FICHA RESUMEN PLAN DE MEDIDAS DE MITIGACIÓN, REPARACIÓN Y COMPENSACIÓN

Flows of FDI between sub-Saharan Africa and China are part of the broader trend of South-South investment that has been expanding significantly in recent years. While the bulk of these flows runs from China to Africa, there is an increasing emergence of African investors in China.

Africa’s Inward FDI: The Global Context

European countries (primarily the UK and France) and North American countries (primarily the United States and Canada) have long been the dom- inant foreign investors in sub-Saharan Africa, accounting for 68 percent and

22 percent of the FDI stock, respectively. But as the volume of FDI to Africa increases, it is becoming more diversified, with more investors from different countries. In particular, FDI in Africa from developing countries has increased substantially, particularly from China, India, Malaysia, and Brazil, as well as from South Africa (which stands out as the major intraregional FDI source country on the continent).

Just as the sources of FDI flows to Africa are broadening, so too is the sec- toral distribution. Although data on global sectoral FDI flows to Africa are incomplete, by looking at FDI destinations in Africa, one can conclude that a large proportion of FDI still goes to the oil sector. For the last 15 years, 70 per- cent of FDI has been invested in 5 out of the 7 African oil-exporting countries, as well as in South Africa. In fact, South Africa has been able to attract the most dynamic FDI among African countries, including in the financial sector after its mid-1990s liberalization reforms.

Indeed, it would be a mistake to conclude that Africa is host to FDI only in the oil or natural resources sectors. While in most African countries about 50–80 percent of FDI goes to natural resource exploitation, increasingly African countries are able to attract FDI into the financial, telecom, electric- ity, retail trade, light manufacturing (apparel, footwear), and transportation equipment sectors (see figure 5-9).

Figure 5-9. Comparison of FDI Flows in Three African Countries, 2002–2006

Source: Broadman, Africa’s Silk Road.

Percent of FDI 90 80 70 60 50 40 30 20 10

South Africa Ghana Tanzania

Extraction Manufacturing Business and F. services Trading All other

Chinese FDI in Africa

Like trade, African-Asian flows of FDI are growing rapidly, but the volume of such flows is more modest than that of trade. While there is some African FDI in China (see below), Chinese FDI in Africa predominates. As of year-end 2005 (the latest year for which complete data are available), the stock of Chi- nese FDI in Africa amounted to $1.3 billion, a comparatively small level of investment. Indeed, as noted above, the overwhelming bulk of FDI on the African continent today still originates from the EU and the United States. Thus, as with trade, what is noteworthy about Chinese FDI in Africa is not the level of investment, but its rate of growth.

As in the broader global setting, the vast majority of FDI inflows from China to Africa over the past decade have been largely concentrated in the extractive industries. Historically, Chinese FDI went primarily to other Asian countries, mostly to Hong Kong. However, Chinese FDI has been targeting Africa—among several other regions of the world—where natural resources are abundant. In other words, China’s FDI in Africa’s oil resources needs to be considered in the broader strategic context of China’s global search for fuel inputs.

At the same time, while China has been investing largely in oil production facilities in Africa, Chinese firms have begun to diversify their investment on the continent into many other sectors, including apparel, agroprocessing, power generation, road construction, tourism, and telecommunications, among others. Moreover, Chinese FDI in Africa has also become more diver- sified geographically; figure 5-10 shows the 2004 country distribution of Chi- nese FDI flows to Africa.

It is also important to recognize that for China, FDI in Africa represents a small proportion of its global FDI portfolio (see figure 5-11). Survey work in China indicates that Africa is perceived by Chinese investors as a risky envi- ronment and that a major incentive for making investments on the conti- nent stems from government support.11_{China established its economic and}

political ties to the African continent during the Cold War-era, but the moti- vation for Chinese FDI has changed significantly since the end of the Cold War. During its earlier involvement in Africa, China participated in various major infrastructural projects throughout Africa and is still very active in this area. In fact, globally, 75 percent of China’s FDI is in the tertiary sector, includ- ing construction and business activities. In 2002, the Chinese authorities approved about 500 Chinese enterprises to invest in Africa; today it is esti- mated that there are over 800 such firms.12

Figure 5-10. China’s FDI outflows to Africa, by Country, 2004

Source: Broadman, Africa’s Silk Road.

Millions of US$ Sudan Nigeria South Africa Guinea Benin Madagascar Cong, Rep. Côte d’Ivoire Sierra Leone Gabon Rest of Africa Kenya Zambia Togo Equatorial Guinea Tanzania Niger 0 50 100 150

Figure 5-11. Chinese Outward FDI Stock and Flows by Region, 2004

Source: Broadman, Africa’s Silk Road. Africa

2%

Latin America

18%

Chinese FDI Flows Chinese FDI Stock

Asia 75% Asia 56% Latin America 32% Africa 5%

Emerging African FDI to China

Based on statistics from the Chinese authorities, African FDI flows to China reached $776 million in 2004 versus $565 million in 2002, posting a 17 per- cent annual compounded growth rate over two years. Mauritius accounted for more than three-quarters of such FDI in 2004.13_{Clearly, a large proportion of}

that FDI is pass-through, unlikely to have originated solely from Africa. Worth noting is that South Africa has been actively investing in China. In 2004, FDI from South Africa to China increased significantly to $109 million from $26 million in 2002. In 2005, SABMiller, the giant South African food and bev- erage company, announced plans to invest about $15 million in China. Nige- ria is another emerging African investor in China, having more than doubled its FDI to China between 2002 and 2004.