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2017 | Buch

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Foreign Capital Flows and Economic Development in Africa

The Impact of BRICS versus OECD

herausgegeben von: Evelyn Wamboye, Esubalew Alehegn Tiruneh

Verlag: Palgrave Macmillan US

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

This collection examines the extent to which foreign capital from conventional (OECD countries) and non-conventional (BRICS) sources has impacted economic development in Africa over the last two decades. It provides in-depth analyses of the nature, motives, and implications of this capital, and identifies drivers of contemporary rapid growth within and across African countries. Authored by leading experts, the book offers original insights for academics, policymakers, and practitioners studying the changes taking place in Africa as the continent strides more confidently toward integration with the global economy. The major themes addressed in this book include:• The implications of growing Chinese engagement in Africa • BRICS countries' versus OECD countries' investment contributions to Africa• The politics of land, land grab, and the puzzle of inclusive development in Africa• Foreign research and development spillovers, trade linkages, and productivity in Africa• Foreign aid effects on social sector, growth, and structural change in Africa• Remittances, foreign debt, resource management, and economic development in Africa

Inhaltsverzeichnis

Frontmatter

Introduction

Frontmatter

Chapter 1. Exploring the Nature, Motives, and Implications of Foreign Capital in Africa

Abstract

This introductory chapter summarizes the papers in this book. It shows that the topics covered by experts in their respective fields are engaging, provocative, timely, and critical as they address an emerging theme in development. The analyses provide cutting-edge knowledge about the extent to which capital from BRICS versus OECD member countries impacts Africa’s development trajectory and, as such, offers a contribution that is yet to take root in development economics. It further explicates current issues in ways that question the status quo and offers practical policies for a transformed and thriving Africa. The topics explored have particular resonance with, and relevance to, the changes currently taking place in Africa.

Evelyn Wamboye, Esubalew Alehegn Tiruneh

Chinese Growing Engagement in Africa: Motives and Implications

Frontmatter

Chapter 2. The Impact of China and South Africa in Urban Africa

Abstract

This chapter examines how BRICS-led geo-governance is influencing urban forms and functions in sub-Saharan Africa. Drawing on recent field research on production and consumption activities/regimes in Zambia and Tanzania, we demonstrate the ways in which two BRICS countries (China, South Africa) transform the character and function of Africa’s urban industries and consumer markets. The scale and scope of these transformations are manifested in a new phase of urbanization, one characterized by a dual-fold dynamic of extraversion and intraversion as the business-as-usual exploitation of commodity exports by BRICS-led investment is coupled with a flood of imports of BRICS-produced luxury and wage goods. The result is African cities are unable to create urbanization or localization economies that might spur distributive forms of growth and economic development.

Pádraig Carmody, James T. Murphy

Chapter 3. China’s Financial and Aid Flows into Africa and their Effects

Abstract

China’s capital flow into Africa revived in the 1990s and has often chosen strategically the key sectors for investment, such as minerals and construction. This chapter evaluates the motives for China’s investing abroad and the issues it raises. We present a classification of Chinese engagements in Africa, ranging from China hardly playing a role in certain countries to Chinese companies deeply involved in at least one strategic sector. Evidence from two case studies—Uganda and Ethiopia—shows that both countries welcome Chinese investments but do not want Chinese retail traders (Uganda) or too many Chinese workers (Ethiopia).

Meine Pieter van Dijk

Chapter 4. Enhancing the Impact of Chinese Development Finance for Sustained Poverty Alleviation in Africa

Abstract

One of the prominent features of Africa’s economic development is its growing partnership with China. While the new partnership has had a positive impact on growth, this chapter argues that more needs to be done by both China and African governments to enhance the impact of Chinese development finance in Africa. Against this backdrop, it identifies ways in which Chinese development finance could be used to foster transformative growth and development in Africa. The chapter also stresses that the responsibility for Africa’s development rests primarily with African governments and that China can only play a supporting role. In this context, it underscores the need for African countries to be proactive in their partnership with China to ensure that their development needs are effectively addressed.

Patrick N. Osakwe

Understanding BRICS’ versus OECD Countries’ Investment in Africa

Frontmatter

Chapter 5. Foreign Direct Investment and Structural Change in Africa: Does Origin of Investors Matter?

