‘Chinese FDI Stock in Africa Trivial’

Windhoek – The share of China’s foreign direct investment (FDI) into the entire African continent is currently estimated at around US$20 billion, an amount which analysts feel is “trivial” and “out of kilter with the surge in Sino-African commerce and migration”.
Even though China’s FDI inflows into Africa are expected to rise to US$37b by around 2015 from US$20b in 2012, analysts believe that China’s current FDI stock is trivial and does not reflect the commercial ties between the continent and the world’s second largest economy.
China’s FDI into Africa currently represents a mere 3 percent of Africa’s total FDI stock and last year Chinese firms are said to have invested a mere US$3.5b in Africa, accounting for just 7 percent of total inflows to the continent.
Analysts at Standard Bank Research say that the relatively moderate share of FDI is “out of kilter with the surge in Sino-Africa commerce and migration, as well as broader reality of China’s enhanced project-based activity across the continent”.
China’s total FDI stock is around US$502b as of 2012, making up less than 3 percent of the world’s total. China’s FDI is also the smallest out of each of the Group of Seven (G7) economies, having overtaken Russia after 2008.
China’s FDI stock in Africa rose by 2.65 times between 2008 and 2011, a fraction behind Europe (2.9 times) and North America (3.2 times).
This year, Enrst & Young said that Africa hosted 4 268 foreign-owned projects, 152 of which are Chinese owned.
Over the same period, the United States undertook 533 new projects while the UK and France undertook 456 and 398 projects, respectively, more than twice as many projects than China has in Africa.
Furthermore, China’s emerging market peers, India (237) and South Africa (235) are said to have been more active in Africa.
Standard Bank analysts say that the relatively modest investment figures cast some doubt over the powerful narrative guiding broader Sino-Africa ties.
“Taken at face value, the data points out of step with broader Sino-Africa commercial cords and seemingly inconsistent with the reality on the ground (where China’s presence is substantial, growing and obvious).
And if accurate, suggests that much of the attention that Chinese investment in Africa has received over the past few years has been largely unwarranted,” the analysts say.
The analysts also say that rapid growth in easily conflated commercial cords has made China’s investments in Africa specifically difficult to track.
Standard Bank research says that trade between Africa and China surged by more than 20 percent last year to US$200 billion, from a mere US$56 million, about 15 years ago.
“China’s FDI stock in Africa is almost always conflated with the estimated US$35 billion in concessional loans from China Development Bank and China Exim Bank which have been extended to various African governments over the course of the past decade.”
These loans are often treated as fully-realised cash flows even though they will be drawn over a number of years, may not be fully utilised, and are often used to pay for purchases of materials and equipment from a Chinese contractor, resulting in minimal capital inflow, the analysts argue.
There are more than 3 000 Chinese companies across the continent and some of them are said to have successfully grown huge revenue flows over the past years.
Most Chinese companies’ investments across the continent are said to be on average, around US$10 million.
But even with Chinese investments being understated in instances where the amounts are less than US$10 million, the understated amounts could only be in the region of US$5 billion, Standard Bank analysts say.
“Without doubt, private Chinese outbound investment is far less understood than investment from Africa’s more traditional commercial partners,” the analysts say.
China’s future investments across Africa will be driven by ensuring resource security and this include hard and soft commodities, growing domestic consumption, shifting manufacturing to a higher value-added chain, support for urbanisation and upgrading social services and health care among others, the analysts say.
“However, for Africa to attract Chinese capital, evidence suggests that trade and tax policies, infrastructure and financial sector development, public governance and accountability, and human capital, each play crucial roles in influencing investor decisions.
 On each of these scores, African nations are yet to distinguish themselves from the emerging market herd.”

June 2013
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