The strengthening of trade partnerships between the countries of the global South has been one of the most significant phenomena of the 21st century.⁽²⁾ South-South trade and investment between Africa and developing countries, defined as lower-income and middle-income nations, increased from 5% in the 1990s to almost 25% in 2010.⁽³⁾ Prior to the 1990s more than 90% of trade with Africa was with high-income or developed countries. The World Bank classifies lower middle-income countries as those with a per capita gross national income (GNI) between US$ 1,036 and US$ 4,085.⁽⁴⁾ High-income countries have a per capita GNI above US$ 12,616. China attained upper middle-income status in 2010 with a per capita GNI of US$ 5,680.⁽⁵⁾

This change from North-South to South-South trade patterns with Africa is being led by China. There has been phenomenal growth in trade activity between African countries and China. In the decade after 1998, trade between China and Africa increased tenfold to US$ 86 billion, passed US$ 100 billion in 2010, and doubled to US$ 200 billion in 2012. China is now Africa’s largest trading partner and speculation abounds as to the reasons why. One factor is the increased rejection by African leaders of the Western structural adjustment programmes of the 1980s and 1990s that wrought havoc on the continent.⁽⁶⁾

African leaders have come to see in China an alternative to the Washington Consensus ⁽⁷⁾ – a set of policy guidelines for African development at the hands of the International Monetary Fund (IMF) and the World Bank. The Washington Consensus was accepted in 1989 as a prerequisite for economic development and became part and parcel of the structural adjustment programmes that were launched around 1980. On the other hand there is the so-called Beijing Consensus, defined as Chinese aid and investment without any questions asked. Can this Chinese strategy, the new financial fountain for Africa since 2004, be an alternative for development, as has been suggested by a growing number of scholars? This paper discusses Africa’s increased trade favoritism for China, and analyses how the failure of IMF and World Bank structural adjustment programmes paved the way for China to enter Africa.

Structural adjustment, or structural 'disadjustment'?

The World Bank and the IMF, known as the Bretton Woods institutions as they were conceived at Bretton Woods in New Hampshire, United States (US) in 1944, were the economic institutions designed by leaders from the industrialised world to reshape the world economy after the 1930s Great Depression and World War II. Following a US-led debt crisis in the 1980s, the World Bank and the IMF launched structural adjustment programmes to foster rapid macroeconomic reform of the developing world.⁽⁸⁾ Structural adjustment, among other things, entailed aggressive deregulation which came to be known as ‘shock-therapy’, a theory made popular by Harvard scholar Jeffrey Sachs. It was successfully implemented to transform the economy of Bolivia in 1985, and was later used in Poland and the Czech Republic following the fall of the Soviet Union. In 1989, World Bank and IMF structural adjustment programmes for reform also became linked with the so-called Washington Consensus.⁽⁹⁾

The Washington Consensus originated in 1989 from a list of policies posited by John Williamson, an economist at the Washington DC-based Peterson Institute for International Economics, as a policy prescription by the West for economic reform in Latin America. The Washington Consensus listed 10 areas of reforms necessary for the economic development of a country, namely: greater fiscal discipline, reordering public expenditure priorities, tax reform, liberalising interest rates, a competitive exchange rate, greater trade liberalisation, liberalising inward foreign direct investment, privatisation, deregulation, and property rights.

The contents of the Washington Consensus were vehemently rejected by developing countries as imperialist and neo-liberalist in that they focused on a liberalised economy and a minimised role of the state. Williamson has since refuted the interpretation given to his ideas, but the term Washington Consensus has nevertheless become synonymous with IMF and World Bank strategies for the developing world, including the structural adjustment programmes and their stringent aid requirements that resulted in negative economic growth for many African economies.⁽¹⁰⁾

At the opposite end of this Western development model is the Beijing Consensus, the Chinese strategy for financial assistance to Africa which gained momentum around 2004. The term was coined by author and China analyst with New York-based Kissinger Associates, Joshua Cooper Ramo, to describe China’s three-theorems model of development, which stressed the value of innovation, quality of life and sustainable development, and self determination. Ramo said:

    I call this new physics of power and development the Beijing Consensus. It replaces the widely-discredited Washington Consensus, an economic theory made famous in the 1990s for its prescriptive, Washington-knows-best approach to telling other nations how to run themselves.⁽¹¹⁾

