Ansoumane Douty Diakité 

Abstract

　　Traditional and (re)-emerging donors have been the subject of considerable debate in the current aid system. Both concepts have been ambiguously defined in the literature (Ling 2014; Kragelund 2010). This paper aims to participate in the discussion regarding the similarities and differences between these two categories of donors, specifically focusing on the variations in the forms of aid delivered to recipient countries. For this study, China and France were selected as case studies, focused on their aid policies in Guinea. China is considered a (re)-emerging donor, whereas France is categorized as a traditional donor. As a result of the study, significant similarities were found in the forms of aid provided by both donors (China and France), as well as similar criteria for allocating their grants and loans. However, differences exist in terms of the beneficiaries of their loans—whether it pertains to China’s interest-free loans or France’s concessional loans.

Keywords: Aid, traditional donor, emerging donors, poverty reduction, Guinea.

I. Introduction

　　The forms of foreign aid can include the provision of financial grants, loans, technical advice, training, equipment, and commodities such as food, health resources, infrastructure materials, and transport (Wells, 2015). The Development Assistance Committee (DAC) refers to aid as the loans and grants allocated to developing countries which fulfill three criteria: 1) the loans and grants must originate from the public sector, 2) they must be provided with the intention of promoting economic development, and 3) they must be concessional in nature and contain a grant element of at least 25%. Other classifications of the form of aid do so by dividing aid into cash aid (grants or concessional loans), in kind (e.g., food aid), or in the form of debt relief.

　　The form of aid significantly influences its effectiveness in poverty reduction. Frequently, aid aimed at addressing poverty consists of loans and grants (as defined by the DAC’s official development aid criteria). Specifically, the OECD categorizes aid into grants, ‘soft’ loans, and the provision of technical assistance. Soft loans are those where the grant component constitutes at least 25% of the total.

　　The literature remains divided regarding which instrument is most appropriate and effective for combating and alleviating poverty. Therefore, the purpose of this paper is to explore the preferences of traditional donors (in this case France) and emerging donors (specifically China) concerning the forms of aid they consider most suitable for poverty alleviation, both generally and particularly in Guinea.

II. Evaluation of the form of aid delivered by China and France for poverty alleviation
2.1. Forms of aid delivered by China

　　Prior to 1990, China provided interest-free loans and grants to its partners in Africa. Most of China's grants go toward social projects (health, education, and housing), whereas most of its interest-free loans go toward infrastructure projects. As for the concessional loan, it covers large projects which involve the transfer of China’s know-how and the export of Chinese goods and services. China Exim Bank began providing these types of loans in 1995.

　　According to China’s State Council Information Office, between 2013 and 2018 China allocated a total of RMB 270.2 billion for foreign assistance in three categories: grants, interest-free loans, and concessional loans. Grants and interest-free loans are executed by the Ministry of Commerce (MOFCOM), and concessional loans and preferential export buyer’s credits are carried out by CHEXIM (UNDP, 2021).

A-Grant.

　　In general, this type of aid is designed to assist recipient countries in building small or medium-sized social welfare projects (such as hospitals, schools, housing, and water supply systems); funding human resource development cooperation (scholarships and training); technical cooperation (sending teachers, medical personnel, and agricultural experts); material assistance (equipment) and emergency humanitarian assistance. Between 2013 and 2018 China’s grants amounted to RMB 127.8 billion, around 47.3 percent of the total (China State Council, 2021).

B-Interest-free loans.

　　This form is mainly used to help recipient countries construct public facilities (bigger sized projects, mainly infrastructure) and launch projects to improve people’s livelihood. Interest-free loans are mainly provided to developing countries with relatively good economic conditions. Similar to grants, the disbursements of interest-free loans are 100% financed by central government expenditure (Kitano and Harada, 2014). Between 2013 and 2018 the amounted disbursed was about RMB 11.3 billion, around 4.18 percent of the total aid (China’s State Council, 2021).

C-Concessional loans.