Abstract

The African continent represents the new frontier of global investment flows. The size and geographical coverage of FDI in the continent are steadily increasing with a rather peculiar balance of ‘old’ investors (from OECD countries) and ‘new’ ones (from emerging economies). The goal of this chapter is twofold. First, we discuss the relative importance of traditional OECD investors and ‘new’ investors from BRICS from a macro-level perspective. Second, we use an original micro-level data (African Investor Survey 2010, by UNIDO) to compare these two groups of investors in terms of their development potential. Our analysis sheds novel light on the heterogeneous development impact of FDI in Africa and addresses important policy implications for the attraction of foreign investors into the continent.

Vito Amendolagine, Nicola D. Coniglio, Adnan Seric

Chapter 6. BRICS versus G7 Countries’ Direct Investment Impact in Africa

Abstract

This chapter provides evidence on the labor-productivity growth and employment impact of BRICS’ (Brazil, Russia, India, China, and South Africa) and G7 countries’ (Canada, France, Germany, Italy, Japan, United Kingdom, and the United States) direct investment in selected African countries over the period 2001–2012. Results based on generalized method of moments estimation show that while foreign direct investment (FDI) from BRICS and G7 countries has increased labor-productivity growth and employment in Africa, BRICS relative to G7 FDI has consistently stronger effects under different model specifications. These findings suggest that the origin of investment does have differing impacts. We also find that human capital appears to complement both types of FDI.

Kenechukwu Ezemenari, Esubalew Alehegn Tiruneh, Evelyn Wamboye

Chapter 7. BRIC versus OECD Foreign Direct Investment Impact on Development in Africa

Abstract

FDI flows to Africa have mainly emanated from OECD member countries and BRICS (Brazil, Russia, India, China and South Africa). With a special emphasis on these sources for the period 2001 to date, this chapter adopts a descriptive approach and sheds light on how FDI is impacting development in Africa. Though the OECD has historically and still remains the largest FDI origin to Africa, great progress has been made in recent years by the BRICS. Besides, the impact of BRICS’ FDI on development in Africa has been more substantial recently, relative to the OECD. Considering the importance of FDI to Africa, governments should develop policy frameworks, such as public private partnership with both private and foreign investors to maximize the benefits of FDI for development.

Samuel Adams, Eric Evans Osei Opoku

Chapter 8. Cross-Border Capital Flows and Economic Performance in Africa: A Sectoral Analysis

Abstract

We argue that cross-border capital flows can provide relief for African countries’ pervasive and extraordinarily high financial constraint, if properly harnessed by matching differential flows—foreign direct investment, foreign portfolio investment and remittances—with the production sectors that they are most suited for. Guided by the economics that underpin this productive matching, we used difference GMM to estimate the postulated relationship between cross-border capital flows and sectoral value-added growths. We find that, indeed, certain flows aid growth in some sectors while retarding or not affecting growth in other sectors. Therefore, African countries can use cross-border capital flows strategically to relieve their financial constraint and, consequently, enable economic growth and development.

Odongo Kodongo, Kalu Ojah

The Politics of Land, Land Grab, and the Development Puzzle

Frontmatter

Chapter 9. The Concept of Land in Ethiopian Tradition: Land, Power, and Famine

Abstract

This chapter provides a historical account of the concept of land, subsistence farming, and vulnerability to famine in Ethiopia. It contextualizes the significance of land in the Ethiopian society and shows that low productivity in the agricultural sector has been exacerbated by the absence of a land market and the peasants’ mentality of subsistence farming. Further, it argues that subsistence farming, natural shocks, and dictator regimes, over the last 50 years, have collectively contributed to Ethiopia’s vulnerability to famine. Moreover, the top-down land development strategy that has been adopted by the current government has had negative consequence on the lives of thousands of peasant farmers, who have been forcefully evicted from their ancestral lands in the name of foreign direct investment in land.

Mesfin Wolde-Mariam

Chapter 10. Your Next “Landlord” Will Not Be Ethiopian: How Globalization Undermines the Poor

Abstract

This chapter challenges the notion of the developmental state and survival of the fittest model of the current government of Ethiopia, which gives foreigners a golden deal to scramble for the fertile farmlands of Ethiopia. The deal, in the name of foreign investment in land for development, has forced indigenous peasants out of their land and livelihood, into a life of destitution and social chaos, while helping elites and politicians get richer. It argues that the lack of land ownership, good governance, democracy, freedom, and transparency, and existence of rampant corruption and ethnic-elite-based growth would increase poverty, socioeconomic malaise, and hamper the nation’s development.

