Africa-China investment and growth link
| Published date | 04 June 2018 |
| Date | 04 June 2018 |
| Pages | 132-150 |
| DOI | https://doi.org/10.1108/JCEFTS-11-2017-0034 |
| Author | Isaac Koomson-Abekah,Eugene Chinweokwu Nwaba |
| Subject Matter | Economics,International economics |
Africa-China investment and
growth link
Isaac Koomson-Abekah
School of Business and Economics (SBE), Universiti Brunei Darussalam,
Gadong, Brunei Darussalam, and
Eugene Chinweokwu Nwaba
W2points Limited, Hong Kong, Hong Kong
Abstract
Purpose –This paper aims to investigateChina–Africa Investment link, using over two decades of FDI’s
data. During the specified periods,African economic growth path has been predominantly upward trending,
despite multiple external threats. This impressive growth was partly because of the growth of FDI stock
across the region. This study explores the various sourcesof FDI to Africa, mainly China’sFDI’s and how
they influenceAfrican macroeconomic indicators, i.e.unemployment, export and import activities.
Design/methodology/approach –Pesaran autoregressive distributive lag (ARDL) is used as a
framework to test the short-run and long-run relationship of indicators. Granger causality test checked the
causalitybetween growth and macroeconomic indicators.
Findings –The link betweenChina’s FDI and African economic growth reported a negative/decliningeffect
in both shortand long run. In the long run, the effect of world FDI ongrowth was significant but not the in the
short run. However, US FDI toAfrica, China Export and Import from Africa reported an insignificanteffect
on growth. There was no evidence of Okun’s law,as a decrease in Africa unemployment does not increase
growth. Overall, China’s FDI’sinflows to Africa are allocated to capital-intensive activities which has less
labor employability.The Granger causality test reported a uni-directionallink between growth and all series,
except for human capital which experienced no link at all in all directions. Despite the issue of socio-
infrastructure militating against growth in the region, African economy is likely to perform better, if more
FDI’s are channeledinto labor-intensive activities,because it has a reductive effect on unemployment.
Research limitations/implications –The research considered point annual FDI data but not
accumulatedstock and is a macro-based study, i.e. regional economy.
Practical implications –This paper bridged the literature gap in African investment performance by
providing an empirical justification in understanding the inflow of FDI, especially China. This is a useful
guard in policy design and implementationsin the attraction of the right type of investment, so as to reduce
unemploymentand promote growth.
Originality/value –The authors confirm that this study has not been published elsewhere and is not
under considerationin whole or in part by another journal.
Keywords China, Africa, Foreign direct investment (FDI), Economic growth,
Macro-economic policy
Paper type Research paper
1. Introduction
Africa–China economiccooperation began since the Second World War era (Adewumi et al.,
2006). However, it was until early1990s that the cooperation grew stronger owing to China’s
economic enlargement program, i.e. global vision and Africa growth program. Various
JEL classification –01, F21, F43, D04, O55
JCEFTS
11,2
132
Journalof Chinese Economic and
ForeignTrade Studies
Vol.11 No. 2, 2018
pp. 132-150
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-11-2017-0034
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1754-4408.htm
initiatives have emerged, the latest being “China One Belt Road or Maritime silk Road
initiatives”, connecting China via railway and shipping link with major markets in the
Middle East, Central Asia and Africa. What is unique about China’s partnership in
connection with African economies is that, it is mainly centered on economic motive with
less interference politically. Since economics and politics cannot be separated (mutually
exclusive), China at some point meddles in Africa political matters. However, Compared to
the USA and EU, the margin of China’s involvement in political matters is considered
minimal. Because of that, Chinahas become an acceptable pattern in Africa economy. They
have investment portfolios acrossthe length and breadth of the region. Currently, China’sis
presence in about 45 countries in Africa, engagingin different types of businesses. Most of
these businesses are privately own. There are also significant number of state-owned
enterprises (Gu, 2009). Statistically, more than 2,200 Chinese enterprises are operating in
Africa, (most ofthem are private ownership) (UNCTAD, 2014).
China is a significant player in global manufacturing sector. It owns its successes (in
industrial development) to low wages, active skilled labor force and large domestic market
(Pigato and Tang, 2015). The latter was the key to economic (industrial)sustenance because
it allowed emerging and small and medium scale industries to grow effectively. Later on,
they became strong partakers in the international trade market. China found itself in a
favorable condition, an edge in developmentmost developed and emerging economies were
not exposed to the beginning of development. The economic space of China became a
magnet in attracting various types of investment portfolios. Many manufacturing firms
relocated to take advantage of low wage highly skilled labor force to hence profit and
expedite growth. Today, China is among countries with the largest market footprint in the
globe. As a significant global player, it faces huge gap in natural and human resources
demand (to feed existing industries),which are beyond the carrying capacity of the domestic
market, hence rest on China–Africa economic cooperation and other foreign partners to
supply them (as a way to maintainthe pace of growth).
Africa as a continent has a huge deposit of natural resources capacity and youthful
population. Statistically, it has over one-third of world resources capacity, making it a
potential partner for China. Yet, compared to China, African industrialization program and
growth are constraint by economic challenges, among them being technical, financial and
infrastructural problems. However, these potential gaps or challenges faced by Africa’s
economies are, conceivably, China’s greatest strength, hence the highlight of China–Africa
economic cooperation. China–Africa economic cooperation is an official platform for
establishing a gain again solution to diverse developmental problems facing China and
Africa, with too much stringencies. Advantage-wise, Africa use this platform (giveits high
resource potentials) as a leverage to attract highly efficient technical and financial
investment from China, to supportinfrastructural development and improve the standard of
living (reduce poverty). Furthermore, via import activities mutual exchange of goods and
technical capacity are exchanged from both economies to raise GDP level. At manageable
interest rate financial capitals are transferred to finance developmental programs in the
region and create new job (hence reducing margin in youth Unemployment). The loans are
also use to support infrastructural projectin the region which is a better alternative to IMF
or World Bank loans(which has series of conditionality).
A significance share of African resources transfers (about one quarter) goes to China.
Because of growing industrial and urban expansion, China’s energy consumption size has
more than doubled (Crompton and Wu, 2005). One-third of Africa’s oil supplies goes to
China mainly from Egypt, Libya and Tunisia; Nigeria (McKinsey Global Institute, 2016).
Regarding non-oil resources,China imports coal from South Africa, ore from Gabon, timber
Investment
and growth
link
133
To continue reading
Request your trial