　　Concessional loans are mainly used to assist recipient countries undertake manufacturing and large and medium-sized infrastructure projects that have significant economic and social benefits, as well as for the supply of complete plants, machinery, and electronic equipment. This type of assistance is primarily used to assist recipient countries undertake projects in the productive sectors (manufacturing projects). Further, the projects must generate both economic and social benefits. The borrowing country may use it to purchase Chinese mechanical and electronic products, complete sets of equipment, technology, and services (Brautigam, 2010). Between 2013 and 2018 around RMB131.1 billion were disbursed by China (China’ State Council, 2021). This represents 41.8 percent of the total of China’s aid.

Figure 1: China’s Foreign Aid in three categories, 2013-2018

Source: China’s State Council: China’s International Development Cooperation in the New Era, 2021.

　　Thus, the three categories of aid play different roles. Specifically, China’s grant allocations target social welfare projects (such as hospitals, schools, housing and water supply projects) and capacity-building initiatives, including scholarships and training across a variety of sectors. Generally, grants are used in LDCs characterized by the extreme poverty.

　　As far as interest-free loans are concerned, they indirectly address poverty by targeting the construction of public facilities. This includes roads, bridges, railways, etc. Unlike grants, these funds are provided to countries with sound and favorable economic conditions (State Council, 2011). Research indicates that there is a substantial connection between infrastructure development and the alleviation of poverty. Findings suggest that investments in tangible infrastructure play a major role in fostering community development that includes all social groups (Ali and Pernia, 2003). Interest-free loans and concessional loans, however, are primarily allocated to advanced economies, such as upper-middle income countries in Africa (Hubbard, 2008).

　　In addition to comparing the relationship between these three forms of aid and poverty alleviation, it is important to note that they also have additional goals. They all play an important role in China's foreign policy. Generally, grants and zero-interest loans are intended to advance broad diplomatic goals, whereas concessional loans provided by the China Exim Bank are intended to promote economic diplomacy goals (see also Brautigam, 2010). French aid is delivered in a similar manner, however there are some differences to be noted. In the following section, the different forms of aid used by France will be discussed.

2.2. Forms of aid delivered by France

　　Depending on the status of the partner country, France provides different types of aid. It provides both grants and concessional loans. Loans are provided primarily to emerging economies and grants to low-income economies. Other types of assistance provided by France in partner countries, such as loan guarantees, are not considered as aid by the OECD/DAC standards.

A-Grant.

　　The share of grants in France's total official development assistance increased from 77% in 2017 to 79 % in 2021(Finance Committee of the French National Assembly, 2021.) The share of grants in bilateral ODA rose from 65% to 69% (France Diplomacy, 2021).

　　The grants are only available to poor countries in Sub-Saharan Africa. Specifically, it is intended for nineteen (19) low-and middle-income countries (known as ‘Pays Pauvres Prioritaires’ or 'Priority Poor Countries, ‘PPPs’).^[1] Under the 2021 development law, France plans to allocate at least half of all grants and two thirds of French Development Agency (AFD) grants to these countries. France is committed to raise the share of grants to the PPPs on average to at least 70% over the period 2022 to 2025 (Donor tracker, 2021). Grant funds are allocated to finance projects in the social sector (such as health, education, water, climate, and the environment), as well as infrastructure. In PPPs and crisis-affected countries, grants are primarily provided to finance the access of the poor to basic social services. Generally, grants fund activities and projects that are not covered by the market or private sector. Senegal, Chad, and Mali were among the top 10 recipients of grants in 2019 (France Diplomacy, 2021).

B-Loans

　　France’s loans can be classified into two categories: sovereign loans and non-sovereign loans. It is possible for sovereign loans to be either concessional or non-concessional.

　　For concessional loans or subsidized loans, the rate differential between loans at market rate and at concessional rate is paid by the French government. This is similar to the loans issued by the China Exim Bank. Concessional loans are generally not provided to countries that are classified as Highly Indebted Poor Countries (HIPCs) and Least Developed Countries (LDCs). China’s concessional loans are subject to similar disbursement conditions.

