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South-South development cooperation is a turning point for development aid

South-South development cooperation is a turning point for development aid

By Justin Yifu Lin and Yan Wang.

BEIJING – Since the 1960s, more than US$4.6 trillion (in constant 2007 dollars) in gross bilateral and multilateral official development assistance (ODA) has been transferred to low-income countries. Yet extreme poverty and stagnant growth remain widespread. The message is clear: traditional North-South aid is not nearly as effective as it could be and should be.

A major problem is that, for the last two decades, Western donors and bilateral and multilateral development institutions have paid far too little attention to meeting the demands of structural transformation and industrialization, such as removing infrastructure bottlenecks in the countries receiving development aid. For example, developed-country donors have failed to invest sufficiently in Africa’s power sector since the 1990s. This failure has led to deindustrialization in many countries.

Far from designing aid programs that give developing countries the guidance they need to develop their manufacturing sectors and advance technologically, Western governments and development institutions have treated industrial policies as taboo. Compounding the problem, the standard ODA model separates aid from trade and private investment, hampering countries’ ability to exploit their comparative advantages.

Fortunately, there is a better way: South-South development cooperation. Because SSDC combines trade, aid, and public and private investment to capitalize on comparative advantages, it is far more effective than ODA at overcoming obstacles to industrialization.

All development financing should follow this path. This means, first and foremost, that donors and development institutions should adopt a broader set of development-financing categories, with traditional ODA as the first (DF1). The second category, DF2, would encompass other official flows (OOF). DF3 would cover OOF-like loans – that is, long-term loans for development purposes, such as infrastructure investment. The final category, DF4, would comprise OOF-like investment, such as equity investment for development from strategic (including green) investment funds.

Such an approach would facilitate transparency, accountability, and selectivity by development partners. Moreover, it would encourage sovereign wealth funds and pension funds to invest in developing countries, thereby facilitating public-private partnerships. And it would open the way for debt-to-equity swaps.

But for this approach to work, donors must update their understanding of debt sustainability, as defined in the joint International Monetary Fund-World Bank Debt Sustainability Framework. In particular, they need to rethink their reliance in recent decades on the debt-to-GDP ratio as the benchmark indicator of a country’s debt sustainability. In some cases, this narrow approach has discouraged development lending.

Consider China, which has been accused of engaging in “debt-trap diplomacy” for providing development loans to already-indebted countries. A recent study by the Center for Global Development warned that, because of Chinese-issued debt, the debt-to-GDP ratios of eight countries are set to surpass 50-60%. But, even if this is true, the risks are probably overblown. After all, many countries maintain comparable ratios, without serious consequences.

In fact, the focus on debt-to-GDP ratios is highly misleading, for three reasons. First, these ratios do not distinguish among types of debt (such as domestic versus foreign). Second, they disregard the debt’s purpose – that is, whether it is used for consumption (salaries or pensions) or investment. And, third, they ignore a debt-financed project’s long-term effects on GDP.

Fortunately, the IMF has begun to pay attention to the far more revealing metric of “public-sector net worth” (assets minus liabilities). Consider China again. After years of high infrastructure investment, its government has more assets than liabilities, meaning that its net worth is well above 100% of GDP – the highest among emerging economies.

China’s net worth could be even higher, not least because of (potentially) larger-than-expected holdings of state-owned-enterprise assets. Moreover, though the Chinese government’s net financial worth (which excludes nonfinancial assets, the valuation of which remains uncertain) has deteriorated in recent years, it remains positive, at 8% of GDP in 2017. Subnational governments also possess substantial assets, including land and infrastructure – from hydropower stations to highways to Internet architecture – which could be used to create jobs and generate revenues that support debt servicing.

So, while China does face large debt-related risks, the IMF report concludes, its balance sheet is not exactly fragile. On the contrary, by enabling higher spending during economic downturns, China’s assets can serve as a powerful countercyclical buffer.

This underscores the value of using development assistance to increase a country’s stock of public-sector assets – precisely what China has been doing for its partners. Rather than condemn this approach as “debt-trap diplomacy,” Western donors and development institutions should be emulating it and carefully planning joint projects to ensure that they generate economic growth in the longer term.

Such an approach, if incorporated into a broader financing strategy that engages the private sector and nurtures countries’ comparative advantages, could sustain the development progress that has eluded so many countries for so long. The dawn of the new decade can and should be a turning point for global development.


Justin Yifu Lin, a former chief economist of the World Bank, is Dean of the Institute of New Structural Economics and the Institute of South-South Cooperation and Development, and Honorary Dean of the National School of Development, Peking University. Yan Wang is a senior fellow at the Institute of New Structural Economics, Peking University.


Copyright: Project Syndicate, 2019.
www.project-syndicate.org


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Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.