external factors in the causal line.

Theoretical explanation of the variation as a cause of the explanatory variable.

This calls for a qualitative method of case analysis because of the ability to include theory in

the assessments. This helps to focus on the precise variables influencing the particular outcome

thus limiting the likelihood of spurious effects. In dealing with complex processes such as the

economy, which includes a great many interacting variables and indicators, the extent and

limiting of spurious effects are of vital importance. As a result, the ability to determine that an

outcome is due to a particular cause is rarely possible in such circumstances. However, by

looking in depth at specific cases we are able to narrow down the likely cause.

With regard to the chronology, the first FOCAC meeting of the Chinese model was held in

2000 while the World Bank CDF strategy was introduced in 1999 making the reference point

of our analysis the year 2000 and the time frame of changes in the dependent variables the

years 2000 to 2008. In the data collection we strive to get data as close to these two target years

as possible.

If we were to study the models quantitatively, there would be a need for more cases than the 48

countries in sub-Saharan Africa to get a statistically valid answer on the level of economic



impact. This is so because several SSA countries cooperate with both China and the World

Bank simultaneously, which makes it difficult to conclude which model is causing the

outcome. This is a further complication of the many interacting variables of the complex real

world. This is not a point exclusively for a hypothetical quantitative study. This still needs to be

addressed in qualitative case studies. Consequently, the case selection should be aimed at

countries that apply distinctively to only one of the models, or as close as possible although this

greatly decreases the number of available cases. Having only a few cases is not analytically

problematic but it raises the question of external validity and whether the findings apply to

other contexts (Bryman, 2004: 30).

For each model we have chosen to select two cases based on the SSA countries application of

the respective model. We have chosen two cases partly because of the limited number of cases

available and partly because it reflects a middle ground between on the one hand; too many

cases resulting in information overload with a greater risk of actual effects being neglected, and

on the other hand; a greater risk of the before mentioned spurious effects from external factors

if just a single case were to be examined.

The cases are chosen with the objective that the explanatory variable, the implemented models,

should be as similar as possible.

Finally, to include further perspectives on the changes in dependent variables, meetings were

held in Kampala, Uganda and Kigali, Rwanda in April 2009 with various actors within the

field. The ones quoted in the paper are the USAID Mission Director in Kampala and the FDC

presidential candidate and opposition leader in Uganda, Kizzy Besigye. These meetings should

not be seen within the analysis framework set up, but rather as a way to substantiate the

theoretically deduced theorems in praxis.

4.1 The Dependent Variables

To meet the criteria of measurement validity, the systematisation of economic development

was carried out by creating a broad and inclusive set of theoretically deduced variables to

capture the concept (Adcock & Collier, 2001: 531). Using the growth theories in this process

furthermore gives an element of objectivity (Bryman, 2004: 30).



However, the operationalisation of economic development into the eight variables from the

theories still needs precise indicators to fulfil the criteria of internal reliability, or the relation

between the variables and their indicators (Hellevik, 2002: 53). This operationalisation is

presented below.

Trade flows. Import and export values for the particular case (and bilaterally with China if

affected by the Beijing model) are fairly simple and comprehensive within the variable of trade.

Productiveness. This variable is best summed up by GDP per capita (Meier, 1995: 7). We use

GDP per capita measured by purchasing power parity to compensate for the differences in

consumer prices, thus giving a better ability to compare data across cases. Further, the

percentage of GDP invested is, according to the Solow model described earlier, essential for

future production. Finally, export diversification is measured by the country’s primary export

good as a share of total exports.

Labour. The percentage of labour occupied by the agricultural, manufacturing and service

sectors and the contribution of these sectors to the GDP will provide the indicators for the

labour market variable.

Government role. Tariffs/quotas on foreign products and possible subsidies to domestic

production as well as scores on international corruption charts would indicate the level and

nature of government interference. In addition, the size of the state budget as a percentage of

GDP would indicate the government’s partition and influence on the economy.

Financial institutions. The skill of the financial institutions to facilitate flows in the economic

system would be indicated by the rate of inflation and the interest rate. This in turn would

require the exchange rate and budget surplus/deficit to get the full picture.

Infrastructure. This includes a great many things. Here, the important part from the theory was

the ability to efficiently allocate internal resources. Hence, our indicator is the amount of

transportation infrastructure present (kilometres of railways and paved roads).

Education. The educational level which serve as a tool to establish whether investment in this

area promotes more capital-intensive jobs. The literacy rate would work very fine as an

indicator on the degree of education. It is very broad and hence works very well on the general

educational level, especially in Africa where the rate still varies much more than in the West.

Capital flows. External capital flows can be split into three categories of inwards flows; the

amount of development aid, FDI and state loans. In addition to the latter however, we have to



include public debt to be repaid. Indicators for aid volumes are not easily found in the Chinese

model, since they are reluctant to deliver this information. However, when possible, for

example when published as part of a larger deal, this indicator can be included. This is of

course not the optimal solution, but it is an unfortunate necessity event though it decreases the

internal reliability.

This covers our theories’ premises for their theorems, which makes us confident in the internal

validity of our framework for analysis (Hellevik, 2002: 51). To secure the reliability of the

indicators, they are obtained from official statistical databases such as the CIA World Fact Book

and the World Bank (Adcock & Collier, 2001: 531). In addition the indicators help to ensure

transparency and replicability (Bryman, 2004: 30).



• Trade flows: Import volume, export volume

• Productiveness: GDP per capita, percentage of GDP invested,

export diversification

• Labour: Distribution of labour on sectors, sectors’

percent of GDP, unemployment

• Government role: Tariffs/quotas on foreign products, subsidies to

domestic production, scores on international

corruption charts, state budget percent of GDP

• Financial institutions: Exchange rate, interest rate, budget balance,

inflation

• Infrastructure: Km of railways, and paved roads

• Education: Literacy rate

Indicators of Economic Development

4.2 Chinese Cases

To choose cases that demonstrate the Chinese model we search for the ones fitting the key

components described in section 3.1.3 to the highest degree. In addition, the Chinese

involvement must be more profound than the World Bank members on the majority of these

variables.

Several countries fit some of the Chinese model’s components. The planned SEZ’s give an

initial overview. However, Egypt and Mauritius, chosen as two of the spots for these zones, are

not part of our definition of SSA standing out culturally and developmental. The other three

proposed SEZ’s; Tanzania, Zambia and Nigeria, would be of more interest. A part from these

SEZ-countries trade volumes have been particularly high between China and South Africa,

Angola, Ethiopia, Congo (Brazzaville), Zimbabwe and Sudan (Alden, 2007: 20). All these

countries have had high-ranking Chinese visits within the last couple of years and a surge in

trade with China (FOCAC, 2006). However, some of these do not fit the intension of being a

place using the Chinese model instead of the World Bank. South Africa are simply too rich

and productive and has been so for many years back which excludes them as a developing

economy in the SSA context. On top of this, their involvement with China is minor to the

DAC-countries of the World Bank. Nigeria, Zambia, Ethiopia, Tanzania and Congo too have

extensive deals and policy consultations with the World Bank and IMF dwarfing their trade

and aid volumes with China (CIA World Fact Book, 2008). In Zimbabwe, the expulsion of

most white farmers has had too much influence on the economic situation to allow for any

causal claims derived from the Chinese model. The civil war in the Sudan is an analytical

obstacle, but the Chinese are immensely bigger than any other state on all the criteria and any

economic development following the circumstances of internal unrest have been tested under

the harshest conditions making it scientific acceptable. The two countries to be examined and

analysed on the variables found are thus Sudan and Angola.

