Sino-African Cooperation:New Approach to Effective Development

Wang Xiaolin & Liu Qianqian

Since 2000, successful cooperation between China and African countries has been progressing in the fields of political, economic and security relations as well as social development under the framework of Sino-African Cooperation Forum. Sino-African cooperation not only serves as a good example of South-South cooperation; it has become a new framework and venue for better and more effective development for developing countries.

I. Success of Sino-African Cooperation

Following the establishment of Sino-African Cooperation Forum in 2000, bilateral economic cooperation and trade has grown year by year. It encompasses a wide spectrum of areas including trade, investment, infrastructure, capacity building, finance and tourism in an extensive and multi-echelon structure.Such cooperation is an important component and has injected new vitality into South-South cooperation. It has raised the standing of the developing world in the international political and economic order and plays an important role in promoting the establishment of fair and reasonable international political and economic structures.

1. Investment

China’s success in Reform and Opening indicates that it is important to create a sound environment for foreign direct investment (FDI) in order to attract foreign businesses to invest in developing countries. Though this process, developing countries can gain advanced technology and management experience and break the vicious circle of poverty. Under the framework of the Sino-African Cooperation Forum, the Chinese Government encourages Chinese companies to invest in African countries. Since 2000, China’s direct investment in Africa increased exponentially from several hundred million U.S. dollars up to an accumulated total of over $13 billion by the end of 2010. As Figure 1 shows, since the Beijing Summit of Sino-African Cooperation Forum in 2006, China’s investment in 49 African countries has increased rapidly, reaching up to$5.491 billion in 2008, mostly in South Africa, Nigeria, Zambia,Sudan, Algeria and Egypt. This investment covers numerous sectors, including mining, finance, manufacturing, building industry, tourism, farming, forestry, animal husbandry and fishery. There is a multitude of investment forms including businesses with exclusive Chinese investment, joint ventures,purchasing and merging as well as tripartite tapping of natural resources. Investors range from giant or medium-sized stateowned corporations to private businesses or individuals.

Just as a large volume of foreign investment in China in the earlier years of Reform and Opening boosted China’s economic expansion and enhanced China’s technological and management level, Chinese investment in Africa has injected unprecedented vigor and vitality into African economies.

Figure 1 China's Direct Investment in Africa( million US dollar)

2. Trade

According to the theory of comparative advantage, a more liberalized international trade environment can spur a nation’s economy to be incorporated into the global system and increase the values of products, thereby promoting development and reducing poverty. As a result of Reform and Opening, in a short span of just over three decades, China has become the world’s largest trading nation in import and export goods by pursuing an export-oriented development strategy. Many economic research findings indicate that free trade is beneficial to economic growth and poverty reduction. According to Tian Weiming’s article titled“China’s WTO Membership, Agricultural Trade Liberalization and the Impact on Rural Poverty”released by the International Poverty Reduction Center in China (IPRCC) in 2011, China has successfully reduced impoverished rural population by a large margin in an increasingly liberalized trade environment over the past three decades.

Trade was the initial form of Sino-African economic cooperation. As relations between China and African countries have grown, bilateral trade has increased with each passing year. Trade between China and African countries in 1950 was merely US$ 12.14 million. It reached US$ 100 million in 1960 and exceeded US$ 1.0 billion in 1980. It went up even more rapidly after 2000 when it reached as high as US$ 10 billion.By 2008, it had catapulted to more than US$ 100.0 billion with China’s export to and import from all African countries totaling US$ 50.8 billion and US$ 56.0 billion respectively. China has concluded bilateral trade agreements with 45 African countries.Cooperation between the two sides has become increasingly close on customs administration, taxation, commodity inspection and quarantines, thereby creating better conditions for further trade expansion. In order to assist African countries for increased export to China, the Chinese Government decided to give zero-tariff treatment for a specified variety of commodities exported to China by the least developed African countries that have diplomatic relations with China beginning in 2005.By July 2010, there were more than 4700 tariff lines of such preferential commodities. In the future, such treatment will gradually cover 95 % of all tax lines as enlisted in the Import-Export Tariff Regulations of the Customs Administration of the People’s Republic of China. Consequently, China’s zero-tariff policy is stimulating rapid growth of preferential commodities exported to China by African countries.

