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China leaves the West on the side lines in Africa

By Jeffrey Sachs

One of the most riveting moments of the MDG summit came when a senior adviser of the China Development Bank set out some of today’s global realities. She explained on Tuesday that the Bank has $600bn of assets and plans to boost its Africa portfolio.

She noted China’s world-leading speed in building infrastructure, and its intention to help do so in Africa. And she expressed China’s intention to work not only with national governments but also with international institutions, including the World Bank and the African Development Bank, to get the job done.

The room was electrified, as it were, by the prospect of Africa being electrified so rapidly, with China’s investment, technology, and support. The World Bank, African Union, and African Development Bank had projected a series of maps on the screen indicating Africa’s needs for regional roads, rail, power, and fibre optic grids.

Suddenly, all of it seemed quite doable, in a new world economy in which China uses its vast reserves, talents, and economic interests to help get the job done.

One of the strangest parts of the current global policy environment is that the US and European governments have been relatively disengaged from Africa’s infrastructure challenge.

The stakes are very high. Many tens of billions of dollars of investments are needed each year. These investments will boost Africa’s growth, cut poverty, and generate income and jobs in the capital-exporting countries as well.

Much of the needed investment in Africa’s roads, rail, power, connectivity, and more, can be financed by the projects themselves, with well-structured long-term loans backed by future payments of electricity rates, or highway taxes, or other project revenues.

Yet it is only China that is active in financing and building Africa’s infrastructure on a large scale, while the US and Europe are on the sidelines, despite world-class infrastructure companies operating at low capacity.

This is an example of the US’s current macroeconomic policy failure: the failure to identify and support pathways to recovery through export-led and investment-led growth.

One of the most interesting interchanges in the room was between a senior advisor to the government of Ethiopia and the CEO of a world-leading telecom technology provider.

The advisor explained that Ethiopia was maintaining its state monopoly on telecoms in order to use government profits to boost access. The telecom CEO explained that it has been open market competition, and not state monopolies, that has resulted in the world-changing boom of mobile telephony to today’s 5bn subscribers, including hundreds of millions of subscribers throughout Africa.

I had a look at the data online during this discussion. Sure enough, in the 139 countries ranked recently by the World Economic Forum regarding cell-phone penetration (subscribers per 100 population), Ethiopia ranked in last place. Time to abandon the state monopoly.