Factors Impact on Chinese Foreign Direct Investment in Africa

FACTORS IMPACTS ON CHINESE FOREIGN
DIRECT INVESTMENT (FDI) IN AFRICA

Contents
CHAPTER 1: INTRODUCTION....................................................................................................3
1.1 Background of the study...................................................................................3
1.2 Significance of the study...................................................................................3
1.3 Objectives of the study......................................................................................3
1.4 Structure of the research...................................................................................4
Chapter Two: Literature Review.....................................................................................................6
2.1 Theoretical background....................................................................................6
2.2 Empirical Literature Review of FDI Impact on Economic growth..............7
2.3 Empirical literature review of FDI impact on Africa economic....................8
Chapter Three: Overview of Africa Economic................................................................................9
3.1 Africa Economic performance..........................................................................9
3.2 Africa trade performance................................................................................11
Chapter Four: Methodology and Method......................................................................................14
4.1 Data and methodology....................................................................................14
4.2 Area and scope of the study............................................................................15
4.3 Model specification..........................................................................................15
4.4 Data analysis method......................................................................................15
4.5 Diagnostic tests.................................................................................................16
Chapter Five: Empirical Analysis and Results..............................................................................16
Chapter Six: Conclusion and Recommendations..........................................................................39
6.1 Conclusion:.......................................................................................................39
6.2 Recommendation.............................................................................................40
Research Limitations:...........................................................................................43
Future Research:...................................................................................................43
REFERENCES..............................................................................................................................46

TITLE: Factors impact on Chinese foreign direct investment in Africa.
CHAPTER 1: INTRODUCTION
1.1 Background of the study
Foreign direct investment is investment made through company or a person on single country inti
business interested located in the other country. It takes place when investor established the
foreign business related operations or acquire the foreign business assets in foreign firm. This is
an organisation that takes controlling the ownership in business entity in the other country. The
foreign direct investment takes place when investor established the foreign business operations
consisting establishing the ownership (Allina, 2018).
1.2 Significance of the study
The present investigation is based on determine the factors impact on Chinese foreign
direct investment in Africa. The foreign direct investment is helpful in enhancing the economic
and employment growth (Wu, 2018). The significance of this report is to know about the reasons
of China to investing in the Africa. The Chinese trade has contributed to the Africa Economic
growth. FDI mainly flow rose to the $3.5 billion. Foreign Direct Investment of China in
continent is mainly reached around $25 billion. China became largest trading and also
development partner of SSA with the trade reaching $170 billion. Through conducting this
investigation, researcher can enhance its understanding about determine the reasons due to which
Chinese companies are making FDI in Africa. Other than this, researcher mainly conduct the
investigation for personal interest. As this will help in enhancing the knowledge as well as
understanding regarding the Foreign Direct Investment. This helps in enhancing the research
skills to conduct the similar kind of investigation in future. Huawei is Chinese multinational
technology firm headquarter is in Guangdong. This mainly designs, develop and also sells the
telecommunication equipment’s and also consumer electronics. The Chinese FDI in Africa
surged at the time of global crisis when local governments are introduced the prudential loan
programs. FDI by china in Africa was linked with the demand of china for natural resources.
1.3 Objectives of the study
Aim
Research aim expresses intention or aspiration of research study. This summarise in
single sentence what to achieve at end of research project. It is necessary that aim should be

