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"China’s Infrastructure-Heavy Model for African Growth" Topic


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Tango01 Supporting Member of TMP01 Aug 2020 12:51 p.m. PST

… Is Failing


"The strategy of "infrastructure-led growth" (growth, not economic and social development) seems to be showing its limits in Africa, where China has largely been instrumental in promoting it.

This strategy is based on the Keynesian multiplier theory whereby any increase in aggregate demand would result in a more than proportional increase in GDP. In other words, any investment in infrastructure would induce growth, regardless of its true economic and social profitability. The implementation of this theory greatly explains why China has been able to maintain very high growth figures over the last 15 years. Whether or not infrastructure investment is redundant, whether it takes place in China or abroad, the result for China is the same. Thus, by financing African infrastructure investment, China is causing an increase in demand for the goods and services it produces and thus an increase in its own GDP. This is the virtue to systematically tying the granting of a loan with an almost exclusive sourcing of goods and services produced in China. It should be remembered that this tying practice is normally banned for OECD/DAC members (which do not include China) and that only France and the United Kingdom would actually comply with this rule.

This infrastructure-led strategy has been prescribed in Africa by the World Bank and supported since 2008 by its former chief economist, Lin Yifu (Justin Lin, who since the end of his mandate has become a very active lobbyist for Chinese companies in Africa through his own think tank). However, the least favored African countries — Ethiopia will serve as an example here — do not enjoy an economic environment as favorable as that of China. Admittedly, over the last 10 years (2000-2019), as a result of the Keynesian multiplier, the average annual growth rate of Ethiopian GDP has been around 6 percent. This remarkable growth was coupled with an equally striking increase in imports, largely to support infrastructure investment. However, over the same period, neither the growth of exports (17 percent growth in 2019), nor that of personal remittances, foreign exchange reserves, or even foreign investment can fill a growing financing gap. At the same time, the external debt service (almost half of which will be for China alone in 2019) is soaring in the country's finances. Ethiopia was forced to devalue its currency, the birr by 15 percent in 2017.."
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Amicalement
Armand

jurgenation Supporting Member of TMP01 Aug 2020 1:34 p.m. PST

yes it;s a great Model,lots of Palms gresed ,new Hospitals,

Soccer Stadums ,Schools,roads..but no training the Local population.All important jobs ,left in the hands of the chinese.Bad deal ,long run for africa.

HMS Exeter02 Aug 2020 6:16 a.m. PST

I wonder how you saw Murphys Law in Mandarin…

https://youtu.be/ALn9UVTzaF8

Tango01 Supporting Member of TMP02 Aug 2020 4:06 p.m. PST

(smile)


Amicalement
Armand

arealdeadone02 Aug 2020 5:50 p.m. PST

Africa fails regardless of what model its various countries chose.

The problems are cultural, institutional, ethnic, tribal, religious and just about any other factor you want to add.

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