Africa Needs Chinese FDI

 As with all modern success stories of development, Africa's will also rely heavily on capital accumulation, primarily supplied from overseas in the form of foreign direct investment (FDI). China's FDI to Africa has risen exponentially in recent years, advancing African production up the value chain and contributing to Africa's economic growth. 

Successful recipe

Economists disagree on the best recipe for economic growth. The list usually entails a foundation of government stability, a touch of adherence to the rule of law, and a generous dash of education incentives - mixed well. Capital accumulation is widely accepted as one of the most important ingredients. In Africa, most of this capital comes from abroad as FDI, and the FDI stock in Africa now amounts to over 30 percent of its GDP. 

The recently released United Nations World Investment Report 2010 illustrated the increasing role of China in supplying this investment, the most dramatic rise in inflows of which occurred only within the last few years. The less than $1 billion of FDI flows to Africa in 2006 expanded to $1.5 billion in 2007 and then to a massive $5.4 billion in 2008. China is the leading Asian investor in Africa, the second largest developing economy investor - just behind South Africa - and the largest foreign contributor to African infrastructure. 

These capital flows from China, although still a relatively new phenomenon, are indeed bringing about technology transfers to facilitate the development of local African industries. Ethiopia, for example, received its first glass factory in 2008, then its largest cement factory in January of this year courtesy of Chinese investment. A Nigerian crushed rock plant advanced its facilities to asphalt production with funds from China.

Local beneficiation of Africa's rich supply of mineral resources has been touted as a route toward economic growth in Africa. To this end, China capitalized a copper smelter in Zambia which came online last year. China has constructed a number of cement plants on the continent to move local limestone deposits up the value chain, and further plans are in the works for a $938 million aluminium plant in Egypt.

And the subsequent economic growth? Overall the recent results have been positive, with Sub-Saharan Africa expected to be the second fastest growing region in the world from 2010 to 2015, behind only developing Asia. Ethiopia, for example, has grown at a double-digit pace and is expected to average 7.5 percent growth through 2015. Zambia, Tanzania and Mozambique are all in Africa's top 10 for economic growth, and Zimbabwe's GDP should register an increase for the first time in years. All have received generous doses of Chinese capital, a key component in the recipe of Africa's economic growth. 

The ChinAfrica Econometer is produced by THE BEIJING AXIS, a cross-border business bridge to/from China in three principal areas: Strategy, Sourcing & Investment.

For more information, please contact: Barry van Wyk

barryvanwyk@thebeijingaxis.com

www.thebeijingaxis.com