phrased and specific in such a manner that this is possible to determine when this has been
attained. Aim require to be explained in the clear manner because this explains intentions and
hope to be attain.
The main aim of this research is “To determine the factors impact on Chinese foreign
direct investment in Africa.” A study on Huawei.
Research Objectives
The research objectives mainly explained what need to be attained through the present
investigation. These are expresses in lay terms and directed as much to consumers as to an
investigator. The main objectives of research project provide abstract what need to be attained
through study. These are specific achievements; an investigator hopes to attain through study.
The objectives related to specific subject area are given below:
 To understand the concept of foreign direct investment.
 To examine the reasons due to which Chinese companies are making FDI in Africa.
 To identify the factors that are impacting on Chinese foreign direct investment in Africa.
 To determine issues related to Chinese foreign direct investment in Africa.
 To analyse ways to reduce the negative impact of Chinese foreign direct investment in
Africa.
Research Questions
 What is the foreign direct investment?
 What are the reasons due to which Chinese companies are making FDI in Africa?
 What are the factors that are impacting on Chinese foreign direct investment in Africa?
 What are the issues arise related to Chinese foreign direct investment in Africa?
 What are the different ways to reduce the negative impact of Chinese foreign direct
investment in Africa?
1.4 Structure of the research
Chapter one: Introduction- Introduction is the primary chapter in which the summary of
Investigation regarding the specific research area is mentioned. There has been aim and objective
regarding the particular area developed.
Chapter two: Literature review- Literature review is one of the main part of an
investigation because it attains all the research objective based on the particular area. In order to
Collection of data in literature review, secondary sources have been used such as internet

sources, scholars, articles, journals and others. These are helpful in providing the detailed and
descriptive information regarding the particular area.
Chapter three: Overview of Africa Economic- This chapter states about the overview
of the African economy. This provides information about the economic performance of Africa
and also its trade performance.
Chapter four: Methodology and methods- Research methodology is one of the main part
of an investigation because it is stated about the techniques and tools for Collection of data and
also analysing it. This includes the research philosophy, research approaches, data collection
methods, data analysis, sampling and others.
Chapter five: Empirical Analysis and Results - This Chapter stated about the ways
regarding analysis of information by using the different tools and techniques. There has been a
statistical technique used for analysing the data which help in providing the empirical the search
result. There has been including the research findings from the collected data.
Chapter six: Conclusions and Recommendations - It is the last chapter in an
investigation that stated the conclusion and recommendation, limitations and also the future
research. Conclusion and Recommendation are based on the whole research project. There has
been stated about the research limitations which arise at the time of conducting the investigation.
There has been research suggestion give conducted in future mentioned.

Chapter Two: Literature Review
2.1 Theoretical background
FDI is an investment rendered in some other nation by a company or individual with a particular
group. It occurs when an investor creates contracts in conjunction with overseas trade or acquires
international business properties in such a foreign enterprise. It is an agency in the other nation
that oversees ownership of companies (Berman and Dalzell-Payne, 2018). When investors set up
international business activities comprising of interest, overseas portfolio investment is made to
earn more profit. This research is focused on identifying the factors impacting China's overseas
investment throughout Africa. International capital expenditure is beneficial to fuel scale
economies and unemployment. It is important to know why China is spending in Africa. The
study is important. Trade in China has led to economic development in Africa. The FDI has risen
mostly to 3.5 billion dollars in stream. China's FDI is primarily at about $25 billion on the
mainland. With trade hitting US $170 billion, China is SSA's main trading but growth partner.
By undertaking this analysis, researchers will improve their understanding of why Chinese
manufacturers in Africa manufacture FDI. Apart from this the investigator performs the specific
interest study. This would lead to the increase of the awareness and comprehension of FDI. This
helps to increase science capabilities throughout the potential to perform the same form of
research. Huawei's offices are in Guangdong, China's international technology company. In
specific, the telecommunications devices as well as consumer appliances are planned,
manufactured and marketed. During the economic downturn, China's FDI throughout Africa rose
as the cautionary loan initiatives were initiated by local authorities. The Chinese FDI in Africa
has been connected with the mineral resources countries like China. The key result is that nations
have 6 environmental assets or major economies are drawing more FDI. Foreign investment,
nevertheless, is often promoted by other influences such as economic stability, skilled
population, strong accessibility to FDI networks and an effective judicial system, less conflict
and nepotism reliability. The Author notes that the results indicate that by enhancement of their
institutional climate and strategy, smaller nations or countries without natural development in the
region may also draw FDI. In favour of global market theory suggest that the addressable market
is among the most relevant indexes for investment labelling decision making because of 3
motives: greater benefit for direct deals then Chinese exports, as well as more varied capital,

