Foreign Aid

Michael Collins is a research associate for Asia Studies at the Council on Foreign Relations. Over the past three decades, China has experienced consistent double-digit growth in its medical device market. In 2016, the market was valued at nearly $54 billion. Just three years later, its value has nearly doubled to an estimated $96 billion. U.S. medical device producers such as Johnson & Johnson and GE have profited handsomely from the Chinese market, but their total market share has decreased from 33.3% in 2016 to 31.1% in 2018. At the same time, Chinese medical device producers like Mindray, valued at 9 billion RMB ($1.28 billion) in 2016 and 13.7 billion RMB ($1.95 billion) in 2018, are enjoying larger market shares due to a host of favorable financial and trade policies which fall under the broad umbrella of Made in China 2025 (MIC 2025). Launched in May of 2015, MIC 2025 is the country’s latest ambitious industrial strategy. The plan targets ten critical areas of industry in which China wants to lead in global production by 2025. While much of the foreign concern around MIC 2025 focuses on the high-profile issues of telecommunications and AI, it is equally important to pay attention to other affected technologies. With a rapidly aging population and a health care market projected to be worth a trillion dollars by 2020, China’s drive to become a leading producer of medical devices, for example, will have enormous economic repercussions for foreign multinationals. Already several Chinese provinces have taken the first steps toward realizing Beijing’s ambitions through procurement and insurance policies which preference domestic producers over foreign imports. In 2018, state hospitals in Sichuan province were required to procure domestically produced devices in 15 categories or risk losing out on lucrative state-insurance reimbursements. In 2019, provinces and major cities across China released a series of increasingly restrictive procurement policies. Ningxia province was first to release a notice requiring state hospitals to justify any foreign medical device imports with a lengthy audit. Suzhou and Tianjin, major economic hubs, soon followed suit with identical notices. Not to be outdone, Shandong province limited all device imports to only 488 items, mainly high tech diagnostic devices not produced in China. Zhejiang province soon after limited state hospital imports to 232 items. These restrictive policies are a double-edged sword. They benefit China’s medical device industry by insulating it from foreign competition while also forcing hospitals to expend resources searching for products which comply with changing regulations and which, in some cases, may be of lesser quality than foreign alternatives. These policies also have become tests of officials’ loyalty to the party whose industrial policy is inseparable from its aspirations to become a great power on par with the United States. As China cracks down on the use of foreign medical devices domestically, it is also looking to sell its own devices abroad, especially in Africa. Until 2011, China’s main medical device exports were low-end disposables, such as syringes and gloves. In the last eight years, however, Chinese medical devices have moved up the value chain to include higher-tech devices like therapeutic and diagnostic equipment. According to Chinese Customs data, Africa this year has imported nearly $460 million worth of Chinese medical devices ranging from low end disposable to advanced diagnostic tools. This is an increase of almost $100 million from last year, helping to replace some of the lost revenue due to U.S. tariffs on Chinese medical devices as part of the ongoing trade war. China is also offloading excess medical device capacity through its foreign aid program in Africa. Since 1963, China has sent medical teams to provide primary care services and build healthcare capacity across Africa. With MIC 2025 in mind, China has continued to leverage these strong historical ties to advantage domestic medical device producers. Following the most recent Forum on China-Africa Cooperation in 2018, China pledged to “make...medical products more accessible” to African nations in order to improve healthcare across the continent. While China does not disclose exactly how many medical devices it donates in a given year, national and provincial level Health Commissions regularly report individual successful device donation efforts. These donations can range in value from several boxes of disposable tools to advanced diagnostic machines. Not only do these donations buy goodwill for China in recipient countries, they also build the capacity for future healthcare markets for Chinese producers. At the same time, by portraying these donations as beneficial for domestic industry and recipient countries, Chinese officials further their commitment to so-called “win-win cooperation.” China’s foreign aid program in Africa extends beyond direct humanitarian donations, though. Over the past decade, Beijing has invested in the construction of a number of hospitals and clinics across Africa with twenty-six facilities planned for construction in South Sudan this year alone. Aside from their humanitarian benefits, each hospital or clinic constructed is a new market for the Chinese medical device industry to capitalize on. While some are eventually handed over to the host country, others remain administered and staffed by Chinese personnel. China keeps the exact details of these bilateral agreements a secret, but it is plausible that continued staffing is contingent upon the hospital using procurement policies similar to domestic Chinese hospitals. This strategy has been employed by China before in Belt and Road initiative to offload excess domestic industrial capacity at the expense of host countries’ labor and industry. China’s strategy for global industrial leadership is on full display in its medical device industry. As 2025 approaches, this strategy could be replicated in other MIC 2025 industrial sectors. Coupling protectionism at home with opportunistic aid abroad is truly win-win – a win for China and a win for its manufacturers.