For Ramo, the Beijing Consensus embodies China’s rise in global power and its non-prescriptive development policies. The model does not promote uniform solutions to divergent problems like the Washington Consensus, and is gradualist in its approach. The Chinese model emphasises the repositioning of developing countries in the international arena, and as such, has become increasingly popular with leaders of the developing world, in particular African leaders.⁽¹²⁾ This is evident in no less than 44 African heads of state attending the first ministerial meeting of the Forum on China Africa Cooperation (FOCAC) in October 2000 in Beijing. The aim of the forum was to rekindle 50 years of China-Africa cooperation and to expand China-Africa relations into the 21st century. The forum produced a multitude of agreements on trade and investment, infrastructure development, financial cooperation, debt relief, tourism, migration, agricultural cooperation and exploration, and utilisation of natural resources and energy.

The Beijing attraction

Despite criticisms being levelled against the Beijing Consensus as an unworthy opponent for the Washington Consensus, the Chinese model is attractive for African leaders, in part because China does not carry the label of former colonial master, and in part because of the development successes China has attained.⁽¹³⁾ Since 1979, China has lifted 300 million people out of abject poverty and doubled output and incomes every 10 years.⁽¹⁴⁾ Between 1985 and 1995, Asian economic growth, led by China, averaged 7% a year. China’s GNI per capita in 1985 was US$ 620 and in 2010 had risen to US$ 5,680. During this same period Africa was subjected to two decades of structural adjustment programmes. Between 1985 and 1995 Africa’s average annual growth rate was negative at -1.1%.⁽¹⁵⁾ Instead of fostering economic development, countries that participated in structural adjustment programmes, from Latin America to south-east Asia and Africa, fell deeper into debt as repayments began to exceed capital borrowed. Between 1984 and 1990 developing countries transferred almost US$ 180 billion to Western commercial banks.⁽¹⁶⁾

By 1986, six years after the launch of structural adjustment programmes in the Third World, the IMF and the World Bank controlled economic development in 75 countries, affecting the lives of 1.4 billion people. In the Philippines, one of the first countries to implement structural adjustment programmes in the early 1980s, rapid liberalisation associated with structural adjustment programmes was blamed for the country’s worsening macroeconomic situation. In Latin America, after 15 years of structural adjustment in 1997, nearly half of the region’s 460 million people were in living poverty.⁽¹⁷⁾

In Africa too, structural adjustment programme successes were far and few between. Most African countries were neither prepared to facilitate the rapid transformation required by the Bretton Woods institutions, nor had they the necessary institutions to do so.⁽¹⁸⁾ Growth slowed and as a result poverty increased. Between 1994 and 2003 there was a 75% increase in the number of people living below the poverty line.⁽¹⁹⁾ In the two decades prior to the implementation of structural adjustment programmes (1960 – 1980), Sub-Saharan Africa (SSA) had per capita average gross domestic product (GDP) growth of 36%.⁽²⁰⁾ Between 1980 and 2000, at the height of structural adjustment, GDP per capita fell by 15%.⁽²¹⁾ Countries like Burkina Faso, Burundi, Gambia, Ghana, Madagascar and Malawi recorded mild successes in economic growth with an average GDP growth rate of 2%, but trade liberalisation in Cote d’ Ivoire, Nigeria and Zambia led to industrial collapse.⁽²²⁾ In Ghana, Kenya and Tanzania, an increase in living costs seriously affected the majority of the population.⁽²³⁾

In 1994, a New York Times article stated that the IMF and the World Bank had become the new “Overlords of Africa.”⁽²⁴⁾ The 1980s debt crisis, in which African countries accumulated external debt to the value of more than US$ 170 billion, had cemented the control of the Bretton Woods organisations on the continent.⁽²⁵⁾ US interest rates shot up following the oil price increases of the 1970s, and exports from developing countries fell. African and other developing countries were unable to pay back loans taken from Western commercial banks during the oil boom of the 1970s. Thirty-six African countries borrowed money from the World Bank and the IMF, which in turn imposed structural adjustment programmes on them, with severe strings attached. African governments were forced to privatise industries such as healthcare and water, and cut back on healthcare and education spending. Rapid liberalisation of capital markets led to unstable trading, while market-based pricing led to an increase in the cost of basic goods, and higher interest rates.⁽²⁶⁾

