Finally, there is the argument that Chinese foreign direct investment fails to transfer technologies and skills to local businesses — what economists refer to as “positive spillovers.” These can occur, for example, by bringing local businesses into supply chains, or by working with local experts on research and development.
Such spillovers require the investor to be closely integrated into the local economy. China’s manufacturing investments, however, are often located in industrial parks or special economic zones (SEZs). Such arrangements protect the investor from an unstable business environment, but they can also cut investors off from indigenous businesses; and when SEZs offer investors special tax breaks, the country is deprived of potential revenues.
Five SEZs were established in African markets in 2006, and five more were planned the following year. Yet research on the impact of Chinese investment in Africa’s SEZs suggests that ties to local enterprises have been numerous and positive, and that they contribute to broader industrialization of the host economy.
Overall, there is little hard evidence to support a malign view of China’s investments in Africa. Certainly, more can be done to strengthen institutions and ensure sustainable resource management. Moreover, African governments could match China’s “Africa policy” with their own “China policy.” This could encourage investment in a range of higher-value-added sectors, promote positive spillovers and minimize adverse effects.
Only with a long-term strategy can host governments ensure that Chinese (and other) investments become a tool of development, not just a means of generating short-term profit.
Simplice Asongu is lead economist in the research department of the African Governance and Development Institute.
Copyright: Project Syndicate