The latest episode of The President’s Inbox is live. I sat down with Steve Sestanovich, CFR’s senior fellow for Eurasian and Russian studies and the former U.S. ambassador-at-large for the former Soviet states, to discuss Ukraine. Here are three quick takeaways from our conversation: 1. Ukraine’s size, location, and wealth help explain its many troubles. Ukraine is one of the largest states in Europe, it has significant natural resources, and it sits on the dividing line between East and West. So lots of people have a stake in which way Ukraine tilts. Their conflicting efforts have kept the country from making a decisive choice one way or the other. 2. The Trump administration has a lot of cooks in the kitchen trying to implement its Ukraine policy. That dynamic is hardly new. Lots of administrations have appointed diplomats with overlapping responsibilities and divergent views on what needs to be done. What is unusual about U.S. policy toward Ukraine today is how far some of those involved stepped out of their assigned lanes and how they engaged directly with the president.  3. President Donald Trump has narrowed his freedom of maneuver on Ukraine and complicated his own policies. The impeachment inquiry puts Trump under great pressure to provide Ukraine with security assistance and to not be seen as blocking possible IMF economic assistance to Kyiv. The Ukrainians see the controversy justifying their decision to resist doing the favor that Trump requested. And Russian officials see the scandal as confirming their view that he cannot open a new chapter in U.S.-Russian relations. If you want to learn more about the potential fallout from the favor Trump asked of President Volodymyr Zelenksy, you should read Steve’s piece, “Is Russia Winning the Ukraine Scandal?” While noting that Russia officials argue that the United States has made itself “the laughingstock of the world,” he argues that the real lesson from the scandal is “the enduring strength of U.S. support” for Ukraine. Molly McKew offers a somewhat contrasting take on the scandal’s consequences, arguing that “the biggest winner of the Ukraine scandal is, sure enough, the Kremlin.” But she also makes the same point that Steve made to me, that Russian President Vladimir Putin wants to “keep Ukraine in limbo between Russia and the West.” If you are wondering why Ukraine keeps popping up in so many U.S. scandals, Julia Ioffe, who appeared on The President’s Inbox last year to discuss what Vladimir Putin wants, has an answer: “money.” As she put it, “There’s a lot of it sloshing around.” She also warns against trying to reduce Ukrainian politics to a morality play with “neat binaries—the forces there are either pro-Russia or pro-West; leaders are either corrupt actors or laudable reformers; the good guys versus the bad guys.” She sees lots of grey. Vox has a video explainer on the July 25 Trump-Zelensky phone call and why supporters of an impeachment inquiry say Trump crossed a line he shouldn’t have. It makes a nice pairing with the article that Edward Foley, an Ohio State University law school professor, has written asking: “Is it ever OK for a president to ask a foreign country to investigate a political rival?” While the focus here in the United States is on where the impeachment inquiry is headed, Nolan Peterson writes that Ukrainians are focused on whether new talks with Russia will bring an end to more than five years of fighting in eastern Ukraine. Some Ukrainians are happy that Zelensky agreed to talks, even though they are on the terms that the Kremlin demanded. Other Ukrainians are angry that Zelensky agreed to hold elections in the parts of the country controlled by Russian-backed separatists as the price for getting to the negotiating table. Margaret Gach assisted in the preparation of this post.

In Foreign Policy, Shannon Kellman and Mark Lagon of the Friends of the Global Fight Against AIDS, Tuberculosis and Malaria, make the point that disease outbreaks in states with weak governance and high rates of poverty often spread to other countries. With respect to eastern Congo’s Ebola outbreak, they highlight the fact that the disease has spread out of eastern Congo to the border with Rwanda and into Uganda. The World Health Organization has designated the outbreak as a “public health emergency of international concern.”  Disease outbreaks like Ebola also exacerbate other health issues in weak states; in Congo’s North Kivu province where the Ebola outbreak started, they cite an eight-fold increase in the incidence malaria. In addition to Ebola, eastern Congo faces myriad other issues, including endemic militia activity that is often hostile to government and widespread distrust of medical professionals trying to bring Ebola under control. The authors advocate increased international health assistance to fragile states such as Congo, especially by the United States. Though the Trump administration has proposed cuts, they highlight bipartisan congressional support for global health assistance. They suggest that increased assistance has the potential to improve governance and stability in affected areas, both of which are in the interest of the United States. In fact, it is likely that U.S. funding for global health could be increased, as it was last year. The authors argue that such health crises should be seen in the context of combating state fragility, the spread of terrorism, and of improving governance.  The outbreak has become a security issue that is already affecting Congo’s neighbors. Like the Ebola epidemic in West Africa in 2014, Congo’s outbreak could lead to disruptions to international travel and trade, and its knock-on effects in health and security could threaten the stability of an already unstable region. However distant the outbreak may seem at present, its far-reaching effects are yet more reason why aggressive and substantial support for disease-fighting efforts must be advanced.  