　　Non-concessional sovereign loans are extended to countries with low debt levels and borrowing capacity, typically at market rates. Typically, sovereign loans that are not concessional are extended when there is an immediate credit requirement due to a crisis-induced liquidity shortage. These loans are usually directed towards productive sectors without the necessity for state-backed guarantees and can finance projects related to infrastructure, urban development, and the environment.

　　Different types of sovereign concessional loans are available, such as loans to emerging countries (Reserve des Pays Emergents, RPE), debt refinancing loans, and structural adjustment loans. In the case of the RPE, it is provided to emerging countries to finance their economic development projects using French goods and services. These loans (RPE) are tied to the use of French know-how in sectors such as public transportation, environment, water and energy sectors. Refinancing loans primarily target least developed countries (LDCs), low-income countries, and middle-income countries. These loans aim to restructure existing debt of LDCs countries and support their ongoing efforts to achieve the Sustainable Development Goals. Essentially, this mechanism involves issuing new loans to settle previous debts.

　　As for the non-sovereign loans, they are provided to non-sovereign sectors, such as state-owned companies, public undertakings, local governments, public institutions, or NGOs that perform public service missions. These loans are provided without state guarantees and are at the risk of the French Development Agency (AFD). Projects involving mega-infrastructure are financed by these loans.

　　France’s assistance in alleviating poverty is significantly characterized by the allocation of grants as appropriate tools and the establishment of a group known as Priority Poor countries (PPPs), which are considered as privileged vehicles for combating poverty in partner countries.

The following tables summarize the types of foreign aid generally offered by China and France:

Table 5: Form of China and France’s aid by sector

Source: Table made by the author for the purpose of this research

Table 6: Summary of the forms used by China and France to deliver their aid

Source: Table made by the author for the purpose of this research

2.3. Forms of aid delivered by China and France to Guinea

　　Guinea has received comparable aid from both China and France, including grants and loans. However, differences can be found in the specific loan terms; for instance, France does not provide interest-free loans.

A. China’s aid to Guinea

　　Since 1959, China has consistently supported Guinea through grants and interest-free loans. In 2008, they negotiated their first infrastructure loan. However, according to both China’s standards and those of the OECD, this type of loan is not categorized as aid. During the early stages of China-Guinea relations, assistance primarily took the form of grants. Unfortunately, since funds were not recorded in the government’s public finance accounts, it’s challenging to precisely quantify the aid provided. Most of the assistance involved equipment, technical support, and infrastructure. Secondary sources indicate that by 2009, China had extended interest-free loans totaling US$440 million (approximately 3 billion Yuan in 2022 currency) (Doumbouya, 2009).

Table 7: China’s grants allocation

Source: Diallo, 2009, and China’s Embassy in Guinea, 2019.

　　China has pledged to offer concessional loans, mainly for energy projects. Specifically, in some areas of Guinea, China has agreed to fund a power supply initiative. For example, in 2007, Guinea sought help from China for building a thermal power station with a capacity of 168 megawatts. This appeal was directed to the Chinese state-run company CMEC (China Machinery Engineering Corporation). The entire expense of this venture was US$200 million (Cissoko, 2009). The form of assistance Guinea was set to receive was a preferential loan with conditions including a repayment period of 15 years, an initial grace period of 5 years before payments start, and an interest rate fixed at 2%, provided by the Exim-Bank.

　　In February 2008, China’s Ministry of Energy and CMEC entered a Memorandum of Understanding to conduct a feasibility study, including an environmental impact assessment, for the construction of the thermal power plant. However, the project’s progress has been delayed, and currently, there is no information available regarding its commencement. In accordance with the agreement, both parties stipulated that Chinese firms would assume responsibility for constructing the infrastructure in exchange for exploration and resource exploitation rights. This specific loan arrangement was negotiated as a commercial loan, as documented in the literature (Fall and Diallo, 2009). Repayment for the loan was to be made using natural resources such as iron ore, bauxite, gold, and diamonds. Thus, China secured 1 billion tons of bauxite reserves through this project. The China Development Bank (CDB), authorized in 2008, provided funding to support Chinese companies engaged in mining activities in Guinea.