Yet, despite trade liberalisation, African trade increased only slightly from US$ 175 billion to US$ 187 billion between 1989 and 1999.⁽²⁷⁾ However, foreign direct investment (FDI) increased from US$ 923 million to US$ 7.9 billion, while portfolio investment increased from US$ 2 million to US$ 3.9 billion, but there was little economic growth or poverty reduction. Instead, between 1980 and 2004, Africa’s external debt increased 500% to US$ 333 billion.⁽²⁸⁾ Average real income for SSA countries fell by 35% relative to incomes in other developing regions.⁽²⁹⁾ Almost two-thirds of SSA countries were classified as heavily indebted with debt repayments in the 1990s reaching US$ 15 billion per year. More money was flowing out of African countries to repay debts, than were being received in terms of aid or investment.⁽³⁰⁾ The African ship was sinking and the Chinese were throwing out lifelines by offering aid with no questions asked in exchange for resources. China needed resources in order to maintain its phenomenal economic growth – resources that only Africa could provide. It was a partnership seemingly made in heaven, and after years of structural 'disadjustment', African leaders welcomed the Chinese with open arms.

Structural readjustment with Chinese characteristics

China’s entry into Africa brought about a new era for African development. By 2004, the year the Beijing Consensus officially became part of everyday economic discourse, nearly 700 Chinese state-owned companies were operating in 49 African countries.⁽³¹⁾ In 2009 this figure had increased to more than 800 state-owned companies working on over 900 projects, including 30 projects funded by the China Development Fund for US$ 700 million in agriculture, power construction, industrial parks, and mining. Among these were a 0.2 gigawatt phase 1 power plant in Ghana, a cement plant and heavy-duty truck assembly plant in South Africa, a sisal plant in Tanzania, and another cement plant in Ethiopia. Private Chinese investment has involved around 1,600 companies and the number is growing.⁽³²⁾ China has built trade and investment networks with almost all African countries, except for those who maintain relations with Taiwan, including Burkina Faso, Democratic Republic of Sao Tome and Principe, Gambia, and Swaziland.⁽³³⁾ China is drilling for oil in a number of African countries, including Angola and Sudan; building roads, dams and ports; setting up communications networks; and developing tourism.

Africa’s economy has grown in tandem with the significant increase in Africa-China trade, and between 2003 and 2008 Africa’s annual GDP growth was above 3%.⁽³⁴⁾ In 2004, for example, SSA’s real GDP grew at 5.1%, the highest in a decade, and attributed to the fact that China had a direct effect on macroeconomic management in the region by creating commodity booms.⁽³⁵⁾ China requires minerals to feed its industries and maintain high economic growth rates, which in turn is important for the Chinese Communist Party (CCP) to secure social stability. More than 75% of export revenues in SSA come from commodities. Metal prices jumped 15% in 2005.⁽³⁶⁾ Oil and base metal exporters like Angola, Gabon and Sudan, iron ore exporter Mauritania, aluminum exporter Mozambique, platinum exporter South Africa, and copper exporter Zambia gained the most in export revenues. In 2007 Chinese demand drove aluminium prices up more than 20%, while copper prices more than doubled and the price of gold increased more than 60%.⁽³⁷⁾

China is also looking to Africa to feed its incessant need for oil. Between 2000 and 2005 oil prices increased 89% as Chinese demand led to an 18% growth in world oil demand. The Paris-based International Energy Agency (IEA) projects that by 2035 global oil consumption will increase to 99 million barrels a day and fossil fuels will still make up 73% of energy consumption across the world.⁽³⁸⁾ Currently oil accounts for 19% of China’s energy consumption.⁽³⁹⁾ In June 2013, led by Chinese demand for oil, the developing world for the first time ever overtook oil demand in the developed countries of the Organisation for Economic Cooperation and Development (OECD). The IEA has estimated that Chinese oil demand would increase by about 430,000 barrels per day until 2014.⁽⁴⁰⁾

