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.

Keywords:

• Africa
• foreign direct investments
• China
• OECD

Notes

Acknowledgements

We thank Marc Luc Akplogan, Bio Cyrinus Elegbede, Kouamé Kanga and Jean Stéphane Koffi for valuable research assistance and seminar participants at the 2012 Global Development Finance Conference in Cape Town (South Africa) and 2013 Fourth Annual Conference on ‘Business and Entrepreneurship in Africa’ in Kampala (Uganda). All errors and omissions are the authors’ sole responsibilities.

Disclosure statement

The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this article.

Notes on contributors

Prof. Issouf Soumaré, is Professor of Finance at the Faculty of Business Administration at Université Laval in Canada. He is also the Director of the Laboratory for Financial Engineering of Université Laval. He worked for the African Development Bank from 1996 to 1998. Prof. Soumaré holds a PhD in Business Administration in Finance from the University of British Columbia in Canada.

Dr. Gaston Gohou, is a statistician economist, expert on development and poverty issues. He has worked for several African Governments, the World Bank, and the African Development Bank (AfDB). He holds a PhD in economics from the University of Maryland. Dr. Gohou is currently the CEO of CESS Institute.

Dr. Hugues Kouadio, is a Senior Economist and Statistician with a professional experience of over 18 years. He holds a PhD in economics from the University of Paris 1 Panthéon Sorbonne in France. He is currently the Director of ENSEA which is an Institute of Statistics and Applied Economics in Côte d?Ivoire and an African Center of Excellence in the field of Statistics awarded by the World Bank.

Notes

1 http://www.afdb.org/en/topics-and-sectors/sectors/private-sector/areas-of-focus/infrastructure-finance/

2 http://www.focac.org/eng/

3 Also called hereafter developed countries.