SAFPI Policy Brief No 25 February 2013

Providing development aid to Africa : comparing South Africa with China, India and Brazil Elling N. Tjønneland *

South Africa’s planned development aid agency, South African Development Partnership Agency, is expected to be established in 2013. This provides a good opportunity to assess South Africas current role as provider of development aid to other African countries.(1) This will be assessed against traditional development aid from the north (the OECD countries), but primarily South Africa’s evolving aid policies and practices will be compared to those of the other main South powers – China, India and Brazil. They have all in recent years rapidly expanded their development aid projects in Africa.(2) The four South powers share a number of common features as “emerging” aid donors. They are all major recipients of development aid from Western donors. Importantly, aid typically accounts for an insignificant part of government revenue. It usually accounts for 1-2 percent or less. Furthermore, these countries also provide far less development aid to other countries than what they receive. The exception is China which provides far more. All these four countries have significantly expanded their aid projects in Africa in recent years. This has also been closely associated with a rapid commercial and corporate expansion into Africa. In financial terms their aid flows are insignificant compared to their commercial and corporate engagement. It also appears to be small compared to other types of development finance provided (loans, credits, remittances and more). In most cases the aid provided is intended for small-scale projects, often tied to the purchase of goods and services from the donor.

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Playing with giants: South Africa in Africa Compared to the three others – all global giants – South Africa is a small country with a small economy. South Africa is however a major economic player in Africa, also in comparison to the three others. Trade figures are perhaps the most significant indicator of the rapid changes. Trade between China and Africa has increased from USD 10 billion in 2000 to USD 160 billion in 2011 (and may have reached USD 200 billion in 2012) making China Africa’s single biggest trade partner. India and Brazil show a similar expansion, from a low level in 2000 reaching, respectively, USD 50 billion and USD 30 billion in 2011. South Africa’s trade with the rest of Africa reached USD 30 billion in 2011. However, South Africa’s trade figures are ahead also of India’s trade with Africa when we exclude between India and South Africa. India and also Brazil are likely to become bigger trade partners with Africa; the size of their economies coupled with their much stronger need for access to African oil resources suggest that they soon will bypass South Africa. Looking at investment figures, these emerging powers are less important compared to traditional investors in the north, but their importance is growing. Financially, these emerging powers – especially China, followed by India and then Brazil - are important in providing other types of finance for development. This is mainly through commercial loans (sometimes with grant elements and on “soft” terms) and export credits. This has reached a scale where they have made a significant difference. Most importantly: they have become dominant funders of infrastructure development in Africa. These mechanisms have

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much greater need for oil). Since the first Chinese loan and credits were offered to Angola in 2002 there are now – according to some estimates – 50 state owned and 400 privately owned Chinese companies in the country as well as anywhere between 40 000 and 240 000 Chinese nationals. Brazil – which provided its first loans and export credits to Angola in the mid1980s – has some 50 companies and 40 000 Brazilians in the country.

also been important for companies from these countries: it has not just provided them contracts, but also a platform for further expansion in Africa. There are however, important geographical variations in their Africa engagement. China has a strong and expanding presence in nearly all African countries. All African countries, except eight, have increased their trade with China in the past five years. However, trade and other forms of Chinese presence are dominated by a handful of countries. Five African countries account for most of the imports into China, and a similar number for Chinese exports to Africa. India has a similar pattern. Typically the dominant trade partners are African oil exporters and bigger African economies. Brazil displays a similar picture, but the historical and cultural links to Portuguese-speaking African countries make these countries much more important. Angola is Brazil’s single biggest economic partner in Africa.

The South African state does not have the financial resources to provide loans and export credits that can match the others. It does however, have significant bank and financial institutions with a strong presence throughout most of Southern Africa. This also includes two significant state institutions – the Industrial Development Corporation and the Development Bank of Southern Africa - able to provide commercial and concessional finance in the region, including development finance packages for major infrastructure projects in other SADC countries, such as the spatial development corridors.(4)

South Africa has a similar focus on a smaller group of countries. South Africa’s presence is overwhelmingly concentrated in Southern Africa with a minor additional presence in Nigeria and Ghana in West Africa and in Kenya and Uganda in the East. 90 percent of its trade with the rest of Africa is with the SADC countries. Investments – totaling about ZAR 121 billion in 2010 - follow the same pattern, but the number of South African investors is quite large compared to the nonSouth African powers. About 100 of the companies listed on the Johannesburg Stock Exchange have investments in Africa. This includes bank and finance, mining, retail, tourism, telecommunication, construction and more.(3)