4.3 World Bank Cases

The aims of the loans provided by the World Bank are very scattered. It is therefore not

possible to select cases by looking at the policies of the countries. Instead we have to work on

the assumption that the countries most under the influence of the World Bank are the ones that



receive the most funding. This is defended by the fact that if countries do not align to the

conditions of the World Bank they will not receive the funding. To measure this, the loans are

summarized and divided by the country’s GDP.

Furthermore, it is important that the World Bank is the biggest donor, and that the country has

participated in the PRSP program since the beginning in the late 1990s. These two criteria are

checked beforehand.

Lastly, cases where China is a large trade partner are deselected.

The selection process is somewhat complicated because of the larger quantity of possible

countries involved. The criteria presented above are used as filters to remove the countries least

fit for analysis. These filtrations are shown in appendix 9.1.

Having removed the cases, where the World Bank is not the biggest donor or the country have

not participated from the start, four countries remain in focus with a World Bank ODA/GDP

ratio above 1 percent. These are Ethiopia, Rwanda, São Tomé & Príncipe, and Uganda.

Ethiopia is ignored because of its relations with China. China is Ethiopia’ biggest trading

partner and many of the characteristics of the Chinese model are present in Ethiopia (Lin,

2006). São Tomé & Príncipe is two small islands in the Gulf of Guinea. For that reason, and

because the World Bank only have launched two projects over the last five years, São Tomé &

Príncipe would not be representative of the countries of Sub-Saharan Africa, and is therefore

left out. The cases selected to analyze the World Bank model is therefore Uganda and Rwanda.



5. Economic Effects

All data collected are shown in the appendix. If an indicator is not presented in the case

studies, the data are not available and thus not directly included in the analysis.

5.1 Impacts of the Chinese Model

5.1.1 ANGOLA

Angola was the scene of repeated civil wars in the 1990s, but with a peace agreement coming

into effect in 2002 the economy started a recovery process. This is reflected in the increase in

productiveness measured by GDP per capita, which rose by a massive 780 percent between

1999 and 2008 to US$ 8,800. This recovery was led by huge investments peaking at 34.5

percent of GDP in 2004 encouraged by the 2003 ‘Law on Private Investment’, but has since

gradually decreased to 9 percent in 2008.

The investment was mainly made in the petroleum sector, of which Angola has a natural

comparative advantage with huge reserves. Since the millennium the dominant role of the

petroleum sector and its supporting activities has increased, contributing 45 percent of GDP in

1999 and about 85 percent today (CIA, 2000; CIA, 2008). The same story goes for the export

sector, to which oil accounted for 96 percent in 2005 up from 90 percent in 2000.

This follows from both rising oil prices and increased production due to a higher world

demand (CIA, 2008). However, subsistence farming still provides the main livelihood for most

people. If we look at the labour variable over the period of the Chinese model, the distribution

of labour on sectors has not changed much. The industry and service sectors still only holds 15

percent of the workforce.

The trade deals signed with Beijing have lifted Angolan exports to China from less than US$

400 million in 1999 to US$ 23.23 bn. in 2007, while trade the other way increased from less

than US$300 million to US$ 1.6 bn. amounting to around a quarter of Angolan GDP. This is a

3450 percent increase in Chinese-Angolan trade volume while the same number for the general

trade volume was 1,000 percent.

The government’s role has increased a great deal measured by the increase of its budget up

from 8 percent of GDP to 24.6 percent. Its role in the Angolan economy is highly influenced



by the dominance of the petroleum industry, which is under great control by the government

(USTR, 2009: 10). Recently, to enable the revival “of domestic production of non-petroleum goods”

the government has postponed the implementation of harmonized regional policies including

lower tariffs (USTR, 2009: 7), as the state-led growth theory prescribes. In spite of this, the

import duties on intermediate goods for industries were removed in 2008, resulting in a slight

decrease in the average tariff from 8.5 percent in 2000 to 6.4 percent in 2008, which places

Angola much lower than an average SSA country. (USTR, 2009: 7)

With regards to infrastructure, much was destroyed doing the civil war and the government has

allocated a lot of resources to deal with the problem – US$ 7.5 bn. in 2007, or 9.2 percent of

GDP that year (USTR, 2009: 11). The data for our indicators on the transportation

infrastructure are not available, meaning that we have no way of assessing whether the money

spent has made an actual difference. The size of the allocation however, suggests that it has, or

will do.

In continuation hereof, the financial institutions ability to facilitate capital flows have been

fairly successful over the time period chosen. The inflation rate have gone down from 270 to

12.5 percent, the interest rate have been cut somewhat but still lies at almost 20 percent, and

the budget deficit of 169.4 percent have been turned into a 24.2 percent surplus. The latter of

course is due to the fact that state expenditures have risen not nearly as much as the value of

production. The exchange rate of the Angolan new kwanza increased rapidly from over half a

million NKz per US$ at the end of the civil war to around 75 today. Since 2003 it has been

fairly stabile though due to a stabilisation programme using foreign exchange reserves to buy

kwanzas out of circulation. This policy that has kept the kwanza stable and remarkably

reduced the interest rate but is very expensive in terms of foreign exchange but because of high

oil income, it has been sustainable since 2005. The institutions are however still under heavy

criticism for not having the regulatory and legal capacity to facilitate much foreign direct

investments outside the petroleum sector – a persistent critique in the past as well (USTR,

2009: 9). A further problem regarding corruption is that Angola has improved very little on

average in international corruption measurements since 2000 – from a score of 11.8 to 21.4

(100 being the best).

When it comes to the last variable, capital flows, the amount of aid received by Angola today

is not easily accessible since the Chinese do not give away this type of information. However, if

we are to believe the Chinese diplomat who states, that around half the funds from the



Ministry of Commerce is disbursed as grants and the other half as loans, we get a decent

overall view. Before the FOCAC rounds began in 2000, Angola received US$ 383 million in

foreign aid, accounting for 3.3 percent of GDP. If the Chinese line of credit to Angola is any

measurement for their grant aid, the original US$ 2 bn., later increased to US$ 7 bn., would

amount to roughly 2-6 percent of GDP that in the meantime has increased ten fold (Servant,

2005). These data are still very dubious but even if we were to look only at the loans, these 1.5

percent interest rate credits are well below the two digit inflation rate making a part of them

pure grant aid, and showing a considerable increase of capital inflow since 2000. This loan was

even interest free for the first five years but as mentioned earlier, included a clause to use

Chinese firms for some of the considerable infrastructure projects initiated (Sautman, 2006:

26). At the same time, the Chinese cancelled previous Angolan debt that now stands at only

7.2 percent of GDP, down from 90.5 percent in 1999.

5.1.2 SUDAN

The economic situation in the Sudan is heavily connected to the oil industry and fairly peaceful

relations between Khartoum and South Sudan. The Darfur province, however humanitarian

and politically important, is not of crucial importance to the Sudanese economy, the

population, production and natural resources being very limited (Prier, 2006).

