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Turning to China: Fiji’s new lender doesn’t care about the coup legacy

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The Chinese Embassy in the Fiji capital of Suva. Image: David Robie/PMC

Pacific Scoop:
Report – By Mads Anneberg in Suva

Loan and aid money from China to Fiji has seen a dramatic expansion since the 2006 military coup – a 62 times increase from 2006 to 2012 alone.

pacificfijielections logo 200wideAfter the coup in 2006, Fiji was forced to look for new sources of financing economic development since it was no longer a democratic nation and it became a pariah among Pacific and Commonwealth nations.

Funding from traditional donors New Zealand, Australia, European Union and the World Bank decreased and was channelled away from the government of Fiji.

This left the door open to countries which were not so troubled over whether the government was elected, such as Russia and Malaysia – but particularly China.

So much so that for 2014, US$111 million – 29 percent – of Fiji’s foreign debt is expected to be in the Chinese yuan currency.

Those are the main conclusions of a new report from Overseas Development Institute, a United Kingdom-based think tank on international development.

“Fiji was looking around for new lenders and China was happy to step in,” says ODI researcher Dr Maya Schmaljohann.

Tougher terms
The money from China has made the government able to keep up the infrastructure investments across the country. It has built roads and at the moment is financing the completion of the new Navua Hospital.

By turning to China, Fiji has not experienced the fully intended consequences of the embargoes by countries such as New Zealand and Australia, and it has not felt pushed to hold the elections in 2009 as was originally planned.

But there is a downside to the Chinese cash flow. First of all, loans from China are more expensive than the ones from multilateral development banks.

Secondly, Dr Schmaljohann says, the projects financed by Chinese money tend to be carried out by Chinese workers instead of locals.

“In fact, Fiji often doesn’t see the money because it goes directly to the Chinese contractors who buy the materials in China and then go and build the project. So we don’t see overspills in the domestic economy,” she says.

More options
An interesting finding of the report is that Fiji is not currently making new loan applications to the state-owned China EximBank.

This might indicate that Fiji is looking to restore economical relationships with its traditional partners after the elections.

These former economic friends of Fiji have all expressed interest in resuming their role of providing development money as well as diplomatic relations.

New Zealand and Australia have already lifted travel bans on Fiji’s government and given financial support to the elections.

Dr Schmaljohann says Fiji would probably diversify its sources of finance but still look to China and the other countries it has forged closer ties with during the past eight years.

Fact sheet:

  • Traditional development funds are defined as given by members or observers of the OECD’s Development Assistance Committee.

  • Non-traditional development funds to Fiji increased by 340 percent from 2007 to 2012, where it amounted to US$63 million.

  • In 2012, China was responsible for 80 percent of non-traditionaldevelopment assistance – US$50.5 million.

  • Loans from China have, for example, been used for a low-cost housing programme (about $36.5 million) and upgrading of the Nabouwalu-Dreketi road (about $48.5 million).

  • It is anticipated that in 2014, 15.6 percent of Fiji’s development assistance (about $9 million) will be provided by China.

  • This year, Chinese aid will focus on completion of Navua Hospital ($0.7 million), a hydro project in Taveuni ($8.3 million) and the building of several sports complexes.