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«      UNU‐MERIT Working Paper Series           #2014-014 ...»

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UNU‐MERIT Working Paper Series

 

 

 

 

 

#2014-014

Assessment of effectiveness of Chinese aid in competence building and 

financing development in Sudan 

Samia Satti Osman Mohamed Nour 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maastricht Economic and social Research institute on Innovation and Technology (UNU‐MERIT) 

email: info@merit.unu.edu | website: http://www.merit.unu.edu 

 

Maastricht Graduate School of Governance (MGSoG)  email: info‐governance@maastrichtuniversity.nl | website: http://mgsog.merit.unu.edu    Keizer Karelplein 19, 6211 TC Maastricht, The Netherlands  Tel: (31) (43) 388 4400, Fax: (31) (43) 388 4499      UNU-MERIT Working Papers  ISSN 1871-9872 Maastricht Economic and social Research Institute on Innovation and Technology, UNU-MERIT Maastricht Graduate School of Governance MGSoG UNU-MERIT Working Papers intend to disseminate preliminary results of research carried out at UNU-MERIT and MGSoG to stimulate discussion on the issues raised.

    Assessment of Effectiveness of Chinese Aid in Competence Building and Financing Development in Sudan By Dr. Samia Satti Osman Mohamed Nour (January, 2014) Assessment of Effectiveness of Chinese aid in Competence Building and Financing Development in Sudan Page 1 ______________________________________________________________________________________________________

Assessment of Effectiveness of Chinese Aid in Competence Building and Financing Development in Sudan By Dr. Samia Satti Osman Mohamed Nour1 (January, 2014) Abstract This paper discusses the effectiveness of Chinese aid for competence building and financing development in Sudan using new primary data at the micro level. We find that Chinese aid and loans to Sudan caused mixed positive-negative impacts. The positive impact is competence building and providing alternative complementary sources of finance to complement domestic capital and financing development projects; the negative impact is increasing Sudanese debts to China. We find that the effectiveness of Chinese aid to Sudan is undermined by offering aid tied to trade, FDI and the importance of oil to the Chinese economy. Despite the global economic crisis, China has continued to offer tied aid to maintain access to oil in Sudan. Despite a long period of economic sanctions, Sudan was able to grow thanks to the robust and increasing intensification of special economic relations with China which relaxed the development finance constraint. From the perspective of new approaches to financing development, our findings imply that even when a country is facing binding political and economic sanctions, it can still proceed with competence building and finance a high growth strategy if it is endowed with natural resources and a partner that is in need of such resources.

In addition to aid in the form of financial capital, Chinese aid and development assistance include technical assistance in the form of scholarships for training and education. The outcome of Chinese aid directed towards capacity building in Sudan implies that the majority of scholarships provided for specialization fields of Engineering, followed by Science and related fields, and finally Arts, Social Science and related fields respectively, and provided for PhD degree, followed by MSc degree, research and training respectively over the period (1999-2013).

Keywords: Competence building, financing development, aid effectiveness, China, Sudan.

JEL: F, F3, F35, O, O1, O19 Corresponding Author: Contact Address: Dr. Samia Satti Osman Mohamed Nour, Affiliated Researcher – UNU-MERIT, School of Business and Economics, University of Maastricht, Maastricht, the Netherlands; and Associate Professor of Economics, Economics Department, Faculty of Economic and Social Studies, Khartoum University, Khartoum, Sudan. E-mail: samiasatti@yahoo.com;

samia_satti@hotmail.com.. This paper is based on the Author’s research project in cooperation with AERC Collaborative Research Project on China–Africa Aid Relation. The author gratefully acknowledges AERC for research grant. The author gratefully thanks Prof. Ali Abdel Gadir Ali and anonymous referee(s) for good comments on earlier draft of this paper. The earlier version of this paper was prepared for the 10th GLOBELICS International Conference 2012: Innovation and Development: Opportunities and Challenges in Globalisation, Zhejiang University (ZJU) and Tongji University (Tongji), 9-11 November, 2012, Hangzhou, China.

The author would like to thank the participants and two anonymous referees of the10th GLOBELICS International Conference 2012 for their useful comments on this paper. The present paper is a reworked and revised version of the working paper published with the title “Assessment of effectiveness of Chinese aid in financing development in Sudan,” UNU-MERIT Working Paper 2011-05, Maastricht, the Netherlands, January 2011. The earlier version of this paper was published as Policy Brief with the title "The Impact of China-Africa Aid Relations: The Case of Sudan,” Policy Brief of African Economic Research Consortium Collaborative Research China- Africa Project, Issue Number 9, Nairobi, Kenya, November 2010. The earlier version of this paper was published as country case study, Paper with the title "Impact of China-Africa Aid Relations: The Case of Sudan,” China-Africa in-depth country case study, Paper No. CCS_14, April 2010, AERC, Nairobi, Kenya. All the usual disclaimers apply.





Assessment of Effectiveness of Chinese aid in Competence Building and Financing Development in Sudan Page 2 ______________________________________________________________________________________________________

1. Introduction

Following the declaration of the United Nations Millennium Development Goals (MDGs) in September 2000, there is increasing interest in the international community to enhance the old and new means for financing for development. For instance, several studies in the international literature confirm the main concern of the international community to issues of financing for development and reaffirmed that mobilizing financial resources for development and the effective use of all these resources are vital to the achievement of internationally agreed development goals, including the MDGs. It confirms the importance of both domestic resources and development strategies and also foreign resources flows, both private and public, in financing development in developing countries. In the context of national development strategies aiming at effecting development, the most important topics regarding sources for financing development in developing countries include for example, Mobilization of Domestic Resources, Foreign Direct Investment (FDI), and other private flows, Financial Markets, Official Development Assistance and External Debts. The importance of financing development is also confirmed with the new challenges including the effect of the 2008 international financial crisis on development finance sources, the additional costs imposed by increasing concerns about climate change, the increased volatility in the prices of primary commodities, the additional resource needs of countries emerging from conflict, and increasingly recognized special needs of middle-income countries. In the Arab and African regions, leaders confirm a high priority accorded to development finance issues. Financing development in the Arab and African countries depends on foreign direct investment, official development assistance and aid. Notably, Sudan's economy has relied heavily on a large influx of foreign aid.

