Rising Profile of FDIs From Emerging Markets to Nigeria, Others

Dr. Ngozi Okonjo-Iweala has been designated as the Minister of Finance in the government of Nigerian President Goodluck Jonathan. She entered the post in August 2011 after serving for years as an official of the World Bank., a photo by Pan-African News Wire File Photos on Flickr.

Rising profile of FDIs from emerging markets to Nigeria, others

Wednesday, 26 October 2011 00:00 By Ade Ogidan, Business Editor

WITH marked truncations in the development paradigm of economic development in Nigeria and other Sub-Saharan countries, strategic focus on Foreign Direct Investments (FDIs) has become the order of the day, with policy measures being tilted to address reach-out initiatives, especially to identified development partners.

Nigeria, specifically has made investment inflows from these development partners a major plank of its economic development policies, with measured steps being taken to adhere to committed timelines, in respect of its 20:2020 vision.

Curiously, Nigeria’s traditional trade partners like United Kingdom, United States of America and some other European countries have not been forthcoming, as expected, to key into the nation’s economic development agenda, especially in area of investment inflow.

Rather, Asian countries have become the new and perhaps, reliable allies, even as Nigeria’s crude oil exports continued to flow towards the Western routes, in inverse proportion to development inflows to Africa’s biggest market.

Among these Asian countries, China has emerged the top trade and investment partner, even as of India’s stake continued to assume an ascendant profile.

The development partnership map may have also included South America’s biggest economy- Brazil, in apparent endorsement of the economic agenda of BIC (Brazil, India and China), which were scripted under the group’s collaborative development initiatives.

The pattern of trade and investment reach-out initiatives by these emerging countries, such as BIC, have found profound expression in virtually all the sub-Saharan countries.

According to international Monetary Fund’s regional economic outlook for Sub-Saharan African (SSA), BIC’s stake in investments in the region, have been on a phenomenal rise.

Indeed, Chinese FDI to sub-Saharan Africa, as a share of total FDI to the region, rose from less than one per cent in 2003 to 16 per cent by 2008.

Investments from India are also significant: by 2006, Indian investment stocks in sub-Saharan Africa were almost as large as Chinese FDI flows in the region.

In regard to destination, Chinese investment is the most geographically dispersed in the region.

Whereas most Indian investment is concentrated in Mauritius, and Brazil’s investment is focused on Angola, Mozambique, and more recently Liberia, Chinese investment is present in most sub-Saharan African countries.

Top destinations of Chinese investment in the region are South Africa, Nigeria, Zambia, Niger, Ethiopia, and the Democratic Republic of the Congo.

Although, most of the emerging partners’ investments are in mining, investments in other sectors are also significant.

Besides oil and mining, Chinese investment is also directed toward manufacturing, construction, finance, agriculture, and service all sectors that have a high local labour input.

India has significant investment in Mauritius’ manufacturing sector. China is also establishing several export processing zones in sub-Saharan Africa, aiming at promoting manufacturing in the region. The committed investment is often large.

For instance, $5 billion (or 2.3 per cent of Nigeria’s GDP) has been committed to the first phase of the Lekki Free Trade Zone, 60 per cent of which is held by a Chinese developer and 40 per cent by the government.

Although, such zones are second-best solutions compared with economy-wide reforms, they could have benefits for both China and the host countries.

First, the zones can help relocate some of China’s mature industries (such as textiles) to sub-Saharan Africa in clusters, driven by rising labour costs in China.

Second, the zones can produce manufactured goods for both advanced economies and African markets that might have trade barriers to companies located in China.

Third, sub-Saharan African host countries can benefit from additional investment, employment, and technology transfers.

However, cost competitiveness may deter manufacturing investment in some countries in the region.

While comprehensive data are not available for sub-Saharan Africa as a whole, indicators for selected countries suggest their cost competitiveness is generally inferior to that of other countries that have significant manufacturing exports.

With the exception of Ghana, the combination of labour costs and productivity in the existing export processing zones of some sub- Saharan African countries is not competitive, compared with those in Bangladesh and Vietnam.

The economic impact of new partnership of Nigeria and other sub-Saharan African countries has been variously described as huge.

First, sub-Saharan Africa’s trade reorientation is the result of an increase in its trade with emerging partners, not trade diversion, and therefore, the region experiences the benefits

commonly associated with any expansion in international trade.

Second, trading with a larger number of partners appears to be reducing the region’s historically high export volatility, which could foster its long-term economic growth.

Third, emerging partners’ financing of sub- Saharan Africa’s economic activities can help boost economic growth.

Fourth, growth of emerging partners has an indirect economic benefit for sub-Saharan Africa because it has strengthened commodity prices, thus improving the terms of sub-Saharan Africa’s trade with traditional and nontraditional partners.