The IMF has raised concerns about Chinese investment in Africa. Because of China’s loan policies, the IMF warned of increasing debt distress in 15 African countries. Yet it’s fair to say the IMF would have few qualms about the US or any European countries investing in Africa.
This does not mean there are no concerns about Chinese investment in Africa. It just means African leaders ought to be more careful when they sign loan agreements or accept grants and investments — and bear in mind shifting power relations in the geostrategic political economy. Yes, really. Geostrategic political economy and economic statecraft have become a lot more than buzzwords in the early 21st century.
Investments are not easy to reject, but they can be sources of rent-seeking and mismanagement. Weary of foreign powers using the continent as a resource basket, Africans have been sceptical about Chinese investment on the continent. This scepticism, also felt by Latin Americans, is partially ideological, driven by fear of recolonisation, but is also based on evidence of “debt traps” that have caught countries such as Sri Lanka and forced it to cede control of a major port due to its default on repayments.
It is important, then, to go into investment agreements with full information and a long-term view on a country’s development objectives, and prevent rent-seeking and unethical behaviour at the start of any investment programme and at each step along the way.
After that long-winded introduction, the point I want to make is that Chinese plans to build self-sustainable cities or economic zones that are disembedded from SA’s legal and political economic institutions have deep moorings in the most orthodox of economics.
Let’s reflect briefly on a Chinese initiative to build an R84bn city in Modderfontein, Gauteng, after Shanghai Zendai acquired 1,600ha of land in 2013. Zendai’s COO for SA, Du Wendui, said at the time the development was a 10- to 15-year project. It would be market driven and include a central business district, churches, a library, hospital and medical facilities, an international conference centre, recreation facilities, schools and low-cost housing for about 30,000 families, and create about 200,000 permanent jobs for the local community.
Let us set aside this project, which is part of the “charter cities” trend, for now, and focus on some of the thinking behind it.
The most eloquent of the arguments for a veritable recolonisation of regions through charter cities has come from Nobel laureate Paul Romer, the mainstream economist who served as chief economist of the World Bank, albeit briefly, until 2018. Other protagonists of charter cities — I am drawing on a case in Honduras, reported on by The Economist — include anti-tax campaigners in the US and right-wing libertarians associated with the Cato Institute in Washington.
It is, however, Romer, who has given (orthodox) economic substance to the idea of charter cities as a way to stimulate long-term economic growth. Many economists have praised the charter cities idea on the basis that it has contributed to the general economic theory of land. At the risk of sounding terribly wonkish, the charter cities model brings together the role of land in economic growth theory and builds on Romer’s new growth theory. In the simplest of terms, Romer linked the economics of ideas to the economics of growth with the postulate (among others) that technological progress lies at the heart of modern growth process. But let us get back on topic.
While the idea of charter cities, and a type of recolonisation, has been floated in the US, there is a belief that developing countries could benefit significantly from these initiatives. Building on the belief that the shift from rural to urban living will be a defining feature of the 21st century, planned cities — charter cities — have been put forward as a solution to housing and commercial pressures. But from Latin America to India there has been a groundswell of resistance to charter cities because of perceptions that they extract elites from developing societies, seal them in “European visions of prosperity” and restrict the poor from entering. In India, building charter cities has been likened to a new gold rush, as it is often more cost-effective and less disruptive than refurbishing existing cities.
We do not know what will come next from Chinese or other initiatives to build self-contained cities in SA. It would be good to have full information, an intergenerational understanding of the implications of charter cities and, of course, the genesis of the concept. This way we may make better decisions. Given the levels of rent-seeking in SA, we should take heed from experiences in India where, as the Harvard International Review reported, by the time a charter city has opened “most of the real money has already been made by politicians and industrialists”.
• Lagardien, a visiting professor at the Wits University School of Governance, has worked in the office of the chief economist of the World Bank, as well as the secretariat of the National Planning Commission.
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