Unpacking the dynamics of Chinese investment in Africa
To better understand the impacts of Chinese FDI on accelerating structural transformation in Africa, researchers from the China Africa Research Initiative (CARI) at Johns Hopkins University School of Advanced International Studies looked into Chinese investments in African agribusiness and manufacturing, and their potential contribution to knowledge and technology transfer and structural transformation.
This impact case study offers a snapshot into what the CARI research team has achieved so far, and into the influence that their DEGRP supported project has had with policy, media and other non-academic stakeholders.
The impact of Chinese FDI on host countries in Africa is a contentious issue that taps into public debate on Chinese engagement in the continent, including accusations of ‘land grabbing’, unsustainable natural resource extraction and the complex dynamics of Chinese development finance. The DEGRP study sought to unpack the implications of Chinese investment in Africa, in part to better understand the numerous actors, sectors and avenues of engagement, and to counter inaccurate narratives concerning China’s involvement in Africa.
The research built on existing work undertaken by CARI and partners under separate funding between 2008 and 2015 on the macro-political and economic impacts of Chinese engagement in Africa. The team observed a considerable gap in the literature on technology and knowledge transfer, which are priority areas for many African governments. Filling this gap helped bust the myth that Chinese firms and workers do not transfer any of their knowledge and technologies to local workers.
The CARI team conducting DEGRP research was led by Professor Deborah Brautigam and Professor Margaret McMillan from Tufts University. The project focused on four African countries: Ethiopia, Kenya, Nigeria and Tanzania, with smaller case studies in countries such as Madagascar, Malawi and Zambia. Local partnerships were vital for the research – for instance, in Tanzania, the CARI team collaborated with key researcher Dr Josaphat Kweka, and in Ethiopia, Dr Girum Tefera. In some cases, the project team had already established relationships with stakeholders and partners through previous field research. For example, in Zambia, the team was able to interact with domestic and Chinese firms, gaining access to managers, workers and farmers to survey during the DEGRP study.
The project focused on four key areas of structural transformation: technology transfer, direct training and upskilling from Chinese to local firms and workers, backward and forward linkages, and subcontracting. The overarching research goal was to better understand the reality of mechanisms of technology and knowledge transfer, from Chinese investors to African firms and workers, and to ascertain whether FDI leads to added benefits for domestic firms and employees such as job creation, training and increased productivity.
The team’s understanding of technology transfer was purposefully broad and included upskilling, the purchasing and donating of hard equipment and the diffusion and movement of labour within sectors. The study employed a multi-method approach, including: database construction; scoping studies, which enabled the team to map existing Chinese investment; cluster surveys, which offered a snapshot into potential opportunities for linkages and technology transfer; national surveys; and case studies, which allowed for comparisons between Chinese and non-Chinese FDI in the focus countries.
The project’s findings
- The majority of Chinese firms based in the African countries studied were privately owned, with very few receiving financial support from the Chinese government. Drivers for Chinese investment were primarily market-oriented, notably cheap labour and an abundance of raw materials.
- There was clear evidence of job creation in most sectors and countries assessed. In Ethiopia, Kenya, Nigeria and Tanzania, the research revealed that some Chinese investments (mainly in building material and garment manufacturing) employed up to 1,000 African workers.
- There was evidence of technology and knowledge transfer via training programmes but proliferation was limited, with distinct variations between countries and sectors. For example, in telecommunications, Chinese firms were mostly unwilling to sell their intellectual property to domestic actors. However, there were positive results regarding the advantages of Special Economic Zones (SEZs) and clustering certain industrial activities.
- Although there was evidence of structural transformation at an aggregate level – including subcontracting, imitation and backward and forward linkages in all countries studied – challenges and concerns were also apparent. These included the underdevelopment of local supply chains and infrastructure, high domestic staff turnover and the poaching of domestically trained workers by competing Chinese firms. In some cases, local workers were found to have very limited union protections within Chinese SEZs, as was the case in Ethiopia’s Eastern Industrial Zone.
Country case studies revealed more in-depth insights:
- In Nigeria, there has been a limited push towards capacity building and skills development for local workers, which has restricted knowledge transfer. Higher domestic employment has failed to translate into upskilling within designated manufacturing zones, in part due to cultural and linguistic barriers. However, there was evidence of technology transfer: for example, in Enugu, DEGRP researchers found that Nigerian automobile manufacturers were purchasing equipment from Chinese firms. Such exchanges would often include a Chinese technician who provided training to Nigerian workers on how to operate the equipment.
