A confusing expansion: the story of China’s Foreign Direct Investments in Africa

by Bert Jacobs

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Bert Jacobs is a PhD student at the Institute of Development Policy and Management (IOB) of the University of Antwerp. His research focuses on African regional integration processes in the infrastructure sector. He examines how the African Union’s Programme for Infrastructure Development in Africa (PIDA) interacts with African Member States and external financiers such as Western donors and emerging economies.

Anybody who has vaguely followed African affairs this last decade must be aware of China's grand entrée into the continent. In the few years that have passed since Beijing's grand summit of the Forum on China-Africa Cooperation (FOCAC) in 2006, the topic has transformed foreign policy agendas across the world and fuelled a highly polarized debate among academics, policy makers and journalists. When former US Secretary of State Hillary Clinton called on Senegalese university graduates in August last year that "unlike other countries, the US was committed to a model of sustainable partnership that adds value, rather than extracts it", she was alluding to the stereotypical vision of a resource hungry Chinese dragon, who is biting huge bits off the established Western spheres of influence. In reality, the story of China in Africa and its impact on African lives is much more nuanced. This article examines one element of this multidimensional relationship: the confusing expansion of China's Foreign Direct Investment (FDI) in Africa.

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Much of the confusion on China's expansion in Africa is created by the lack of reliable data. We know that China's reported worldwide FDI flows went up from 12 billion USD in 2005 to 75 billion in 2011, with the bulk of this finance headed for developing countries (MOFCOM, 2012). The Chinese government has stimulated the foreign expansion of its companies by tripling its preferential export credits during that same period through the Export-Import Bank (EXIM). This has helped Chinese companies to use their investments in developing countries as a launch pad towards global competitiveness. But even though the Chinese government releases official figures, it remains difficult to assess how much of this increased FDI is headed for Africa. Firstly, this is because 80% of the total reported FDI is directed towards tax havens such as Hong Kong, the Cayman Islands or the British Virgin Islands, from where it disappears off the radar. Of the visible 20%, China's Outward FDI to Africa increased from USD 317 million in 2004 to USD 1.7 billion in 2011. If you take into account that global FDI flows to Africa were estimated at USD 42.65 billion, it seems that China's small contribution (4%) is getting an exaggerated amount of attention (UNCTAD, 2012). But a recent World Bank report has claimed that Chinese private Foreign Direct Investments are systematically underreported in this data. They claim that by the end of 2011, 55% of all Chinese FDI projects in Africa were already privately owned. This private investment also behaves very differently from government led investments. While the latter prioritise spending in construction (35%) and mining (22%), private investments are targeting manufacturing (36%) and the service sector (22%). But even this data is probably significantly underestimating the presence of small scale Chinese private investments. Host country data suggests that the Chinese presence was on average four times higher than reported in the Chinese data (Shen, 2013).

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So the impact of China's Foreign Direct Investment is much higher than the official data would originally suggest. Since all Foreign Direct Investment comes with its share of opportunities and risks, it is up to the host country to support the opportunities and to moderate the risks. But because of the huge differences between the 53 countries of Africa in terms of natural resource endowments and quality of governance, very different outcomes are expected. One of the most discussed topics has been the effect of Chinese FDI on African jobs. Because Chinese imports have increased the availability of low priced consumer goods, capital goods and transport equipment, they have significantly lowered investment costs, certainly in the infrastructure sector. But this has come at a price for existing African industries, which were often crowded-out by cheap Chinese imports. Consequently it has led to significant job losses across the continent, certainly in the manufacturing sectors where China and Africa compete directly (AfDB, 2011). However the story is not one-dimensional because the steadily increasing amount of Chinese firms in this labour intensive manufacturing sector is also creating new jobs and is assisting with the early industrialization process. The World Bank reported that in Nigeria, the 600 registered Chinese companies had generated approximately 69,000 jobs. Apart from the increased competition, low Chinese labour standards and low environmental standards are often perceived by the host government as the biggest threats of China's FDI. China has had different effects in other sectors. In agriculture, they have supported technological innovation and so far largely refrained from major land grabbing. In the infrastructure sector, the IMF (2011) has shown that they have contributed to major improvements in the electricity supply, railway linkages and telecommunication costs. Just as Western FDI, natural resources have clearly been a major focus of China's expanding FDI in Africa. But in some countries, these investments have spurred the establishment of a service sector, lowering the costs of services. Well governed countries such as Ethiopia and Ghana have also received a high amount of smaller scale projects, which confirms survey findings that suggest that Chinese companies attach importance to the investment climate and the institutional stability. Whether the balance between the treats and the opportunities of Chinese FDI will shift in Africa's favour will primarily depend on the actions of China's African hosts. The initiatives that China undertook in the early years after opening-up show how well steered national development strategies can protect local infant industries and enhance a catch-up through integration with foreign partners. But for this to happen, African countries should prioritize serious improvements in capacity and coordination at the national and regional level (1 March 2013).


Statistical data for this paper was retrieved from the following sources:



IMF (2011) New Growth Drivers for Low-Income Countries: The Role of BRICs.

Strategy, Policy, and Review Department.

Shen, Xiaofang (2013) Private Chinese Investment in Africa: Myths and Realities.

World Bank Policy Research Working Paper 6311.

Renard, Marie Francoise (2011) China’s trade and FDI in Africa. African Development Bank Group Working Papers, nr 126.

Further reading

Jacobs, Bert (2011) A dragon and a dove? A comparative overview of Chinese and European trade relations with Sub-Saharan Africa. Journal of Current Chinese Affairs - 40:4, p. 17-60.

Book recommendation

Brautigam, Deborah (2011) The Dragons Gift. The real story of China in Africa. Oxford University Press,