An essential issue for the construction of large dams in Africa is the funding sources and type of funding regime. In the past the World Bank was the major financier of large dams but this has declined significantly because of what it calls non-involvement in potentially controversial hydraulic infrastructure financing (World Bank, 2004). ‘For example, whereas the World Bank financed 3.5 percent of dams constructed in the 1970s, it financed less than 1 percent in the 1990s, with World Bank lending accounting for less than 0.5 percent of total financing for new dams in developing countries. And Bank investments in hydropower declined by 90 percent over the last decade’ (ibid: 35). The reduction in World Bank investment in large dams has contributed hugely to the decline in large dam construction, as shown in Table 5.5, and highlights the importance of reliable and consistent sources of funding for large dams in Africa.
51 The most significant of these large dams is the proposed Inga Dam on the Congo River. The Democratic Republic
of Congo is planning to develop the 40,000-MW Grand Inga facility. If constructed it will possibly be the largest in the world. The project will provide hydroelectric power primarily for export to the 12-member nation South African Power Pool (SAPP) (Grove, 1993; EIA, 1999; Akosah-Sarpong, 2002).
52 One main issue facing inter African trade is the bad nature of infrastructure linking the continent together. NEPAD
is likely to address this in an effort to promote trade and the free movement of people and services and should not be left to hang on the drying line of pessimism.
53 The five countries that dominate trade outside South Africa are Cote d’ Ivoire, 25 percent; Nigeria, 20 percent;
Funding sources for large dams in Africa are determined by the purpose for which they are being constructed. At present large dams funding is dominated by the public sector with some support from international donors (Winpenny, 2003; World Bank, 2004). Winpenny (2003) observes that about 65-70 percent of funding for water and sanitation projects in Africa and other developing countries comes from the domestic public purse, 5 percent from the domestic private sector, and 10 and 15 percent respectively from international private companies and donors. The main sources of funding for irrigation, drainage and hydropower are governments, aid donors and international development agencies (ibid) with little involvement of the private sector. The dominance of the public sector in funding all types of large dams is an indication of how large dams are perceived by public sector institutions.
The dearth of private investment in water infrastructure, including in large dams, in the developing world is particularly felt by African countries. Private investment in water infrastructure in developing countries is minimal and varied across continents, depending on the infrastructure type, and is usually supported by lending guarantees (Winpenny, 2003). For instance, hydropower construction in developing countries received less than 10 percent of annual investment in the water sector (ibid). The paucity of private investment in Africa is illustrative because out of $700 billion infrastructure investment made in developing countries, all 10 percent of investment in water supply, sanitation, and hydropower were in East Asia and Latin America which are perceived as relatively low-risk economies; there was no investment in Africa because it is a high-risk continent (World Bank, 2004). This exposes the limited funding sources for large dams in the developing world and in Africa in particular, and the need to lessen the economic and political risks associated with the continent in order to broaden its funding base for water infrastructure development.
This pattern of investment in Africa’s water infrastructure, particularly in large hydropower dams, is said to follow historical precedents. Lending for hydroelectric power projects in Africa faces stringent economic requirements in industrialised countries under the guise of conserving capital for more profitable investment (Smith, 1968). Large African hydropower dams are also subject to other arbitrary financing requirements such as understating the value of other benefits like irrigation, flood control, urban water supply, reclamation, navigation and recreation which undermine their economic viability; paying 14 percent interest on commercial loans secured for the project – that is, more than double the normal 6 percent required and even higher than what applies to hydroelectric projects constructed and funded in the industrialised countries; and after all these conditions hydropower is expected to be cheaper than
thermoelectric alternatives (ibid).54 A comparative analysis of hydroelectric projects in West Africa from 1951 to 1963 shows lower cost estimates than those for similar projects throughout the world (Smith, 1968). These funding restrictions and newer requirements for environmental and social impact assessments, mitigation and restoration have added to the cost of funding large dams in Africa and appear to undermine their socio-economic benefits (UNEP, 2000; Linaweaver, 2002; World Bank, 2004).
The funding restrictions on large dams pose a significant challenge for their contemporary construction in Africa. The World Commission on Water envisages that about $180 billion a year for investment in water infrastructure needs to be raised to ensure water security by 2025 (World Bank, 2004). This amount doubles the $70 billion a year – this comprise of $17 billion for hydropower, $28 billion for water and sanitation and $25 billion for irrigation in current investments from public sources and multilateral financing – the World Bank, regional development banks, and some private investors who seek to maximise capital flow from their investments (World Bank, 2004; idsnet, 2005). So the paucity of funding source is a huge problem that Africa needs to be overcome.
