Drivers of Indian FDI to Africa – an initial exploratory analysis

Abstract

This paper attempts to analyse the drivers of the emerging Foreign Direct Investment (FDI) relationship between India and Africa. Using a fixed effect negative binomial model, it examines the determinants of FDI from India to 23 African countries from 2008 to 2016. The study finds that Indian FDI to Africa is a unique combination of both private sector and state driven investment. It is driven by the search for markets, and is pulled despite an adverse business environment. Indian FDI has contributed to several African countries by development of their manufacturing sector and contribution to employment, and has the potential to solve regional problems of poverty and inequality. The paper thus makes a pioneering contribution as an empirical study on OFDI from India to Africa and also to the literature on south – south FDI.

Keywords:

• FDI
• India
• Africa
• market seeking
• institutional environment
• state owned enterprises

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Reserve Bank of India Website- https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=674

2 https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=461.

3 Authors own calculations.

4 Botswana, Egypt, Ethiopia, Gabon, Ghana, Guinea Republic, Kenya, Liberia, Madagascar, Malawi, Mali, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, South Africa, Sudan, Tanzania, Uganda, Zambia and Zimbabwe.

5 Botswana, Egypt, Ethiopia, Gabon, Ghana, Guinea Republic, Kenya, Liberia, Madagascar, Malawi, Mali, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, South Africa, Sudan, Tanzania, Uganda, Zambia and Zimbabwe.

6 We lost one observation for each country when fixed effect model was selected. We also lost one observation for each country when the independent variables were taken in the lagged form.

7 http://databank.worldbank.org/data/

8 https://www.transparency.org/

9 http://hdr.undp.org/en/data

10 www.seadistance.org

11 https://www.transparency.org/

12 https://www.export.gov/article?id=Gabon-Cutting-Timber

13 https://www.heritage.org/index/

14 Shantanu Guha Ray, “Some significant conversations in Tunisia”, Times of India, March 2, 2017, http://blogs.timesofindia.indiatimes.com/newshound-tales/some-significant-conversations-in-Tunisia

15 “Kanoria Chemicals' denim unit in Ethiopia goes on stream”, Hindu Business Line, October 27, 2015, http://www.thehindubusinessline.com/companies/kanoria-chemicals-announces-completion-of-ethiopiandenim-unit/article7810066.ece

Additional information

Notes on contributors

Sumati Varma

Sumati Varma is an associate professor at University of Delhi with three decades of teaching experience. She has won accolades from across the world for teaching and research, including the Global Educator award, Project X - Culture, University of North Carolina. Her academic excellence led Dr Varma to be chosen as a consultant with the World Bank's Expert Consultative Committee on Currency Convertibility, and she has contributed to its flagship publication ‘Investing Across Borders (2012)’. Dr Varma is a prolific writer and has eight books to her credit as sole author, and four books as co-author. She has research papers in leading journals such as Asia Pacific Business Review, International Journal of Emerging Markets and Journal of East West Business.

Ankur Bhatnagar

Ankur Bhatnagar is an alumnus of Delhi School of Economics and has been teaching for two decades at Satyawati College, which is a constituent college of Delhi University. She is the co-editor for the book titled ‘Analytical Perspectives on the Indian Economy’, and has coauthored (forthcoming) a book titled ‘Money and Banking in India’.

Swarup Santra

Swarup Santra is an Assistant Professor of Economics in Satyawati College, University of Delhi. He has almost ten years of teaching experiences and two years of research experiences in national and international research institutions, like Institute of Development Studies, University of Sussex and Indian Institute of Public Administration New Delhi. He has a handsome number of research publications in national and international journals such as, African Journal of Science, Technology, Innovation and Development, International Journal of Scientific and Research Publications, etc. He has contributed chapters in two edited books and has participated and presented at international and national conferences of repute. His research interests are in Energy and Environmental Economics, International Trade, Macroeconomic Policies, Regional Economics, and Political Economy.

Amit Soni

Dr Amit Soni is presently an Assistant Professor at Shaheed Bhagat Singh Evening College, University of Delhi. He has a Masters in Economics from Delhi School of Economics and he followed that up with an M.Phil and PhD from University of Delhi. He has earned a M.Sc. in Econometrics from University of Nottingham, UK. He has a long experience of teaching many undergraduate and postgraduate courses of Economics. His exposure in research is reflected from various publications in reputed journals and presentations in conferences in India and abroad. His areas of research are Development Economics, Mergers & Acquisitions etc.