Securing China's Overseas Investment for Africa's Future Developement: Evidence from West Africa

Securing China’s Overseas Investment for Africa’s Future Development:

Evidence from West Africa

Ehizuelen Michael Mitchell Omoruyi

Antwi Stephen Bodybobton

Abstract

The latter part of the twentieth century saw diverse investors actively looking for a favorable and secured environment for their capital investment. In the past, the black continent seldom rings a bell in the mind of most investors, but with the current uncertainties as well as financial crisis experienced globally coupled with the augmented demand of natural supplies forced investors to turn to Africa. For the past ten years, this situation has placed all Africa countries, including both developed and emerging nations in an embarrassing situation with a very low overseas investment. It is impossible to debate Africa’s development issue without pointing out the recent Chinese investment in the continent. For the past twenty years, China’s interest in the region has increase significantly. At the same time, it has aroused intense discussions with the international community because it has the drive to set up a lasting partnership with African nations. This new status quo will inevitably generate legal protection difficulties for the interest of each party. This paper looks at the influence of Chinese investment on African nation’s development. The paper looks at the challenges most Chinese investors’ encounter in Africa, and what legal protection the host nation provides to the investors to secure their profits and simultaneously safeguard their personal interest.

Keywords: Africa, China, ECOWAS, Foreign Direct investment, Regional Integration

Introduction

Nowadays, Western actors no longer enjoy the monopoly they use to enjoy over Africa future development. This is because for the first time in decades other actors have started observing the region politics and economic status quo (Klare and Volman 2006; Kragelund 2008). These actors do not operate passively aside, but actively contributing to the region economies by delivering aid, trade and investment to influence global political affairs. On the other hand, they also obtain the needed raw materials and get entrance to the rising African markets. The first among these ‘new’ actors actively contributing to the continent economies in diverse ways as well as gaining entrance in the rising Africa market is the mainland. The presence of Beijing in Africa takes multiple forms going from trade (which comprise of tariff exemptions), peacekeeping mission, development assistance (debt relief inclusive), people-to-people relations, investment, and tourism.

Historically, most proof point out that the continent has attracted the interest of overseas investors who are actively looking for a favorable surroundings for their capital investment. The reason was because of the judicial and legal insecurity that prevailed in the region after the 1960s. But, the current demand for natural resources has augmented the interest in the region. For the past ten years the continent has been in an embarrassing state with low overseas investment. The entrance of Mainland investors into the African markets have improved the condition and placed the region on a novel path of expansion. So, it is impossible to debate the continent development issue without referring to the recent Chinese investment in the region. Mainland has turn out to be the leading champion in development and foreign direct investment in the continent. For the past twenty years, Mainland’s interest in the region has augmented exponentially; it has created diverse debate among influential role actors in both developing and developed world. Different sides with different opinion about how the relationship can affect the future of the continent’s economic development. Determined by criticism some experts feel that Beijing is eating Africa lunch, that Mainland relationship with Africa is complex and too often distorted by myth. At one side of the spectrum, Beijing role is been praise for filling the financial and technological gaps for Africa, a role the Westerners have been reluctant to especially since the 2008 financial crisis.

On the other side, people speak about skepticism as regards to the drive surrounding Chinese investment and its significant influence on the region. Mainland has a noble drive to begin a long lasting friendship with the continent. But the dragon economy is not a fresh actor in the region, since it has invested in the continent in the past events for example like Sudan in 1994 (Pierre-Antoine B. 2006). But during that period, the investment was not much and protection was not a severe issue. The status quo will inevitably generate a legal protection difficulty for each party for the reason that overseas investment is subjected to the administrative control and law of the host nation. What this means is that, the guarantee given to overseas investors must not endanger the States’ right to legitimate rule. This paper will concentrate on West Africa due to the speedy development of Mainland Foreign Direct Investment (FDI) and the current evolution of the presence of Chinese firms’ in the region. The reason for this is particularly because of the robust desire of the States Members of the Economic Community of West African States (ECOWAS) to effectively incorporate the region and harmonize the investment policies of the organization. For the past thirty years, Mainland have been investing in the region as well as increasing its bilateral and trade relationship with African governments, it has played a significant role in supporting Africans to attain economic development and social betterment, particularly in infrastructure sector.

Mainland trade with Africa countries doubled that of the United States in 2012, and this outcome made Washington to understand that the country is missing so many opportunities in the region. Currently, Mainland investment in the region has been growing due to the presence of material supplies; as well as the process of harmonizing investment strategies in the region into single code. This system was adopted on June 2008 by the Authority of Head of States to simplify the investment controlling regime by West African governments. The harmonization process of investment strategies into a single code in the continent was introduced on June 2008 by the Authority of Head of States. The purpose was to make the investment controlling regime by West Africa governments easy. But with the introduction of the investment regulatory regime, most investors are still facing some challenges like unfavorable investment environment and cultural issues, which is not suitable for investment in the region. In addition, this paper will also delve into the increasingly significant economic influence of the Dragon economy Foreign Direct Investment (FDI) on West African nation’s expansion. It will also look at how Chinese investors faced difficulties in Africa and what legal protection the host nation can provide to its overseas investors to secure their profit and simultaneously protect its personal interest.

The recent Beijing economic development is causing the ‘East Asia Giant’ to upsurge its investment activities in the continent and to make it more relevant to African nations. Mainland has turn out to be a new lender for African nations. This position is not determinable by the period of its presence in the region, but by the exploding increase of the amount they give to African nations and by its worth in acting as a lender of last resort outside the existing dominance of development in the region when compared to the Western players. With this, there are needs to protect its investment to permit continuity of foreign direct investment in the region. This study will try to review the evolution of Chinese Foreign Direct Investment in the region by identifying the model of Chinese partnership with the continent, coupled with the prospects and role the dragon economy can play in developing Africa infrastructure within the context of China’s present-day trend investment engagement in the region. Analysis will also be made by looking at the several challenges Chinese investors come across, and lastly the establishment of the laws and rule of the investment policy in the regional integration organization to upsurge, develop, and safeguard overseas investment as well as Chinese investment in Africa.