However, the imperative of large dams in Africa’s development received a boost in recent years from the World Bank, regional banks and Chinese investment. The World Bank and ADB for instance argue that large dam infrastructure can be beneficial to local people and nations because they provide security against climate variability, which affects the livelihood of poor people the most (see in subsection 3.4.1) (World Bank, 2004; ADB, 2005). But the support of China for large dams, which has led to their resurgence in Africa, is of great significance. Some of the dams benefiting from China Export and Import (EXIM) Bank funding are the US$ 620 million Bui Hydroelectric Power Dam, which could have a significant impact on the power generation capacity of Ghana (Davies et. al., 2008); a 1000MW hydroelectric plant in Mambila, Nigeria (Wild and Mepham, 2006a); the Merowe Dam in northern Sudan; and the Mphanda Nkuwa Dam in Mozambique jointly financed with the World Bank (Davies et. al., 2008), among several others. The renewed interest in funding large dams for hydropower, irrigation, water supply and flood control in Africa seems to recognise their role in tackling water scarcity due to climate variability and the achievement of the MDGs.
54
A 3 percent interest rate was used in economic justification studies and in financing most of America’s great hydroelectric projects, including the Grand Coulee, Boulder Dam, and the Tennessee Valley Authority (TVA) (in full this first time, followed by initials in brackets), built in the depressed and underdeveloped regional economies of the 1930s. These dams have repaid the investments a hundredfold in direct and indirect economic benefits, thereby silencing the Cassandras (Smith, 1968).
Chinese investment in large African dams appears to be part of a broader investment partnership drive in the infrastructure and resource sectors on the continent. For instance a $5 billion China–Africa development fund has been created to encourage Chinese investment in Africa, and Chinese FDI in Africa had reached $1bn by mid-2005 (World Bank, 2004a cited by Wild and Mepham, 2006a Lammers, 2007) including investments in the energy and resource sectors (Wild and Mepham, 2006a). Recent Chinese loans focusing on building energy infrastructure in Africa are said to be in the region of US$ 10 billion per year (Financial Times 6-2-2007). As the sole provider of concessional financing consistent with China’s policy towards infrastructure development, China’s EXIM Bank had financed over 300 projects in Africa by mid-2007, constituting almost 40 percent of its loan book (Davies et. al., 2008). The pledge of about US$20 billion in infrastructure and trade financing to Africa – include concessionary loans – in the next three years, made at the annual meeting of the African Development Bank in Shanghai in May 2007, shows the scale of China’s commitment and engagement in Africa (Davies, 2007). This sum eclipses many of the continent’s traditional big donors with a single pledge – the AfDB African Development Fund is $5.4bn while the World Bank’s total IDA is about US$21.6 for three years (ibid). The financial muscle and commitment of China to investing in African infrastructure gives the continent a real alternative to its traditional funding sources for large dam construction.
The flow of Chinese investment into Africa for the construction of infrastructure has provided some optimism for the future of the large dam development imperative and African development. Three factors account for this optimism. The first is the quality of the Chinese FDI, loans and development aid offered to Africa. Chinese FDI in Africa is low-cost capital and comes from Chinese firms which are either wholly or partly state-owned with long-term operations on the continent (Kaplinsky et. al. 2007). The investments are closely bundled with aid to either explicitly or implicitly achieve strategic objectives such as long-term access to raw materials (Broadman, 2007 cited by Kaplinsky et. al., 2007). This contrasts with European, North American and Japanese-sourced FDI in Africa, which have historically come from privately-owned corporations focused on profit maximisation and generally have relatively short time- horizons (Kaplinsky et. al. 2007). Secondly, good-quality infrastructure constructed by Chinese firms appears to be a quarter to half less costly than Western firms and at a price discount of 20 to 50 percent lower compared to other foreign investors (ibid). Lastly, the lack of the intrusive conditionality and costly procedures for development projects associated to Western countries has made Chinese investments extremely attractive to African governments (Hilsum, 2006). African countries now have a wider spectrum of funding options than in the past, and based on cost, conditionality, funding type and the time frame of investments Africa is likely to have a preference for Chinese investment in large dam
infrastructure over that from Western-dominated and controlled donor institutions and countries who have been Africa’s traditional development partners and funding sources.