A vast gulf remains between development financing and development goals. International competition could help bridge that gap, but has produced mixed results to date.

Welcome to “Women Around the World: This Week,” a series that highlights noteworthy news related to women and U.S. foreign policy. This week’s post, covering May 30 to June 6, was compiled by Mallory Matheson and Rebecca Turkington.

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Mexico and Central America can do little to curb migration without robust U.S. support.

Jennifer Spies led Facebook’s product development for the Middle East and Africa, and has over a decade of experience building products that connect communities. Prior to Facebook, she served as a foreign policy advisor for Middle Eastern economic security and worked with Google.org in Rwanda. Known for his ground-breaking business theories on “jobs to be done,” Professor Clayton Christensen of Harvard Business School has a new book on disruptive innovation, The Prosperity Paradox: How Innovation Can Lift Nations Out Of Poverty. I sat down with the book’s co-author, Efosa Ojomo, who leads the global prosperity research at the Clayton Christensen Institute, to learn how policymakers can apply the book’s findings in Africa.  The Prosperity Paradox points to market-creating innovations as a path for growth and economic success. What are some of the African examples you cover in the book? Celtel (now Airtel) is a great example of an African company we profile in the book. In 1998, the prospect of starting a mobile telecommunications business in sub-Saharan Africa was unthinkable as most Africans were very poor. But against those odds, Mo Ibrahim started Celtel, made the mobile phone simple and affordable for millions of Africans, and created a new market in the process. The mobile telecommunications market today adds roughly $200 billion in economic value, provides upwards of $20 billion in tax revenues, and has created close to four million jobs. That’s the power of market-creating innovations. We also introduce readers to Fyodor Biotechnologies, a company that makes noninvasive malaria tests, and Lifestores Pharmacy, which is increasing access to affordable drugs. These businesses all have one thing in common: their products are so simple, affordable, and accessible that they’re able to reach many people—allowing the businesses to prosper and the local economies to benefit from their growth. In a nutshell, what are the mechanisms by which market-creating innovations drive growth? When an organization creates a new market, three things happen. First, the organization generates profits which further fuel the market’s growth and provide revenues for infrastructure and institution building—typically by way of taxes. Second, the organization creates jobs. This makes people in a region more productive and causes crime to become less attractive since there are now better ways to solve problems. Third, the mixture of profits and jobs changes the culture of a region. When citizens begin to see that creating new and vibrant markets is a viable way to develop, a virtuous economic development cycle is created. Twenty years ago, many Western policymakers viewed African economic development as something solved by foreign aid. What are the book's implications for foreign aid in Africa? Perhaps the biggest problem with foreign aid is that, in a way, it works. Foreign aid can alleviate poverty. But poverty alleviation should not be the goal as most people still struggle to eke out a living even after benefiting from aid programs. Instead, foreign aid should change its focus to creating vibrant and prosperous societies, taking a page out of the foreign aid that was given to South Korea. It was described as aid that would end aid. In essence, the book focuses on how to create prosperity, which necessarily alleviates poverty in the process.  What market-creating innovations excite you the most today on the continent?  EarthEnable is a very exciting up-and-coming Rwandan company that provides affordable earthen floors to homes in the country. It costs about a quarter of the price of concrete floors. So far, the company has installed more than half a million square feet of floors in over 300 villages. Another exciting company is Microensure which provides insurance for millions of people who live on less than $3 a day. You have a section on corruption in the book. Can you elaborate on what you found about the role of corruption in African economies? In short, we found that governments would be best served viewing corruption as a solution, instead of the problem. In most low-income countries, efforts to eradicate corruption (which is a near impossibility) blind us to possibilities of making progress in other ways. The Prosperity Paradox sheds a light on how market-creating innovations can mitigate incidents of corruption and, over time, help create a more transparent society. What advice would you have for U.S. policymakers focused on Africa? Perhaps the biggest advice we have is to look at America's own journey to prosperity. As we describe in the book, less than two hundred years ago the U.S. looked similar to some of today's poorest countries. But it climbed its way out of poverty because it fostered a culture of innovation, with innovators like Henry Ford and Issac Singer creating new markets with affordable offerings. Policymakers can help African nations achieve the same progress by keeping their history in mind. It’s important to understand that prosperity is a process, not an event. Where Africa is today isn’t where it’ll necessarily be tomorrow. 