Figure 2 China's Trade with Africa( million US dollar)

3. Infrastructure

As considerable research indicates, infrastructure has a pivotal impact on development, especially with low-income people. Upon entering the 21st Century, Latin American countries began to intensify efforts to undertake infrastructure projects, leading to an increase of 2-2.5% in per capita income.A survey across Bangladesh, China, Ethiopia and Pakistan - all low-income countries - demonstrates that better infrastructure is conducive to greater productivity, increased production revenues and integration in the world economy. A research report in 2011 concludes that earning rates of infrastructure projects vary from 20% to 200%. China’s efforts in infrastructure have effectively raised production and reduced poverty. This also is the case with many African countries where infrastructure is even more backward and potential shadow prices run higher.In other words, more investment in infrastructure can yield higher rates of earning in countries where infrastructure is inadequate.

About 40% of all Africans live in landlocked countries where there is a great shortage of both national and local infrastructure.In Africa, only 29% of families have electricity at home, 31% of the population can use good sanitary facilities, and 60% of the population has clean water for use. In rural areas, only 33%of the population can ride on all-weather roads as compared to 49% in other low-income countries. According to the World Bank, African countries are short of about US$ 31.0 billion for infrastructural investment.

In 2010, the China-Development Assistance Committee Joint Research Group convened a symposium on“Infrastructure: The Base of Growth and Poverty Reduction,”seeking feedback from African countries about China’s assistance to their infrastructure projects. Senior government officials from African countries participating in the symposium were all optimistic about China’s role in Africa’s infrastructure building. Though they all recognized that there were some problems and challenges,most leaders felt that they could be resolved. The participants emphasized that Africa could use China’s assistance to establish a win-win partnership with China in the following three aspects:(1) Having the aid recipient pay for the retrievable costs and the participation of private sectors - an experience learned from China. (2) Regional economic integration - based on the work priorities as identified by regional economic communities and the New Partnership for African Development, China may focus its investment and development assistance in Africa and private sectors’participation on infrastructure projects for the purpose of regional economic integration. (3) Becoming more transparent, competitive and sustainable with better aid coordination.

Infrastructure projects are one of priorities in Sino-African economic cooperation and trade. China attaches great importance to assisting African countries in improving infrastructure such as housing, highways, bridges, railways, airports, harbors,telecommunication, electric power, water supply and drainage system, and hospital building, etc. through aid, construction contracting, investment and expanded financing. By the end of 2009, China had undertaken a total of more than 500 infrastructure projects in African countries including such mega-projects such as the Belet Uen-Burao Highway in Somalia, Friendship Harbor in Mauritania, the Medzerdah-Cap Bon Canal in Tunisia, National Stadium in Tanzania and the African Union Conference Center in Ethiopia. The Chinese Government has provided large sums of preferential loans to African countries to undertake infrastructure projects and the government has encouraged Chinese financial institutions to provide more commercial loans to African countries. China has been providing more and more financial support to African countries in recent years, especially after the establishment of Sino-African Cooperation Forum. China has offered US $10.0 billion in preferential loans to African countries between 2010 and 2012 for large-scale projects such as the Mauritius Airport,the residence quarters in Malabo, Equatorial Guinea, and the Bui hydro-power station in Ghana.

4. Agricultural Development

When China’s economic reform began in 1978, the Chinese Government realized that agricultural development was a powerful engine for boosting economic growth, and it took a series of important measures in the reform process based on this sound development strategy. Agriculture was considered top priority in national economic development. The initial driving force of agricultural development and the diversification of the rural economy was the implementation of a number of new systems and policies that conform to national conditions,such as the practice of households contracting responsibility systems with remuneration linking to output and setting up township and village enterprises. Agricultural development in China is driven by a combination of state efforts, the market, and peasants based on a strategy of implementing correct policies and promoting scientific and technological advancement.

According to a research conducted by the China-Development Assistance Committee Joint Research Group, 53 African countries are vastly different from China in terms of natural endowments as well as socio-economy, political system, and historical culture. Though African countries cannot copy China’s experiences indiscriminately, some experiences are bound to be similar and applicable. To be more specific, for instance, the main drivers of China’s economic expansion are labor-intensive sectors, but agriculture remains the foundation of livelihood for low-income people and should therefore be a top priority in national development. In addition, the fact that China has carried out agricultural reforms on a trial and experimental basis and in a matter-of-fact way helps promote the growth of small farmers. Lastly, African countries should learn from China’s lessons in agricultural development and guard against emerging problems, such as a widening income gap between urban and rural people, imbalanced economic structures, indistinct rights and obligations in the use of land,environmental pollution, ecological degradation, etc.

