I. Introduction

So much has been written about Chinese economic engagement in Africa that one is often left with the impression that the Chinese are playing a major role in the development of Africa’s economies – for better or worse^[1]. For example, a search on LexisNexis for the term Chinese investment and Africa reveals hundreds of thousands of news articles on the topic since 2000 alone (see Figure 1). As Brautigam (2009) has pointed out, much of the information in these articles does not hold up under close scrutiny. By contrast, the academic literature on Chinese investment in Africa is thin. For example, a search in Econlit - the premier search engine for articles by academic economists - for the same terms used in the LexisNexis search reveals only 15 journal articles. Scholars and journalists have focused on China’s motives for investing in Africa, and it is not uncommon to see its involvement characterized as “neo-imperialism” and “authoritarian capitalism”: exploiting natural resources and local labor while undermining democracy.  On the other hand, China is sometimes credited with boosting growth across the continent through its impact on the prices of Africa’s natural resources.

Yet, China’s interest in Africa surely has something to do with the renaissance of economic growth across much of the continent. As we show in Figure 2, average annual GDP growth in 38 African countries was 4.9 percent between 2000 and 2015; in resource-poor Ethiopia the average was just under 10 percent. In fact, 17 countries in Africa had annual GDP growth rates above the continental average of 4.9 percent and only 7 of these countries are considered resource rich. The fact that growth has been rapid in many resource poor countries and the fact that growth has continued to be rapid in many countries past the collapse in commodity prices calls into question the notion that Africa’s recent performance is intimately tied to Chinese demand for its commodities.^[2] Are there other ways in which China’s interest in Africa has something to do with the renaissance of economic growth across much of the continent?

Our goal in this paper is to present a balanced view on what we know about Chinese investment in Africa. We take a two-pronged approach first using official Chinese data, among other published sources, to examine the trends and second evaluating the literature through the lens of our data analysis. We structure our inquiry around the following broad sets of questions. First, what is the relative importance of Chinese investment in Africa? Second, what role has Chinese investment played in Africa’s fastest growing economies? Third, what have we learned from the academic literature on Chinese investment in Africa? And fourth, what have we learned about Chinese investment in African manufacturing based on in-depth fieldwork? We devote a separate section to manufacturing because of its potential to speed up structural change in African economies (McMillan and Rodrik, 2011).

To uncover trends in Chinese investment in Africa, we rely primarily on official statistics from China which we call the MOFCOM OFDI flow data. These are data on actual outward foreign direct investments by Chinese firms and are published in the China Commerce Yearbook, which is published by the Ministry of Commerce (MOFCOM).^[3] The MOFCOM OFDI flow data capture the value of realized outward FDI by Chinese firms by country of destination. These same data are used by UNCTAD the official organization charged with collecting international statistics on FDI and by the IMF in its’ balance of payments statistics. Most of these data from recent years are publicly available online and we provide links to the websites in our tables and figures and in the references. For the most recent data (2015) which has not been published in the yearbooks, the official source we use is the China Annual Bulletin of Statistics, which is published by China’s National Bureau of Statistics.

A second official source of data on Chinese investment in Africa is project level data collected by MOFCOM both centrally and at the province level. We will call these data the MOFCOM OFDI project data. These data comprise summaries of officially approved investments by Chinese firms in foreign countries including sector of investment. Thus, an attractive feature of the approved project data is that the project descriptions may be used to code projects by industry (see for example Chen et al. 2015). However, there are two serious drawbacks to the project level data. First, dollar values of projects are not recorded making it difficult to assess the relative importance of these projects. Second, the project data do not appear to correspond closely with what is happening on the ground (Brautigam and Xia, 2017). As we will show, this is because many approved projects are not yet or will never be operational. We discuss this in greater detail the paper drawing on the example of Ethiopia.

There are at least three other sources of statistics on Chinese investment in Africa – two official and one unofficial. A well known unofficial sources is the FDI Markets database published by the Financial Times. Like the MOFCOM project data, the FDI Markets data include several projects which are not operational. The primary source for the FDI Markets database is announcements in the press or other media outlets about project plans.^[4]  In theory two other sources of official data lie in African countries: firm level census data and administrative data collected by investment agencies. However, at present, firm level censuses covering an extended period of time are rare in Africa and administrative data collected by investment agencies often does not distinguish between planned and realized investments.