- Collaboration and technology transfer between Chinese and domestic firms were more apparent where Chinese firms were relatively new to the market. For example, in the Nigerian marble sector Chinese investors collaborated with local manufacturers, selling them technology. In contrast, significantly lower opportunities for technology and knowledge transfer were observed in the ceramic tile industry, given established clusters of Chinese firms dominated the domestic market.
- In Tanzania, upskilling was successful when local workers joined Chinese firms. The CARI research team noted that the domestic legal framework in place encouraged the promotion of FDI, with the government developing a variety of modalities for foreign investment and aid.
- In Ethiopia, there was limited evidence of aggregate knowledge transfer in the leather sector, which failed to realise a comparative advantage. Linkages with the livestock sector were weak, limiting the expansion of Ethiopia’s leather output. Researchers pointed to a policy environment which, for many years, did not seize opportunities for technology and knowledge transfer from Chinese FDI.
- Finally, in Zambia’s cotton sector, collaboration between Chinese and local firms resulted in a more integrated value chain, where the advice of local managers has been sought by Chinese investors to develop a business model predicated on cautious spending and efficiency.
The project’s influence
The CARI team engaged with key policy stakeholders from the outset and were able to engage directly with African Ministers and special advisors. In Ethiopia, the team developed a close working relationship with Dr Arkebe Oqubay, a Senior Minister and Special Adviser to the Prime Minister of Ethiopia. Described by one lead researcher as being “an influential figure in promoting Chinese investment and industrialisation”, Dr Oqubay attended project events and collaborated with the DEGRP research team.
The CARI DEGRP project has informed government stakeholders on how to best maximise the benefits of Chinese and other foreign investments. In Tanzania, the close and constructive relationship between CARI and the Tanzanian National Bureau of Statistics enabled the co-creation of a survey module to measure industrial growth and the impact of Chinese FDI on domestic structural transformation. The module continues to be used by the Bureau beyond the lifespan of the project.
The team also engaged with international organisations, including UNDP, the IMF – whose Chief Economist met with members of the research team – and the World Bank, who have since contracted CARI to evaluate their work on Chinese infrastructural development in Africa. Interest from high-income country governments and bilateral agencies has also been garnered, including from the US State Department, the US Treasury, USAID and the Development Bank of Japan.
Furthermore, the DEGRP research project has contributed to policy advisory processes with the Chinese government. Lead researcher Tang Xiaoyang has had sustained interactions with the Chinese Agricultural Ministry. Based on DEGRP research in Malawi and Zambia, he recently advised the Ministry on how to manage and increase mechanisation of their agricultural investments in Africa, and potentially increase knowledge and technology transfer via subcontracting to local firms.
Finally, the CARI team has led successful engagement with the media, partly because of the global reputation of Professor Brautigam’s insights on China-Africa issues and partly because of the myth-busting nature of some of the project’s findings. Professor Brautigam has authored op-eds in The Guardian and Foreign Policy, while CARI researchers have been approached for interviews on issues relating to China-Africa engagement, including from Reuters, The Ethiopia Reporter and The Washington Post.
The project’s work on the impact of Huawei’s involvement in Africa on knowledge and technology transfer is also gathering particular attention, in part due to the ongoing debate concerning the regulation of Huawei’s 5G technology in the US and Europe. Henry Tugendhat, one of the lead researchers, was interviewed by the Financial Times’ Beijing correspondent, and wrote an op-ed in The Guardian on the implications of Huawei’s 5G technology for the USA. He has since engaged with US State Department officials on this subject.
Two key conclusions can be drawn from the ongoing impact of the CARI research. First, the project has helped develop a more nuanced understanding of Chinese FDI in Africa by unpacking the dynamics of investment and offering country-level analysis. Second, in showing that the majority of investment is private – rather than from the Chinese government – and by detailing evidence of structural transformation, the research has helped shift inaccurate narratives concerning China’s engagement across Africa. The research highlights the need for African actors to play a more active role in the FDI process and to better tailor their policy frameworks to ensure Chinese investment is mutually beneficial. This new evidence base will support African governments in that endeavour.