VP Greenidge responds to Kaieteur News August 5th, 2018 article on “China’s Belt & Road initiative”
The writer does not seem to be aware that an MOU [Memorandum of Understanding] is not a loan agreement. It is usually very general and without specifics even as to projects or terms and represents an intention embraced by two parties.
We live in a world in which the major states are ideological rivals. When dealing with criticisms of any major player and projects it is imperative to recognise this. Furthermore, the main causes of failed or problematic projects in the Third World are not the source of the funds but often the concept or design of the project. Every loan and every project has the potential to go wrong and in most cases, they go wrong for specific reasons rather than the nationality of the donor/source. Sometimes they are badly concerned planned, sometimes they are badly executed and in other cases, they may incorporate out-of-date technology. In yet other cases they may, for example, be overambitious and be too large for the market. Failure to recognise this basic fact is likely to convert well-meaning commentary into useless propaganda.
Guyana is not without experience of scandals and failures as regards failed foreign projects or loans from either the private sector or Governments. Before independence, the British built the Torani canal linking the Canje with the Berbice River but which unfortunately flowed in the wrong direction! We had in the early 1960s under Dr Jagan, a road intended for Region 3 which was never built although money borrowed was paid over to the contractor Del Conte. There was subsequently the case of the glass factory at Yarrowkabra along the Linden-Soesdyke Highway. Due to its relatively large size compared to the regional market and outdated production technology– plate glass – it turned out to be a financial disaster. A major project in its time, a wood LAS PLANT acquired from West Germany could not handle the resins from our hardwoods and the consequential breakdowns and unreliability helped to bankrupt the state company, DWL. To bring us right up to date, there is the US$32M fibre optic cable, part of the E-Governance project managed by Mr Alex Ramotar, son of the former President. It cost so much to fix that it had to be given away.
At the same time, in the KN contribution aid takes different forms, including grants. Much of the commentary focuses on what is called tied-aid without realising that all countries use this mechanism to ensure that their firms benefit when aid is granted to a foreign state. Contrary to the impression given by the writer, tied aid is not unique to the Chinese Government programmes. Only in recent years has the US Agency for International Development, USAID, United States of America main aid giving institution, has been permitted to move away from tied funds. The US spent $30.4B in official development assistance in 2010, and under the policy of “tied aid” – foreign aid that had to be spent on goods and services purchased from American companies and they could only “buy local” on an ad-hoc, case-by-case basis. It is widely acknowledged that this led to USAID paying higher prices for crucial goods and services and that it had implications for the recurring states. Later shrinking staff numbers and increasing aid budgets over the last decade, falling staff levels officers opted to employ large, experienced contractors at the expense of developing relationships with smaller firms. Happily, USAID has since revised its procurement regulations and the agency can now purchase most goods and services from developing countries, with notable exceptions including US-funded food aid, motor vehicles and US-patented pharmaceuticals.
Why countries turn to China for aid?
The first and most basic reason, availability. Many developing states feel that Western aid has too many conditions – overall political conditions, sometimes completely irrelevant conditions such as legislation in on capital punishment or relations with a third state. This is additional to project conditions. Together, these may constitute very onerous burdens and impose a high degree of uncertainty on the outcome of applications for loans. China is prepared to lend without these multiple-layered political and other conditionalities of the West. Where Chinese assistance exists, though highly political, it is limited.
Secondly, Infrastructure is both costly and visible so it has certain attractions for DCs. China is keen to fund infrastructure, especially where it can feed into an international network. China views infrastructure projects in the context of a bid to build regional and global networks. China views such projects in the long term and the B&RI is a means of laying a claim to such ‘arteries’. China often subsidises their companies in order to win contracts for major infrastructure. As one author put it, ‘China is apparently investing in a future world where all roads run through Beijing, and only once that’s set up will talks of profit and loss be applicable’. While not sexy to Western lenders, ports, roads, rail lines and logistics zones up the circulatory system of the world. Latterly, the areas in which the Chinese have shown a growing interest is the development of what could be called soft infrastructure which is carried out in the realm of politics: intergovernmental agreements, trade deals, customs pacts and aid deployments.
Thirdly, it is frequently Developing States that approach China to assist in the funding of infrastructure and often they do so within the framework of a national plan. The KN article, like KN’s subsequent cartoons, gives the impression that officials from China are lying in wait trying to ensnare leaders of developing states who are wandering around mindlessly. On the contrary, most developing states such as Guyana have a bundle of physical infrastructure projects which need financing. Each of our Ministers of Finance and of Planning can tell a tale of the frustration experienced in trying to secure finance from IDB, IBBD, CDB, etc. So, the queues outside the ‘offices’ of the Chinese Belt and Road as well as to the CELAC-China Fund are long. For that reason, there has been a certain turning away from or loss of enthusiasm for the traditional multilateral Banks, hence the establishment of a BRICs Development Bank.
The Kaieteur News piece suggests that there has been some comprehensive failure of the B&RI. Whilst it is true that there have been some problems, the latter have undoubtedly been exaggerated by EU and US critics in particular. Some commentaries, for example, claim that the B&RI is about to run out of money and that this B&RI is a “rogue” fund but comprehensive and careful examinations do not support this view. Work undertaken by William & Mary College recently, for example, suggest that developing states have received significant additional responses thanks to the B&RI and that few of the 68 states which have accessed it, have suffered the kind of horrors that the KN revels in listing – those with problems, include Sri Lanka and Pakistan – and all the blame cannot be laid at the door of the B&RI.
I will close with two sets of comments intended as overall assessments of the B&RI in the West. The first is by John Hurley, a visiting fellow at the Center for Global Development, who concludes that the “Belt and Road provides something that countries desperately want — financing for infrastructure. But when it comes to this type of lending, there can be too much of a good thing”. You may not agree with all of this but it is a defensible view. In a similarly cautious vein David Dollar, senior fellow at the Brookings Institution, conference paper October last said that “there are certainly things to worry about, such as growing indebtedness of some of China’s big clients … But there are signs of evolution.” In any case, one estimate suggests that the latter may apply to only eight (8) states some of whom were heavily indebted even without B&RI inputs.
My own observation is that countries will turn to bilaterals who share their goals at particular points in time and are willing to put in place instruments that can help them achieve those goals. It is for each state to determine how far their individual (national) goals are likely to be met and how much they are being called on to pay politically.
Carl B. Greenidge
Vice President and Minister of Foreign Affairs
17th August, 2018