We argue in section 2 that although the official FDI flow data may miss some of the smaller projects or understate investment that goes through offshore tax havens, it is for now the most accurate source of data for describing broad trends in Chinese investment in Africa. These data reveal that African countries make up less than four percent of China’s global trade and less than three percent of China’s global FDI flows and stocks. We also show that mining and construction account for the bulk of Chinese FDI in Africa (54 percent). However, the stock of manufacturing FDI is increasing and reached 13 percent of China’s FDI stocks in Africa in 2015. Consistent with the increase in the manufacturing stock of FDI, we find that Chinese FDI in Africa has started to diversify away from the traditional recipients of global FDI - Democratic Republic of the Congo (DRC), Nigeria, South Africa, Sudan and Zambia - and into other less resource rich African countries.

 Turning to Africa, we find that OFDI by Chinese firms into Africa only accounted for around 5 percent of global FDI into Africa in the most recent year for which we have data - 2015. The relatively low share of Chinese FDI in Africa revealed by the aggregate statistics is consistent with work showing that a large proportion of planned Chinese investments registered with the Ministry of Commerce have not been implemented (Ethiopian Investment Commission 2016, Brautigam and Xia, 2017). Chinese FDI into Africa has however been diversifying away from resource rich countries in more recent years. In particular, once one excludes the top five African recipients of global FDI - all resource rich countries - China’s share of FDI into Africa goes from around 1 percent in 2004 to almost 9 percent in 2015. This mirrors what we learned about the diversification of Chinese FDI in Africa when we investigated Chinese engagement in Africa from the Chinese perspective and indicates that in some African countries, China is becoming an increasingly important investor.

Armed with these stylized facts we move back to Africa to examine the role of investment (including Chinese investment) in Africa’s 16 fastest growing economies. We find that rapid GDP growth was accompanied by even more rapid growth in investment in Africa’s fastest growing economies. We also find that in the majority of Africa’s fastest growing economies, investment is going into sectors other than natural resource extraction, consistent with the fact that the majority of Africa’s fastest growing economies are not resource rich. With the exception of Ethiopia, which pursued a more heterodox strategy (World Bank, 2016), most of this investment was financed the old fashioned way by loans, foreign aid or FDI. Finally, we find that although Chinese FDI did not account for a large share of investment in most of these countries, China’s role in investment increased more rapidly in Africa’s fastest growing economies in the period 2012-2015 than in the rest of Africa.

Having established these stylized facts, we turn to the academic literature on Chinese investment in Africa. We focus on the period 2000 to present, the period during which Chinese engagement in Africa started to take off. We begin with general articles and then turn to country- specific articles. We mostly evaluate this literature in light of what we have learned from our data analysis, noting in particular research that contradicts or is consistent with our findings. We find that most of the empirical research focuses on the determinants of Chinese investment in Africa without delving much further and that more attention has been paid to Chinese trade with Africa than investment. On the other hand, more qualitative studies focus on the common negative associations with Chinese investment, mainly that is it is resource focused, associated with authoritarian states, and isolated from local economies. In general, there is a major disconnect between the stylized facts we present and the overall tone of the literature.

However, there is a budding strand of research that is so new that it has not yet made its way to academic journals. Since the work is central to the question at hand, and because it focuses exclusively on Chinese manufacturing investment in Africa which has the potential to be transformational, we choose to review this work in a separate section of the paper^[5]. This research consists of two related but distinct components designed to produce both qualitative and quantitative evidence on the role of Chinese and other Asian investment in catalyzing the development of manufacturing by local firms in Africa. This work demonstrates some positive synergies between Chinese and local manufacturing firms in Ethiopia and the potential for them to develop in Ghana, Nigeria and Tanzania; all four of these countries belong to the group of Africa’s 16 fastest growing economies. However, consistent with the rest of the evidence in this paper, we also find that China still has a very small presence in these countries’ manufacturing sectors.

The remainder of this article is organized in the following way. In Section 2, we describe our data. Sections 3 and 4 use these data to examine the relative importance of Africa to China and China to Africa documenting the stylized facts. In Section 5 we take a closer look at Africa’s 16 fastest growing economies and the role that China has played in these economies. In Section 6, we review the literature on Chinese investment in Africa comparing what has been written with the stylized facts we uncovered in Sections 3 and 4. In Section 6, we present new research which examines the linkages between Chinese and local firms in Africa. Section 7 concludes with a reiteration of the major findings and directions for future research.