Today, China is Sudan’s leading trade partner (ECOS, 2007: 11). Between 1998 and 2008

China’s share of Sudanese export went from 1 to 82 percent, while the share of import

remained at 28 percent. In real terms however, imports rose from US$ 1.4 bn. to US$ 7.6 bn.

and exports from US$ 0.6 bn. to US$ 13.6 bn. This steep rise in exports of 1260 percent is due

to higher oil production. In 2008 oil accounted for 92.6 percent of Sudan’s exports. As the

leading developer of Sudan’s oil industry, China has invested over US$ 15 bn. since 1996

heavily in infrastructure and facilities to increase oil output (Alden, 2007: 61). In 1998 the

Chinese National Petroleum Company (CNPC) participated in a pipeline project of 1500

kilometre linking some of the oil fields to Port Sudan, which was extended in 2005 (Human

Rights Watch, 2003; Energy Information Administration, 2007). China furthermore provided

US$ 1.15 bn. in 2007 to build a railroad connecting the capital and the largest port, Port Sudan

(Save Darfur, 2007: 3). However, the statistics show that the kilometres of railroad did not rise

remarkably, due to the fact that much investment is going into replacing old tracks



(Encyclopedia of the Nations, 2009). A further important aspect is that many of the Chinese

projects are not only controlled by Chinese contractors but also carried out by Chinese

workers. To complete the pipeline to Port Sudan, 10.000 Chinese workers were brought in and

in daily affairs approximately one third are Chinese (Human Rights Watch, 2003).

Turning to productivity, GDP per capita increased from US$ 940 in 1999 to US$ 2,200 in

2008. Nonetheless, Sudan remains predominantly agricultural, employing 80 percent of the

work force over the last decade, but only contributing 32.8 percent to GDP in 2008.

The size of the state budget grew from 3.7 percent of BNP to 13.6 percent from 2000 to 2008,

indicating a larger role for the government in the economy. Unfortunately, corruption in Sudan

is still a major problem, with only a minor improvement in the corruption score from 15 in

2000 to 18 in 2007. The wealth is not distributed to the population. The Save Darfur Coalition

holds that “it is obvious that, in the context of the crony nature of the Khartoum regime and the historic

concentration of wealth among Sudan’s ruling elite, that ‘a rising tide does not lift all boats’ ” (Save

Darfur, 2007: 3). However, the investment rate of 18.1 percent is not low. On the other hand it

is hard to tell what it is invested in. A former minister of Finance for Sudan has stated that as

much as 70 percent of the oil revenues have been spent on arms and arms production for to the

current conflict in Darfur and skirmishes with South Sudan (Save Darfur, 2007: 3).

The funds provided by China to spur the economic development are unconditional, and China

does therefore not intervene with Sudan’s financial allocations. However, because China is

Sudan’s largest provider of arms, international pressure pushed China to agree to UN

Resolution 1769 to demand peace in Darfur, but China rejected sanctions of any kind (Save

Darfur, 2007: 1-3).

Looking at the financial institutions, some of the institutional indicators have worsened and

some have simply not improved within the last decade. From 2000 to 2008 the state budget

deficit increased tenfold in real terms to 9.4 percent and external debt increased to US$ 30.5

bn. The inflation rate today is high, though lower than in 2000. Furthermore the Sudanese

pound got more expensive as a result of the boom in exports of oil, making the country less

internationally competitive, the Dutch disease as mentioned earlier.



The private sector is further constrained by costs related to poor domestic logistics and high

fees at Port Sudan (The World Bank, 2008g: 2). The failure to diversify its exports is also due to

the trade restrictions imposed by the Western powers following the crisis in Darfur and the

previous civil war (The World Bank, 2008g: 1). Fortunately for Sudan, China on the other

hand has signed a zero-tariff agreement on 44 Sudanese commodities (Save Darfur: 2007: 4),

albeit the share of the population employed in the agricultural sector has not improved at all.

The industrial sector’s increasing share of GDP is the only indicator of a changing labour

market although the increased value of oil and the larger oil production might be the sole cause

of this. Further evidence that Sudan has become more closed is evident in the fact that the

average tariff increased to 16 percent in 2008 from 4.2 in the late 1990’s.

5.1.3 CAUSAL CLAIMS

An initially pressing critique of the Chinese model involves the selection of the countries for

the model. Even though motivation is excluded on the grounds that it does little to change the

outcome of the model, the question arises of whether the effects of the Chinese model only

applies to countries with natural resources. The critique is valid as far as the cases chosen for

the Chinese model are only ones with massive amounts of natural resources. This does not

change the procedures however, and the absolute majority (if not every country but city-states)

have various natural resources. Some more valuable than others of course, but nonetheless

something that can be produced more of and exported if investments are made in

infrastructure and production facilities. Hence the model is relevant at a broader basis, albeit it

might be on a smaller scale than is the case with Angola and Sudan.

In both cases, oil is of significant importance and the massive exports of this commodity are

directly linked to the Chinese trade deals that are completely dominant as a trade partner for

both countries. The market-led theory explains the trade benefits in the short run of exporting

raw materials. Further, the effective allocation of internal resources to the commodities that

can be sold with a comparative advantage, be it natural or technological, is of major

importance for achieving the benefits of trade. This is especially true when the resources and

labour lay idle beforehand. This point provides the theoretical background for the Chinese

model’s cause of the surge in both infrastructural investments and production of raw materials.

The emphasis on the petroleum sector has resulted in its increasing relevance to GDP and



dominance of exports above 90 percent. However, the limited dispersion of investments has

also caused stagnation in the division of Labour. Within the field of economics these are the

only direct effects of the Chinese model.

The indirect effects of a much larger state budget are somewhat more complex. The financial

institutions have in both cases been able to show some progress, but this can not be linked to

the explanatory variable, the Chinese model, due to its principle of non-interference. The

income does make it easier to get a surplus on the state budget of course, but whether the

decline and stabilisation of the exchange and inflation rate is only due to the Chinese model or

whether they gained financial experience from dealing with the money is not clear enough to

make any causal claims. However, their dismissal of influence on the countries’ internal

matters makes the quite stabile and very low corruption scores of both countries

understandable.

If we look at further co-variation, the last decade has meant a more educated population in

both cases, but the internal distribution of Chinese loans are not just because of the Chinese

model. They take pride in not advising countries of what to do with the loans, except the

choosing of Chinese contractors for infrastructural projects.6The direct causal links are

presented in the table below.



6 Except a designated percentage to be used on products from Chinese firms.

Explanatory variable (The Chinese model)

Mutual preferential treatment (trade deals)

Chinese investment in infrastructure and production facilities of a naturally comparative advantageous sector

Politically untied state loans and grants6

Dependent variable (Effects)

Huge increase in trade

Exponential growth in GDP per capita

Stable sector division of labour

Low export diversification

5.2 Impacts of the World Bank Model

5.2.1 UGANDA

Uganda’s PRSP was first put forward in early 2000 and later revised in 2005. The key points

hereof are supported in the World Bank’s Country Assistance Strategy. The data for World

Bank lending does not go further back than 2005, but since then it has been lending US$ 325

million annually to Uganda, which accounted for 11.4 percent of state budget in 2008 (The

World Bank, 2009a).

Uganda has long since removed all quantitative trade restrictions with the encouragement of

the World Bank, leaving tariffs as the only trade barrier today (WTO, 2001). Through the

‘Regional Trade and Facilitation Project’ the World Bank has supported the creation of the

free trade area among the countries of the Common Market for Southern and Eastern Africa

(COMESA), of which Uganda is a member (The World Bank, 2006: 31). Despite this, average

tariffs have risen from 5.8 to 11.9 percent since 2000. This is due to the fact that in 2005

Uganda joined the East African Community (EAC), and adopted its Common External Tariff

(The World Bank, 2008a: 1). However, the efforts of regional integration have contributed to

steady rise in trade: Exports (US$ 471 million in 1999 to US$ 2.3 bn. in 2008) and imports

(US$ 1.1 bn. in 1999 to US$ 3.58 bn. in 2008). An important remark is that that the tariffs

deviate a lot from product to product. They are high on finished goods and products that

Uganda produces itself, while low on non-domestic agricultural products, machinery and

transport equipment (WTO, 2008b: 1).

