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 Foreign direct investment (FDI) in Africa by developing Asian economies is growing and has the potential to reach much higher levels. The present report notes that Africa-bound FDI is still a small percentage of the rapidly climbing foreign investments being made by Asian transnational corporations.
The rapid economic growth in Asia can be expected to lead to increased Asian investments in Africa, in both natural resources and manufacturing. In particular, the rapid industrial upgrading taking place in Asia provides ample opportunities for Africa to attract efficiency-seeking and export-oriented FDI from Asian economies.
EXECUTIVE SUMMARY
With the growing recognition of the successful experience of East and South-East Asia, it is useful for African countries to examine the lessons that could be drawn from the development paths followed in that region, and to consider ways and means of strengthening economic cooperation with Asian economies. One important area of interest in this connection relates to foreign direct investment (FDI), which has played an increasingly important role in developing Asian economies.
Understanding Asian experience and policies with respect to inward FDI could contribute to African countries’ capabilities to attract and benefit from FDI. Furthermore, since the late 1980s, outward FDI from the economies of developing Asia has become significant, and even though these crossborder flows have so far remained largely limited to the Asian region they arouse interest as potential sources of investment in Africa.
This interest, which declined somewhat as a result of the Asian financial crisis of 1997-1998, was renewed following the recovery of the crisis-hit countries and the continuing steady growth of the Chinese and Indian economies. The fast-growing Asian economies have come to be viewed not only as successful cases that could provide examples of development paths for African economies, but, increasingly, also as economic partners, particularly for trade and investment. This volume focuses on the investment aspects of such South-South cooperation. While still small, FDI flows from Asia to Africa reached $1.2 billion annually during the period 2002-2004, and they are set to increase further in the coming years.
This volume is organized into two main parts. In the first part, an introductory chapter on Asian FDI in Africa is followed by two chapters that review South-East Asia and China both as sources of FDI flows to Africa and as hosts of FDI inflows.
The second part of this volume assesses the experiences of selected African economies as FDI recipients, mainly with a view to considering how best they could attract FDI in general and that from Asia in particular. Specific attention is given to the potential for FDI by small and medium-sized enterprises (SMEs) – an area that is often neglected, but is of particular importance for equitable and sustainable development in African countries. ...
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UNCTAD/ITE/IIA/2007/1
UNITED NATIONS PUBLICATION
ISBN 92-1-112712-2
PREFACE
This publication marks the completion of the project on “Needs Assessment to Attract Asian FDI into Africa”, undertaken with the financial support of the UNDP/Japan Human Resources Development Fund dedicated to South-South cooperation. This Report examines the various aspects of Asian foreign direct investment (FDI) in African economies with a view to improving understanding of the opportunities, constraints and steps needed to enhance Asian FDI in Africa.
Why focus on Asian FDI in Africa?
First, it is now generally recognized that FDI has become a significant source of external finance in developing countries. It has also become a useful means of integrating into the global marketplace.
But Africa has largely been left out of this process for many reasons, including small market size, poor infrastructure, weak regulatory frameworks, debt problems and, in some cases, political instability. However, over the past decade, there has been considerable progress with reforms in several African economies. The region’s debt problems are also being tackled, although international initiatives for debt relief need to be faster and bolder.
As we look to the future, the challenge is to find ways and means of harnessing more investment which contributes to reducing poverty and accelerating economic growth and development in Africa.
This is a major concern of the United Nations, as reflected in the internationally agreed Millennium Development Goals which includes the overarching aim of halving extreme poverty by 2015, and the Monterrey Consensus on financing for development. This volume on Asian FDI in Africa should be seen as part of the United Nation’s overall efforts in this regard. The objective is very specific: how to make the economic interests of Asian investors and African countries converge more closely. There is an untapped potential for Asian investors to invest in profitable projects in Africa and for African countries to derive benefits from Asian FDI, which offers great potential for furthering cooperation between the two developing regions.
This timely report looks at both the opportunities and possible obstacles for increasing Asian investment in Africa. Asian FDI is assuming greater importance, accounting for 10 per cent of the stock of FDI in the world. Some Asian firms have grown to rank among the top transnational corporations (TNCs) in the world. This trend is likely to be reinforced in the future. The rapid economic growth and industrial upgrading currently taking place in Asia provide ample opportunities for Africa to attract Asian FDI into both natural resources and manufacturing. Indeed, such FDI in Africa is becoming an important and promising facet of South-South economic cooperation.
Against this background, this book examines the opportunities and constraints for Asian investment in African countries. This publication is based on papers prepared for the project, “Needs Assessment to Attract Asian FDI into Africa”, updated wherever possible. It begins with an overview of Asian FDI in Africa and a review of major Asian economies as FDI recipients as well as sources of FDI in Africa.
This is followed by studies of five African countries that help to identify common features as well as conditions specific to each as hosts to FDI in general and Asian FDI in particular. It is hoped that this book will contribute to the formulation and implementation of concrete measures to bring greater Asian investment to African countries, and strengthen development cooperation between the two regions.
The book was prepared by a team at UNCTAD led by Masataka Fujita and comprising Guoyong Liang and Padma Mallampally under the direction of Anne Miroux, in cooperation with the Center for International Development at Harvard University. Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourt, Masayo Ishikawa, Lizanne Martinez, Barbara Myloni and Katja Weigl.
It was produced by Chistopher Corbet, Séverine Excoffier and Katia Vieu, edited by Praveen Bhalla and desktop-published by Teresita Ventura. It has benefited from the collaboration of various national institutes, and national and international experts from the public and private sector, both in Africa (Botswana, Ghana, Madagascar, Mozambique and the United Republic of Tanzania) and Asia (China and ASEAN countries).
Inputs were received from Chia Siow Yue, Adrian Frey, Bryan Graham, K.S. Jomo, Daniel Kwagbenu, Lorah Madete, Hafiz Mirza, Li Qian and Sara Sievers. Helpful comments were received from Diana Barrowclough, Sérgio Chitarŕ, Horacio Dombo, Kumi Endo, K. Filson, Torbjörn Fredriksson, Joachim Karl, Ashok Mohinani, Brian Mosenene, Ulrick Mumburi, Salvador Namburete, Adiel Nyiti, Emmanuel D. Ole Naiko, Karl P. Sauvant and R. Yofi Grant, as well as the Chinese Academy of International Trade and Economic Cooperation.
Kemal Dervis
Administrator of UNDP
Supachai Panitchpakdi
Secretary-General of UNCTAD
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