Chinese Outward Direct Investment In Africa:an Analysis Of Chinese Investment In High-growth Countries With A Focus On Ethiopia,Kenya,and Rwanda

There is a common belief that China plays a crucial role in African economies,although most academic researchers are claiming that Chinese Outward Direct Investment has a more negative than positive effect on economic growth in Africa.In this matter,China's investment strategy is widely described as ‘aggressive' that aims to exploit natural resources and local labor while weakening democracy.This conclusion is supported by the fact that China's demand for natural resources has been growing exponentially in the last years and the pressure of meeting the domestic needs increased.1 China's realized FDI Outflow stock in Africa has increased from only US$ 500 million in 2003 to staggering US$ 39,9 billion in 2016.2 In fact,during the forum on China-Africa Cooperation in September 2018,China promised another US$ 60 billion for projects in Africa in the form of investments and loans allocated within the next years.3 Primary FDI recipients since early 2000 were mostly Africa's resourcerich countries that have received assistance in the form of loans and financial aid.4 However,there has been a shift towards the Chinese ODI5 strategy in African countries in recent years,but only a few research studies are currently available that have been conducted to analyze China's investment role and motives in these so-called resource-poor countries6 which in contrast mainly rely on agriculture,industrial goods,and manufacturing.The focus on resource-poor countries in Africa as an underlying research topic of this paper is derived from recent statistics published by the World Bank stating that resource-poor countries represent a considerable share of Africa's fastest-growing economies.7 Over the same period of rapid economic growth in those countries,Chinese Outward Direct Investment in resource-poor countries grew substantially.8 Both macroeconomic trends raise the question of why China is targeting those countries and to what extent has Chinese increased ODI contributed to the recent economic growth in Africa.Therefore,this paper tries to provide a qualitative and quantitative overview to determine whether a positive correlation can refute the widely stated negative perception of Chinese Investment in Africa.I mainly present qualitative case studies but also provide data-driven views on Chinese ODI with the main focus on resource-poor,fast-growing economies.The paper analyzes the motives and effects of Chinese ODI in Africa's high-growth countries – with a state-specific focus on Ethiopia,Kenya,and Rwanda – over the period of 2000-2015.I concluded that Ethiopia,Kenya,and Rwanda were the most suitable countries being examined for this paper.As for the country selection process required,various macroeconomic variables are considered.Main criteria utilized to choose underlying countries were(1)a limitation of resource endowments,(2)a fast-growing economy on the way towards the industrialization stage that had a growth rate above the continental average 9,and(3)the availability of Chinese official ODI data and relevant academic literature.Based on the data analysis,the countries selected represent high-growth economies whose research analysis has the potential to bring new findings to existing literature on Sino-African Trade and Investments.The primary type of data used in this paper is secondary sourced from various publications of World Bank Group,Chinese Ministry of Commerce10,UNCTAD,World Trade Organization,SAIS China Africa Research Initiative of John Hopkins University,and available academic literature.With regards to the quantitative analysis,the multiple regression analysis is being used in Chapter 4 to determine the relationship and impact between ODI and GDP.The research results in this paper show that China's ODI makes a positive contribution to the economic development of high-growth countries in Africa.Motives to invest in Ethiopia,Kenya,and Rwanda are primarily driven by marketefficiency,and strategic-asset seeking purposes.Although there are some adverse effects of Chinese ODI flowing into Africa such as rising local government debt and economic dependence of African countries;case studies in this paper revealed that more positive effects of Chinese ODI on high-growth countries,represented by Ethiopia,Kenya and Rwanda,are identified.These positive effects are particularly characterized by job creation through the establishment of industrial parks in Special Economic Zones,promotion of the domestic manufacturing sector by shifting factories away from China to Africa,improving education by transferring technical knowledge to local labor force,building high-cost infrastructure projects and investing in future digital technology sectors.In addition,based on the regression analysis,there is a strong positive correlation between Chinese ODI and economic growth,measured by level of Gross Domestic Product,in all of the three analyzed countries.