Looking at the government role, its budget has increased from 4 to 7.7 percent of GDP.

The overall productiveness, measured by GDP, increased a lot but because of Uganda’s

population growth rate of 3.4 percent, the third largest in the world (Uganda Ministry of

Finance, 2005: 5), the GDP per capita only rose slightly from US$ 1,060 to US$ 1,100.

Still relying on agriculture, Uganda has an aim of enhancing product diversification (Uganda

Ministry of Finance, 2005: 23). Consequently, the labourers employed in industry and service

sectors have gone up from 18 percent in 1999 to 30.1 percent in 2003. By extension the

industry and service sectors have increased their contribution to GDP from 65 percent in 1997



to 71 percent in 2008. Furthermore, coffee, Uganda’s main export product, has gone down

from 45.5 percent of export earnings in 1997 to 19 percent in 2007.

In contribution hereto the World Bank furthermore “provides funding to poor farmers to adopt

improved technology and management practices in their farming enterprises to enhance the

productivity” (The World Bank, 2006: 33).

Macroeconomic stability is essential to the World Bank, for which it provides technical

assistance and training (The World Bank, 2006: 17). A key point is to ensure a low

government budget deficit to avoid increased inflation or crowding out the private sector by

appreciating the exchange rate and driving up the interest rate (Uganda Ministry of Finance,

2005: 34). This has been moderately successful. The deficit has increased slightly since 2000

from 8.4 to 10.8 percent of GDP in 2008, and the inflation has likewise increased from 7

percent in 1999 to 10.5 in 2008, but fortunately for the private sector the interest rate has gone

down from 25 percent in 2000 to 19 in 2008, and the exchange rate has been stable, with a

slight depreciation. To help minimise the state budget, the World Bank furthermore provides

debt relief. In 1999 Uganda received US$ 2 bn. in debt relief from the HIPC programs, of

which the World Bank has provided nearly half (The World Bank, 2009e). In addition

economic aid, most of which is provided by World Bank IDA grants, has increased to

Uganda from 6 percent of GDP in 1999 to 11.5 in 2008

The World Bank supports infrastructure projects to reduce the cost of doing business – e.g.

US$ 100 million to enhance the power grid (The World Bank, 2006: 23-25). Because Uganda

is landlocked, transportation infrastructure is especially important, but even though the World

Bank has provided US$ 263 million, this only constitutes to 0.7 percent of GDP (The World

Bank, 2006: 29). This has led to improvements though; between 2000 and 2008 the number of

kilometres of paved highways rose by a factor of 9.

The education variable has been a focus area with 8 percent of the capital borrowed from the

World Bank since 2005 invested in education (The World Bank, 2009a). The effects hereof are

incremental, but our indicator, the literacy rate, rose by five percentage points from 2000 to

66.8 percent in 2008.



The private sector receives by far the biggest amount of funding (The World Bank, 2009a). To

stimulate private sector investment support is provided for privatisation of state enterprises

and the strengthening of the commercial regulatory environment (The World Bank, 2006: 21).

Looking at the statistics, this plan has succeeded. Domestic investment has risen from 13.7

percent of GDP in 1999 to 26.5 in 2008 and FDI has gone up from US$ 82 million in 1999 to

US$ 368 million in 2007.

To facilitate the above the World Bank provides credit and technical assistance to improve the

capacity of the government and good governance (The World Bank, 2006: 15). A key factor

here is fighting corruption (Uganda Ministry of Finance, 2005: 26), but even though Uganda

has improved on the international ratings, it is still ranked low at a score of 27.

5.2.2 RWANDA

The Rwandan genocide 15 years ago devastated the economy. Since then, the aid volumes

have increased greatly. After the completion and approval of their PRSP in 2002, the World

Bank has on average been lending Rwanda US$ 94 million annually, in 2008 corresponding to

13.5 percent of GDP (The World Bank, 2009a). In 2005 Rwanda qualified for debt relief

under the HIPC program with a debt of US$ 1.4 bn. in 2004 (The World Bank, 2009c). They

received US$ 810 million, with World Bank assisting half (The World Bank, 2002, 24).

A central objective in the World Bank’s Country Assistance Strategy is a transformation from

subsistence agriculture into commercial agriculture (The World Bank, 2002: 20). In the World

Bank’s ‘Rural Sector Support Project’ it provides “the technology, infrastructure, credit and other

support services, and the institutional capacity to foster this transition, improve productivity, and expand

and diversify exports” (The World Bank, 2002: 22). Trade was identified as an important tool in

getting there. From 1999 to 2008 import and export grew steeply, but is still very low in real

terms. In 2008 export per capita was only US$ 21 compared to more than US$ 150 on average

in SSA, but the statistics further show that the non-agricultural sectors grew, measured by its

contribution to GDP, from 56 percent in 1998 to 65 in 2008 (Samen, 2005: 11). To increase

the volume of trade, Rwanda joined the regional trade unions of COMESA and EAC,

supported by the World Bank (The World Bank 2009h). This has greatly increased the

Rwandan regional exports (The World Bank, 2009d: 2). Exports were also improved by the



deterioration of the exchange rate within our time frame.

To further improve the conditions for a climb up the ladder of comparative advantage, the

government increased import tariffs on finished goods while keeping them low on

intermediate goods and commodities, that Rwanda does not possess (WTO, 2008a: 1). On

average the tariffs increased from 9.6 percent in 2000 to 17.9 in 2006.

With regards to the diversification of export products, Rwanda is improving but still relies on

agriculture and minerals (Bureau of African Affairs, 2009). In 1994 coffee was the main

export product accounting for 60 percent. Today, this position has been taken over by

minerals, but only covers 35.9 percent of the export earnings.

Another mean of achieving increased trade and move away from subsistence farming is

transportation infrastructure through linking rural areas to markets and thereby increasing the

returns to producers of commercial crops. The statistics show that from 2000 to 2008 the

kilometres of paved road increased from 1,000 to 2,662, albeit the country still faces very high

transportation costs (Seman, 2005: 9).

To spur the process of reform, the World Bank seeks to strengthen the governance through

capacity building: Rwanda decentralised the government in 2001 and adopted a new

constitution in 2003 (Ministry of Finance and Economic Planning, 2002: 10). Looking at the

government’s role, its influence measured by the state budget share of GDP grew steeply from

3.4 percent of GDP in 1998 to 9.6 in 2008. Further, the corruption fell remarkably from 1998

to 2007.

In continuation of the institutional support above, the ‘Competitiveness and Enterprise

Development Project’ aims at strengthening the institutional settings, both the commercial

legal system and the financial sector (The World Bank, 2009c). This is reflected in the

statistics, showing that inflation fell half a percentage-point from 1998 to 9.5 percent in 2008.

More, the government has gotten control over the budget deficit, reducing it from 79 percent

in 1999 to 14 in 2008. The more liberalised private sector also caused an incline in FDI from

US$ 5 million in 1999 to US$ 67 million in 2007.



Another aspect of the change in this institutional capacity is the increased investment in

education (CIA, 2000; CIA, 2008). This indicator of the literacy rate, has gone from 60.5

percent in 1995 to 70.4 in 2008.

Looking at the statistics, the overall evaluation of the Rwandan economy shows that the

economic policies of the government have been positive: The interest rate was kept stable

from 2002 to 2008 at around 16 percent, which facilitated a high investment rate of 22.5

percent of GDP. Within our time frame, GDP per capita grew from US$ 720 to 900.

