South-to-South investment is rising sharply

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AT A meeting in Namibia last month Zimbabwe’s finance minister, Patrick Chinamasa, made a pitch to lure African investors to an economy ruined by Robert Mugabe. That he did so first in Windhoek, not London or New York, is telling. Although flows through tax havens muddy the data, 28% of new foreign direct investment (FDI) globally in 2016 was from firms in emerging markets—up from just 8% in 2000.

Chinese FDI, a big chunk of this, shrank in 2017 as Beijing restricted outflows and America and Europe screened acquisitions by foreigners more closely. But the trend of outbound investment is widespread. Almost all developing countries have companies with overseas affiliates. Most of their investment goes to the West. But in two-fifths of developing countries they make up at least half of incoming FDI. In 2015-16 the ten leading foreign investors in Africa, by number of new projects, included China, India, Kenya and South Africa.

A World Bank survey of more than 750 firms with FDI in developing countries found that those from developing countries themselves were more willing to set up shop in smaller and higher-risk countries. And they were just as likely as rich-country firms to reinvest profits in their foreign affiliates. Peter Kusek from the bank says that globally ambitious firms often start affiliates in neighbouring countries first, to cut their teeth in a relatively familiar foreign market.

The trend toward South-to-South investment is particularly beneficial for the world’s poorest countries, and would be even bigger if governments got out of the way. According to the World Bank, 60% of poor countries curb outward FDI, through cumbersome reporting requirements, foreign-exchange controls or ceilings for specific destinations or industries. Restrictions on inward FDI are also common. Foreign banks in the Philippines can open no more than six local branches. In Ethiopia foreigners cannot own bakeries, hair salons, travel agencies, sawmills or much else. In 2013 Ghana more than tripled its capital requirements for foreign-owned trading companies, bowing to local retailers irked by a proliferation of Nigerian shops.

Still, there are reasons for optimism. Kevin Ibeh of Birkbeck University in London says that the rise of African multinationals is a sign of the maturing of private enterprise in the region. Some employ hundreds of thousands of workers. So they have clout in lobbying for better regulation and infrastructure, or for their governments to intervene when another country mulls protectionist rules. All of this, says Mr Ibeh, may even usher in better implementation of various regional free-trade agreements, which so far exist largely on paper.

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Julio Marchi ©

Publisher / Editor at BS News & Media Services
A free thinker, not labelled as anything, not associated with any party, not part of any group or engaged with any religion... A simple guy tired of the nowadays bullshit who decided to promote more serious debates about what is really happening hoping to bring back intelligence to the superficial and shallow news & headlines that unfortunately took over the existing media scene.
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