making local procurement more viable. In other terms, the value of the business is a major
element that fascinates multinational corporations. The Chinese FDI's rise has been very strong
in Africa and over decades, however this rise has had two results (pleasant and unpleasant) on
the African continent. Multi-company economies, with huge populations, are more likely to
make profitable and therefore draw investments. Many analysts have always varying views on
the influence of FDI mostly on Afrikan economy. However, China's FDIs in Africa may not
exist in poor taste, as many conventional African partners claim. It clearly needs to be fully
interpreted and directed, so both sides will gain as often as possible. That's because in attempt to
comprehend what outcomes are it is crucial to analyse the (potential and bad impacts of China's
Investments in Africa. First, but the foreign direct investment concept in Africa needs to be
presented in the entire research (De Wit, and Meyer, 2010).
2.2 Empirical Literature Review of FDI Impact on Economic growth
The analytical literature has conflicting result that throughout the host state, international
multinational corporations produce favourable productivity externalities. This suggest a method
to emphasise the importance of community financial sector in allowing FDIs to support growth
though backward relationships and to shed some light on just this theoretical uncertainty.
Entrepreneurs need to create a new line of consumer products to function in the advanced
goods market, a challenge involving early capital expenditure. The much more local capital
markets expand, the better lending-constrained entrepreneurs will start up a small business. The
rapid growth of transitional product varieties contributes to positive results on the finished
products market. This makes the financial institutions for FDI inflows to become backward ties
between international and domestic businesses. Their adjustment simulations show that a)
keeping the scope of the a foreign presence stable, excellently economies achieve rates of growth
almost double that of poorly financial system industries; (b) rises in FDI shares or even the
comparative competitiveness of a foreign business contribute to more growth than those found
throughout the economic systems which financial developments.
Economic prosperity and structural reform, tax wealth creation are progressively seen by
developed nations, emerging markets as well as developing regions to FDIs. Nations have
reformed their FDI systems and have adopted certain investment attraction strategies. They
explored the best reason to advance domestic strategies in order to reap the advantages of the
international global presence. The FDI thesis focuses on the general effects of Globalisation on

economic stability and other revisionary systems, and aims specifically to shine a light mostly on
key point of countries like Africa (Hafiz and Ali, 2018). In the networks that take effect those
advantages contributes to the integration of foreign markets, adds to a more dynamic market
climate and promotes entrepreneurship. Both of these lead to stronger economic prosperity and
this is the most important mechanism in developed nations for poverty reduction. In addition,
FDI may lead to improving the climate as well as purely economic benefits. For example, by
exporting "cleaner" technology and increasing socially responsive policies into the host nation,
socioeconomic roles are developed. The general advantages of FDI are well known for
developed world economies. Provided the related host nation policy as well as the specific level
of growth, a significant number of studies have shown that FDI is causing technical disruptions
and leading to the creation of human resources.
2.3 Empirical literature review of FDI impact on Africa economic
FDI is among the most active capital flows of capital to developed nations which can perform a
significant role in plant growth, including the transition of new technologies and the production
of jobs. This encourages domestic savings, generates innovation and gross margins in wealth
creation. It is useful. It is often used in order to integrate into the international economy,
maximise productivity and develop the skilled labour capabilities championed by some
academics. An rise in FDI could be related to better development as a result of capital inflows
and tax collections increased for the Africa. This turns the FDI through national housing as well
as other construction programmes. FDI may also contribute to the transition of technical skills
through teaching, the development of even more significant segment for the national economy
including connections to R&D tools. While these reforms were significant, Africa did not obtain
the FDI volumes the progressives predicted. At the very same time, due to cultural, philosophical
and liberal campaigns, there seems to be a deep-rooted cynicism about foreign investments in the
country. These feelings have arisen over a number of challenges to foreign direct investment,
such as the nationalisation of foreign businesses and strong state interference in the economics, a
host of informal barriers including regulatory limits on foreign investment. Throughout the last 2
centuries, a few of international capital's early intellectual objections are being weakened and the
bulk of legislative constraints eliminated as the nation’s underwent trade policy shifts.
Nonetheless, there are already certain limits and many subtle challenges to the region's greater
flows (Hill and Jones 2009).