5.2.3 CAUSAL CLAIMS

In general, the policies and outcomes of the two cases are very similar, which makes room for

causal claims if supported by theoretical explanation.

In line with the state-led growth theory, the World Bank supports interventionist projects to

ensure conditions for economic development that are not facilitated by the market. This

includes Krugman’s conditions for a manufacturing-friendly environment; infrastructure and

education. In the two cases, both indicators improved, though not dramatically. Furthermore

it includes institutional settings for the private sector; commercial law, legal enforcement

herewith and financial institutions, for which the World Bank provides technical assistance.

Last but not least is macroeconomic stability. By minimising the states budget deficit, also

helped by debt relief by the World Bank, the inflation was kept at acceptably low levels, which

ensured a low interest rate in both cases. This facilitated high private investment above 20

percent of GDP in both cases and the good conditions for the private sector managed to

increase the foreign direct investment significantly. Supported by the state-led growth theory it

is fair to draw a causal link from these state policies to the increase in BNP per capita of 4

percent in Uganda and 25 percent in Rwanda.

In both cases state budget grew and corruption diminished. A causal link hereto is the World

Bank’s strategy of enhancing the role of the government though capacity building and

principles of good governance.

In relation to the ladder of comparative advantage, the non-agricultural sectors grew in their



contribution to GDP in both cases. The causal explanation is the steps taken in Rwanda to

move from subsistence agriculture to commercial agriculture and the strategies in both cases

of increasing the industrial sector, which are all supported by the World Bank. The theoretical

explanation for these policies is the improvement in terms of trade by building up an industry

to process raw materials and food instead of exporting non-processed products.

Following this, the policies to diversify the export base, supported by the World Bank, has also

succeeded. Today the main export product accounts for only 19 percent in Uganda and only

35.9 percent in Rwanda.

The World Bank supports trade liberalisation and reduction of tariffs. The argument behind

this is the one presented in market-led growth theory; that specialisation in comparatively

advantageous sectors will increase returns. Nonetheless, to be less vulnerable to price shocks

the World Bank supports projects to diversify the export base. By looking at the Herfindahl

index of export diversification, this policy has succeeded to a much higher degree in Uganda

and Rwanda than is the case with Angola and Sudan. The data only show the change from

1998 to 2002 but the fact remains that the move towards export diversification are much more

profound in the World Bank cases (Xiaobao Chen et al., 2005: 73).

Both Uganda and Rwanda have considerably higher average tariffs today than in 2000. The

causal explanation behind is the influence of the regional unions EAC and COMESA. The

World Bank supports these organisations, but it cannot be justified to fully link this policy

shift to the World Bank.

The higher average tariffs reflect an increase in tariffs on finished goods and commodities also

produced domestically. On the other hand, free trade is encouraged within the regional

unions, and in relation to the rest of the international economy the tariffs on non-domestic

commodities and intermediate goods are kept low. These strategic tariffs are, according to

state-led growth theory, a necessity for a country under development to not be ousted by the

more competitive developed countries. The members of the unions are at a somewhat similar

developmental stage, which makes the competition fairer. The competition ensures

specialisation and the low worldwide tariffs on intermediate goods ensure competitiveness of

the domestic industries.

Even though protectionism has increased, it is still very limited. Rwanda has a maximum

tariff of 30 percent (WTO, 2008a: 1), while Uganda’s are more scattered, most being at 25

percent (WTO, 2008b: 1). Furthermore the statistics show that import and export volumes



increased in both cases. These increases are however not directly linked to World Bank

policies, but indirectly we do see a connection in the World Bank support for the before

mentioned regional trade unions and the production growth following macroeconomic

institutional stability.

Lastly, it is important to mark that the World Bank, like the Chinese model, pursues a path

between state- and market-led theories. The World Bank supports the governments to

intervene in the economy and provide institutional settings, but overall the economy is driven

by private sector entrepreneurship. The direct causal links are presented in the table below.



Dependent variable (Effects)

Increased and improved government role

Diminishing dependence on the agricultural sector

Increased export diversification

Macroeconomic stability

Better private sector conditions- Commercial law- Financial system- Infrastructure- Education

Moderate GDP per capita growth

Explanatory variable (The World Bank model)

Technical assistance

Tied financial loans and grants

Conditions:- Government capacity building- Principles of good governance- Macroeconomic stability- Structural policies- Social policies

5.3 Model EvaluationsAs we have seen, there are certain similarities between the two models and the resulting

economic effect. As the Chinese and the World Bank models use logic from both poles of the

spectrum of export-led growth theory, this is not surprising. The differences are however, more

interesting.

We have shown that the World Bank model’s focus on institutions that facilitate free trade,

huge aid packages in debt cancellation and low-interest loans conditioned by good governance

have caused growth in GDP per capita, trade and good governance over the last decade. This

focus on institutions capable of following a free market, which the Chinese model neglect, has

caused the value of trade volumes to follow the level of industrialisation neatly because of

diversity in specialised products. The smaller but institutional more solid investments in a

broader portfolio of products are more stable to changing market conditions. However, the

construction of infrastructure and capacity building here within are hampered by these

institutional standards and the costly and difficult administration of state planning compared

with the Chinese as commented by a USAID Mission Director:

“Capacity building with full accountability is extremely difficult and inefficient. If the

Chinese say they’ll build a road, they’ll build it. With the World Bank it just doesn’t get

build.”7

The Chinese model of colossal trade deals and preferential trade treatment, no political

interference and relatively smaller grants delivered very fast as infrastructure for production

and trade, have caused very high GDP growth per capita over the past decade as well as

massive growth in trade volumes. It seems that the Chinese model of addressing infrastructure

and production facilities limitations first instead of the World Bank model’s focus on primarily

institutional limitations are more effective on GDP in the short run. This is not only true

internationally but also regionally:



7 This comment was stated during a meeting with the USAID Mission Director in Kampala, Uganda on April 14,

2009. We were granted permission to quote this statement but in general the meeting was off record and the

Mission Director asked that his name would not be mentioned. Also see Wilson, 2005.

“Infrastructure will also not only make Africa more accessible to Chinese and other foreign

commercial partners, but will enable increased intra regional trade in Africa. Poor

infrastructure has been a major impediment to economic development in sub-Saharan

Africa.” (Davies, 2008b: 40).

The big question is what causes industrialisation in the longer run and thus a more permanent

level of higher economic development.

One view on this question is founded upon the lack of industrialisation in the Chinese model

cases seen over the last decade upon the indicators of labour force distribution in sectors and

these sectors’ contribution to GDP. Combined with the lack of progress in good governance

and very limited export diversity, the argument goes that economic development with

infrastructural focus is present only in the short run. The value of production is artificially high

at the moment as the institutions are simply not capable of absorbing these amounts of capital

inflow properly. The poor institutions waste the money, use it on arms, fail to invest it in

production facilities and diversified portfolio of products and therefore the natural resources

are quickly wasted in corruption and civil war (Chan, 2007: 6). Raw material prices will

eventually fall in relative value compared to manufactured goods as described in the state-led

growth theory and the question then is; can these countries’ institutions keep facilitating

investment in industrialisation and infrastructure?

The immediate response is, that it is always possible to criticise that not enough is spent on

investments, but even though the cases of the Chinese model presents investments percentages

relatively lower than the cases of the World Bank, in absolute terms per capita they are higher,

10 percent of 100 is larger than 20 percent of 10.