The Chinese have invested in sectors in Africa deemed by the West to be less profitable. As all Chinese aid is project-based, investment has gone towards major projects and infrastructure-building.⁽⁴¹⁾ Thus Zambia’s Chambezi copper mines are operating again, and abandoned oil fields in Gabon are being re-explored. Due to Chinese investment, Sudan has become an oil exporter, with 60% of oil exports going to China.⁽⁴²⁾ Resource-rich countries like Angola, Democratic Republic of Congo (DRC), Equatorial Guinea, Republic of Congo and South Africa, benefit most from Chinese trade. Non-oil producers also benefit from a rise in the price of other commodities such as timber, metals, minerals, coffee and tea.⁽⁴³⁾ Chinese activity in Africa has resulted in positive growth for Africa. In its latest regional outlook report for SSA, the IMF has predicted a 5% economic growth rate for the region. Especially strong growth is expected in mineral-exporting and low-income countries such as Côte d’Ivoire, DRC, Mozambique, Rwanda and Sierra Leone.⁽⁴⁴⁾

China’s foray into Africa has not benefitted all equally and there is growing concern over China’s trade deficit with SSA. In 2008 Chinese exports to Africa were worth US$ 50 billion while imports from the continent stood at US$ 56 billion.⁽⁴⁵⁾ In 2012 Chinese exports to Africa had increased to US$ 100 billion while imports from Africa reached US$ 110 billion.⁽⁴⁶⁾ While China imports mineral fuels and other metals, it exports cheap consumer and capital goods to Africa, and this has resulted in job losses for many.⁽⁴⁷⁾ Unlimited textile imports from China activated warning bells as thousands of local jobs were lost. By 2006 in Nigeria alone an estimated 350,000 job losses in the textile industry were blamed directly on China. In Zambia all but 20 of 250 textile factories have closed for the same reason.⁽⁴⁸⁾ In South Africa it is estimated that between 2001 and 2010 more than 77,000 jobs, mostly in the textile industry, were lost due to Chinese imports.⁽⁴⁹⁾

More than 75% of China’s trade with Africa in 2007 was with four countries, namely Angola, Nigeria, South Africa and Sudan.⁽⁵⁰⁾ Non-commodity exports from Africa to China were only 10% of the total.⁽⁵¹⁾ Furthermore, most of the contracts for projects involving Chinese funds are awarded to Chinese companies. In Angola, for example, only 30% of construction projects funded by the Chinese go to locals. There is also concern that China’s no-strings-attached policies could exacerbate corruption in countries like Zimbabwe, where the Chinese helped build a US$ 9 million luxury mansion for Zimbabwean president Robert Mugabe, while millions of his citizens are homeless and hungry.⁽⁵²⁾

The World Bank has accused China of ignoring the dangers of unrestricted lending, and warned of a renewed debt crisis in Africa. In 2005 the rich nations forgave US$ 57 billion of Africa’s debt.⁽⁵³⁾ Since then six African countries, including Senegal and Ghana, had increases in their debt-to-GDP ratios of about 5 percentage points by 2013 to take their debt-to-GDP ratios to 40% or higher.⁽⁵⁴⁾ In 2012 Chinese President Hu Jintao announced that China would increase its lending to African countries to US$ 20 billion, double the amount of 2009.⁽⁵⁵⁾

Conclusion

Following the havoc wrought on African countries during the era of structural adjustment, it was not difficult for China to become the lifeline for African countries drowning in debt and Western ideals. China’s phenomenal economic growth during a time when Africa was faltering under IMF and World Bank strategies has swayed African governments to look east. Burdened by heavy debts that were destroying the social fabric of their societies, African leaders were ready to accept from China the hand that offered them an alternative. With China’s assistance, Africa has experienced commodity booms, GDP growth, and greater FDI. At the same time, however, there is concern about job losses for Africans resulting from cheap Chinese imports, rising debt accounts of African governments and African countries’ reliance on minerals for economic growth.

The Washington Consensus has made way for the Beijing Consensus. The no-strings-attached policy was exchanged for a no-questions-asked policy and structural adjustment programmes have made way for infrastructure projects. Yet, it remains to be seen if the new model from Beijing can ensure sustainable growth, and become a viable alternative to the Washington Consensus to rid Africa of its scourge of poverty, unemployment and lack of social development.

