FDI In Africa Research Articles

What Happens When Your Hand is in My Pocket: The Foreign Policy Effects of China’s Foreign Direct Investment in Africa

AbstractThis study utilizes social exchange theory to argue that a more complete picture of the effects of China’s FDI in Africa needs to include non-economic factors, especially institutional forces that incorporate macro political considerations. We propose that economic dependencies created by China’s FDI in Africa are reciprocated by votes in international organizations, and thus, we hypothesize and test that increasing China’s FDI in African nations leads to increased political alignment in international affairs with those African nations. The proposed relationship, however, will be weakened for African countries with stronger governance mechanisms. Using data for China’s FDI in African countries from 2001–2019, we find support for our hypotheses. We find that China’s economic engagement in Africa has resulted in increased political alignment on international issues evidenced by votes in United Nations organizations raising the possibility Africa’s most attractive resource may not be economic, but rather political. This, however, poses the question of whether votes are a ‘resource’ that can be traded for economic purposes.

Governance and the relationship between corruption and FDI in Africa: a threshold regression analysis

ABSTRACT Research on the institutional environment, corruption, and FDI highlights an important facilitating relationship between these factors. The effect of corruption on FDI vis-à-vis the grabbing hand vs. the helping hand hypotheses has been previously examined with suggestions that both hypotheses can co-exist under the assumption that the FDI-corruption relationship depends on the level of institutions. This study revisits this relationship for 34 African countries over the 2005 to 2019 period using the dynamic panel threshold model, which allows for an endogenous threshold variable. Previous studies that have examined this relationship using a threshold regression approach are either not based exclusively on African countries (where the implication of this relationship is more salient) or use a threshold regression that assumes exogeneity of the threshold variable. This study examines the facilitating nature of governance measures – political stability, government effectiveness, rule of law and regulatory quality – on the corruption-FDI relationship. The results indicate significant threshold effects and shows that while the grabbing hand hypothesis is consistent with the data irrespective of the institutional proxy used, the helping hand hypothesis is sensitive to the choice of governance. These results agree with the strand of literature that supports a weak helping hand hypothesis.

Does Religion Matter When Investing in Africa? An Empirical Analysis of Moroccan FDI Location Choice in 27 African Countries During the Period 2007-2021

ABSTRACT In this study, we investigate the impact of four religious factors on Moroccan outward FDI in African countries: the religious freedom index, religious tension index, religious similarity, and religious diversity index. Using panel data from 27 African countries between 2007 and 2021, our findings show that religious factors significantly influence Moroccan FDI in Africa. A shared Islamic religion increases FDI likelihood, indicating cultural proximity facilitates multinational enterprise adaptation. Additionally, religious freedom and diversity positively affect FDI, supporting cultural adaptability. However, religious tension negatively impacts FDI. These findings highlight the importance of considering religious factors in FDI decision-making processes. Policy implications include promoting cultural understanding, encouraging religious freedom, fostering religious diversity, and reducing religious tensions to facilitate investment and enhance economic cooperation in African countries.

Forecasting China-Africa economic integration using Wavelet-ARIMA hybrid approach

China-Africa economic integration generally looks lucid, as evidenced by rising bilateral trade, as well as Chinese FDI, aid, and debt financing for infrastructure development in Africa. The engagement, however, appears to be strategically channeled to benefit China’s resource endowment strategy. First, Chinese FDI in Africa is primarily resource-seeking, with minimum manufacturing value addition. Second, China has successfully replicated the Angola model in other resource-rich African countries, and most infrastructure loans-for-natural resources barter deals are said to be undervalued. There is also a resource-backed loan arrangement in place, in which default Chinese loans are repaid in natural resources. Third, while China claims that its financial aid is critical to Africa’s growth and development processes, a significant portion of the aid is spent on non-development projects such as building parliaments and government buildings. This lend credence to the notion that China uses aid to gain diplomatic recognition from African leaders, with resource-rich and/or institutionally unstable countries being the most targeted. The preceding arguments support why Africa’s exports to China dominate other China’s financial flows to Africa, and consist mainly of natural resources. Accordingly, this study aims to forecast China-Africa economic integration through the lens of China’s demand for natural resources and Africa’s demand for capital, both of which are reflected in Africa’s exports to China. The study used a MODWT-ARIMA hybrid forecasting technique to account for the short period of available China-Africa bilateral trade dataset (1992–2021), and found that Africa’s exports to China are likely to decline from US$ 119.20 billion in 2022 to US$ 13.68 billion in 2026 on average. This finding coincides with a period in which Chinese demand for Africa’s natural resources is expected to decline.

