27 Mar 07 - Asian investment in Africa: a new era of cooperation
This joint UNCTAD/UNDP publication aims to help African countries attract and benefit from FDI inflows from Asia with a view to harnessing FDI to achieve long-term, sustained development based on the Asian experience.
FDI is a significant source of external finance and a means of integrating into the global marketplace. So far, Africa has been left out of this process. This may be attributed to small market size, poor infrastructure, weak regulatory framework, debt problems and, in some cases, political instability. Over the past decade, however, there has been considerable progress with reforms in several African economies.
Trends in Asian FDI in Africa
Outward FDI from developing Asian economies has grown significantly since the early 1990s. Outflows from the region have reached a new high of an estimated US$ 90 billion in 2006. Only a small percentage of Asian FDI is currently targeted at Africa, but this is likely to change.
Africa has the potential to become an important investment location for Asian companies, in part because of the complementary nature of economic development between Asian and African countries. Traditionally, FDI flows from developing Asia to Africa were mainly from the Asian newly industrializing economies (Hong Kong SAR, Republic of Korea, Singapore, and Taiwan Province of China). Recently, however, China and India have emerged as significant sources.
Promoting investment in Africa has become a strategic priority in the international economic cooperation efforts of some Asian countries, including Malaysia and China. The recent rapid growth of Chinese FDI in Africa is partly the result of joint efforts by the Chinese and African Governments, including initiatives adopted in Beijing at the Forum on China-Africa Cooperation (5-6 November 2006).
Africa can attract and benefit more from Asian FDI
The rapid economic growth in Asia can be expected to lead to increased Asian investments in Africa, in both natural resources and manufacturing. In particular, the rapid industrial upgrading taking place in Asia provides ample opportunities for Africa to attract efficiency-seeking and export-oriented FDI from Asian economies. Yet appropriate policies at both national and international levels are crucial for turning this potential into reality.
This report provides concrete measures and steps to bring more Asian investment to African countries and strengthen development cooperation between the two regions. Recommendations include:
- Enhance productive capacities in a variety of industries;
- Adopt proactive policies to spur FDI that leads to broad-based growth;
- Where FDI is concentrated in extractive industries, add value to existing investments and promote investment in other sectors;
- Attract manufacturing projects and foster the domestic capabilities necessary for such activities;
- Enhance "backward" linkages between foreign affiliates and domestic firms, especially small and medium-sized enterprises.