Sunday, 20 May 2007

Supersonic statistics and global asymmetry

20 May 2007
Shangcheng Road
Pu Dong

Dear Confidentialers,

It's been a week of supersonic statistics and global asymmetry here in Shanghai, which this week hosted one of the most successful annual meetings of the African Development Bank (AfDB) to date. Bankers and officials are checking their spreadsheets as they head for the Pu Dong international airport after a week of business negotiations, punctuated by acrobatics and firework displays.

Some numbers stick in the mind. Firstly, that China's Exim Bank will be financing some US$20 billion of trade between China and Africa over the next three years, according to the AfDB's President, Donald Kaberuka. In an interview with Africa Confidential, Kaberuka said that the $20 bn. figure emerged from a series of discussions with Exim Bank Chairman Li Ruogu.

The second figure is that Chinese companies are now winning about half of all state-funded public works contracts in Africa, according to the latest research from the Paris-based Organisation for Economic Cooperation and Development. The third figure is that China's trade with Africa in 2006 was worth $55.6 bn.

Put together, these three figures give an idea of the pace of China's commercial inroads into Africa. Remember that just six years ago Africa-China trade was just under $10 bn. The latest projection is that Africa-China trade will top $100 bn. by 2010.

And now the last statistic, I promise: this year, China's foreign exchange reserves are running at $1.41 trillion (that's a thousand billion) and due to top $2 tn. by 2010. That is why the $20 bn. worth of deals being done with Africa over the next three years looks feasible - and it may turn out to be an under-estimate. Perhaps, the Chinese project funding may not be cheap or transparent. However, Chinese infrastructure projects are often priced at some 20-30% cheaper than Western contractors, which may explain why they're starting to dominate the public sector market. And they don't come with sermons about how to run a government.

Senegal's Finance Minister Abdoulaye Diop told a seminar on Asian trade with Africa that the Chinese 'treat us like adults.' South Africa's Finance Minister Trevor Manuel said that Chinese engagement in Africa had proved much more benign than that of Europe over the past 300 years. Certainly, Shanghai's hosting of the AfDB meeting was an enormously successful marketing and diplomatic operation.

Where's the asymmetry you ask? While the Shanghai meeting was getting on with business, Europeans and Americans were tussling over the leadership of the World Bank in Washington DC, in a public row that has gravely damaged the institution. This might well be the week that irrevocably changes the international financial institutions. European officials in Shanghai spoke openly about switching funding from the World Bank to the African Development Bank.

A bigger issue is at stake. How representative are these financial institutions and how well are they governed? The Paul Wolfowitz saga has reopened questions about the manner in which Europe regards it as having the right to provide the head of the International Monetary Fund, while the United States has the right to provide the President of the World Bank. Oddly, some European ministers want to end the precedent of the USA providing the World Bank's leader but see nothing wrong with Europe benefiting from a similar arrangement at the IMF. They have opened a debate that is likely to mean wholesale reform of both institutions - partly for reasons that were on show in Shanghai this week.

Asia is now a major global player in the politics and economics of development. The G8 rich countries club meeting in Berlin next month wants China and India to sign up to its rules on aid and debt, and contribute more to transparent multilateral aid funds. In exchange, Asian politicians are asking for better representation and more say over policy in these organisations. And after the past week in Shanghai, they're likely to get plenty of votes of support from African officials.

In Africa Confidential this week, I'll be looking at how this backdrop will shape economic and political developments in Africa over the next year and our correspondents across the continent will bring you analysis of the week's main political developments.

Yours confidentially

PS. I must include a correction to the editor's email of last week that touched on the history of slave trade abolition. One of our subscribers, an historian, helpfully pointed out that the reference to the dates of United States' abolition was wrong. When they wrote the US constitution in 1787 '. the drafters included a provision (Article I, Section 9, clause (1)) barring Congress from banning the slave trade until 1808. In 1808, Congress banned it. Slavery, of course, took a civil war in the 1860s. Brazil, by the way, continued to have slavery (as opposed to the slave trade) until the 1880s.'

No comments: