Comparative study of the characteristics of FDI from China to Africa versus developed countries

Abstract

Foreign direct investments are expected to contribute to fill the huge infrastructure gap in sub-Saharan Africa, estimated at more than US$93 billion annually over the next 10 years according to the African Development Bank. At the last Summit of the Forum on China-Africa Cooperation (FOCAC) held on 3–5 December 2015 in Johannesburg in South Africa, Chinese President Xi Jinping announced several measures to boost cooperation with Africa in the coming years to improve the business environment and support the industrialisation in African countries. Following this continuing Chinese engagement in Africa, this paper makes a comparative study of the characteristics of FDI inflows from China to Africa versus developed countries. The aim is to examine whether FDI to Africa from developed countries are effectively based on good governance, or if they follow the same pattern as the one observed for emerging economies like China. Using a dynamic panel model, we show that natural resources, such as coal and minerals, are key determinants of Chinese FDI in Africa. For OECD countries, good governance and institutional quality in the host country seem to matter. Finally, for both origins, the level of infrastructure development in the host country is important to attract more FDI.