Assessment of effectiveness of China aid in financing development in Sudan

Samia S. O. M. Nour

#2011-005

This paper fills the gap in the Sudanese literature and discusses the effectiveness of Chinese aid for financing development in Sudan using new primary data at the micro level. We find that the Chinese share in total loans and grants offered to Sudan greatly increased from 17% in 1999 to 73% in 2007 out of total loans and grants offered to Sudan. We find that Chinese aid and loans to Sudan caused mixed positive-negative impacts. The positive impact is providing alternative complementary sources of finance to complement domestic capital and financing development projects. The negative impact is increasing Sudan's debts to China from 0.9% in 1999 to 13.45% in 2007 out of Sudan's total debts. We find that the effectiveness of Chinese aid to Sudan is undermined by offering aid tied to trade, FDI and importance of oil to the Chinese economy. We explain that despite the recent global economic crisis China has maintained offering tied aid to maintain its access to oil in Sudan. We find that 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 the new approaches to financing development our findings imply that even when a country is facing binding political and economic sanctions, it can still be able to finance a high growth strategy if it is endowed with natural resources and a partner that is in need for such resources.

Keywords: Financing Development, aid effectiveness, China, Sudan.

JEL classification: F30, F34, F35, O10

  


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