China's investment in Africa shifting towards manufacturing

Wednesday, July 1, 2015

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ADDIS ABABA -- Chinese investment in Africa is increasingly shifting towards the manufacturing sector as the Asian nation diversifies out of primary sectors such as agriculture and mining, the World Bank (WB) said Tuesday.

Africa therefore needs to exert conscious effort to create a conducive environment to attract Chinese investment to help develop the continent's under developed manufacturing sector, according to the report released Tuesday at the Investing in Africa Forum jointly held by WB, China and Ethiopia at Addis Ababa.

The WB noted in its report that while a large share of China's investment in Africa has traditionally been in extractive industries and construction, investment in manufacturing had increased in recent years.

According to the multilateral financial institution, China's cumulative investment stock in the manufacturing sector in Africa grew 10 percent year-on-year to 2.4 billion U.S. dollars as at the end of 2011 and accounted for 15 percent of Chinese foreign direct investment (FDI) in 2013.

In terms of greenfield projects during the period 2003-2014, both the largest share of Chinese capital investment and the largest number of projects were in the manufacturing sector.

"There is also a shift in FDI from China within the manufacturing sector towards higher value-added activities," the WB said.

China's growing interest in Africa's manufacturing also dovetails with the continent's long-held call for an increase in foreign investment that enhances employment creation and technology transfer to the under developed continent.

The WB said more Chinese companies were likely to outsource labor-intensive manufacturing operations in the face of increased competition and costs, and a more highly skilled labor market at home.

Africa thus stands to benefit from this development if it creates a favourable investment climate for Chinese manufacturing companies to set up plants on the continent.

Apart from industrial rebalancing, the Chinese government is also encouraging outward investment and African countries could attract this investment, provided they have the right policies and a conducive business climate, the WB said.

As China-Africa economic ties continue to expand, the WB said Chinese investment in manufacturing would help Africa to diversify its exports from predominantly primary goods to processed, value added goods.

"Based on its own experience, China could help African countries to address structural and logistical constraints that limit the competitiveness of these exports," it said.

Manufacturing, said the WB, offers an entry point for industrialization and by attracting increased FDI, African countries could benefit from the skills development, management experience, technology transfer, and integration into global value chains.

The WB said Chinese investment in manufacturing in African countries had expanded from textiles and apparel to industries such as auto, home appliances and building materials.

With Africa seeking to boost industrialization through a number of initiatives including the long-term development framework -- Agenda 2063 -- African countries have "a unique opportunity to attract strategic, job creating investment from China, but they need to act now," the WB noted.

It said creating a conducive climate for investment from China would require putting in place a supportive policy framework; lowering transport and energy costs; eliminating formal and informal barriers to trade; increasing the flexibility of labor markets; and ensuring effective competition policies.

These policies would also help African firms to increase productivity and competitiveness, it said.

As more and more Chinese firms diversified into Africa's manufacturing, a number of African countries had started to benefit from the increased investment.

Ethiopia and Rwanda, for example, were among African countries whose manufacturing sectors had become major beneficiaries of Chinese FDI in recent years.

According to the WB, total FDI inflows in Ethiopia in 2013 accounted for 2 percent of GDP and manufacturing was the largest recipient of FDI under operation both by level of investment and by number of projects at 76 percent and 41 percent of the total respectively.

China, Turkey and India were the top three job creators in manufacturing sector both for permanent and temporary type of jobs from 2008 to 2014, reflecting the importance of manufacturing FDI from new partners, the WB said.

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