Industrial Upgrading in Sub-Saharan Africa: The Competitive Impact of China on Supplier Linkage Development Potentials of Resident Asian Entrepreneurs

Abstract

Current efforts to explain the implications of China’s growing economic attractiveness for development in other regions provide a framework that distinguishes between complimentary and competitive impact. From the perspective of competitive impact analysis its direct trade related manifestation arguably remains the least investigated to date. Focusing on the experience of sub-Saharan Africa we explore the connection between importation of Chinese apparel intermediate material input and domestic supplier development (displacement) in the region. Insights from the GVC literature are used to motivate the working hypothesis of the paper that the potential spillover impact of Asian direct investment on local supplier development in Africa is currently being undermined by the former’s reliance on intermediate material imports from China. Then using data for the small African country of Lesotho to estimate a supplier linkage-type model we verify the accuracy of our claims by showing that: One, Asian investors in the country’s apparel manufacturing business rely principally on China for their input supplies; two, consequent on this the incidence of Asian entrepreneurship in the country’s apparel sector is associated with a 19 per cent decrease in predicted probability of high backward linkage formation.