Much less reported are the significant financial flows from workers, refugees and illegal immigrants from other African countries sending money to family and relatives back home. Not much is known about this, but a recent assessment puts the figure at more than ZAR 11 billion annually.(5) In the case of Zimbabwe such remittances may in the last decade have been a crucial lifeline for a large number of ordinary Zimbabweans. Finally, the most important distinction between South Africa and the other South powers is that South Africa is an African power. It has aspirations to play a leading role in African politics and to champion the cause of Africa.(6) Furthermore, South Africa also has significant “soft power”. Johannesburg – The City of Gold –

This has made South Africa a bigger economic actor in the region compared to the others – at least for the moment. The exception here is Angola. China, followed by Brazil, are the big players, but even India has much higher imports from Angola than South Africa (due to India’s 2

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Indian aid to Africa began in the 1960 and may now (2010) have reached USD 50 million. Much bigger financial transfers are provided through “soft” elements in loans and export credits.(9) Brazil saw a rapid expansion of its aid programme under the Lula-government. Currently it reports that USD 65 million is allocated to Africa over a period of three years.(10)

is still the New York of (Southern) Africa. And South Africa remains an important and a growing destination for African students pursuing higher education.(7) Development aid compared Development aid is a small but important component in the Africa policies of the emerging South powers. Their policies and practices in this area may also be useful to understand their evolving African engagement and ability to respond to African needs. There are important parallels and differences in both the volume, profile and management of the aid polices of these four countries. This also applies to how they practice South-South and trilateral cooperation.

South Africa’s aid flows to Africa are difficult to map. In South Africa very high figures are often mentioned, even figures suggesting that South Africa’s aid would add up to more than 0.7 of its Gross Domestic Product.(11) These figures are based on attempts to record all (or most) financial flows from South African state departments to other Africa countries. It includes costs of participation in peacekeeping operations and well as financial transfers under the SACU revenue sharing formula to other members of the Customs Union. These and most other financial flows would not be classified as development aid by the OECD. The bulk of South Africa’s development aid can be found in the disbursements from the African Renaissance and International Cooperation Fund (ARF). Annual disbursements have varied between USD 45 and 75 million in recent years. In addition South African government departments and parastatals have provided significant funding to development projects on the continent which can be classified as aid (e.g., through NEPAD, SADC or the AU). Many agencies are however turning to the ARF to get funding for some of this. It is hard to conclude with a specific figure, but the volume of South Africa’s aid appears to be much more than what India is providing and well may be more than USD 100 million.

Volume The first challenge is to identify what and how much these countries are providing as development aid to Africa. The Western donors have a fairly elaborate reporting system through the OECD development assistance committee. This makes for good statistics. These four countries however, do not classify or report aid allocations and disbursement in accordance with these criteria. Nor is it always clear what they actually classify as development aid. However, by using the OECD criteria to reclassify aid allocations from these countries a better basis for comparison becomes possible. China is the biggest donor among the four. Its aid program with Africa has a long history. It goes back to the late 1950s, but its present rapid expansion and focus began after 2000. Using OECD criteria, its aid to Africa was estimated to be around USD 1.4 billion in 2009 (and it has since grown).(8) China’s much bigger loans and export credits to Africa, also with grant elements from the Chinese aid budget, are not included.

In total, the aid flows from these South powers may now have reached USD 2 billion. This is a significant amount, but it remains small compared to the USD 50 billion flowing from the traditional donors to Africa. The financial significance of 3

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these four countries lies in their commercial and corporate engagement.

virtually all African countries (except in those four countries still recognizing Taiwan).

Profile What do these countries fund through their aid budgets? The three non-African powers each have a fairly distinct profile. They all provide support to mostly bilateral projects and rarely provide funding through multilateral channels. There is a high degree of tied aid linked to the use of goods and services from the donor. Funds will often not be managed by the recipients. Support to capacity building tends to focus mostly on individuals rather than on institutions. China’s projects are mainly focused on health, education and agriculture as well as on the delivery of arenas for mass mobilization (stadiums) and important state buildings (parliaments, state houses, office blocks for government departments and more), but can also be infrastructure projects.