The Impact of Chinese FDI on Zambia's Socio-Economic Development

There has been an increase of Chinese investments in many parts of the globe. According to Bo Li (2016), China’s outward foreign direct investment OFDI stock has grown from $1 Billion in 2004 to more than $30 Billion in 2014. However, there is an ever-growing volume of literature premised on the criticism of the impact of Chinese investment in Africa and other parts of the globe. Many studies have cited China as being after the resources of its host countries without much concern to the effects or benefits to local populations, (James Mayers:2015) and (Reisen and Rielander:2011). This paper made an attempt to explore the impact of Chinese FDI on social economic development focusing on job creation and poverty reduction in Zambia. The study was largely qualitative in nature and adopted a mixture of descriptive and explorative study designs. The study focused on Zambia because of the unique bilateral ties with China which span over decades. Furthermore, many studies done on Chinese FDI usually aggregate all African countries overlooking the differential impact of the source and type of Chinese FDI in Africa which makes it difficult to generalize findings, (Abdoulkadre Ado Zhan Su:2016). While many studies only focus on the economic effects of FDI by stressing on quantitative aspects, this study went further to analyze a mixture of qualitative and quantitative variables within the socio-economic context. This approach was adopted in order to provide a comprehensive analysis and hence a point of departure from other similar studies done on this subject. Less focus was laid on characteristic of FDI which in itself was a delimitation. A number of key conclusions revealed through my findings are that China has made significant investments in different sectors of the economy which have translated into job creation and helped to lift thousands of local people from poverty. However, despite the numerous investments made, jobs created are mostly for unskilled laborers. In addition, although most firms meet the minimum wage requirement, wages still fall below the Basic needs and nutrition basket, (Jesuit Center for Theological Reflections:2022). These are some of the areas of concern which have undermined notable gains. The paper therefore starts by unpacking suppositions surrounding FDI, then makes efforts to disambiguate economic growth from economic development before stressing on the findings and finally drawing conclusion. Keywords: FDI, economic growth, economic development, sustainable development. DOI: 10.7176/JESD/14-10-01 Publication date: May 31 st 2023

Tax incentives, ease of doing business and inflows of FDI in Africa: Does governance matter?

Tax incentives, ease of doing business and inflows of FDI in Africa: Does governance matter?

When Dragon Meets Elephant in Africa: The Rivalry on Distinctive Competitiveness

ABSTRACTThe increasing FDI in Africa from China and India in recent years has drawn the attention of scholars, policy makers, and the media. Africa is an arena where the two emerging giants compete on different bases. Indian firms have the advantage of institutional proximity and large diaspora communities in Africa, while Chinese firms rely on government-to-government relationship-building. The rivalry between India's soft power and Chinese hard power in Africa will continue for the foreseeable future.

Persistence and trends in CO2 emissions in Africa: is Chinese FDI behind these features?

ABSTRACT In this article, we investigate the statistical features of the CO2 emissions and CO2 emissions per capita in a group of 45 African countries by looking at their degree of persistence and also testing for the existence of trends in the data. In addition, we also investigate if this level of emissions is related to the Chinese FDI in Africa. The results are very heterogeneous across countries, observing orders of integration statistically below 1 in a group of countries; in others, the majority of them, the values are around 1, while for some others, the degree of integration is statistically significantly above 1. Linear time trends are observed in approximately half of the countries. These results imply that, in the long term, public measures to reduce CO2 emissions may be required in the majority of the countries since in the event of shocks the series will not return by themselves to their original levels. If we look at Chinese FDI in these countries, we observe that there seems to be no relationship between the Chinese investment in Africa and the CO2 emission persistence, though this result needs to be contrasted in future research.