Nelson Mandela was born on July 1, 1918, and passed away on December 5, 2013. So, this year marks the centenary of his birth and December 5 the fifth anniversary of his death. At the huge FNB Stadium in Johannesburg on December 2, more than one hundred thousand people participated in the Global Citizen Festival: Mandela 100, sponsored by the Motsepe Foundation. The event raised some $7 billion in commitments for the relief of poverty across the African continent, from big corporations, governments, and small donors. Performers included Beyonce, Jay-Z, and Usher, and speakers included a variety of South African political, economic, and traditional leaders, as well as Mandela’s family. In the audience was Oprah, South African President Cyril Ramaphosa, and numerous other heads of state. The event, hosted in part by South African comedian Trevor Noah, showed that Nelson Mandela’s international appeal is undiminished. Within South Africa, Nelson Mandela remains the national icon and a unifying figure in a society fractured by race and class. Nevertheless, criticism of him persists and is growing, especially among radical political figures. Robert Mugabe, the Zimbabwe dictator deposed by his deputy and military in November 2017, has been especially vocal in his criticism. He, along with some South African critics, argued that during the transition from apartheid to non-racial democracy, Mandela conceded too much to the white minority and preserved their white privilege. They note that the gulf between the wealth of white people and everybody else is greater now than it was under apartheid. (The event itself was marred by numerous muggings as the crowd broke up to go home.) The persistence of black poverty and the slow pace of social change fuels criticism of Mandela. Among these critics, there is little understanding of the limits imposed by political and power realities at the time of the transition: the apartheid state retained full control of the security services and was far from defeated. The transition was therefore a negotiated settlement in which the apartheid government, led by the National Party's F.W. de Klerk, ceded political power to the black majority while preserving white economic power. Some years after their death, national heroes often face critical reappraisals which take historical realities little into account. With respect to Mandela, that process has started in South Africa, but the dominant narrative remains that Mandela’s achievements in bringing South Africa to non-racial democracy in the context of the ideals of racial reconciliation were extraordinary. 

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U.S. programs can make the Northern Triangle a better place to live than to leave.

The Trump administration has apparently reversed its position on development assistance and the use of soft power in the developing world by signing the BUILD Act, and Africa is likely to be a major beneficiary. In its early days, the Trump administration’s rhetoric was hostile to the United States funding overseas economic development and skeptical of the benefits of soft power. It was also hostile to the Overseas Private Investment Corporation (OPIC), the U.S. government’s financial institution that seeks to mobilize private capital for development by providing low-interest loans and risk insurance. There were proposals for drastic cuts in the budgets of the USAID, OPIC, and for funding to UN humanitarian agencies across the board. Had they happened, it would have been a reversal of longstanding policies of Democratic and Republican administrations. Instead, those cuts were rejected by bipartisan Congressional opposition; appropriations remained at about the same level as during the Obama administration. Now the Trump administration has created a development assistance entity, the U.S. International Development Finance Corporation (IDFC), with a budget of $60 billion. Unlike OPIC, IDFC will have the ability to make equity investments and to make loans in local currency, reducing investor currency exchange risk.  The IDFC will likely be more competitive than OPIC, and it will have a much larger budget. However, in many ways the IDFC is an improvement and rebranding of OPIC, rather than something radically different. In that sense, it is reminiscent of the rebranding with improvements of the North American Free Trade Agreement (NAFTA) that resulted in the United States–Mexico–Canada–Agreement (USMCA). What is really new and significant about IDFC is its much larger budget, and that President Trump will preside over its creation. The IDFC has bipartisan Congressional support, reflecting the long-standing tradition of working across the aisle when it comes to development and humanitarian assistance. It is also supported by USAID and OPIC. It looks as though concern about China's growing influence in developing countries has been the driver of the administration’s new embrace of development assistance and soft power.

With President Trump advocating for deep cuts to U.S. foreign aid, debate has renewed over the role of foreign assistance funds in boosting growth, promoting democracy, and saving lives.