South Africa does not have a similar distinct profile. Disbursements under ARF go to a wide range of projects, but also to a relatively small number of projects per year (currently 10-20). Projects funded include humanitarian assistance, diplomatic training to officials from other countries, elections and socio-economic projects. A noticeable trend is that many of the projects are closely linked to South African foreign policy initiatives. Many of the bigger projects are also in post conflict countries with support to elections consuming large portions of the ARF funds (DR Congo, Sudan). The non-African powers have tended to stay away from issues such as elections and post-conflict reconstruction. Outside ARF, there are South African transfers to African regional organisations and to a range of initiatives, including support to Nepad.

India has a distinct focus on providing scholarships to African students, mainly for studies at Indian institutions as well as the training and further education of government officials. In recent years this has been expanded to include funding to a range of Africa-based projects, including training centres, and with a strong focus on information technology.

Management Proper management is important to co-ordinate policy formulation and ensure coherence, and to facilitate efficient and effective utilization of aid funds. Only China and Brazil has an aid agency in place. China has a dedicated department on development aid in the Ministry of Commerce. It relies on Chinese embassies for oversight and management on the ground. Brazil has a Cooperation Agency under the Ministry of Foreign Affairs responsible for its aid projects. India does not have a dedicated aid agency, but has indicated that it may want to establish such an institution.

Brazil has a strong focus on providing technical assistance from Brazilian institutions to projects in Africa. The main focus is on agriculture and health. There has been a strong emphasis on transferring experiences from Brazil to Africa. Within agriculture lessons from tropical agriculture, food security, agro energy and support to small scale farming has been in the forefront.

South Africa does not have an agency or a special institution in place. In December 2009 the Cabinet approved a conceptual framework for what was to become known as the South African Development Partnership Agency (SADPA). This followed a resolution at the ANC Polokwane conference. After much delay SADPA may

Common for all these three is that they provide aid to very large number of African countries. The smallest – Brazil – funds more than 300 projects in 37 countries. China has aid-funded projects in 4

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SAFPI Policy Brief No 25

become operational in 2013.(12) SADPA will be an entity within the Department of International Cooperation and Development (DIRCO). It will be responsible for all South Africa’s outgoing development aid; coordinate operational policy formulation and ensure coherence through government departments; and support financial commitments of development co-operation initiatives. Essentially, it is intended that DIRCO shall be responsible for policy issues around development co-operation with SADPA being set up as special delivery unit. Embassies and missions abroad will be responsible for oversight and assistance on the ground.

Tripartite and South-South co-operation The four countries emphasize South-South cooperation in their development assistance to Africa, but this has largely been confined to cooperation between each of these donors and their recipients/partners. There has been very little cooperation, coordination or harmonization between these four countries in providing aid. The minor, but important exception to this, was the establishment of the IBSA Facility for Poverty and Hunger Alleviation Fund in 2004 by India, Brazil and South Africa. Each of the three countries provides an equal amount to the Fund which is managed by the UNDP Special Unit for SouthSouth Cooperation.(14) The fund supports a number of small projects (15) in Burundi, Cape Verde, Guinea Bissau and Sierra Leone. In addition the Fund also supports projects in Haiti, Palestine, Cambodia, Laos and Vietnam. Projects funded are mainly within social and economic development, health and infrastructure. There is also the odd project with other emerging powers. Beginning in 2008, South Africa has, with Vietnam, a ZAR 45 million project to promote food security in Guinea.(15)

SADPA is expected to be established with a small staff, perhaps around 18-20. It will be based on the unit responsible for ARF in DIRCO’s Africa Multilateral Branch. The management of ARF may presumably be the initial main focus of SADPA. The management of ARF is located in DIRCO but is jointly supervised by DIRCO and the Treasury. The Treasury sits on the money in ARF and is also represented on the joint advisory committee which provides supervision and recommends projects to be supported.(13) The Treasury is represented through the International Economics Unit responsible for South Africa’s outward financial flows and relations with international financial institutions (including the IMF, the World Bank and the African Development Bank) and the small International Development Coordination (IDC) directorate in the Budget Office. IDC is responsible for coordinating development aid flowing into South Africa. IDC has also been active in the international debate on aid effectiveness. South Africa has been an active participant in these debates but primarily the capacity as recipient of aid – not as a donor and provider of development aid.