How History Matters: A Comparison of Indian and Chinese Business Groups’ FDI in Africa

We compare the patterns of Indian and Chinese companies’ FDI in Africa to explain how colonial history matters in international business. FDI activities of the historically colonizing countries are well documented. However, a less understood area is how the prior history of being colonized impacts these countries’ FDI activities. This gap in the literature is receiving greater attention as new emerging economies (i.e., India and China) are playing a more profound role in globalization. Specifically, colonial history and a series of historical incidents reshaped the institutional environment and organizational field where a unique set of isomorphic organizational actions emerged. We find that the patterns and focus of Indian and Chinese FDI in Africa reflect their colonial history as being colonized for their resource or consumer market, respectively. More importantly, this paper shows that given differences in history and institutional context, Indian and Chinese business groups exhibit distinct characteristics in their FDI motivations and strategies. Our study has important implications for MNE managers to overcome market imperfections in emerging markets.

The effects of FDI on economic growth in Africa

This paper investigates the growth effects of FDI in Africa for the period 1990–2016 using a dynamically common correlated effect approach for an error-correction model. It uses an analytical classification of African economies, with each being fragile, factor-driven or investment-driven. It also accounts for interaction effects and the problem of cross-sectional dependence that previous studies overlooked. While the long-run effect of FDI on growth is significantly positive in investment- and factor-driven economies, its short-run effect is insignificant in the latter type of economies. The effect of FDI on growth is insignificant in the fragile category both in the short-run and long-run, however.

Forgotten territories: the uneven geography of FDI in Africa and the case studies of Burundi, Central African Republic, Comoros, the Gambia, Guinea-Bissau and São Tomé and Príncipe

ABSTRACT Considering the uneven geography of foreign direct investment in Africa, this article examines political, demographic and infrastructural factors that have led six countries – Burundi, Central African Republic, Comoros, the Gambia, Guinea Bissau and São Tomé and Príncipe – to be the least attractive territories to the external capital. This paper investigates the extent to which political stability, qualification of labor, potential consumer market, regional integration, and infrastructure play a central role in attracting investments. It also debates Geography’s role in investigating African countries’ particularities to avoid common generalizations, which are still disseminated by Afro-Optimism and Afro-Pessimist perspectives.

Is foreign direct investment globalization‐induced or a myth? A tale of Africa

AbstractForeign direct investment (FDI) provides many African countries an important source of capital inflow. Despite notable improvements in these capital‐scarce countries' economic, political and social conditions, foreign investors have not considered them viable host locations. Since FDI brings enormous spillovers to its host, some countries have recently institutionalized globalization as the catalyst for reversing the trend. Against this backdrop, we examine the FDI‐globalization nexus across 47 African countries for the 1996–2016 period. Using the augmented mean group estimator, the results suggest that FDI in Africa is indeed globalization‐induced. Moreover, we find this positive nexus to be driven by the economic dimension of globalization. Overall, we demonstrate the potential of globalization in stimulating an FDI boom in Africa.