Furthermore, without these extraordinary inflows of infrastructure and trade income it would

take a very long time to invest enough surplus vents within the country to industrialise,

especially when 80 percent of the population are living as subsistence farmers. Jeffrey Sachs

puts it a similar way in the Millennium Project: “Many reasonable governed countries are too poor to

make the investments to climb the first steps of the ladder [of comparative advantage]” (UN, 2005:

34).

The capital flows granted by the extensive trade deals allow for a larger absolute level of

investment. If they were to wait for their own surplus as the primary basis for investments then



market-led theory argues that the low level of free trade available with their biggest potential

markets in the West makes this extremely slow and difficult. Chinese agricultural tariffs

averaged 15.8 percent, compared to 73 percent in the EU and 23 in the US. More, state support

for American and European farmers was 18 and 33 percent of their income respectively, while

in China it lay at only 1.5 percent (Sautman, 2006: 35).

To the proposed lack of industrialisation, it can be pointed out that the population growth and

Chinese demand for raw materials hides the industrialisation process. The same percentage of

people work in the industry and service sectors, although one could argue that this ought to

have seen a rise as with the cases of the World Bank. The Chinese demand for raw materials

however does grant a justified excuse for having a large extraction industry. If there is demand,

there is profit from sales, which can be invested. This is a natural resource comparative

advantage if inflation and exchange rate is kept fairly stable, as we have seen until now in the

cases of the Chinese model. In the SSA the five key commodities of oil, iron ore, logs,

diamonds and cotton increased from 50 percent to more than 80 percent of exports to China.

The relative increase is understandable since China accounts for nearly the entire increase in

global demand for nickel, steel and copper (Besada, 2008: 7).

In absolute terms the non-‘key commodities’ have risen dramatically but it is nonetheless

problematic that 5 key commodities still constitutes such a great proportion of the export. To

accommodate for market fluctuations in certain sectors this should be diversified as with the

World Bank model.

Aside from the institutional facilitation of investment from which it is difficult to conclude

much within this short time frame, another important aspect derived from the state-led theory

lies in the preferential trade treatments. The African countries might move up the ladder of

comparative advantage by investing the inflows of capital, but this would happen extremely

slowly and at an enormous opportunity cost because of the local entrepreneurship being kept

down caused by cheap imports from the already industrialised preferential trade partner. This

critique is applicable for both the World Bank and China, but has primarily been directed at

China because of the overlap of exports products in China and Africa. An example of this can

be seen in the footwear and textile industry whose representatives concluded that Africa had

lost more than a quarter of a million jobs over the past few years because of cheap imports from

China (Chan, 2007: 6).



On the other hand, the inflows of capital for infrastructure and industrial facilities do transfer

production technology allowing for more profitable exports from Africa (Besada, 2008: 8).

Furthermore, the critical point regarding the imports from China is not directly relevant in a

macro perspective. The products are generally complementary to African products with the

textile sector being almost the sole exception. The critique within this field is valid even though

60 percent of the Chinese exports are foreign owned. But half the exports comprise of

machinery and electronic equipment which is cheaper than Western counterparts and benefits

African consumers (Sautman, 2006: 4).

In assessing long term effects, the indirect effects of the models are highly relevant as well. For

instance, the countries of the Chinese model do not follow the same level of good governance

principles as the World Bank conditions. This could lead some countries to unwisely lend more

money to cover sudden deficits (a sort of Chinese free-riding on the huge World Bank debt

cancellations). This is hypothetical at the moment though since the Chinese have accepted to

cancel a lot of the African countries’ debt as well as lending money at very favourable interest

rates. But on the longer run there is no guarantee for this policy, as is more or less the case with

the World Bank who unlikely to quickly forget the criticism of their previous lending policies.

Another aspect of the good governance discussion evolves around the afore mentioned market

fluctuations and the fact that we have seen the level of governance improving at the World

Bank model as opposite to the Chinese. One could argue that the actual picture of the

economic effects is easier seen after a financial downturn when the Chinese stop buying more

raw materials which are pressing GDP per capita up at the moment, hiding industrialisation

levels and bringing absolute investments to a high level. This speculative argument is supported

further by the steady deteriorating relative value of raw materials, vis-à-vis manufactured

goods. The weaker institutions in the Chinese cases will likely be incapable of sustaining the

present level of absolute investments per capita. This might lead them to fall behind the World

Bank cases in absolute investments thus making the more institutionally focussed World Bank

model more attractive in the long run.

However, these critical points do not alter the concluding fact that the Chinese model delivers a

higher GDP growth and absolute higher investment in the short run, rather they simply refer to

the likeliness that in due time this advantage will be smaller and might be surpassed by the

World Bank model.



Before ending the discussion about the possible long term economic effects, the political issues

are essential to address.

Politically it is very problematic if the models followed in Africa does nothing but economic

growth. This is not a case for rejecting the economical development view, but rather an

acceptance derived from above that governance and democratic procedures are interlinked

with long term economical progress. We have seen that the World Bank model does improve

good governance with non-official conditions, but the Chinese involvement with regimes for

which non-democratic procedures are a necessity for staying in power are dubious.

In Zimbabwe and Sudan the flows of income from trade with China are a considerable source

of income for leaders that use state resources, thus indirectly from China, on human right

violations (Wilson, 2005: 15). However, it is an open question whether African wealth in the

longer run subsidises and leads to democratic reforms or not8. This is a much debated topic

and a complete inclusion is neither relevant nor possible here, but in continuation of the

economic importance of institutions in the long run it is a subject worth studying over a longer

timeframe as with non-democratic institutions’ capacity to facilitate investments.

Hitherto we have seen no indication that African regimes have become more corrupt since China’s

presence began to rise around 2000 (Xiaobao Chen, 2005: 39), but neither any improvements from

an initially very low level. So the bottom line is that the World Bank model is the only model

with proved democratic progress, which is vital for the best relative allocation of investment in

future production and thus economic development.

Even if the poor institutional handling in the Chinese model causes absolute less investment in

the long run than with well-functioning institutions and thus a lower economic development

than with the World Bank model, it is still helping Africa with crucial financing and quick and

very necessary infrastructure. The analysis shows that a more rapid economic growth is

possible in the short run even though the income might be capable of better relative use.



8 The opposition leader and presidential candidate in Uganda, Kizza Besigye, commented that “no wealth can subsidise freedom” during a meeting in Kampala, Uganda on April 18, 2009. We were granted permission to quote this statement but in general the meeting was off record.

6. Conclusion

The Chinese and World Bank models for Africa are indeed qualitatively distinct models and

even though neither follows one of the two idealistic poles within export-led growth paradigm

in which they both operate, their effects are very different. The Chinese model causes very high

growth in GDP per capita in the short run, while the World Bank model through its broad

institutional focus is slow and inefficient initially but absolutely necessary in sustaining

economic progress in the longer run.

Beijing’s model focuses on loans and grants to be used primarily on infrastructure and

production facilities constructed by Chinese firms, while signing very large trade deals that

include preferential treatment in tariff matters between China and the recipient country. The

absolute majority of these immense trade volumes are within the energy and raw material

sectors. By looking at the two cases most aligned to the contents of the Chinese model, Angola

and Sudan, we have seen a pattern in the dependent variables in both cases. The recipient

countries’ GDP have increased greatly due to the high export volumes, and the infrastructural

focus of the Chinese grants and loans seem to have been the facilitator by a more efficient

allocation of internal resources and investment in the industries facing international demand.

