Cost Benefit Analysis

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Institution

Introduction

The public administration process of any nation determines its ability to win a contract or become a donor to a needy nation. China, for example, has a public administration system that favors most operations in Africa, which makes it win most contracts in the region. World Trade Organization (WTO) member countries, however, have developed policies that limit the amount of support that each country can offer to another nation. In addition, these policies regulate the number of investments to international markets so that each member has equal opportunity to explore to the African market (WORLD TRADE ORGANIZATION, 2013). China has evaded such policies and decided to work secretly with African nations by acting as a donor while at the same time developing business opportunities for their products.

The following analysis focuses on China’s ability to aid most African nations while it creates market for its products, creating high competition for other countries like U.S. and Japan. The analysis will be conducted using China as the target nation by comparing her public administration policies to those of other countries. It will focus on the country’s public administration system and its role in offering foreign aids to Africa. Secondly, the analysis discusses the main policy issues of interest that most nations focus on in Africa. Most countries wish to support development projects in Africa. In addition, the analysis will determine the main public administration system currently debated that requires a cost-benefit analysis. Finally, a cost-benefit analysis will be conducted following the suggested policy options. China’s African strategy was selected as the main policy issue. This will be analyzed by suggesting alternatives to the policy, the scope of each alternative, cost and benefits of each alternative, and the real cot-benefit analysis will be conducted.

Analysis

China’s public administration system characteristics

According to China Population 2013 (2013), China is the world’s most populous country with of over 1.35 billion people. The People Republic of China (PRC) is a single-party state governed by the community party. China’s public administration has undergone effective reforms following the rapid development of globalization and technology revolutions together with many changes taking place in the society. China has introduced public administration reforms in order to overcome changes in political, economic and technology through pushing to large-scale administrative reforms to promote effective governance. On the economic aspect, the Chinese government has maneuvered from the traditional centralized plan-economy towards a socialist market. The government has broken its monopoly status of state used for allocating resources. As opposed to the United States public administration on the economic system that encourages monopoly. This has enabled the country extend its aids to many developing countries and also, win many construction tenders (Florini & Lai, 2012).

On the other hand, China has an open system of social structure that allows the public a wide range of opportunities when it comes to jobs selection. In addition, the above public administration policy allows people of republic of China to have large scale social mobility. The country has also shifted from traditional rural society to the modernized industry society. The shift encourages fast urbanization; increased urban population and rapid development of manufacture and service industries. In United States, the modernized industry has not been fully implemented making China a more industrialized country than USA. Moreover, the high rate of industrialization has made China manage to secure markets in the developing areas like Africa through the aids they provide (Jiang, 2007).

On the issue of legislation, China’s structure does not belong to a category of singular legislation structure. Its legislative power is carried out by two or more power organs hence; the country has multi legislative powers. In addition, China’s legislative structure has a distinct characteristic from those of USA, UK, and Japan. The country ha s centralized power-division policy making. The top-powered state organ has a unified leadership, followed by the state council that holds great power and finally, the local governments with limited powers. On the other hand, the country holds strong ethics and morals. It does not accommodate any kind of corruption because the state and the civil society are on a keen lookout. On the issue of e-governance, China has a high rate of participation in projects that improve the standards of living of its people. The government is readily available to offer any aid required to ensure its public administration policies are implemented to the letter (Provost & Harris, 2013).

The main public policy issues currently discussed and debated in China

China’s Africa Strategy forms one policy issue discussed by other nations that has created a hot debate. China’s policy towards African nations has increased in the recent years. Statistics show that since 2000, China has supported over 1,700 projects in Africa with an aim of winning their favors. It has committed over 75 billion US dollars on aid and development projects in Africa; however, the Chinese government keeps a big secret towards its information on foreign activities. The above information was leaked through the high technology possessed by the United States from the Chinese database (Provost & Harris, 2013). The issue of China’s entry into Africa through funding of various projects has introduced a big discussion and debate from other interested parties like USA. Africa forms a better place for China to expand its resources because it is rich in natural gases and oil. In addition, most Chinese companies have the ability to deal with political risks associated with some African countries compared to other western nations such as US and Japan (Bartlett, 2013).

The second public policy that introduces a lot of debate is poverty reduction in Africa. Most African countries have welcomed China’s project aids because unlike US and Japan that have been in the region for decades and have not reduced poverty, Chinese developmental model is state-driven without any political reforms. In addition, China holds an added benefit because its public diplomacy decreases its threats as an economic competitor against some African nations that increases its access to African markets. All these policies and issues seem to affect the United States, especially the merging global role of China. The U.S. senator Dianne Feinstein claimed that these complex challenges on the foreign policy have a significant impact on the country’s future and the future of the world (Feinstein, 2014).

USA has taken this as a big challenge because Chinese companies have flooded their products in almost every African nation. Africans faced European and American partners as liberals who come to invest in the region for their own economic gains. The expansion of Chinese aid to African nations has made USA and Japan come up with policies that limit the number of aids that a government should give to developing countries. China and Japan have criticized each other’s policies in Africa as each country wishes to offer more aid to the continent. Their efforts became fruitless because China had already established itself in Africa through offering a diplomatic attention, financial and military assistance. In addition, Chinese public administration policies promote Africa’s diplomacy making other countries’ demands fail to be implemented (Provost & Harris, 2013).

