Chinese foreign direct investment in Africa: Making sense of a new economic reality

Abstract

China's economic progress and relations with other developing regions have received much attention, particularly the way in which Sino-African relations have evolved since 2000. This paper aims to put Chinese FDI in Africa into perspective and provide some answers on the nature and possible impact of these flows to the continent. The study examines Chinese FDI flows to Africa between 2003 and 2008. During this period, China's outward FDI to Africa was concentrated in diversified, medium growth economic performers, with Southern Africa being the most popular region for Chinese outward FDI. A literature survey on Chinese investment deals concluded in Africa, demonstrated a definite Chinese interest in mining, oil and infrastructure in Africa. Using panel data analysis, agricultural land, market size and oil are found to be important determinants of Chinese FDI. The fact that market size was important indicated that Chinese investment was not solely resource-driven. As regards the possibility that Chinese FDI could positively contribute to economic growth in Africa, causality tests concluded that the relationship between African GDP and Chinese FDI was bi-directional, while uni-directional relationships were established between Chinese FDI and African infrastructure and corruption, respectively.