However, there are some criticisms of China’s investments activities in Africa. These are summarised in Table 6.1 and are raised by Western countries’ media and politicians (Sautman and Hairong, 2006). The Western criticisms are:
1. China’s support for the Millennium Development Goals, the African Union and the New Partnership for Africa’s Development (NEPAD) is rhetoric (Lammers, 2007);
2. Chinese aid is almost entirely bilateral and outside the existing architecture of international development assistance (ibid);
3. Environmental and social costs (ibid);
4. The impact on human rights and democracy (ibid; Sautman and Hairong, 2006); 5. China behaviour in Africa is predatory (Sautman and Hairong, 2006);
6. China’s use of tied aid which increases the cost to recipients by about 15 to 40 percent (Davies, 2007); 7. Debt sustainability (ibid); and
8. The high ratio – 70:30 – of Chinese expatriate workers to Africans in construction (Rocha, 2006).
These criticisms of Chinese investment activities in Africa infrastructure such as large dams question their development imperative in Africa’s socio-economic development, particularly on the issue of the MDGs and dealing with climate variability on the continent, although they may also be a way of subverting Africa’s development interests.
However, it is the impacts of Chinese investments in Africa on Western investment interests that has led to some of these criticisms and compelling some Western institutions to adjust their conditionalities for funding projects in Africa. For instance Chinese investment impacts are said to be so huge that the European Investment Bank (EIB) has suggested the need to lower social and environmental standards in order to avoid ‘excessive conditions’ imposed on projects in Africa (Davies, 2007: 74). The OECD has weakened the agreed Common Approaches of its export credit agencies’ conditionality on investment in Africa (ibid).
But the Chinese and others have rejected the criticisms. They argue (see summary in Table 6.1) that unlike Western countries’ investments, Chinese investment activities in Africa are benign and have delivered significant dividends and benefits to recipient countries in response to socio-economic development needs because Chinese aid to Africa is on grounds of political equality and mutual trust, economic win-win
cooperation and cultural exchange (FMPRC, 2006). Among the arguments against the charge that China’s behaviour in Africa is predatory are: i) Chinese aid often goes to infrastructure which deepens economic ties and not directly into recipient government accounts – as practiced by Western firms – which could easily be siphoned off (Sautman and Hairong, 2006); ii) Chinese companies have low profit expectations – at 3 percent – in contrast to European firms which expect 15 percent or more (ibid); iii) China is less interventionist; and iv) Western-funded projects are extensively bureaucratic, have high overheads and often employ expatriate personnel. Consequently, Hilsum (2005) citing the Sahr Johnny, Sierra Leone Ambassador to Beijing stated that; African governments are comfortable with Chinese investment because it produces results in comparison to the huge amount of money invested by western countries over the past decades, for which not much is seen (ibid). This indicates that for Africa to make good progress in infrastructure such as large dam construction for socio-economic development, China is currently the best choice.
Western criticism against China is said to be insincere as Africa has historically been perceived as the resource pool of the developed world. In this regard ‘both China and western governments are leading forces in an international political economy that positions Africa as a resource-supplying continent’ (Sautman and Hairong, 2006: 54). So if Chinese investment in Africa is predatory, then it is following a well-trodden pattern that Western countries have perfected over centuries based on former colonial ties (Wild and Mepham, 2006b). Thus ‘China’s growing role in Africa has large implications for the policies of western governments, companies and NGOs as it creates a new triangular dynamic which benefits Africans because of increased competition for trade, investment and even aid, weakening the effect of western-imposed conditionality on African governments’ and ‘[requires] western policy makers to adapt their development strategies since Africans can now ‘look east’ for investment trade, aid and other forms of assistance’ (ibid). African countries now have the opportunity to choose their development partners based on aid conditions and effectiveness that meet their development interests.
