How Home-Targeted Are China’s Investments in Africa?

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on buyer-driven, as opposed to producer-driven, global-supply-chain considerations. Over the past few decades, most of the Asian businesses in
Africa engaging in these types of investments, such as Japanese and
Korean firms, have been primarily targeting industrial regions, such as the
EU and the United States.
The recent, rapid, significant entry by Chinese and Indian firms engaged in this mode of investment is changing things. A substantial portion of their target export markets tends to be other countries in the South, especially (but not exclusively) in Asia. However, there are also cases in which such investments by Chinese and Indian firms are facilitating African exports into other markets, including the North, and furthering even more so the continent’s global integration.
One prominent example is Chinese firms involvement in the African textile and apparel sector—especially in the wake of the expiration of the
Multifibre Arrangement in 2005, which unleashed fierce global competition—a clear illustration of how China’s foreign investment in
Africa is linked to the future of the continent’s trade patterns. Investment in these sectors has been accompanied by imports of textile materials (for example, cotton fabrics) from China to African countries that have growing apparel sectors. In turn, partly as a result of the trade preference schemes noted earlier, this is linked to African exports of garment products to the global market, most notably to the EU and the United States.
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Like other places in the world where global market–targeted investment and the associated network trade are occurring, the focus of Chinese and Indian firms pursuing this business strategy has been on footloose industries.
The emerging network trade is being motivated by the low labor costs in Africa, especially in sectors that are displaying relatively higher and rising labor costs in Asia. The result is that global market–targeted investments by China and India—as well as others—can create important opportunities for Africa to not only expand the volume of exports, but also diversify them away from traditional sectors. In fact, network trade has been creating export opportunities for Africa in newer, higher value-added industries, such as telecommunications and electronic parts and components, which are proving to be the domain for Chinese investors.
In other sectors, such as data services, call centers, and telemarketing—
so-called back-office support—Indian investors in Africa have shown a greater interest. Indeed, while India itself has become a center for outsourcing services for more advanced countries, such as the United States
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and the EU, it is now outsourcing its own services to Africa, especially in the software sector. Data from the WBAATI business case studies suggest that countries such as Ghana, Senegal, and Tanzania, among others, have the ability to compete globally in such services markets. For example, HCL
Enterprises, Ltd, a $3 billion Indian software company, is working on a million multiyear outsourcing contract with Old Mutual, South
Africa’s largest insurance company. In many cases, although by international standards the size of these investments in Africa maybe limited,
they nonetheless can generate significant employment opportunities for local economies.
More advanced global market–targeted investments by Asian firms investing in Africa are emerging, resulting in (limited) producer-driven network trade. These investments are fostered by the promise of substantial productivity increases that could be engendered by subregional integration of the continent. If such regional integration were to succeed—and the challenges are appreciable (see box ultimately, it could provide a platform for exports to global markets. To seize on such prospects, beginning in the s, major Japanese and Korean automobile companies, for example, established plants in South Africa, which is rapidly becoming an important regional economic hub. More recently, Chinese and Indian automotive and truck assembly operations made significant investments in
Africa—not only in South Africa, but also in Tanzania, with plans for exports to Uganda, Rwanda, Burundi, and the Democratic Republic of
Congo. Importantly, as the WBAATI business case studies suggest, these newer investments are targeting export markets inside—and ultimately outside—the Africa region.

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