Food security will affect Africa’s stable development and poverty reduction. Agriculture is the mainstay of the economic sector and it is also the top priority of Sino-African economic and trade cooperation. China consistently holds the view that helping African countries ensure food security is the fundamental aim of Sino-African cooperation in agriculture which mainly covers agricultural infrastructure projects, grain production, breeding and aquaculture, exchange and transfer of applied agrotechnologies, processing, storage and transport of agricultural products, etc. By the end of 2009, China had completed a total of 142 agricultural projects, including many agro-technological experimental and dissemination stations, state farms and set up 14 agro-technological demonstration centers in Africa. It has also supplied large quantities of agricultural materials and equipment. The Chinese Government encourages Chinese companies to invest in agro-products processing and agroresource tapping in African countries.

5. Poverty reduction

Most African countries have remained poor to date. Sub-Saharan Africa is one of the most poverty-stricken regions in the world. According to a World Bank survey, the number of people living in poverty with US$ 1.25 per capita a day in Sub-Sahara Africa was 205 million in 1981, but it increased to 290 million in 1990 and 395 million in 2005 (See Figure 3).

Figure 3 Poverty in Sub-Saharan Africa

Since the launching of the Sino-African Cooperation Forum,and particularly after the Forum’s Beijing Summit in 2006, everexpanding cooperation between China and African countries in investment, trade and aid has spurred Africa’s economic growth and poverty reduction. At the same time, Sino-African cooperative efforts in poverty reduction have been developing much deeper roots.

Since the establishment of the International Center for Poverty Reduction in Beijing in 2005, China has been making consistent efforts in sharing its experiences in poverty reduction with African countries through personnel training, global high-level symposiums and Sino-African bilateral meetings, and Sino-African joint research projects on poverty reduction. Chinese Government officials and experts have given presentations to their African counterparts on China’s experience in socioeconomic development, poverty reduction efforts, and they have analyzed the problems and challenges confronting China and African countries in how to reduce poverty, explore ways to enhance global efforts for poverty reduction. In pursuing these goals, they have sought to optimize national and international networks, enhance capability building in formulating and implementing sound poverty reduction policies and promoting closer and deeper cooperation between China and Africa in social, economic and cultural development. By the end of 2011,the International Center for Poverty Reduction in China had hosted 41 training courses for 517 government officials from 42 African countries.

As a result of joint efforts by African governments and peoples,both the number of impoverished population and the incidence of poverty decreased for the first time in Sub-Saharan Africa between 2005-2008. The number of people living below the poverty line in the region fell from 395 million in 2005 down to 386 million in 2008; and the incidence of poverty went down from 52.3% in 2005 to 47.5% in 2008 (See Figure 3). Though there is not ample evidence to be sure that Sino-African Cooperation Forum played a pivotal role in reducing poverty in Africa, it has definitely contributed to the reduction of impoverished population and incidence of poverty in Africa in general.

II.A Comparative Analysis of Sino-African Cooperation and OECD-DAC Development Assistance

The Fourth Conference on Aid Effectiveness (HLF-4) was held in Pusan, Korea from November 29 to December 1, 2011.Participants reviewed and discussed whether development aid had been more effective since the adoption of the Paris Declaration in 2005. The OECD-DAC believes that the Declaration is based on decades-long global development cooperation and experience and aimed at vigorously disseminating best practices for aid organizations and developing countries so as to work out a common vision and framework for future reform. The Pusan Conference concluded that progress was made in the field of development assistance in the wake of the Paris Declaration, but that it was not very encouraging. The Action Plan of the Accra Agenda adopted in 2008 called for greater country ownership, more inclusive partnerships, and enhanced accountability and transparency so as to achieve better results in development. Progress in this regard, however, is still inadequate. The Pusan Conference sought consensus for stronger political commitment so as to raise the effectiveness of development.

There is a distinctive difference between Sino-African cooperation and OECED-DAC assistance in institutional approach. In this essay, OECE-DAC approach to assistance is defined in abstract terms as a process-driven approach whereas Sino-African cooperation is defined as a growth-led approach.The latter presents a new form of international development cooperation which is more inclusive and diversified.