The immediate effect is however somewhat compromised in the longer run. As raw material

prices deteriorate compared to manufactured goods over time, the government institutions will

face their test. Have the huge inflows of capital been spent wisely? As we have seen, it has been

turned into a higher absolute level of investment than their neighbouring countries, but a

relative lower one and a labour market without a movement towards the industrialised and

more profitable sectors. In the longer run, one can fear that the neglected focus on institutions

in the Chinese model have fostered inefficiency. Even though corruption in itself does not seem

to have increased, the level of governance has not improved either, making these countries

worse off relative to the countries of the World Bank model.

The World Bank includes a high degree of institutional perspective in their model for Africa.

Even though their stated objectives of recipient control of the funds through the PRSPs do not

appear to be the actual case, their policy and institutional conditions together with huge aid

packages and aid cancellation have proved relatively successful. When looking at Rwanda and

Uganda we have seen a number of effects on economic development in both cases consistent



with the model and theories. The macroeconomic stability policies have caused a steady

economic growth, significant improvements in institutional capacities, increased trade volumes

and a move towards a more industrialised and diversified export portfolio. The improvements

have been present in all variables identified as important to economic development, but have

spurred some criticism of bureaucratic slowness in investments. Compared to the Chinese

model, the pace of investment in infrastructure has been low.

While the effects of the Chinese model on economic development in Africa seems to be

superior in the short run, it still stands as a postulate whether the Chinese model can actually

be used effectively outside countries with highly valued natural resources. Theoretically it is

highly dubious whether they can keep their lead in the longer run with an institutional lack.

Because of this, the World Bank’s model looks like the better of the two.

However, the analysis does show that the immediate limiting factor in African countries is

infrastructure, and that this is simply prioritised too low and implemented far too slowly and

inefficiently by the World Bank. If this lesson could be learnt from the Chinese model and

actually included in a new model, economic development could be improved in both the short

and the long run.



7. Further Perspectives; developing development

Although the World Bank model seems to be superior in the long run, our case analysis

concludes that infrastructural focus rather than further resources to democratic institutions are

beneficial in the short run. Below are some additional perspectives on how to improve the

better model (and possibly the one which is easier to change) with this lesson in mind.

The accountability and inefficiency problem that severely hampers the World Bank investments

is seen as a necessity in the long run because of it being the only way to build African

institutional capacity. This, however, might not be the case. The academic debate on planned

development versus a search, or ‘trial and error’, approach is perhaps a way to include some of

the positive elements of the Chinese model into a newer World Bank model. The cliché of the

‘best of two worlds’ does have a connotation of certain indifferent neutrality but the different

effects of the models provide for something to be learned and perhaps improved.

The search development, as opposed to the over-planned nature of current development

procedures, resemble the critique put forth by the market-led theorists; the absence of a single

efficient system of evaluation, feed-back and accountability between the policy makers and the

policy objects make the planned system wasteful. Consequently, the objects, or the aid-

receiving countries, must be included in the development process to allow for a more

decentralised search for the best solutions by trial and error (Easterly, 2008: 19). Through joint

financing projects directed by the government of the developing country we would have some

degree of domestic accountability. Such a shift in paradigm is underway and the resemblance

to the government-to-government policies of the past is strikingly going back to the future9.

These thoughts are not new, but as we have seen, the World Bank has a gap between rhetoric

and outcome. An organisational study of where this problem lies is outside the scope and

relevance here, but the fact remains, the World Bank’s detailed conditions for policies and

institutions are still present. While the Chinese’s limit the conditions to a development-wise

insignificant one-China policy, their lack of concrete institution building are too far in the other

direction though.



9 This comment was stated during a meeting with the USAID Mission Director in Kampala, Uganda on April 14, 2009. We were granted permission to quote this statement but in general the meeting was off record and the Mission Director asked that his name would not be mentioned.

Accepting and implementing receiving country autonomy does however, evoke the dilemma of

cooperation between the World Bank and the developing countries. Democracy must be a firm

demand from the World Bank keeping in mind the economic consequences without. What

stops an approach solely focused on domestic accountability from avoiding the mistakes of free

trade and lending sprees of the 1970s and 1980s? The Western lenders to which the World

Bank is accountable simply cannot accept developing countries to ‘trial and error’ on these

issues.

The conditions on democratic and economic institutions and concrete economic policies do

not have to be linked however. The World Bank could ease up their conditions on concrete

policies in the economic area thus allowing for the flexibility and autonomy in economic

affairs needed for ‘trial and error’ policies in the developing countries, while still maintaining

fixed conditions on the nature of the domestic democratic process. The latter is the basis for a

functioning accountability system to ensure policymakers decision are within reason.

Even though this might cause policy mistakes along the way, the ideal is a process of creative

destruction, only not on businesses as described in section 2.1, but instead on ideas and

concrete approaches. This would allow for a learning process and theoretically the best policies

in the long run. This may jeopardise some of the concrete policies desired by the World Bank

and sometimes result in unwise spending, which again would make such a shift unrealistic

because of the World Bank’s accountability to the donor countries. For the sake of the

argument however, without having to go through two sets of bureaucracy – domestic and

World Bank, infrastructural projects could be built, and built faster, which we have seen is a

present problem and the short run limiting factor for economic growth. An explicit World

Bank acceptance of policies that increase tariffs and subsidies to foster infant industries and fix

market failures could enable the developing countries to seek advice and the expertise of the

World Bank to overcome the worst obstacles within such state led growth initiatives. This is no

more than Stiglitz has spoken of as the role of the World Bank.

Thus, the idea is to maintain an institutionally conditioned basis, institutional learning

progress in concrete policies through trial and error that includes a bigger focus on fast

investments in infrastructure as the Chinese have shown as a way for rapid increases of

production, at least in the short run.



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Total pages: 1737



http://go.worldbank.org/XEFZ3PAJ20

http://go.worldbank.org/XEFZ3PAJ20

http://sloc.cafe24.com/upload/publication01/2007B06.pdf

http://sloc.cafe24.com/upload/publication01/2007B06.pdf

9. Appendix

9.1 Case selection – World Bank Model

(X) means that the criterion is not met, and the country therefore is deselected.

Criteria

Countries

The World Bank is the biggest donora

The country has participa-ted in the PRSP pro-gramme from the startb

The World Bank lending compared to the country’s GDP is highc

China is not a large trade partnerd

Other

Angola X X X

Benin X 0,56%Botswana X X

Burkina Faso X 0,91%

Burundi X

Cameroon X

Cape Verde X

Central African Republic X

Chad X

Comoros X

Congo, Rep. X

Congo, Dem. X

Cote d’Ivoire X

Djibouti X X

Eritrea X X

Ethiopia 1,07% X

Gabon X

Gambia X

Ghana X 0,92%

Guinea X

Guidea-Bissau X

Kenya X

Lesotho X

Liberia X

Madagascar X 0,82%

Malawi X 0,88%

Mali X 0,29%

Mauritius X

Mozambique X 0,50% X

Namibia X X



Niger X 0,66%

Nigeria X X 0,12% X

Rwanda 1,35%

Sao Tome and Principe

2,16% X

Senegal X 0,37%

Seychelles X X

Sierra Leone X 0,25%

Somalia X X

South Africa X X

Sudan X X X

Swaziland X X

Tanzania X 0.93% X

Togo X X

Uganda 1.39%

Zambia X 0.27 %

Zimbabwe X X

Sources: (a) OECD, 2009; (b) The World Bank, 2009b; (c) The World Bank, 2009a (Calculated for 2008); (d) FOCAC, 2006