　　Following setbacks in these industrial projects, China shifted its grant focus toward social initiatives and sectors likely to alleviate poverty. Examples include education (school construction), healthcare (hospitals and health centers), agriculture (research centers and land provision), energy (dams and power generators), transportation (public buses), and water supply (water pumps). China’s grant deployment in specific sectors can be seen as directly addressing poverty. Thematic sectors—such as telecommunications (TV stations and transmission centers), cultural initiatives (stadium construction), and government projects (e-government)—have also benefited from grants. China’s assistance in the telecommunications sector plays a crucial role in providing information to rural areas, where lack of information contributes to poverty. Furthermore, support in the cultural sector has the potential to create jobs and educate young people in sports, a group disproportionately affected by poverty.

　　Lastly, grants have been allocated to aid the government’s anti-corruption efforts, recognizing corruption as another factor contributing to poverty. However, it’s worth noting that some grant-funded projects—like the construction of the presidential palace and a cinema—are considered ‘white elephants’ with short-term benefits (job creation during construction) but no lasting impact on poverty alleviation.

B.Forms of France’s aid and poverty reduction in Guinea

　　Guinea has predominantly received cash grants from France, although there is evidence that France has also extended concessional loans to Guinea. Since adopting the French Development Cooperation Vision in 2011, France has channeled most of its aid to impoverished countries through grants. In Guinea, these grants have funded various projects, including agriculture initiatives, local development programs (such as the Support Programme for Village Communities, water supply projects, and food security efforts), education projects, health interventions, social infrastructure construction, and support for non-governmental organizations.

　　For instance, within the agriculture sector, grants have supported projects like enhancing potato producers’ export capabilities (2005), implementing a trade capacity-building program for peasants (PRCC2), developing rice cultivation in lower Guinea (2011), and promoting rice-fish farming in forested Guinea (2013). Local development initiatives have also benefited from grants, financing support programs for village communities in forested Guinea (2000) and rural credit institutions (2002). Water and sanitation projects, including the Sanitation Project of the Yimbaya School District in Conakry (2008), have been funded through grants. France has also directed grants toward the Education Sector Programme (ESP) and infrastructure projects, such as urban road development (e.g., the Tombo/Gbessia highway in Conakry, 2003). Additionally, grants supported the reform of Guinea’s health system (2002), the establishment of the Pasteur Centre of Expertise in Conakry (2014), and the Ebola Treatment Centre (ETC) in Guinea (2014). Despite some concessional loans being offered, they remain scarce compared to grants.

III.Summary of the similarities and differences between the forms of China and France’s aid

　　Both China and France have utilized grants to finance projects with direct or indirect impacts on poverty. This form of aid supports social welfare, development initiatives, and basic infrastructure in both donors’ target regions. Both countries allocate their grants to fund projects and programs in impoverished countries.

　　However, there are notable differences between China and France. France specifically designates a list of recipient countries for its grants, focusing primarily on fourteen French-speaking nations known as Priority Poor Countries. In contrast, China targets poor countries with which it maintains diplomatic relations.

　　Regarding loans, both countries provide this form of aid, but China’s interest-free and concessional loans benefit only a select few poor countries. Eligibility for these loans requires sound economic conditions (for interest-free loans) or creditworthiness (for concessional loans)

　　Conversely, France offers concessional loans exclusively to lower middle-income Mediterranean countries, upper middle-income nations, and Highly Indebted Poor Countries (HIPCs) that are not classified as Least Developed Countries (LDCs) or emerging economies. Consequently, LDCs and low-income countries, despite being considered poor, do not qualify for concessional loans from France.

　　In summary, grants remain a primary intervention tool for both donors in addressing poverty in Guinea. When it comes to loans, they are extended to countries with favorable economic standing or credit ratings.

^[1]These include Benin, Burkina Faso, Burundi, the Central African Republic, Chad, Comoros, the Democratic Republic of the Congo, Djibouti, the Gambia, Guinea, Madagascar, Mali, Mauritania, Niger, Senegal, and Togo. Except for Burundi, the Democratic Republic of the Congo, and the Gambia, all were formerly colonized by France.

Ansoumane Douty Diakité, Ph.D University of Saint Joseph- Macau.

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