Finally, most developed nations aims Africa for its rich in natural resources (oil and gas). This policy has led into many economic and political fights as nations try to acquire oil fields in Africa. USA, for instance, the U.S.-China relations has been interrupted by the entry of Chinese manufacturing firms to Africa. U.S. wanted to win the African market so that it could take control of all the natural resources found in the region. However, its public administration policies and its relations with African nations were not as effective as that of China. On the other hand, U.S. allowed the entry of China to the World Trade Organization (WTO) that has expanded opportunities for growth of Chinese market to other member nations. These public policy issues discussed by different nations interested in investing in Africa have not born any agreement. This has made China take advantage of its flexible public administration policies to win most tenders in Africa as well as offering billions of U.S. dollars for development projects (Florini & Lai, 2012).

Specific public policy/project which needs cost-benefit analysis

Based on the above mentioned public policy needs, the Africa strategy on foreign aids requires a cost-benefit analysis. The public policy project in question is the foreign aids offered to African nations by developed countries such as Japan, China, U.S.A and others. The analysis will focus on aids offered by the Chinese government and their implications in terms of the costs associated and the benefits they offer to both the assisted nation and the donor. China’s Africa strategy policy, also known as Beijing project, is a means of improving China-Africa relations. This is both economic and political strategy adopted by the Chinese government to promote rapid globalization and technology growth among African nations as the Chinese companies enjoy a free and fair market for their products. The political and strategic aspects forcing China’s interest to Africa have a high degree of synergy, geared by the presence of diversified economy. China started developing relations with African nations since early 2000s in order to capture their interests and markets in the key energy sectors.

The following policy intervention was selected because it forms the main reason why most nations want to become African donors. U.S.A and Japan always debate on the issue because they want to be the main countries offering foreign aids to African nations. In addition, the policy intervention will form a good analysis since it shows how foreign countries offer aids to developing countries and at the same time benefit with a higher value than the assistance they offer. The cost-benefit analysis to be conducted will clearly show that even if such countries like China offer billions of dollars to aid projects in Africa, they receive gain more profits at the long run.

Cost-benefit analysis

In order to make decisions on whether and how to spend their resources, government agencies carry out a cost-benefit analysis. The outcomes of decisions made by any government on how to utilize its resources have a big impact on its annual budget. Using the cost-benefit analysis, a country can categorize and quantify the costs and benefits associated with implementing a certain policy. In addition, the method provides a means of weighing alternatives in terms of their advantages and disadvantages. If the benefits of implementing a certain policy or project outweigh costs, the action is termed justifiable in terms of economic principals. Cost-benefit analysis method, however, should assist in informing the best decision to make even in cases where the costs and benefits are not in monetary form (Job, 2009, p. 320). The following is a cost-benefit analysis for implementing the China’s African strategy policy.

Alternatives

China and Africa have had a perfect intellectual, cultural and commercial interaction that started as early as 2008. Throughout the process, China has been offering various aids to African nations in an effort to win their friendship (Broadman, 2008). The China’s Africa strategy is faced with many challenges as most countries try also to be part of African deals. In developing alternatives to this policy, China should adopt the following.

Firstly, China has made a lot of investments in most African countries through supporting them financially. To ensure they achieve good returns for their donations, they should focus on opening manufacturing firms in the region. For instance, most commonly used motorbikes for transportation in Africa are of Chinese origin. The government of China should take advantage of their relationship with Africa and start motorbike manufacturing companies African countries countries to save the cost of importation and other duties. The following alternative will promote a good relationship with people from Africa since apart from reduced prices of products; more job opportunities will be created. China will also gain more favor from African countries and get a chance to win most tenders.

Secondly, the expansion of world trade within the past years has improved globalization that has improved the economies of developing countries. Donors such as China government should increase their offering in order to create a wider market for their products. If a country in Africa wishes to start road or railway construction project, the Chinese government should offer the largest amount of donation because eventually, their engineers will be contracted to implement the project. For example, China donated funds to expand of roads in Kenya and they were offered the tender to construct these roads.

The third alternative involves giving out donations for free. When a country in Africa wishes to start a development project, the Chinese government could give them free money to implement it. The China public administration policy provides for the government to give assistance to other countries in order to improve their economic status. The country will eventually benefit from increased markets when most countries open up to international markets.

Determine the scope of the decision

The following alternatives aims at recommending the best options that China can follow while offering monetary aids to African nations. From alternative one, China will fall in a better position to win most African nations. The U.S. aids have no significant effects on the economy of African nations because most tend to use the present day colonization. By supporting these countries financially, China will have an effective interaction and gain more benefits from a simple deed.

On the other hand, most projects implemented in Africa are long lasting aimed at benefiting the future generation. By following alternative two, African countries will get a chance of making huge investments with increased offerings. On the other hand, donors such as China will also enjoy markets for their future products since they will have established themselves. For example, the relationship between China and Africa started in early 2000s and today most products sold in Africa come from China. This is a clear indication that China has managed to create market for their products through offering monetary aids to Africa. In addition, almost all domestic businesses in Africa are filled with imported products from China displacing indigenous products. However the saturation of African markets with Chinese products has created serious economic hardships, the Chinese government enjoys the full implementation of their policies.

