National Observatories on Foreign Direct Investment (FDI), bulwarks against the effects of Chinese FDI imbalance in Africa?
By Dr. Joel M Moudio and Dr. Steve Tametong
Sino-African relations are structured around three axes: trade, Chinese financing in Africa and foreign direct investment (FDI). The latter is the key element in the multinationalisation of companies. Between 2003 and 2018, Chinese FDI in Africa dropped from USD 75 million to USD 2.7 billion1 ; this is in contrast to the period 2004-2008 when Africa attracted about 10% of Chinese direct investment (Sanfilippo, 2010), with a peak in 2008 of about USD 5.5 billion “due to the purchase of 20% of the shares of the Standard Bank of South Africa by the Industrial and Commercial Bank of China (ICBC)”.2. These include: cross-border mergers and acquisitions, intra-group loans and borrowing, and the creation of subsidiaries abroad. While Chinese FDI in Africa is growing exponentially and is a development boon for African countries (1), it is also partly a “danger” for African economies. The case of Cameroon will illustrate this (2). In this context, the establishment of a National FDI Observatory (NFOID) under the joint action of civil society becomes a necessity in order to compensate for the State’s inadequacies in terms of monitoring and surveillance of the perverse effects of FDI (3).
The evolution of Chinese FDI in Africa
In 2018, Chinese FDI in Africa amounted to US$5.4 billion, an increase of 31.5% over the previous year. This corresponds to 11.7% of the total FDI received by Africa in 2017. Chinese FDI plays a very important role for Africa in terms of development (Fig. 1).
Figure 1 : Evolution of Chinese FDI in Africa (2003)
Source: The Statistical Bulletin of China’s Outward Foreign Direct (MOFCOM3)
Despite the entry of the Industrial and Commercial Bank of China (ICBC)4 into Standard Bank of South Africa in 2008, which increased Chinese FDI in Africa, it can be seen from Figure 1 that since 2011, Chinese FDI in Africa has declined. Although the heavy trend from 2003 to 2018 reveals a progressive interest, Chinese FDI has nevertheless lost volume during the same period despite the 2017-2018 revival. And despite the fluctuations from one year to the next, it is clear, as shown in Figure 2, that the same African states benefit from Chinese FDI.
Figure 2: “Accumulated FDI inflows to African countries (2003-2018)
Overall, FDI can be a catalyst for Africa’s development as shown by the United Nations Conference on Trade and Development (UNCTAD, 2015). UNCTAD, in its report, ‘states that the breakdown of FDI in Africa is 21% in the industrial sector, 31% in agriculture and 48% in services’ (Ongo, 2016). Notwithstanding their contributions, are FDI without negative effects? The case of Cameroon is quite illustrative in this respect.
The negative impacts of Chinese FDI in Africa: the case of Cameroon
The negative impact of foreign direct investment in Cameroon can be assessed at three levels. The transfer of Cameroon arable land to Chinese investors only benefits the Chinese: Cameroon has 7.2 million ha of arable land but 1.8 million ha are cultivated. In 2006, it gave 10,000 ha of agricultural land for a 99-year period to the Chinese multinational Sino Cam Iko, which specialises in the production, processing and marketing of agricultural products (Gweth, 20l0). Through this allocation of arable land, Cameroon should benefit from Chinese rice production in Cameroon. This should help reduce rice imports, which are estimated at 400,000 tonnes per year for a production of 50,000 tonnes (Tsafack, 2014). However, it is clear that this production is in fact exported directly to China and to world markets. This reality is also reflected in trade.
A trade deficit for Africa – Cameroon: Trade between China and Cameroon does not benefit the latter, which is rather an outlet for Chinese companies. In 2016, the amount of products imported by Cameroon from China amounted to over USD 1 billion. Conversely, Chinese exports to Cameroon totalled USD 150 million. The structure of the balance of payments is therefore unbalanced in favour of China. According to the Freidrich Ebert Stiftung’s 2014 report, China’s exports to Cameroon amounted to CFA francs 34 million in 2001. They increased to “CFA francs 45 billion to reach 67 billion in 2004”. These exports are essentially made up of agri-food products, household appliances, rolling stock and clothing, etc. This imbalance is also felt by Camerooni SMEs which are thus put in difficulty by Chinese companies. In addition, the 2007 report by the Freidrich Ebert Stiftung reveals the weakening of the Cameroon economy by the arrival of Chinese investors and the asymmetry of the Sino-Cameroon relationship (Table 1).
Table 1: Evolution of bilateral trade between Cameroon and China (FCFA Million)
Sources: Cameroon Ministry of Trade (MINCOMMERCE)/INS
Thus, Cameroon small and medium-sized textile enterprises (SMEs) seem increasingly “threatened with closure, because of cheaper Chinese textiles entering Cameroon without the imposition of customs duties and without limiting import quotas” (Tsafack, 2014). CICAM’s market share of 15% has suffered a huge loss, resulting in the dismissal of thousands of employees.
Capitalising on Chinese FDI: what can national FDI observatories do?
The fundamental cause of the imbalance effects of Chinese FDI on the African sub-regional economy and in Cameroon in particular is the passivity of African governments to “monitor and punish” the imbalances. To remedy this, the creation of national FDI observatories by African civil societies is necessary. The other insidious cause of this imbalance is that of the absence of a made in Africa; The national FDI observatories have an essential role to play in terms of promoting and defending the national cultural and economic identity [made in Africa] of states.
Its [national FDI observatories] role will be to monitor and punish the abuses inherent in FDI in the various African countries. This is to draw the attention of the states through the production of reports. The other role that this body can play is to accompany States through proposals contained in its reports on the state of FDI. In this way, the national FDI observatories will act as a decision-making tool. They can lobby decision-makers – governments, major business groups and trade unions – to implement measures to mitigate these imbalances. National FDI observatories can also play the role of promoting and defending a made-in-Africa culture by supporting SMEs and start-ups in terms of training, catalysing their financing and protecting the informal sector.
Chinese FDI in Africa is changing considerably. While they are beneficial to Africa, it is clear that they can sometimes generate negative externalities on the economies of African countries. This is due to the passivity of African governments. In the face of this decline, it is necessary to set up a national FDI observatory in each African country, created by the synergy of the chamber of commerce of the African states and their national civil society, which will have the role of “monitoring and punishing”, in addition to warning states against the perverse effects of (Chinese) FDI on African economies.