Form of FDI Entry to Africa

INVESTMENT
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TRADE LINKAGES IN AFRICAN
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ASIAN COMMERCE
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trade can, in part, depend on the scale of operations attained through FDI.
This is likely to be true to the extent that the underlying technology and the organization of production inherent in the sector in question provide for decreasing unit costs as production increases. Among businesses covered by the WBAATI survey, in comparison with Chinese and Indian firms
TABLE 6.3
Form of FDI Entry to Africa by Sector
(percent)
Product group
De novo
Joint venture
Acquisition
Agriculture and food 13 Chemicals 20 Construction Machinery 44 0
Non-oil minerals and metals 0
14
Nondurables
63 13 25
Nonconstruction services 10 Textiles 40 Source World Bank staff. Note Includes Chinese, Indian, and European firms. Data pertain to median values 100 300 500 700 900
textiles
median size difference (number of employees)
minerals and metals
machinery
agriculture and food
European
Indian
Chinese
European
Indian
Chinese
European
Indian
Chinese
European
Indian
Chinese
FIGURE 6.5
Business Size Differences (Relative to African Firms) for Selected Sectors
Source: World Bank staff.
Note: Difference in median size, by number of employees, relative to median African firm. Minerals excludes non-oil minerals.
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AFRICA
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CHINA AND INDIA
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S NEW ECONOMIC FRONTIER
operating in Africa, the scale achieved by domestically owned enterprises in certain sectors, for example, agriculture and food and textiles, is considerably smaller (see figure Especially in the textile sector, the scale of
Chinese firms, and to a lesser extent Indian firms, greatly dominates that of African-owned firms. In contrast, in the machinery and the non-oil minerals and metals sectors, there is relatively little difference between the scale of African firms and their Chinese or Indian counterparts. These scale variations across sectors are likely to have a significant influence on the reasons why Chinese and Indian firms in Africa are better able to engage in network trade than are domestic businesses.
One obvious dimension of scale that can play a key role in the ability of firms to integrate investment with trade activities and engage in international production sharing is the extent to which a business is part of a larger holding company or group-enterprise corporate structure. It has been widely documented that some of the larger businesses in China and India—
including some of the largest (and most well-known) companies in the world, such as SINOPEC (primarily in the chemical sector) and Tata (a conglomerate, respectively—have group structures.
28
In fact, a recent survey of
FDI outflows from China on a global basis finds that on average 97 percent of Chinese firms investing abroad are affiliates of a parent firm in China.
29
As investors in Africa, survey data reveal that both Chinese and Indian (as well as European) businesses have a higher incidence of belonging to a holding company or group enterprise than do African firms see figure 6.6. In fact,
FIGURE 6.6

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