Aklog Birara

Chapter 11. The Truth About Land Grabs: A Review of the Oakland Institute’s Reports on Large-Scale Land Investments in the Twenty-First Century

Abstract

“Land grabs” emerged as a new and prominent global trend in the early twenty-first century. These investments have been promoted as win-win scenarios by multilateral institutions like the World Bank, while simultaneously being criticized by many organizations and think tanks. Since 2011, The Oakland Institute has conducted extensive field research across numerous countries around the world to examine the social, economic, and environmental impacts of foreign land grabs. This paper uses The Oakland Institute’s research to critically examine six commonly held beliefs regarding large-scale land acquisitions. It then draws upon recent research by The Oakland Institute to examine the role of agroecology as an alternative option for agricultural investment that promotes environmental preservation, social fairness, and economic viability.

Elizabeth Fraser, Anuradha Mittal

International R&D Spillovers, Trade Linkages, and Economic Development in Africa

Frontmatter

Chapter 12. International R&D Spillovers and Labor Productivity in Africa

Abstract

This chapter employs dynamic ordinary least squares and panel co-integration to estimate advanced countries’ R&D spillover effects on labor productivity in 28 Sub-Saharan African countries over the period 1992–2011. Estimation results show that African countries that import and receive development aid (technical and non-technical) from advanced countries experience an increase in labor productivity, suggesting that trade and aid are transmitters of foreign R&D. However, the extent to which labor productivity responds to R&D spillovers varies based on the country of origin, where spillovers from the United States have a greater impact compared to those from other advanced countries.

Esubalew Alehegn Tiruneh, Evelyn Wamboye, David O’Brien

Chapter 13. Development Aid and International Trade in Sub-Saharan Africa: EU versus China

Abstract

This chapter analyzes the patterns, dynamics, and relations between development aid and international trade of the European Union (EU) and China with Sub-Saharan African (SSA) countries for the period 2000–2012. It summarizes some theoretical insights on the relation between international trade and development aid. Then it discusses the dynamics and trends in international trade of SSA countries with EU and China and tracks the reimbursements of development aid provided by EU and China. Finally the relation between development aid and international trade in the cases of the EU and China is assessed using cointegration approach. The results show that while there is no evidence for direct relation between EU’s aid and trade, in the case of China “trade creates aid”.

Eduard Marinov, Nedyalko Nestorov

Chapter 14. Changing International Trade Linkages in Sub-Saharan Africa: BRIC versus OECD Countries

Abstract

This chapter uses country-level exports and imports data for 42 Sub-Saharan African (SSA) countries to establish a link between changing international trade linkages in SSA and growth. The comparative analysis shows that the share of BRIC (Brazil, Russia, India, and China) in SSA’s trade has been increasing significantly relative to that of OECD member countries. Further, the findings support the existence of a significant link between the higher growth rates recently observed in SSA and changing trade linkages.

Nihal Bayraktar

Revisiting Aid Effect on Social Sector, Growth, and Structural Change in Africa

Frontmatter

Chapter 15. Growth Impact of Aid Quantity and Quality in Africa

Abstract

This chapter employs parametric and nonparametric methods to examine the impact of aid (quantity and quality) on growth in the former British and French colonies of Africa over the period 1975–2010. The quantity of aid is proxied by a quadratic term of the aid variable while the quality, by different source of aid. Results indicate that foreign aid exhibits diminishing returns when a countries’ legal origin is taken into account. Bilateral aid is found to be effective only in the former British colonies, while multilateral aid generates growth regardless of legal origin but only above a certain threshold. Moreover, good governance is shown to stimulate growth and improve aid effectiveness.

Evelyn Wamboye, Kiril Tochkov

Chapter 16. The Role of Foreign Aid in the Fast-Growing Rwandan Economy: Assessing Growth Alternatives

Abstract

This chapter assesses the relationship between economic growth, structural change, and foreign aid inflows using Rwanda as an example. The chapter finds that the differential impact of the levels of foreign aid inflows on overall economic growth is modest, while the composition of growth differs significantly. Foreign aid inflows finance infrastructure investment, but they also affect the real exchange rate. High foreign aid inflows stimulate growth primarily in the non-tradable part of the economy and have a negative impact on growth in the tradables. The chapter’s findings are consistent with Rwanda’s recent growth, which has been dominated by the expansion of non-tradables. In rethinking about Africa’s growth sustainability, it needs to pay particularly attention to the role of domestic and regional markets in Africa.