FDI and domestic investment in Africa: Evidence on the role of local conditions

This paper investigates the impact of foreign direct investment on domestic investment and the role of local conditions. Local conditions determine the extent to which host countries can absorb and hence benefit from FDI. We assess conditions under which FDI is likely to be beneficial or inimical to development in Africa. We apply the fixed effects and the two-step system GMM estimation techniques for 48 African economies from 1980 to 2016. We use gross fixed capital formation (GFCF) as a percentage of GDP as a proxy for domestic investment (DI) as our dependent variable. We use the following control variables: growth rate in real GDP (RGDP); savings as a percentage of GDP; and inflation. We also control for openness, financial sector development and institutional quality. We use annual data from the World Bank's World Development Indicators (WDI), the International Monetary Fund's (IMF) International Financial Statistics, the UNCTAD database and the Freedom House database. We find that there is a negative relationship between FDI and domestic investment, suggesting that FDI has a crowding-out effect. The negative association may also imply that countries with lower domestic investment attract more FDI because there are more domestically unsatisfied opportunities for foreign investors. However, the negative relationship between FDI and domestic investment does not necessarily imply that FDI has no benefits. It could as well be that the positive benefits from FDI in Africa may be as a result of an increase in total factor productivity (TFP) which more than compensates for the decline in domestic investment. The study also finds that improved institutions and trade openness mitigate the negative effect of FDI on domestic investment while financial market development exacerbates the negative effect. Policy efforts aimed at attracting FDI should be balanced with the imperative of strengthening institutions and domestic firms. A number of scholars have shown that that even in those countries where FDI has been more productive, domestic investment is more effective than FDI in promoting growth. Investment incentives should therefore not discriminate against domestic investors. Market regulations to dismantle the monopolistic tendencies of some foreign investors must be strengthened.

Why investing in Africa? The differential role of Chinese government support

We study whether the determinants of greenfield FDI in Africa differ between Chinese and non-Chinese investors. By using investment-level data we focus on the differential effect of risk- and information-related factors, i.e., investment protection provided by International Investment Agreements (IIAs) and agglomeration economies (country-of-origin agglomeration, industry agglomeration, and internal agglomeration) both at an aggregate level and for different functions. Chinese investors appear to be less reliant on internal and country-of-origin agglomeration and on investment protection agreements than non-Chinese ones. This result appears to be mostly driven by investments in Services and Manufacturing activities. We argue that Chinese investors are backed by the direct engagement of their State when locating in Africa so that firm co-location and IIA protection are less salient in affecting their location choices.

Comparative Effects of Foreign Direct Investment from China and Other Sources on Africa’s Economic Growth

This study examines comparatively the growth effects of FDI from China, the European Union, the US and the rest of Asia in Sub-Saharan Africa for the period 2003–2012. We develop theoretical arguments from the existing literature to show that differences in FDI data sources, methodological and econometric approaches may be part of the explanation for mixed findings of previous empirical studies, precisely on the growth effects of Chinese FDI in Africa. Our results using bilateral FDI data compiled by UNCTAD, the FDI-augmented version of the Solow growth model and the 2SLS estimator indicate a significantly negative direct impact of Chinese FDI on growth in Sub-Saharan Africa while the impact of other FDI sources is statistically insignificant. JEL Classification: B22, E22, F43

ANALYTICAL STUDY FOR THE IMPACT OF ECONOMIC REFORM ON ATTRACTING FOREIGN DIRECT INVESTMENT TO EGYPTIAN AGRICULTURE SECTOR