1. OECD-DAC assistance: A process-driven approach

Simply put, OECD-DAC assistance is a process-driven approach, namely it is more concerned with the process of assistance. Since the 1990s, the DAC has attached more importance to whether or not assistance will bring about political and social progress in recipient countries, such as advances in the democratic political system and governance. In the process of assistance the DAC emphasizes the principles of fairness,transparency, accountability and participation, because, as the Committee believes, good governance, human rights and democracy form the foundation of sustained development.

In the entire process of assistance, OECD-DAC donor countries regard all indicators of good governance as a precondition for providing assistance to developing countries. In other words, they link the ODA to social progress and democratization in recipient countries. By rendering assistance to recipient countries, donor countries export their model of democracy to these countries and impose their own values on recipient countries in Africa and elsewhere. For instance, the conditions the United States attaches in providing aid to recipient countries are that leaders of recipient countries must undertake“democratic political reforms”and carry out“honest administration and rule of law.”As early as the 1970s, the Netherlands and some other countries included relevant elements of good governance in their ODA policies. In recent years, with a view to highlighting democratic governance, it is stipulated in the EU’s decision on assistance to recipient African countries that if the latter have resolved the issue of democratic governance under agreements regarding assistance, they may receive an extra bonus payment which amounts to one-third of the initial aid quota.

Although good governance may be a significant factor in raising the effectiveness of development aid in general, its accompanying dilemma is that some poor states that are badly in need of ODA are unable to receive aid. They have to pay a political economic price for such aid. This leads to a situation in which current international development assistance is, to a certain degree, administered according to the needs of Western countries to disseminate their values - freedom, democracy and human rights - rather than serving the general purpose of reducing poverty in recipient countries. As a result, the flow of international ODA does not match the severity of poverty in developing countries which receive ODA. In other words, more assistance under the process-driven approach flows into states that meet the conditions for good governance while those poor states that are at a relatively low governing level cannot, more often than not, get ODA in real time. Despite the fact that the Paris Declaration on assistance effectiveness presents a resultsoriented framework, in fact there has been no results-oriented fundamental reform of ODA to date.

Many recipient countries complain about the OECD-DAC process-driven approach under which provision of aid is contingent upon the recipient country accepting Western democracy and political system and implementing the specified policies. They argue that it restricts the sovereignty of the recipient country over its own poverty reduction initiatives.Moreover, assistance with attached conditions might cause a squandering of a given amount of assistance funds. According to an OECD survey of its development assistance in 2003,low-income countries incur a loss of several billions of US Dollars while receiving assistance with attached conditions.For instance, Sub-Saharan Africa had to pay US$ 1.6 billion in tax for such assistance (See UNDP’s Human Development Report, 2005). Some scholars hold that such assistance with attached conditions is an abuse of development assistance for the purpose of eliminating poverty.

The reason why many developing countries seek foreign assistance is because their economic development level is extremely low and their nation as a whole is beset with poverty.Therefore, the key to poverty reduction is to stimulate growth of national economies. Overemphasis on fairness, transparency and accountability in the process of assistance to the neglect of boosting economic growth in these countries will cause a vicious circle of“assistance - poverty - more assistance - severer poverty,”not to mention the uprooting of the causes of poverty.Therefore, from the perspective of promoting democracy, the OECD-DAC approach is successful for its own purposes,but it has failed to meet the needs of eliminating poverty in Africa. Foreign assistance alone cannot fundamentally change the economic backwardness of a state. In the last analysis, it is investment input and trade expansion that can break the vicious circle of poverty, thereby promoting economic growth and social progress in recipient countries.

2. Sino-African cooperation: A growth-driven approach

Foreign aid is one way to promote economic development,but development cannot rely on foreign aid alone. As is the case for China, the main driver of economic growth lies in the efforts of developing countries themselves. The success of China’s economic expansion in the Reform and Opening period has benefited from integration of foreign aid, foreign direct investment and foreign trade and serves the country’s overall national development strategy. True, China’s rapid economic development has benefited from funds offered by the World Bank, the Asian Development Bank and other international financial institutions, and also from assistance provided by Japan, the United Kingdom and some other developed countries. But such aid was never a pivotal factor in the course of China’s development, and it has helped China explore its own development path with sustained innovative efforts. Take the World Bank’s poverty reduction projects in China for an example. The biggest gain for China was not that it got the agricultural products yielded under the projects, but that China learned from the World Bank’s experience in project management and successfully worked out or improved its own methods of project management. Today, China has already formulated a set of effective regulations for project management in agricultural development and poverty reduction so as to promote agricultural production and rural development. China’s basic experience in the use of foreign aid and investment and in foreign trade boils down to two areas. First, foreign aid,foreign investment and foreign trade must serve the national development strategy; and second, it is imperative to combine mutually reinforcing efforts in using foreign aid and investment and expanding foreign trade so as to boost domestic economic growth and innovation-oriented capability.

