Guest Post - China in Africa: Much Ado about Investment - Part 2

FDI is an activity in which an investor resident in one country obtains a lasting interest in, and a significant influence on the management of an entity resident in another country. This may involve either creating an entirely new enterprise (so-called “greenfield” investment) or, more typically, changing the ownership of existing enterprises (via mergers and acquisitions). Other types of financial transactions between related enterprises, like reinvesting the earnings of the FDI enterprise or other capital transfers, are also defined as foreign direct investment.^[3]

China does not invest in infrastructure in Africa but builds and finances African investments in infrastructure.

In order to make the confusion more obvious and give investment its exact role, I shall compare the amount of FDI to the value of services provided. I shall take the turnover of overseas construction contracts completed in one year as a proxy for services.^[4]

Figure 3 shows that the turnover achieved by Chinese construction companies in 2016 was more than 25 times higher than the amount invested by China in Africa.

This was not an exception but the rule. It must be perfectly clear that China’s FDI in Africa is an expense for China but not an income for the hosting African country. On the other hand, payment for services is an expense (and at the same time an investment) for the client African country AND a revenue for China.

Keeping in mind this difference, these two activities each illustrate, in their own way, China’s presence in Africa; they show clearly that China is a services provider rather than an investor, that Africa is rather a customer than a partner. This conclusion would be even more evident if the services were to be added to the Chinese goods bought by African countries or, more accurately, to the growing African merchandise trade deficit with China.

In my final post, using examples from Algeria, I will explain how the many kinds of “Chinese” enterprises in Africa further complicate efforts to understand Chinese FDI.

^{[1] Dr. Thierry Pairault is research director at France’s Centre National de la Recherche Scientifique (CNRS) and at the Center of Studies on Modern and Contemporary China at the École des Hautes Études en Sciences Sociales (EHESS – School of Advanced Studies in Social Sciences). Please see http://pairault.fr/sinaf/ for more information about his work.
[2] Notes 1 and 2, page 3 (see http://fec.mofcom.gov.cn/article/tjsj/tjgb/201709/20170902653690.shtml).
[3] Moreover, to be considered as a direct investment, an investment must represent at least 10% of the shares; otherwise it is a portfolio investment (speculative therefore most often). OECD Economic Outlook, Volume 2003, Issue 1, p. 158 (Box VI-I).
[4] Chinese statisticians use the terms “Contracted projects”, chengbao gongcheng, and “Value of Turnover fulfilled”, wancheng yingye’e. We are taught, “Overseas Contracted Projects refer to activities of contracting overseas construction projects by Chinese enterprises”.}