This paper is motivated by the recent debate in the international literature on recent increasing challenges confronting financing development and also by the observation that the extremely rapid and sustained expansion of the giant economy of China has been associated with a robust and increasing intensification of its economic relations with Sudan, and that these relationships in turn imply both opportunities and challenges for financing development in Sudan. In particular, despite a long period of economic sanctions, Sudan was able to grow thanks to special economic relations with China which relaxed the development finance constraint in Sudan. From the perspective of the new approaches to financing development our findings imply that even when a country is facing binding political and economic sanctions, it can still proceed with competence building and finance a high growth strategy if it is endowed with natural resources and a partner that is in need of such resources. The contribution and results of this paper fill a gap in the Sudanese literature by examining the issues that are not adequately discussed in Sudanese literature. This paper adds to the existing international literature on country risks and presence/contribution of foreign investors, by investigating the case of Sudan as a new case from African countries.2 Starting with the general overview of Sudan’s economy, one stylized fact is that it has long been among the least developed, poor, low income and highly indebted countries, according to World See for example, the Journal of International Business Studies.

Assessment of Effectiveness of Chinese aid in Competence Building and Financing Development in Sudan Page 3 ______________________________________________________________________________________________________

Bank classification. The implementation of economic reform policies in the late 1990s and the exportation of oil since 1999 together lead to significant improvements in most macroeconomic indicators and impressive real economic growth and rapid increase in per capita income. According to the World Bank (2008) Sudan is one of the newest significant oil producing countries in the world;

Sudan is the third largest oil producer in Sub-Saharan Africa (SSA) behind Nigeria and Angola. In recent years, the structure of Sudan’s economy has shifted, from being predominantly reliant on agriculture for growth and exports, to its current reliance on the oil sector (WB, 2008), Sudan’s real economic growth averaged about 9% during (2005-2006), putting Sudan among the fastest growing economies in Africa (WB, 2008). Consequently, following the improvement in the economic performance, Sudan turned from a low income economy into a lower medium income economy, according to the World Bank classification.

Despite the increasing dependence on the wealth from oil but like most other poor developing countries, Sudan has relied heavily on a large influx of foreign aid from different sources, Sudan is among the top 10 recipients of gross Official Development Assistance (ODA) over the period (1990-2007)- see Figures 1-2 below. There has long been a significant flow of foreign aid to Sudan from various sources including the USA, EU countries (e.g. the Netherlands, Italy and Germany), Arab countries (e.g. Saudi Arabia, Kuwait and United Arab Emirates), China, the World Bank, International Monetary Fund, United Nations, Arab Fund for Economic and Social Development and Organization of Petroleum Exporting Countries. In the 1970s, China also began to offer aid and development assistance to Sudan. During the late 1970s and 1980s the large inflow of foreign aid to Sudan was mainly offered by the International Monetary Fund and the World Bank.

Since the mid-1990s, following the large drop in the inflow of foreign aid from traditional Western donors, Sudan looked for alternative sources of foreign aid and development assistance from emerging donors, mainly China. This policy is incidentally consistent with China's increasing economic interests in Sudan as a new resources oil-rich economy. Consequently, in the last two decades, China has increased foreign aid and development assistance to Sudan and some other resources-rich developing countries. Chinese aid to Sudan as in many other resource-rich developing countries is essentially motivated and intended to accomplish broader strategic objectives and achieve mutual interests. In Sudan, for example, China accounted for 58% of total contracted loans and grants over the period (2005-2007)- see Table 1 below.

Figure 1- Top Ten Recipients of Gross Official Figure 2- Official development assistance (ODA) and Development Assistance (ODA) (USD Million) (2006) official aid offered to Sudan (1990-2007) (current in US$) Source: Adapted from OECD, DAC 2006, Source: Adapted from the World Bank-World www oecd org/dac Development Indicators Database WDI) (April 2009 Assessment of Effectiveness of Chinese aid in Competence Building and Financing Development in Sudan Page 4 ______________________________________________________________________________________________________

Based on the above, this paper will first examine the importance of Chinese aid, development assistance, loans and grants offered to support competence building and financing development in Sudan over the period (1997-2007). Second, it will assess the effectiveness of Chinese aid, development assistance, loans and grants in competence building and financing development in Sudan over the period (1997-2007). This paper aims to examine two stylized facts: first the importance of Chinese aid, development assistance, loans and grants in competence building and financing development in Sudan (1997-2007), second the mixed positive-negative impacts of Chinese aid, loan and grant to Sudan (1997-2007) as Chinese aid to Sudan is tied to trade, FDI and importance of oil to Chinese economy. It is interesting to note that Sudan was under economic and political sanctions for a fairly long period, yet it was able to grow thanks to special economic relations with China which relaxed the development finance constraint.

Based on the above, the rest of this paper is organized in the following way: section 1 presents introduction, objectives and structure; section 2 gives background and context of the paper;

section 3 provides the conceptual framework and literature review; section 4 shows research methodology; section 5 discusses the results; and finally section 6 provides the conclusion and policy recommendations.

2. Background and Context of the Research Based on the above and before assessing the impacts of Chinese aid to Sudan it will be useful to explain the trend, distribution and composition of Chinese aid to Sudan.



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