An analysis of China‐Nigeria investment relations
| Published date | 04 October 2011 |
| DOI | https://doi.org/10.1108/17544401111178221 |
| Date | 04 October 2011 |
| Pages | 183-199 |
| Author | Gboyega Alabi Oyeranti,Musibau Adetunji Babatunde,E. Olawale Ogunkola |
| Subject Matter | Economics |
An analysis of China-Nigeria
investment relations
Gboyega Alabi Oyeranti, Musibau Adetunji Babatunde and
E. Olawale Ogunkola
Department of Economics, University of Ibadan, Ibadan, Nigeria
Abstract
Purpose – The purpose of this paper is to analyze the economic relation between China and Nigeria
in the area of foreign direct investment (FDI).
Design/methodology/approach – The study employed the use of quantitative (descriptive
analysis such as ratios, percentages and correlation as well as cross tabulations), qualitative (key
informant interviews and surveys) and case studies – for example the railway transport project
handled by the Chinese. The use of surveys assisted the study to generate firm-level data that allowed
the analysis of China-Nigeria investment relations with respect to concerns such as the employment
effects as well as the competitive and/or complementary effects of Chinese firms to local firms. The use
of content analysis of relevant documents and reports obtained from various sources was equally
involved to corroborate the results obtained from primary data.
Findings – The findings reveal that the major characteristic of Chinese investment in Nigeria is its
concentration in a few sectors that are of strategic interest to China, especially in the extractive
industries which are carried out largely by state-owned enterprises or joint ventures. In addition, the
analysis clearly shows that the engagement with China, just like any bilateral relationship, has
some advantages and disadvantages and that optimal outcome of the engagement will depend on the
policies and institutions that are put in place to maximize the complementary effects and to minimize
the competing effects. However, there is need to ensure implementation of laws and regulations in
Nigeria and to ensure compliance by the Chinese investors.
Originality/value – This is the first study to carry out an empirical analysis of the China-Nigeria
relation. The study was able to establish the sectors where the incoming FDI from China is directed
and the extent at which Chinese FDI is bundled with inflows of aid. The study was also able to show
that the incoming Chinese FDI are in resource seeking, and the output targeted at the external market.
The study will be of value to academia and to policy makers who are interested in studying the
China-Africa relation.
Keywords China, Nigeria,International investments, Economicsectors, Extractive industries,
Foreign directinvestment, FDI, Infrastructure,Crude oil
Paper type Research paper
I. Problem statement
The growing relationship between China and Nigeria is induced by the fact that the
two countries have economic complementarities. On one hand, a major development
challenge in Nigeria is infrastructure deficiency, with huge investment need.
Complementarily, China has developed one of the world’s largest and most competiti ve
construction industries with particular expertise in the civil works critical for
infrastructure development coupled with its ability to provide the necessary financial
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1754-4408.htm
JEL classification – F21
The authors are grateful to the African Economic Research Consortium for providing the
financial assistance required to carry out this study.
China-Nigeria
investment
relations
183
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 4 No. 3, 2011
pp. 183-199
qEmerald Group Publishing Limited
1754-4408
DOI 10.1108/17544401111178221
assistance to the countries in need including Nigeria. On the other hand, China’s
industrialization drive and massive inflow of foreign direct investment (FDI) into the
country led to fast growing manufacturing economy which requires oil and mineral
inputs that are outstripping the country’s domestic resources, hence the need to source
them from abroad including Nigeria which is well blessed with these resources.
Positive developments have been recorded recently in respect of the net FDI inflow
from China to Nigeria, as it has doubled from US$3 billion in 2003 to more than
US$6 billion in 2005. The share of the oil and gas sector was about 75 per cent. This
proportion of Chinese FDI to Nigeria implies the expressed and explicit desire of
China in Nigerian oil and gas resources. It further reinforces the prevalence of a link
between Chinese FDI and trade in the context of China-Nigeria investment relations
(Ogunkola et al., 2008). In Nigeria, like in some other African countries, three related
factors explain the observed positive developments in Chinese FDI flows. These are
changes in FDI regime; privatization programme of the government; and the
aggressive drive of government in attracting FDI into the country (WTO, 2005).
The recent developments notwithstanding, there is a huge investment gap in the
development of the Nigerian economy and the required investment can only be
expected after the investment climate has improved. Beyond this, and since FDI
constitutes a key channel through which impacts of China’s economic growth[1] can be
transmitted to the typical African economy, therefore for existing and future FDI
inflow from China to be beneficial to Nigeria (and China), the following issues or
questions become pertinent for research. To what extent is China different from oth er
exploitative practices? In what sectors is incoming FDI from China directed? To wh at
extent is Chinese FDI bundled with inflows of aid? Does this FDI augment productive
capacity, or do the funds represent a change in ownership? Is incoming Chinese FDI
resource or market seeking, and is the output targeted at the domestic or external
market? How does Chinese FDI differ in character from FDI sourced from other
sources? Are all Chinese investment flows inward, or does the country also invests in
China? These questions constitute the main research issue of this study.
The scopeof the study covers 1997-2007 and the objective of thisstudy is to analyze the
economicrelation between China andNigeria in the area of FDI with a viewto determining
its developmental impacts. The sequence of this report is clear. Section II discusses the
methodology while Section III presents the empiricalanalysis. Section IV concludes.
II. Methodology
This study covers between 1997 and 2007 subject to data availability. It employed the
use of quantitative (descriptive analysis such as ratios, percentages and correlation as
well as cross-tabulations), qualitative (key informant interviews and surveys) and case
studies, for example, the railway transport project handled by the Chinese. The use of
surveys assisted the study to generate firm-level data that allowed the analysis of
China-Nigeria investment relations with respect to concerns such as the employment
effects as well as the competitive and/or complementary effects of Chinese firms to
local firms. The use of content analysis of relevant documents and reports obtained
from various sources was equally involved to corroborate the result obtained from
primary data obtained. Documents containing investment policy regime in both
Nigeria and China were reviewed so as to see the policy adequacy and the need to
fine-tune policy to make FDI flows from China to Nigeria beneficial.
JCEFTS
4,3
184
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