ASIAN FOREIGN DIRECT INVESTMENT IN AFRICA: UNITED NATIONS REPORT POINTS TO A NEW ERA OF COOPERATION AMONG DEVELOPING COUNTRIES

Foreign direct investment (FDI) in Africa by developing Asian economies is growing and has the potential to reach much higher levels, a joint report by UNCTAD and the United Nations Development Programme (UNDP) says. Most such investment is now targeted at African natural resources, but the report contends that if appropriate policies are adopted more may be channelled into industry and manufacturing.

The report, Asian Foreign Direct Investment in Africa: Towards a New Era of Cooperation among Developing Countries, notes that Africa-bound FDI is still a small percentage of the rapidly climbing foreign investments being made by Asian transnational corporations (TNCs). (East and South-East Asia are now home to almost four-fifths of the top 100 TNCs from developing countries.). Outward Asian FDI has expanded rapidly, reaching a record US$90 billion in 2006. During 2002-2004, FDI outflows from developing Asia averaged US$46 billion, of which flows to Africa made up only US$1.2 billion annually. Most of the total goes to other Asian economies; that directed from Asia to Africa nonetheless makes up the largest inter-regional FDI flow in the developing world.

There is rising interest in Africa as an investment location, in part because of the complementary nature of economic development between Asian and African countries, the report says. Traditionally, FDI flows from developing Asia to Africa were mainly from the Asian newly industrializing economies (Hong Kong SAR, Republic of Korea, Singapore, and Taiwan Province of China). But recently, China and India have emerged as significant sources. Singapore, India and Malaysia currently are the top Asian originators of FDI in Africa, with investment stocks of US$3.5 billion (cumulative approved flows from 1996 to 2004), US$2 billion and US$1.9 billion through 2004, respectively, followed by China, the Republic of Korea, and Taiwan Province of China (table).

Over the past few years, China has become one of Africa´s important partners for trade and economic cooperation. Trade (exports and imports) between Africa and China increased from US$11 billion in 2000 to US$56 billion in 2006. China´s FDI stock in Africa had reached US$1.6 billion by 2005 (table), with Chinese companies present in 48 African countries, although Africa still accounts for only 3% of China´s outward FDI. A few African countries have attracted the bulk of China´s FDI in Africa: Sudan is the largest recipient (and the 9th largest recipient of Chinese FDI worldwide), followed by Algeria (18th) and Zambia (19th).

Africa has the potential to become an important investment location for Asian companies in particular. 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.

To reap the potential of expanding Asian interest, African Governments could draw on important lessons from many Asian countries now showing high economic growth and upgraded industrial activity, the report contends. Those countries made strategic investments in education and infrastructure that were crucial not only for promoting economic development in general but for attracting and benefiting from efficiency-seeking and export-oriented FDI.

African countries need to make substantial efforts to enhance their productive capacities in a variety of industries, the report says. Sector-neutral and passive policies should be replaced by flexible, well-targeted efforts to spur FDI that leads to broad-based growth. An important objective for African countries where FDI is concentrated in extractive industries should be to add value to existing investments and to promote investment in other sectors. African governments need to pay attention to attracting manufacturing projects and to building the domestic capabilities necessary for such activities. They also should strive to enhance "backward" linkages between foreign affiliates and domestic firms, especially small and medium-sized enterprises.

Asian Foreign Direct Investment in Africa: Towards a New Era of Cooperation among Developing Countries was financed by a contribution by the Government of Japan to UNDP through the Japan Human Resources Development Fund for South-South Cooperation.

ANNEX

Table

Table 1. FDI stocks in Africa from selected developing Asian economies (Millions of US dollars)


Source: UNCTAD, Asian Foreign Direct Investment in Africa: Towards a New Era of Cooperation among Developing Countries, table I.5, p.19.

Note: a - Based on approval data
b - Based on data for approval flows, accumulated since 1996

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