The description of China’s support for the Millennium Development Goals, the African Union and NEPAD as rhetoric is not true and lacks evidence (Lammers, 2007). China does not have an African strategy and Chinese aid to Africa is based on specific requests from governments and not determined by China (Tjønneland et. al., 2006; Davies, 2007). Sautman and Hairong (2006) observe that ‘differentiated responses are required in different contexts and countries, but some forms of coordination of country level and regional strategies may be useful, and may help to ensure that ordinary Africans derive greater benefits from the continent’s relationship with China’ (Lammer, 2007: 63). Consequently, the African Union (AU) is to help member states create a strategy for China to enable African countries to develop a
collective response to the future challenges that may emerge in the Africa-China partnership (ibid). It is in this regard that China has initiated a permanent Forum on China-Africa Co-operation (FOCAC) as the chief instrument and mechanism for dialogue and co-operation between Africa and China (Tjønneland et. al., 2006). So it is left with AU/NEPAD to ensure that FOCAC is aligned with their development (ibid).
The structure of the international development assistance programme is viewed with suspicion and scepticism by the Chinese, who believe that the priorities of the international donor community such as the OECD, the World Bank and others do not reflect those of African recipient countries (Tjønneland et. al., 2006). The OECD’s donor structure is donor-dominated and problematic for China because it is very ‘politically oriented’ and ‘built on a fixed model which is difficult to change’ (Davies, 2007: 68). China is sceptical about the international donor process and its inability to cater for varied donor and recipient countries’ interests.
Despite this unwillingness to work within the confines of the international donor framework, China, through the AfDB, has provided 314 million U.S. dollars to 14 projects in 8 African countries (Davies, 2007) and worked through FOCAC to support and cooperate with AU and NEPAD (ibid) and with the UN on joint projects. China has also signed a memorandum of understanding (MOU) with the World Bank to improve cooperation on road and energy investment projects in Africa, initially focusing on Uganda, Ghana and Mozambique (ibid). Wild and Mepham (2006b) suggest that the new EU-African Partnership for infrastructure worth €5.6 billion from the Tenth European Development Fund (EDF 2008-2013) to support regional development in four priority areas – transport, energy, water, and information technology and communication networks (European Commission, 2006) – might be a useful platform from which to engage and cooperate with China on Africa. The EU-African Partnership could provide the opportunity to identify common interests and to coordinate responses to common problems (ibid). Such cooperation between China and other donors might enhance the imperative for infrastructure such as large dams in dealing with climate variability and MDG.
Table 6.1 Criticisms of Chinese investment in Africa
No Western Criticisms Chinese Response Suggested solution
1 China’s support for the Millennium Development Goals, the African Union and the New Partnership for Africa’s Development (NEPAD) is rhetoric.
China’s aid to Africa includes the construction of hospitals, clinics, schools, roads, agriculture and energy which supports the MDG and NEPADs and AU initiatives and priorities.
China committed to support and cooperates with AU and NEPAD - FOCAC Secretariat - by establishing a liaison office and expertise committees to evaluate the feasibility of individual projects and electoral priorities in infrastructure, human resource development and agriculture.
NEPAD and the AU - through FOCAC Secretariat - to develop and coordinate collective and individual -differentiated responses are required in different context and countries - strategies for African response to future challenges that may emerge in the Africa-China partnership to help ensure that ordinary Africans derive greater benefits from the continent’s relationship with China. 2 China’s aid to Africa is almost
entirely bilateral and outside the existing architecture of international development assistance.
China’s aid modalities and projects are based on demands and proposals from the recipients to achieve tangible results rather than specific country strategies.
China’s non-prescriptive policies in Africa differentiate it from the principal western states, which are seen as imposing diminished growth, a huge debt and ongoing poverty through SAP and other means.
Western governments use aid to compel compliance with economic and political conditions while employing protectionism and supporting authoritarian rulers.
Officially, at least, China celebrates Africa’s culture and achievements in contrasts with a western view that depicts post-colonial Africa as ‘the hopeless continent’.
The OECD DAC is seen as very “politically oriented”, too donor dominated and built on a fixed model which is difficult to change.
The UN is China’s first choice if engaging in joint donor initiatives.
Cooperation can be extended to the World Bank, EU and other international organisation if common ground can be found.
3 China behaviour in Africa is predatory.
China less interventionist.
Both China and western governments positions Africa as a resource- supplying continent.
China’s activities in Africa are benign, more helpful to Africans than
Effective African states can strike more favourable deals with external investors and ensure greater developmental benefits e.g. Latin America experience.
those of the west, and based on political equality and mutual trust, economic win-win co-operation and cultural exchange.
Many Chinese firms working on infrastructure have low profit expectations e.g. three percent in Ethiopia, while European firms seek 15