China’s own foreign aid and foreign investment and foreign trade have a great impact on Sino-African cooperation. In other words, Sino-African economic cooperation and trade serves to stimulate domestic production in African countries. One can see from cases of Sino-African cooperation that it is a growth-led win-win approach for effective cooperation. This is illustrated by the following five features of such cooperation: promotion of balanced bilateral trade; expansion of investment in more economic sectors for both sides; strengthening infrastructure projects; strengthening capability building in development projects; and raising the people’s living standards.

The first four of the above five features are all growth-driven and in essence for increasing growth capability in national economy and do not overemphasize the role of foreign aid. This is because a country’s development must rely on the driving force of its market and private sectors. In trade, investment,infrastructure and development, emphasis must be laid on the capacity of market expansion whereas foreign aid is essentially a public good which relies more on the role of the government.The process-led approach to foreign aid is the traditional form of North-South cooperation. China’s practice of integrating investment, trade and foreign aid through concerted efforts by the market and the government with the market playing the dominant role is by all means a growth-led approach. So, Sino-African cooperation stands in sharp contrast with the OECDDAC process-driven approach to foreign aid. The contemporary international development mode also demonstrates a tendency towards polarization.

3. Comparing the two approaches

The main merits of the OECD process-driven approach are that it helps recipient countries to establish a Westerntype democratic political system and highlights such ideas and values as engagement, transparency, accountability and good governance. It helps supervise and restrain the recipient country in the use of foreign aid and corruption prevention. And as assistance funds come from tax-payers’money, emphasis on the above values will help the government build the trust of the people and receive more votes from the taxpayers. The main drawbacks of the OECD process-driven approach are two-fold. First, such aid has failed to yield tangible effects on poverty reduction in developing countries; and second, recipient countries have not embarked on independent development paths and and they tend to unduly rely on foreign aid.

The merits of the growth-driven approach of Sino-African cooperation are that investment enables the market to play a dominant role, it serves to facilitate national economic growth and poverty reduction without relying on foreign aid; as trade allows for comparative advantages between China and African countries, it contributes to boosting national economic growth and poverty reduction; as assistance funds are mostly used for giant public construction projects and infrastructure, it cannot only serve the purpose of investment and trade and combine the efforts of the government and the market, but make full use of public funds.

The theoretical base of China’s approach is that by using foreign aid as a public good, the government can fully play a dominant role while investment and trade encourage private sectors to play their respective roles. To inject investment into the recipient country may vitalize domestic productive forces;and at the same time, expansion of foreign trade may connect the domestic market of the recipient country with international economic chains.

The Sino-African growth-driven approach can be regarded as a new type of approach that is largely based on China’s own experience in economic development. However, as China is now confronted with challenges in the transformation of its development mode, a number of problems have come to light in China’s own development mode that indicate that the growthdriven approach also has its drawbacks. Such drawbacks are that the income gap between the rich and the poor is widening with social conflict coming to the fore; China’s foreign aid projects are often criticized for lack of transparency in recipient countries; and as Chinese companies are not actively engaged with local people in recipient countries, they are criticized for not doing enough in terms of social responsibility and environmental protection.

Under such circumstances, the Chinese Government is, on the one hand, redoubling its efforts to transform the development mode in the 12th Five-Year Plan, energetically pushing for economic growth that is more inclusive so as to reduce social conflicts at home. But on the other, the government is taking increasing care of a variety of problems cropping up in overseas investment and foreign aid projects and readjusting relevant policies.

As noted above, Western developed countries take an approach to foreign aid that is democracy-led and process-driven while the emerging Sino-African cooperation takes a growth-led approach to foreign aid that emphasizes the long-term impact of investment and trade. Only when the recipient country has taken off in its economic development with its own efforts can there be win-win development cooperation between the donor country and the recipient country. As far as African countries are concerned, they need to learn from the merits of both the OECDDAC approach and the Sino-African cooperation approach. In other words, on the one hand they should absorb the merits of the OECD-DAC approach for transparency, fairness and other principles, but on the other hand, they should deepen their understanding of the merits of the Sino-African approach, which highlights growth in a vigorous, sustainable and inclusive way and the effective integration of aid, investment and trade so as to better implement the national development strategy and stimulate faster national economic growth.