Written by Charmaine Pretorius ⁽¹⁾

NOTES:

(1) Charmaine Pretorius is a CAI Research Associate and a South African freelance journalist. Contact Charmaine through Consultancy Africa Intelligence's Industry and Business Unit ( industry.business@consultancyafrica.com) . Edited by Nicky Berg.
(2) Ye, X., ‘A path to mutual prosperity? The trade and investment between China and Africa’, African Development Bank 5th African Economic Conference, 27 October 2010, http://www.afdb.org.
(3) Ibid.
(4) ‘How we classify countries’, World Bank, http://data.worldbank.org; ‘Country and lending groups’, World Bank, http://data.worldbank.org; ‘China’, World Bank, http://data.worldbank.org.
(5) Ibid.
(6) Ye, X., ‘A path to mutual prosperity? The trade and investment between China and Africa’, African Development Bank 5th African Economic Conference, 27 October 2010, http://www.afdb.org ; Sedzro, A., ‘China-Africa trade: The oriental allure’, Trade Law Center (Tralac), 25 June 2013, http://www.tralac.org.
(7) Williamson, J., ‘A short history of the Washington Consensus’, Barcelona Centre for International Affairs (CIDOB), 24 September 2004, http://www.iie.com.
(8) Ismi, A., ‘Impoverishing a continent: The World Bank and the IMF in Africa’, Halifax Initiative Coalition, July 2004, http://www.halifaxinitiative.org; Schifferes, S., ‘How Bretton Woods reshaped the world’, BBC, 14 November 2008, http://news.bbc.co.uk; Montes, M.F., 1988. Review of structural adjustment in the Philippines. Journal of Philippine Development, 27(15) pp. 139-165, http://dirp4.pids.gov.ph.
(9) Sachs, J., ‘Shock therapy in Poland: Perspectives of five years’, paper presented at the Tanner Lectures on Human Values, University of Utah, 6-7 April 1994, http://tannerlectures.utah.edu; Tong, G., ‘The political economy of shock therapy reform,’ Stanford University, May 2004, http://economics.stanford.edu; Williamson, J., 'The Washington Consensus as policy prescription for development’, Institute for International Economics, 13 January 2004, http://www.iie.com.
(10) Williamson, J., ‘A short history of the Washington Consensus’, Barcelona Centre for International Affairs (CIDOB), 24 September 2004, http://www.iie.com; Williamson, J., ‘The Washington Consensus as policy prescription for development’, Institute for International Economics, 13 January 2004, http://www.iie.com.
(11) Ramo, J.C., ‘The Beijing Consensus’, Foreign Policy Center, 5 November 2004, http://fpc.org.uk.
(12) Ibid.
(13) Huse, M.D. and Muyakwa, S.L., ‘China in Africa: Lending, policy space and governance’, Norwegian Council for Africa, 2008, http://www.eurodad.org.
(14) Ramo, J.C., ‘The Beijing Consensus’, Foreign Policy Center, 5 November 2004, http://fpc.org.uk.
(15) Soubbotina, P.S. and Sheram, A.K., ‘Beyond economic growth: Meeting the challenges of global development’, World Bank, 2000, http://www.worldbank.org.
(16) Ibid; Ismi, A., ‘Impoverishing a continent: The World Bank and the IMF in Africa’, Halifax Initiative Coalition, July 2004, http://www.halifaxinitiative.org.
(17) Montes, M.F. and Lim, Y., ‘Structural adjustment program after structural adjustment program, but why still no development in the Philippines?’, Asian Economic Panel, 25 October 2001, http://www.networkideas.org.
(18) Pill, H. and Pradhan, M., 1997. Financial liberation in Africa and Asia. Finance and Development, 34(4), pp. 7-10. http://www.imf.org; Ismi, A., ‘Impoverishing a continent: The World Bank and the IMF in Africa’, Halifax Initiative Coalition, July 2004, http://www.halifaxinitiative.org.
(19) Ismi, A., ‘Impoverishing a continent: The World Bank and the IMF in Africa’, Halifax Initiative Coalition, July 2004, http://www.halifaxinitiative.org.
(20) Ibid.
(21) Ibid.
(22) Ibhawoh, B., 1999. Structural adjustment, authoritarianism and human rights in Africa. Comparative Studies of South Asia, Africa and the Middle East, 19(1) pp. 1-10, http://www.cssaame.com.