The organization of this paper follows this order: The first part gives an overview of the work. The second part will look at the literature review of the Sino-African Relations. The third part will be the discussion of Chinese Foreign Direct Investment (FDI) in Africa. The fourth part will deliberate on numerous risks for investment in the region and their effect on the development. Part five will point out the opportunities of economic development by securing Chinese’s direct Investment in the region. Part six will also look at the development of the local laws to attract more significant overseas investors specifically in West Africa. And finally, part seven will conclude the paper.

Literature Review

Most of the discussion in this literature review will focus on the identification of the factor driving the Mainland investors in the region, the speedy enlargement of Sino-African association, the potential influence of Chinese outward Foreign Direct Investment (OFDI) in the region development. In history, the mainland has had a long political and economic association with African nations which can be traced back as far as 500 years old (Mohan and Kale, 2007). The forces unleashed by China’s open door policy of 1978 have increase the drive the mainland has as regard their interest in Africa (Shola Oyewole, 2007). This significant momentum has created a path for both parties to solidify their economic relations. This evidence can be seen in the trade volume between both parties, where in the 1990s trade increased by 700%^[1] making the “East Asian Giant” Africa’s largest trading partner.^[2] The entire Sino-African trade volume in 1980 was US$1 billion,^[3] it then augmented in 1999 to US$ 6.5 billion^[4] and then in 2000, it rise to US$10 billion.^[5] In 2005 the trade volume between the mainland and Africa was more than 29 billion euros (Nathalie F., 2006) making the mainland the third commercial partner of Africa. Later the trade volume climbed to US$55 billion in 2006, given Beijing the opportunity to rise as the second largest trading partner in the Africa after the United States of America who had a trade volume worth of US$ 91 billion with African countries. But these figures have change presently for the reason that the statement from Africa Development Bank titled ‘China and Africa: An Emerging Partnership for Development?’ shows that in 2008, Sino-African trade reached $114 billion dollars (Mary-Francoise R., 2011) (Schiere R., 2011). The People Republic of China (PRC) also surpassed the traditional African economic partner and former colonial power France, which had a trade volume worth of US$47 billion,^[6] with this development China became Africa’s number one trading partner in 2009. In 2010, trade volume between Africa and China reached US$114 billion,^[7] and later in 2011 the trade volume augmented to US$166.3 billion dollars.^[8] Noticeably, both 2010 and 2011 showed that the scale of China-Africa trade volume expanded rapidly. In the first ten months of 2012, there was another increased in the trade volume between China and Africa which amounted to US$163.9 billion.^[9] Later in the same 2012, the total volume of China-Africa trade reached US$198.49 billion, a year-on-year growth of 19.3 percent. Out of this, US$85.319 billion comprised of China’s export to Africa, which was up by 16.7 percent, and US$113.171 billion was contributed by China’s import from Africa which was up by 21.4 percent.^[10] According to a Standard Chartered experts Sarah Baynton-Glen who estimates that the trade volume between China and Africa could reach $385 billion by 2015 — almost double its recent level if it continues to grow on its recent trend.

This examination will as well centered on the following (i) the association from a post-financial crisis perspective; (ii) it will outline certain trade details between Mainland and Africa; (iii) the paper will survey Beijing industrialization and manufacturing policy in the region; (iv) investigate the Mainland’s development assistance program in the region; (v) the paper will also look at Beijing infrastructure investments and their implications for the continent regional integration; (vi) and analyzes the China-Africa association in the context of International aid architecture. Noticeably, there could be a huge threat with the African nations that export manufactured goods for the reason that the competition the Mainland investors bring into the market in very high. Unlike the Western players, the Mainland has a dissimilar viewpoint on the encouragement of good governance in the region. Mainland present-day policy for the continent is to focus on certain factors that are very vital for its economy sustainability. For instance, the nation need for petroleum is driven by its domestic development policy; chase of investment opportunity, building strategy building and creating new market for exporting its diverse products as well as seeking diplomatic support for its “One-China Principle” (Konings P., 2007).

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^[1] China’s trade safari in Africa—Le Monde Diplomatique, May 2005

^[2] Peter Wonacott (2011-09-02).In Africa, US. Watches China’s Rise. The Wall Street Journal. Retrieved 2012-07-19

^[3] Peter Wonacott (2011-09-02).In Africa, US. Watches China’s Rise. The Wall Street Journal. Retrieved 2012-07-19

^[4] Chinaembassy.org Sino-African Relations

^[5] Peter Wonacott (2011-09-02).In Africa, US. Watches China’s Rise. The Wall Street Journal. Retrieved 2012-07-19

^[6] China boosts African economies, offering a second opportunity. Christian Science Monitor. Retrieved 2009-03-14.

^[7] Peter Wonacott (2011-09-02).In Africa, US. Watches China’s Rise. The Wall Street Journal. Retrieved 2012-07-19

^[8] “Mozambique-China Trade Continues to Grow” allafrica.com. 2012-12-09. Retrieved 2012-12-09

^[9] “Mozambique-China Trade Continues to Grow” allafrica.com. 2012-12-09. Retrieved 2012-12-09

^[10] Xinhua News Agency “China-Africa Economic and Trade Cooperation (2013) http://www.globaltimes.cn/DesktopModules/DnnForge%20-%20NewsArticles/Print.aspx?tabid=99&tabmoduleid=94&articleId=807253&moduleId=405&PortalID=0