III.Three Principles Guiding Greater Development Effectiveness

The new concept of“development effectiveness”was initiated at the Pusan Conference on aid effectiveness. Donor countries,international organizations, emerging economies, South-South cooperation countries and recipient countries are all expected to create new frameworks of and new approaches to promoting greater development effectiveness. The new-type of Sino-African cooperation has shaped a new approach to South-South cooperation, which is both an important component of international development cooperation in the new era and an innovative endeavor for greater development effectiveness. Sino-African cooperation serves as a model of cooperation between new emerging donor countries, as represented by China, and recipient countries. Such new development cooperation is beginning to play an increasingly important role in the arena of international aid and development. It is also an essential complement to the OECD-DAC approach to assistance, and more importantly, is an effective means for strengthening exchange and cooperation between Western developed donors, new emerging donors and recipient countries. Only by bringing together all merits of these approaches can the existing international organizations improve on their work for development assistance. Based on his appraisal of Sino-African cooperation and comparative analysis of the OECD-DAC approach and Sino-African approach to aid,I believe that countries must abide by the following principles guiding greater development effectiveness.

1. Diversification of development cooperation

In the post-Pusan Conference time, it is more reasonable to say that international development cooperation should be on a diversified basis. Sino-African cooperation and South-South cooperation between other emerging economies and developing countries will continuously enrich the substance and form of international development cooperation. The Pusan Conference highlighted the importance of integrating cooperation among emerging economies under existing rulemaking institutions, reaching a firm and strong international consensus and consolidating the existing international institutions for development aid. However, if worldwide development cooperation is brought into a uniform rule-making system, it means that China will have to abandon its guiding principle of not attaching any conditions to foreign aid, which is unrealistic, unfair to developing countries and even unhelpful for raising the effectiveness of development aid. Seen from another perspective, if we regard international assistance as a market, this market should be diversified and competitive, free from any monopolies.

2. Inclusiveness of development cooperation

For the purpose of raising development effectiveness,international development institutions should be more inclusive in the future. Relying on the OECD-DAC approach or any new approach of development cooperation alone will stunt development effectiveness. The two approaches are not in conflict with each other. Countries that take either approach are mutually inclusive and should learn from each other’s experiences. As far as OECD-DAC donor countries are concerned, they should live with the immaturity of the new approach of development cooperation among developing countries that need time for improvement. In the meantime,the drawbacks and unsuccessful practices of the OECD-DAC approach in African countries also indicate that OECD-DAC donor countries can learn from the practices of emerging countries with their development aid. As for emerging countries,they may also learn from experiences and practices of Western developed countries that have a longer history of providing foreign assistance and more mature institutions and rules and regulations. The OECD-DAC approach and that of emerging countries should be complementary with each other, bringing their own advantages into full play rather than forming a zerosum relationship.

3. Integrity of development cooperation

In one sense, integrity refers to the integration of aid,investment and trade and that of the overall development strategies of recipient countries. This is a summary of experience based on China’s own practices. In China’s case,foreign aid programs must be subordinated to the country’s national development policies, which for China is mainly the Five-Year Plan. The purpose of foreign aid has consistently conformed to China’s overall development strategy, longer-term poverty reduction programs and local economic development programs. The advantage of this approach is that it can help the donors formulate the right guidelines that conform to China’s national conditions and development strategy with a clear aim. At present, many UN agencies are readjusting their aid projects in China in sync with China’s Five-Year Plan by identifying priority projects so that they can better conform to China’s actual circumstances and will eventually make the best use of assistance funds.

Budgetary assistance is a main form through which OECDDAC donor countries provide development assistance by injecting funds into the financial budget of the recipient country.This will effectively ensure transparency of the funds and the enforcement of accountability. But at the same time, it has two accompanying problems: the financial budget of the recipient country is affected by foreign capital; and the recipient country relies on foreign aid for too long. The recipient country can make the best use of foreign aid for its actual needs only when such aid serves its national development strategy and programs.

Integration also refers to integrating aid with trade and investment. As a global public good, foreign aid should serve the purpose of developing countries’efforts to attract foreign direct investment that encourages rapid economic development in the recipient country. Investment should be closely integrated with trade to link products and raw materials of developing countries to global chains of value with the whole world. This can help with resource allocation and boost domestic production and gradually integrate the domestic market with the international market.