Cost of each alternative

The cost of implementing any proposed project in a country falls under three categories. (a) Purchase of resources by governments, households, businesses, or individuals, (b) resources already in possession, and (c) intangible costs (Job, 2009, p. 328). Alternative one will involve extra costs because the government will have to chip in more cash in order to win various tenders. In addition, these costs will be used to purchase resources necessary for project implementation since African countries will depend on donors for supply of everything.

The second alternative involves costs associated with acquiring assets required to put out their companies. Investing in a new area requires an entrepreneur to have enough capital to purchase land and other necessities needed to start a business. China will have to incur the cost of renting places to put up their businesses in order to enjoy African benefits. Finally, offering donations for free will come with an added cost. These are termed as the intangible costs because the assisted country might decide not to encourage foreign traders and their products. In places where globalization and changes in technology are slow, they might take long to adapt to the international market irrespective of the developments taken there by foreign aids.

Determining benefits of each alternative

According to job (2009), benefits of each alternative in cost-benefit analysis fall under three categories. Resources that generate revenue, resources created, freed or conserved by a program and intangible benefits. Looking at the first alternative, China will aid developmental projects that will create resources to generate revenue. Countries that get an opportunity to implement such projects will improve their economy while donors will benefits from selling their products to the citizens. For instance, when China supports building of roads in Africa, they will export their machines to be used on these roads. Since their products are cheap and readily available, most people go for them. Secondly, by establishing themselves in Africa, China will enjoy the benefits of available natural resources such as oil and gas. They can export them to their country at a low price and reduce the cost of manufacturing products.

Quantify and evaluate the costs and benefits of each alternative

To determine the cost or benefits of any alternative, an evaluation must be conducted by the involved parties. As seen from table one, the cost and benefits of implementing the Africa strategy project are represented by the net present value (NPV) and benefit-cost ratio arrived at. NPV represents the differences between costs and benefits that are placed in present value terms. The assumptions made are that the effective discount rate (r) equals zero (0).

Project 1

Free Donations (000,000$) Project 2

Donations at a discount (000,000$)

Initial investment 75,000 65,000

Savings

Year 1 11,000 8,000

Year 2 4,000 5,000

Year 3 8,500 4,800

NPV (0%) 3,985 2,985

B/c ratio 1.335 2.152

Internal rate of return 0 12.5%

Payback period none 30 years

With 0% discount rate, the NPV for both alternatives is positive although, alternative 1 has a greater value ($3,985) compared to project 2 with $2,985. Project 1 is preferred because its costs are lower than those of project 2. However, at the long run, project 2 reaps the most benefits because in addition to creation of market for donor products, they will receive a refund for their donations with added interest. The cost-benefit ration for project 2 is 2.152, meaning that the project’s benefits are greater than costs involved after duration of 30 years.

Conclusion

Most developing countries in the world like China, United States, United Kingdom; Japan and many more have committed most of their resources in aiding developmental projects in Africa. Presently, China is experiencing traditional development issues associated with depletion of natural resources, income inequality, environmental pollution and retardation in infrastructure. China has a likelihood of experiencing more pressure in future because of the continuous fast development of industrialization together with the transfer of the world manufacture center to China. Africa has been the target for every country due to its rich in oil and gas that most countries use to fuel their industries.

The cost-benefit analysis provided above plays a major role in improving decisions made by donor countries while giving out aids to developing countries. China has managed to achieve a positive benefit-cost ratio because it has an effective public policy administration that is compatible to that of most African countries. As a minister in China, I would propose that the country continue giving out donations to Africa making sure they gain something from the country they assist. In addition, they should ensure they get refunded their money even if it takes 50 years because it contributes to the benefits achieved in addition to developing market for their products.

References

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http://www.bbc.co.uk/news/business-25680684

China Population 2013. (2013). – World Population Review. Retrieved January 16, 2014, from http://worldpopulationreview.com/countries/china-population/Feinstein, D. (2014). Foreign Affairs. Retrieved January 10, 2014 from

http://www.feinstein.senate.gov/public/index.cfm/foreignaffairsFlorini, A., & Lai, H. (2012). China experiments from local innovations to national reform. Washington, D.C.: Brookings Institution Press.

Jiang, M. (2007). Public Participation And Administrative Rule Of Law. Frontiers of Law in China, 2(3), 353-377.

Job, C. A. (2009). Cost Benefit Analysis. Groundwater Economics (pp. 320-345). Hoboken: CRC Press.Provost, C., & Harris, R. (2013, April 30). China commits billions in aid to Africa as part of charm offensive – interactive. The Guardian. Retrieved January 15, 2014, from http://www.theguardian.com/global-development/interactive/2013/apr/29/china-commits-billions-aid-africa-interactiveWORLD TRADE ORGANIZATION. (2013, October 10). WTO. Retrieved January 17, 2014, from

http://www.wto.org/english/thewto_e/whati