9.2 Case data – Angola

DEPENDANT VARIABLESDEPENDANT VARIABLES BEFORE (2000) NOW (2008)

TradeImports US$ 3 bn. (1999 est.)e US$ 15.3 bn. (2008 est.)f

- from China NA% (<10%)e 10.5% (2007)f

Exports US$ 5 bn. (1999 est.) e US$ 72.6 bn. (2008 est.)f

- to China NA% (<9%)e 32% (2007)f

Labour market distributionLabour market distributionIndustry & service sectors share of employment

15% (1997 est.)e 15% (2003 est.)f

Industry & service sectors' contribution to GDP

87% (1998 est.)e 90,8% (2008 est.)f

Productiveness GDP per capita (PPP) US$ 1 030 (1999 est.)e US$ 8 800 (2008 est.)f

Investment 34.5% of GDP (2004 est.)e 9% of GDP (2008 est.)f

Export diversification (primary export good as % of total exports)

90% (Oil)e 96% (Oil) (2005)q

InfrastructureRailways 2,952 km (1997)e 2,761 km (2006)f

Highways (paved) 5,349 km (2001)e NA

Financial institutionInflation 270% (1999 est.)e 12.5% (2008 est.)f

Interest rate (central bank) NA 19.6% (31 December 2007)f

Exchange rate (National currency per US$1)

577,304e 75.023 (2008 est.)f

Budget balance -169.4%e +24.2% of GDP (2008 est.)f

Government role Budget 8.0% of GDPe 24.6% of GDPf

Corruption (Score 0-100) 11.8 (1998)g 21.4 (2007)g

Tariffs (MFN applied tariff - trade weighted avg)

8.5%h 6.4%h

Education Literacy rate 42% (1998 est.)e NA

Capital flowsEconomic aid - recipient US$ 383.5 million (1999)e NAState loans NA NAExternal debt US$ 10.5 bn. (1999 est.)e US$ 7.9 bn. (2008 est.)f

Foreign Direct Investment (FDI)

NA US$ 19.5 bn. (2008 est.)f

Sources: (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c: (h) The World Bank, 2008d: 1; (q) The World Bank, 2008f: 2





9.3 Case data – Sudan


TradeImports $1.4 bn. (1999 est.)e $7.8 bn. (2008 est.)f

- from China 27%e 27.9%f

Exports 0.6 bn. (1999 est.)e $13.6 bn. (2008 est.)f

- to China 1% (1998)e 82.1%f


20% (1998 est.)e 20% (2007 est.)j


59% (1997 est.)e 67.2% (2008 est.)f

Productiveness GDP per capita (PPP) US$ 940 (1999 est.)e US$ 2 200 (2008 est.)f

Investment NA 18.1% of GDP (2008 est.)f

Export diversification (primary export good as % of total exports) NA 92.6% (Oil) (2007)j

InfrastructureRailways 5,311 kme 5,978 kmf

Highways (paved) 4,320 km (2000)e NA

Financial institutionInflation 20% (1999 est.)e 16.5% (2008 est.)f

Interest rate (central bank) NA NAExchange rate (National currency per US$1)

2.5e 2.1f

Budget balance -8.3%e -9.4%f

Government role Budget 3.7% of GDPe 13.6% of GDPf

Corruption (Score 0-100) 0.15g 0.18 (2007)g


4.2% (1995-99)i 16.0%i

Education Literacy rate 46.1% (1995)e 61.1% (2003)f

Capital flowsEconomic aid - recipient US$ 187 million (1997)e NAState loans NA NAExternal debt US$ 24 bn. (1999 est.)e US$ 30.5 bn. (2008 est.)f

Foreign Direct Investment US$ 1.5 millione US$ 2.1 million (2007)f

Sources: (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (i) The World Bank, 2008e: 1 (j) ECOS, 2008: 7-8



9.4 Case data – Uganda


TradeImports US$ 1.1 bn. (1999)e US$ 3.6 bn. (2008 est.)f

Exports US$ 0.5 bn. (1999)e US$ 2 bn. (2008 est.)f


18% (1999 est.)e 30.1% (2003)k


65% (1997 est.)e 71% (2008 est.)f

Productiveness GDP per capita (PPP) US$ 1 060 (1999 est.)e US$ 1 100 (2008 est.)f

Investment 13.7% of GDP (1999)e 26.5% of GDP (2008 est.)f

Export diversification (primary export good as % of total exports) 45.5% (Coffee) (1997)s 19% (Coffee) (2007)s

InfrastructureRailways 1,241 kme 1,244 kmf

Highways (paved) 1,800 kme 16,272 kmf

Financial institutionInflation 7% (1999)e 10.5% (2008 est.)f

Interest rate (central bank) 25.1 %e 19.1% (December 2007)f


15.258e 16.581 (2008 est.)f

Budget balance -8.4%e -10.8%f

Government role Budget 4% of GDPe 7.7% of GDP (2008 est.)f

Corruption (Score 0-100) 21 (1998)g 27.8 (2007)g


5.8%l 11.9% (2007)l

Education Literacy rate 61.8%e 66.8%f

Capital flows

Economic aid - recipient 6% of GDP (1999)e 11.5% of GDP (2005)m

State loans NA US$ 313,7 million (2008) (from the World Bank)c

External debt US$ 3.1 bn. (1998 est.)e US$ 1.7 bn. (2008 est.)f

Foreign Direct Investment US$ 82 million (1999)n US$ 368 million (2007)n

Sources: (c) The World Bank, 2009a; (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (k) NationMaster, 2009; (l) The World Bank, 2008a: 1; (m) World Press, 2005; (n) UNCTAD, 2009; (s) The World Bank, 2008b: 2



9.5 Case data – Rwanda


TradeImports US$ 242 million (1999 est.)e US$ 759 million (2008 est.)f

Exports US$ 70.8 million (1999 est.)e US$ 219 million (2008 est.)f


10% (2000 est.)e NA


56% (1998 est.)e 65% (2008 est.)f

Productiveness GDP per capita (PPP) US$ 720 (1999 est.)e US$ 900 (2008 est.)f

Investment NA 22.5% of GDP (2008 est.)f

Export diversification (primary export good as % of total exports) 60% (Coffee) (1994)t 35.9% (Minerals) (2007)r

InfrastructureRailways NA NAHighways (paved) 1,000 kme 2,662 kmf

Financial institutionInflation 10% (1998)e 9.5% (2008 est.)f

Interest rate (central bank) 16.1% (Januar 2002)p 16.2% (Januar 2008)p


349.5e 550 (2008 est.)f

Budget balance -78,8%e -14,4%f

Government role Budget 3.4% of GDP (1998 est.)e 9.6% of GDP (2008 est.)f

Corruption (Score 0-100) 25 (1998)g 38 (2007)g


9.6%o 17.1%o

Education Literacy rate 60.5% (1995 est.)e 70.4%f

Capital flowsEconomic aid - recipient US$ 372,9 (1999)e US$ 576 (2005)k

State loans NA US$ 122 million (2008) (From the World Bank)c

External debt US$ 1.2 billion (1998)e US$ 1.4 billion (2004 est.)f

Foreign Direct Investment US$ 5 million (1999)n US$ 67 million (2007)n

Sources: (c) The World Bank, 2009a; (e) CIA, 2000; (f) CIA, 2008; (g) The World Bank, 2008c; (k) NationMaster, 2009; (n) UNCTAD, 2009; (o) The World Bank, 2009d: 1; (p) NBR, 2009; (r) Bureau of African Affairs, 2009; (t) Africa Studies Center, 2009



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