Geographic Distribution of Output Sales to Private Firms

INVESTMENT
-
TRADE LINKAGES IN AFRICAN
-
ASIAN COMMERCE
323
The extent to which firms operating in Africa engage in open market transactions with independent firms rather than vertical integration is one element depicting the pattern of these businesses intraindustry and network trade. Another is the nature of the geographic distribution of such transactions. The WBAATI survey data provide information on this score;
see tables 6.10 and 6.11. For arms-length sales of output to private firms,
Chinese businesses transact less with local (African) firms than do African- or Indian-owned businesses. At the same time, however, Chinese firms engage in more interfirm output sales in the private sector in Africa’s
regional markets than do African or Indian firms. This finding is consistent with earlier ones pointing to the fact that Chinese firms tend to engage in more extensive regional integration than do domestic counterparts.
Regarding purchases of inputs from independent private entities, the variation among firms of differing nationality is far more notable. African firms rely much more heavily on procuring privately produced inputs in the local,
domestic market than do either Chinese or Indian firms, especially the latter:
Indian firms arms-length input purchases from private local firms is half the magnitude of their African counterparts. On the other hand, while there is limited variation across different nationality businesses regarding interfirm input purchases in Africa’s regional markets, Chinese and Indian firms operating on the continent procure significantly greater portions of inputs from private firms located outside Africa than do domestic firms, especially Indian businesses, which do so at twice the rate as their African counterparts.
Worldwide, firms that have been most effective in taking advantage of the new opportunities afforded by the growth in network trade and the accompanying increase in trade in parts and components are those who have been able to climb the value chain. This means moving from exporting raw materials to exporting goods that have been further processed. In doing so, a greater portion of the product’s value is retained by the firm producing the raw material initially.
It has been widely documented that, at the national level, African countries rely heavily on exports of raw materials. As a result, value-added is being forgone. At the firm level, the WBAATI survey data suggest a similar story see table 6.12. Indeed, in comparison with both Chinese and Indian
(as well as European) firms operating in Africa, domestic firms tend to sell a larger portion of raw material products. Moreover, this pattern is evident not only in global trade outside the African continent, but also with regard to interregional trade within Africa.
06-Chap6:06-Chap6 10/9/06 2:39 PM Page 323

324
AFRICA
’
S SILK ROAD
:
CHINA AND INDIA
’
S NEW ECONOMIC FRONTIER
Externalities from Chinese and Indian FDI in Africa Technology Transfer
Worldwide, the presence of foreign firms usually has a profound effect on a host country’s participation in international trade, because FDI is often associated with an increase in both exports and imports. Empirical evidence on a global basis suggests that firms with foreign capital tend to be more export-oriented than domestic firms, and are responsible fora large share of exports in many developing, as well as transition, economies.
32
The data presented in this chapter generally confirm these findings in the case of Chinese and Indian firms operating in Africa. Inmost regions of the world, the contribution of foreign firms to host-country exports may not be immediate. A surge in FDI inflows frequently results in a spike of imports as multinationals bring capital equipment for their newly established production plants. Because it takes several years to establish links with local suppliers, in the initial period of operation they may also rely on imported intermediate inputs before switching to local sourcing.
An important potential byproduct of this process is that domestic firms become exposed to transfers of advances in technology or enhanced skills.
Such exposure can engender positive spillover effects on the efficiency and competitiveness of host country firms see box 6.5. The possibility of positive spillovers to host markets in Africa by Chinese and Indian investors in the form of new skills was explored in detail in chapter 5. How these
TABLE 6.12

Download 5.17 Mb.

Share with your friends: