Contrary to popular beliefs and the discussion in most of the academic literature to date, our analysis indicates that China’s influence in Africa is much smaller than is generally believed, though its engagement is increasing. Chinese FDI into Africa accounts for only a small share both of China’s total outward investment and of most African countries’ inward investment. In recent years, Chinese FDI has diversified towards manufacturing and other non-resource sectors, and towards Africa’s high-growth economies. Nevertheless, bilateral trade with China is much more important in monetary terms than Chinese investment for many African countries, and contracts for construction projects in Africa remain the most important channel of engagement for the Chinese economy.
The recent increase in engagement indicates that there may be opportunities for African countries to reap benefits from Chinese investment, if it creates jobs, supplies local markets and transfers knowledge to local firms. Future research should focus on identifying the conditions under which these opportunities can be realised, while also taking into account concerns about potentially harmful effects of FDI in general that have been raised with regard to corruption, non-transparency of financial flows and support of authoritarian regimes. As Romer (1994) argues, FDI may have the potential for a larger effect on growth than trade in goods, due to the diffusion of knowledge from entering firms. Therefore, it is important to develop a further understanding of the role that FDI, from China and elsewhere, can play in boosting growth and living standards in Africa.