(23) Ibid.
(24) Darnton, J., ‘In poor, decolonized Africa, bankers are new overlords’, The New York Times, 20 June 1994, http://www.nytimes.com.
(25) Greene, J. E. and Khan, M. S., ‘African debt crisis’, African Economic Research Consortium, February 1990, http://idl-bnc.idrc.ca.
(26) Ferarro, V. and Rosser, M., 1994. “Global debt and third world development” in Klare, M. and Thomas, D. (eds). World Security: Challenge for a new century. St. Martin’s Press: New York. https://www.mtholyoke.edu; Montes, M.F., 1988. Review of structural adjustment in the Philippines. Journal of Philippine Development, 27(15) pp. 139-165, http://dirp4.pids.gov.ph.
(27) Ismi, A., ‘Impoverishing a continent: The World Bank and the IMF in Africa’, Halifax Initiative Coalition, July 2004, http://www.halifaxinitiative.org.
(28) Ibid.
(29) Ibid.
(30) Ibid.
(31) ‘China-Africa trade and economic relationship annual report 2010’, Forum for China-Africa Cooperation, 22 June 2011, http://www.focac.org.
(32) Ibid.
(33) ‘Programme for China-Africa Cooperation in Economic and Social Development’, Forum on Africa China Cooperation, http://www.focac.org; Zafar, A., ‘The growing relationship between China and Sub-Saharan Africa: Macroeconomic, trade, investment and aid links’, World Bank, 2007, http://www.relooney.info; Yeh, J., ‘MOFA keeps quiet on visit by Ma to African diplomatic allies’, The China Post, 8 February 2012, http://www.chinapost.com.tw.
(34) Ye, X., ‘A path to mutual prosperity? The trade and investment between China and Africa’, African Development Bank (5th African Economic Conference, 27 October 2010, http://www.aufdb.org.
(35) Ibid.
(36) Zafar, A., ‘The growing relationship between China and Sub-Saharan Africa, World Bank, 2007, http://www.relooney.info.
(37) Ibid; Marks, S., ‘China in Africa: The new imperialism?’, Pambazuka News, 2 March 2006, http://www.pambazuka.org.
(38) ‘World Energy Outlook 2010’, International Energy Agency, 2010, http://www.iea.org.
(39) ‘China’, US Energy Information Administration, 22 April, 2013, http://www.eia.gov.
(40) Sheppard, D., ‘Developing world oil demand surpasses wealthy nations: EIA’, Reuters, 11 June 2013, http://www.reuters.com.
(41) Huse, M.D. and Muyakwa, S.L., ‘China in Africa: Lending, policy space and governance’, Norwegian Council for Africa, 2008, http://www.eurodad.org.
(42) Marks, S., ‘China in Africa: The new imperialism?’, Pambazuka News, 2 March 2006, http://www.pambazuka.org.
(43) Minto, R., ‘IMF: Measuring China’s impact on Africa’, Financial Times, 31 October 2013, http://blogs.ft.com; Huse, M.D. and Muyakwa, S.L., ‘China in Africa: lending, policy space and governance’, Norwegian Council for Africa, 2008, http://www.eurodad.org.
(44) ‘Sub-Saharan Africa: Keeping the pace’, International Monetary Fund, October 2013, http://www.imf.org.
(45) ‘China-Africa trade and economic relationship annual report 2010’, Forum for China-Africa Cooperation, 22 June 2011, http://www.focac.org.
(46) Benjamin, C., ‘Africa isn’t a big bull in China’s shop’, Mail & Guardian, 21 June 2013, http://mg.co.za.
(47) Zafar, A., ‘The growing relationship between China and Sub-Saharan Africa’, World Bank, 2007, http://www.relooney.info.
(48) Marks, S., ‘China in Africa: The new imperialism?’, Pambazuka News, 2 March 2006, http://www.pambazuka.org.
(49) De Wet, P., ‘Study quantifies Chinese imports’ effect on job losses’, Mail & Guardian, 31 August 2012, http://mg.co.za.
(50) Marks, S., ‘China in Africa: The new imperialism?’, Pambazuka News, 2 March 2006, http://www.pambazuka.org.
(51) Ibid.
(52) Ibid.
(53) ‘Debt by African countries to China growing’, AsiaNews.it, 18 December 2008, http://www.asianews.it.
(54) ‘Sub-Saharan Africa: Keeping the pace’, International Monetary Fund, October 2013, http://www.imf.org.
(55) ‘Loans to African countries to double’, China Daily Forum, 19 July 2012, http://bbs.chinadaily.com.cn.