Within the BRICS alliance the current discussion around the establishment of a joint development finance institution (a bank) may possibly lead to some common approaches and joint initiatives also related to finance for development in third countries. There is a different approach – and also divisions – between these four countries related to cooperation with Western donors in third countries. China and India are reluctant, and tend to be opposed to such type of co-operation. The partial exception is co-operation taking place through the UN, the African Development Bank and multilateral channels. Brazil and South Africa, on the other hand, have both welcomed this type of co-operation. They have both entered into a 5

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declaration on aid effectiveness and its SADC equivalent – the Windhoek Declaration.

number of projects in Africa with Western donors. Brazil reports that they in 2010 had a total of 12 such projects with France (two in Cameroon and one in Mozambique), US (three in Mozambique), Japan (one in Mozambique), Italy (one in Mozambique), Canada (one in Cameroon), Germany (one in Mozambique) as well as with the UN (three in Guinea Bissau).(16) Most are agricultural.

The actual number of such trilateral arrangements between South Africa and Western donors is not known, but it is substantial. It includes several projects where South Africa is considered to have technical skills such as training related to financial management. There has been a growing emphasis on projects in post-conflict reconstruction with several projects in policing. This includes DR Congo (with DFID), Rwanda (with Sweden) and in the two Sudans (with Norway).

South Africa has a range of trilateral projects with Western donors. It began shortly after 1994 when donors began exploring how South African resources could be used in regional projects in Southern Africa. South Africa was considered to have technical skills, institutions and resources in high demand in poorer neighbouring countries and on the continent. In the last few years a number of donor agencies have begun to place additional emphasis on South Africa’s role. South Africa is increasingly regarded as a strategic partner or anchor country in the foreign policy of many donor countries. DFID was probably the first donor agency to elaborate and formulate a strategy giving expression to such objectives. Its 2006 Southern Africa Regional Plan was the major first major effort to express the ambitions of working with South Africa as a strategic partner in advancing development in the sub-region. With a number of Western donors phasing out or reducing aid to South Africa trilateral cooperation has also received added importance for many donors.(17)

Challenges South Africa is an important economic and political actor in Africa. This is primarily derived from its strong economic position in Southern Africa and the corporate profile of its engagement. It is gaining increasing political status as indicated by its membership in BRICS, and there are indications that South Africa is trying to exercise stronger political leadership on the continent. However, South Africa’s ability to provide leadership is constrained by the structural weakness of its domestic economy, the attendant concerns with its institutional capacity, and persistent questioning of the legitimacy of its claims to represent the African continent.(18) Development aid is a small component in South Africa’s foreign policy. Other types of engagement (commercial/corporate, political, even remittances from migrants) are much bigger and far more important contributions from South Africa to other African countries.

South Africa has welcomed this. DIRCO documents emphasize that SADPA is considered to be a useful tool for participation in trilateral cooperation with other donors. South African has also signed a Declaration of Intent with the Nordic countries on trilateral co-operation. The Declaration provides important guidelines, including the provision that co-operation in third countries must build on principles from the Paris

The importance of development aid and the emerging SADPA lies elsewhere. It may help to promote a more coherent South African approach to development in other African countries. This approach is dominated and shaped by the 6

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Books.

corporate profile. South Africa is still struggling with how best to help promote development in other African countries. South Africa’s aid has tended to be isolated projects with the strongest contribution being in running training programmes in areas where South Africa has strong skills and capacities. It is struggling when the challenge is not to train a police officer in technical skills, but to engage with broader issues of policing and security sector reform. The establishment of SADPA may help to make the delivery of South African aid more effective. South Africa has taken a relatively strong position on how aid should be delivered to South African through the Treasury’s International Development Cooperation directorate. The lessons from managing aid into South Africa need to be transferred to South Africa’s own delivery of aid. This has not been sufficiently addressed in the preparation for SADPA.

3.

The figures in this section are from Simon Freemantle and Jeremy Stevens (2012), Insight and Strategy. EM10 and Africa: South Africa in Africa – A Steady, yet Narrow, Ascent, Johannesburg: Standard Bank, 12 June.

4.

See also David Monyae (2012), “South Africa’s development finance institutions”, pp. 164-177 in Chris Saunders et al. (eds.), Region-building in Southern Africa. Progress, Problems and Prospects, London:,Zed Books 2012.

5. The study was commissioned by FinMark Trust and is reported in Southern African Trust’s newsletter Southern African Changemakers, January 2013. These estimates should be read carefully and may not be very accurate, but there is no doubt that they are substantial and run into billions every year. 6. See also Chris Alden and Maxi Schoeman (2013), “South Africa in the company of giants: the search for leadership in a transforming global order”, International Affairs, vol. 89, 1: 111-129.