Xinshen Diao

Chapter 17. Anatomy of Foreign Aid in Ethiopia

Abstract

This chapter presents a descriptive analysis of aid flows to Ethiopia over the period 1960–2014, focusing on major donors, sectors where aid has been disbursed, and the types of aid given. The analysis shows that, in recent years aid flow has increased significantly with ODA loans taking the place of ODA grants. It also reveals that there have been changes in the interests of donors as well as the amount and type of aid they have provided. The implication is that Ethiopia needs to develop strategic aid policies that reflect the changing circumstances and promote inclusive growth and development.

Adugna Lemi

Remittances, Debt, Resource Management, and Economic Development in Africa

Frontmatter

Chapter 18. Remittances and Economic Development in Africa: A Review of Empirical Evidence

Abstract

This chapter presents a review of the literature on remittances and economic development with a focus on Africa. The chapter describes the importance of remittances relative to ODA and FDI in the continent, outlines the channels through which remittances are expected to influence economic development, and then reviews the related empirical evidence largely in the context of Africa. The review reveals that the evidence is thin and mixed, depending on the dimension of economic development examined. Overall, the evidence seems to suggest that remittances help alleviate poverty and improve living conditions but may worsen income inequality, with mixed effects reported with respect to economic growth and some of its determinants.

Kasahun Woldemariam, Zelealem Yiheyis

Chapter 19. Have Debt Relief Initiatives Yielded Varying Effects in Resource and Non-resource Endowed Countries in Africa?

Abstract

In 1996 the World Bank and International Monetary Fund initiated a series of debt relief programs for heavily indebted poor countries (HIPCs) to help them reduce multilateral public and publicly guaranteed debt and ensure a permanent exit from debt rescheduling. This chapter evaluates these programs’ impact on growth in Africa’s resource (RECs)- and non-resource (NRECs)-exporting HIPCs. We introduce a novel approach in which we measure debt relief initiatives by an interaction of debt service and dummy variables corresponding to the periods: pre-debt relief, pre-decision point, and post-decision point. Results reveal that debt relief initiatives enhanced growth in the pre-decision point period in NRECs while impeding in RECs. However, in post-decision point period, they increased growth across samples.

Esubalew Alehegn Tiruneh, Evelyn Wamboye

Chapter 20. Debt Sustainability and Direction of Trade: What Does Africa’s Shifting Engagement with BRIC and OECD Tells Us?

Abstract

This chapter provides a comparative assessment of the contribution of Organization for Economic Cooperation and Development (OECD) member countries and Brazil, Russia, India, and China (BRIC) to the evolution of sub-Saharan Africa (SSA)’s foreign debt sustainability. Using data for the period 1970–2014, the analysis shows how external demand for SSA goods and services by OECD and BRIC has helped to lower debt-to-exports, debt service-to-exports, and debt-to-GDP ratios, and in turn, impact growth. Results reveal that debt levels across SSA rose from ‘relatively’ low levels to unsustainable levels starting in the late 1980s to early 2000s. However, since mid-2000s, SSA countries have witnessed external debt sustainability.

Kelbesa Megersa, Danny Cassimon

Chapter 21. Managing Resource Price Volatility: Exploring Policy Options for the Democratic Republic of Congo

Abstract

This chapter discusses the ‘spend today’ and ‘save now-spend tomorrow’ approach of revenue allocation in the Democratic Republic of Congo (DRC), a very natural resource-rich country. The approach uses a three-sector model in which public infrastructure investment has tangible benefits for private production and investment, while it is also subject to absorption constraints. The chapter calibrates the optimal allocation rule between spending today and asset accumulation by minimizing a social loss function defined in terms of household welfare (measured by consumption volatility) and macroeconomic volatility (measured in terms of fiscal volatility). Sensitivity analysis is also conducted with respect to various key parameters, including the efficiency of public investment. The results indicate that, if properly managed, sovereign fund could contribute significantly to macroeconomic stability in the DRC.

Emmanuel Pinto Moreira

Backmatter

Titel: Foreign Capital Flows and Economic Development in Africa
herausgegeben von: Evelyn Wamboye
Esubalew Alehegn Tiruneh
Verlag: Palgrave Macmillan US
Electronic ISBN: 978-1-137-53496-5
Print ISBN: 978-1-137-53495-8
DOI: https://doi.org/10.1057/978-1-137-53496-5