Egypt has natural resource base and large market size, qualifies to be a major recipient of FDI in Africa and indeed, it is one of the top three leading African countries that consistently received FDI in the past decade. However, the level of FDI attracted especially to agriculture is small compared to the resource base and potential need , the percentage of FDI inflow to the agricultural sector in Egypt decreased from4.68 % during 1982 to 3.37% during 2017/2016 which reflected negatively on agricultural sector contribution on gross national product from 19.9%during 1982 to 11.6% during 2016/2017. This research aims at highlightingthe impact of economic reform on Attracting Foreign Direct Investment to Egyptian Agriculture Sector, and examined the impact of FDI on the agricultural sector growth in Egypt during the period (1990-2016), known as the economic reforms. The research is based on the descriptive and analytical methodology and the econometric methodology in determining the relationship, the research employs secondary time series data which spanned (1990 – 2016). The result obtained in the analysis; there exist a positive relationship between foreign direct investment and agricultural sector of Egypt foreign direct investment, it hasn't significant impact on agriculture in Egypt due to the nature, risk and uncertainty of agriculture activity, The R2 is 0.93 showing that the explanatory variable explains 93% of changes in the dependent variable. Other factors that contribute to agriculture apart from foreign direct investment are captured by the remaining 7% which are not included in the model, from the regression analysis carried out; The questionnaire cleared that, There are many obstacles facing the investor when investing, which limits the attractiveness of investment, such as, unstable political and economic policies, weak infrastructure, global competition for FDI flows as impediments standing in the way of attracting significant FDI flows, political regime, , rate of inflation, interest rate, credit rating and debt service,.. In the light of the above findings, the followings recommendations are proposed to encourage and improve the inflow of foreign direct investment in Egypt: - Economic reform policies encouraged and attract more FDI into Egypt; also Egypt needs to juxtapose foreign investment with domestic investment in order to maintain high levels of income and employment. - Foreign investment can be effective if it is directed at improving labor skills. Foreign direct investments into Egypt will not on its own lead to sustainable economic growth. - focus on the Policies' stability of the economy' which enhancement of the internal economy, - monitoring of benchmarks and business practice, voluntary guidelines, and transfer of Environmentally sound technology - Government should provide adequate infrastructure and policy framework that will be conducive for doing business in Egypt, so as to attract the inflow of FDI. - The necessity of activating inter-Arab investments. - Promoting Agriculture should be the top-most priority of administration in Egypt.

FACTORS INFLUENCING INDIAN FIRMS DECISION MAKING IN FOREIGN DIRECT INVESTMENT IN AFRICA

India’s economic progress and relations with other developing regions have received much attention, particularly the way in which Indo-African relations have evolved since 2000. This paper aims to put Indian FDI in Africa into perspective and provide some answers on the nature and possible impact of these flows to the continent. The study utilized the international typology offered by Dunning OLI paradigm to identify the important of Location Specific Advantages and how these advantages leads to selection of location for investment purposes by investors The study findings demonstrated that potential market growth, market opportunities and consumer base are the important indicated Indian firms targets Africa to seek new and unexplored markets of Africa. Competitiveness climate is important determinant along with economies of scale, investment incentives and availability of natural resources.

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

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.

The Dimensions Of FDI In The Tourism Sector In Africa

The tourism sector in Africa has received an increasing focus as it is viewed to be a fast growing sector and a potentially substantial provider of employment. With increasing numbers of tourists from developing countries the sector is set to become a major contributor to the African growth story through higher standards of living and positive effects on the economy. Little is understood of the contribution of multinational tourism enterprises and whether their investments are affecting the much acclaimed story of increasing tourism to Africa. We aim to contribute to the discussion by investigating links between the tourism of African countries and inward FDI in tourism. Although datasets for African countries are mostly incomplete, at best, the changing dynamics of international data collection allows for the establishment of a baseline comparison between the tourism data of the United Nations Tourism Organisation and the FDI data of Financial Times FDI-Markets databases. We find that, not only, does FDI in tourism positively affect the various tourism categories’ figures but also that the main investors are not the traditional African FDI partners. FDI in tourism is also focussed on a narrow band of highly specialized tourist destinations, which allows for highly specialized policy adaptations. These results help to focus FDI policy formulation by African governments and Investment Promotion Strategies, Investment Incentives and Bilateral Investment Agreements between home and host countries as well their respective Investment Promotion Agencies. The results may also help industry to understand the untapped potential for tourism FDI in Africa.

What Factors Determines the FDI Net Flows in Africa? GMM and PMG Techniques

This study investigated the determinants of FDI in Africa during the time period from 1974 to 2013, and annual data from the World Bank, African Union and United Nation. The study used GMM estimator and conducted three estimations, namely, 5 years, 8 years and 10 years average’ estimations. Besides, to robustness check the results, the study used PMG estimator and therefore the full sample countries has been divided into three groups according to the income level, namely, low-income, lower middle-income and upper middle-income groups. The results suggested that the net inflows of the FDI in Africa are determined by economic growth, human capital, infrastructure, domestic investment and trade openness of the region.