Finally, South Africa needs to bring its African agenda and the issue of South-South cooperation also to its alliance partners in IBSA and BRICS. South Africa should be able to play a stronger role on these issues and in facilitating trilateral cooperation in Africa also with other South powers.

7. An interesting indication is also provided in a 2010 report from the Academy of Science of South Africa. It notes that the growth of the non-white Ph.D. students at South African institutions is largely accounted for by the expanding number of students from other African countries. See The Ph. D. study. An evidence-based study on how to meet the demands for high-level skills in an emerging economy, Pretoria: ASSA 2010. In 2007 there were 1234 doctoral graduates at South African institutions. 54 percent of these graduates were white and 32 percent were black Africans (up from 19 percent in 2000). 18 percent of the graduates were from other African countries (up from 6 percent in 2000). Most of the foreign African students are assumed to be black Africans.

Footnotes 1. This discussion draws upon my recent edited collection, Emerging South powers in Africa, Oslo, Scandinavian Academic Press 2012 (in Norwegian only). 2. Cf. also a general introduction to the changing donor aid landscape in Emma Mawdsley (2012), From recipients to donors. Emerging powers and the changing development landscape, London, Zed Books, and Sachin Chaturvedi et al. (eds.) (2012), Development Cooperation and Emerging Powers. New Partners or Old Patterns? London, Zed

7

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commissioned by the Norwegian and Swedish embassies, C. Albertyn & M. Ngaara, Preappraisal of possible Swedish and Norwegian Support to the African Renaissance and International Co-operation Fund (ARF), 10 November 2006 (draft, restricted).

8. The best study is provided by Deborah Brautigam. See her ”Chinese Development Aid in Africa. What, where, why and how much?”, pp. 202–22 in Jane Colley and Ligang Song (eds.), Rising China: Global Challenges and Opportunities, Canberra: Australian National University 2011 (China Update Series).

14. See more about this trust fund at http://tcdc2.undp.org/IBSA/Default.aspx

9. See more on Indian aid in Gareth Price (2011), For the Global Good, India’s Developing International Role – A Chatham House Report, London: Royal Institute of International Affairs, and in Sachin Chaturvedi (2012), “India and Development Cooperation: Expressing Southern Solidarity”, pp. 169–89 in S. Chaturvedi et al. (eds.), Development Cooperation and Emerging Powers: New Partners or Old Patterns? London: Zed Books.

15. See the report http://www.buanews.gov.za/rss/11/110720144 51001 16. This is reported in Brazilian Cooperation Agency (2011), Brazilian Technical Cooperation in Africa, Brasilia, ABC. 17. I have (with Pundy Pillay) described and analysed the emerging thinking and approach to trilateral cooperation in a study commissioned by the official aid agencies in Scandinavia and the Netherlands. See Managing Aid Exit and Transformation, South Africa Case Study, A Joint Donor Evaluation, Stockholm: Sida 2008 (available from http://sidapublications.citat.se/interface/stream /mabstream.asp?filetype=1&orderlistmainid=2 549&printfileid=2549&filex=3430256262230).

10. On Brazil’s aid see Enrique Saravia (2012), ”Brazil: Towards Innovation in Development Cooperation”, pp. 115–33 in S. Chaturvedi et al. (eds.), op.cit. as well as the official overview provided in Brazilian Cooperation Agency (2011), Brazilian Technical Cooperation in Africa, Brasilia, ABC. 11. See Brendan Vickers, “Towards a new aid paradigm: South Africa as African development partner” (2012), Cambridge Review of International Affairs, vol. 25, 4: 535556, and Elizabeth Sidiropoulos (2012),”South Africa: Development, International Cooperation and Soft Power”, pp. 216–42 in S. Chaturvedi et al. (eds.) op cit.

18. See the recent study by Chris Alden and Maxi Schoeman (2013), “South Africa in the company of giants: the search for leadership in a transforming global order”, International Affairs, vol. 89, 1: 111-129

* Elling N. Tjønneland is a senior researcher at the Chr. Michelsen Institute, Norway.

12. See also the report from Parliamentary Monitoring Group on the August 2011 DIRCO presentation of the legislation on SADPA to the Parliament Select Committee, http://www.pmg.org.za/report/20110803department-international-relations-cooperation-legislation-establish as well as the report in DIRCO’s Annual Report 2011-2012 (Pretoria: DIRCO 2012). 13. There is not much written about the actual operation and management of the ARF, but see the unpublished assessment of the Fund 8

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