An analysis of the available data surrounding Chinese FDI and overall economic engagement in Africa yields a few stylized facts, which are not well reflected in the China-Africa popular discussion and academic literature to date. An important caveat is that the available data does not paint a complete picture of Chinese investment in Africa, mainly due to investment going through offshore financial centers, differences between committed and realized investments, and small investments unregsitered with China’s Ministry of Commerce. However, similar constraints apply to FDI data in general. Nevertheless, the official Chinese investment data – MOFCOM OFDI flow - which is also used by UNCTAD, provides a useful foundation for our analysis.
We find that Chinese investment is smaller, more diverse and more growth-oriented than is often believed. Despite the increasing notoriety of the Chinese presence in Africa, it still accounts for a small but increasing share of Africa’s inward FDI stocks and a stagnant share of China’s outward FDI stocks. Contrary to perceptions that Chinese investment exclusively targets natural resoruces, we find that construction and manufacturing also play significant roles; China’s mining and manufacturing investment in Africa are comparable to its investment in those sectors in other regions. Similarly, Chinese investment is not limited to resource-rich countries; it certainly has a large presence in some of them but China is also invested in some of Africa’s most promising, high-growth, and economically diverse nations. These patterns do not appear unique to China however; investment from Western countries has long targeted a similar array of sectors and states and patterns of Chinese and Western investment in Africa appear to be converging.
We also contextualize Chinese investment in Africa within its broader patterns of economic engagement, including trade, loans and construction projects. China has become a major source of Africa’s imports and destination for its exports and has committed a large proportion of Africa’s infrastructure funding. Improving the continent’s infrastructure appears essential for unlocking further investment potential, both from China and other countries, and leads to both direct and indirect job creation, the majority of which is for local workers.
These stylized facts stand in contrast to much of the literature on the subject, which largely focuses on cross-country regressions to explain what determines Chinese investment and anecdotal case studies describing Chinese investment practices in a particular country. However, a handful of case studies show that Chinese investors are employing many African workers, although there are as yet few signs of local linkages developing. Expanding on the case studies that have been done would permit a more rigorous firm-level assessment of Chinese investment throughout Africa. However, collecting such data is difficult and time-consuming.
Future research with the available data should focus on Chinese investment in the African countries with sustained economic growth not related to resource booms. This research should also examine the relative importance of investments by smaller Chinese firms where the linkages with locals may be stronger. Such analysis would help contribute to the understanding of Africa’s economic potential, both in manufacutring and other modern sectors, such as IT and finance, which have been burgeoning in a few countries. 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 the entering firms. Therefore, it is important to develop a further understanding of the role that FDI, from China and elsewhere, can play in boosting productivity growth in Africa.
