Determinants of Chinese and American OFDI to Africa

The past one-and-a-half decades have witnesses a historically high level of outflows to developing countries as destinations, which accounts for 55% of the global total (UNCTAD 2015). Developing Asia drove the increase while flows to Latin America declined and those to Africa remained flat (UNCTAD 2015). Since foreign direct investment has been a major force in the shift toward an integrated and interdependent world economy, especially as the key support for poor continent, African continent, if true, benefit from these large flows during this period. People argued why some areas or economics are more attractive than others. As a percentage of global FDI flows, though, Africa’s share increased to 4.4 per cent, from 3.7 per cent in 2013. Slow global economic growth may make the faster growing African economies relatively more attractive, especially to emerging-market investors (UNCTAD 2013).

On the one hand, a special phenomenon that has characterized China’s outward foreign direct investment (OFDI) is a recent hot topic. China has been reintegrating in the world economy with the “Open Door” Policies in the late 1970s, and its economy has accelerated rapidly by its entry into the WTO since 2001 (Buckley et al., 2007). Kolstad (2012) suggested that China’s presence in the global economic stage has increased considerably. According to the statistics of Chinese Ministry of Commerce, China’s net direct investment in Africa is only 21 million US dollars in 2000. However, after the global economic crisis, Chinese net direct investment in Africa still reached up to 211 million US dollars, which has increased rapidly by over 10-fold within a decade. Indeed, China ranks fourth in the list of expected leading sources of FDI (UNCTAD 2005). After the “going global” strategy in 2002, China has made concerted efforts in encouraging overseas investments, with outward FDI increasing from only $1.77 billion in 1999 to $107.8 billion in 2014, and became increasingly a source of political and financial support for many African governments (Corkin et al.2006). It seems true that the re-emergence of China is changing the landscape of the global economy; the question is “in what direction”?

On the other hand, America, to our knowledge, the biggest FDI source and host  country, seems reasonable never to miss the opportunity in investing in Africa facing the new era of world industrial shift and economic cooperation.

Both China and America have great interests in this developing continent on account of its special comparative advantages. First, Africa is the second biggest continent with a population of 800 million and thus its market size is more concerned. Second, Africa is a country particularly with economies that are resource endowed, which attracts the commercial engagement of China and America with Africa. Owing to global resource reserves declined, Africa’s rich mining, oil and forests (and so on) are possibly particularly attractive among foreign investors. Third, higher investment return from this region is believed to be 24%-30% in average, highly exceeding that from other regions. (Cheng, 2012)

However, not only Chinese but American ODI driven for Africa’s natural resources is mainly a recent phenomenon. Further, issues that are associated with Chinese and American determinants on ODI to Africa are intensively scrutinized. This paper seeks to investigate the determinants behind and motives among Chinese and American outward foreign direct investment into Africa since 2000.

China and US OFDI

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