Chinas Foreign Direct Investment In Mauritius Economics Essay
The conveyed topic has been formulated into the following research problem:
“Are the determinants of FDI in Sub-Saharan Africa and Mauritius different to China than for the rest of the world?”
From the time when globalisation has become an essential element of many company strategies in recent times, further and further transnational companies are exploiting new emerging markets for comprehensive economies of scale since the 21st Century. The world’s foreign direct investment (FDI) has been increasing at an extraordinary rate. World FDI inflow in 2000 was US $ 1271 billion; by 2008 FDI had grown to an amazing figure of US $ 1.7 trillion, but due to the world economic crisis of 2008-2009, figures are expected to fall to US $1.2 trillion in 2009. A slow growth is expected until 2011 expecting US $ 1.4 trillion in FDI inflows in 2010 and US $ 1.8 trillion in 2011 (World Investment Prospect to 2011 - The Economist, 2007). Inflows of FDI to developing and transitional economies reached their highest level in 2006 with a rise of 21% over 2005. This makes FDI the most significant medium of private capital flows among countries. (UNCTAD, 2001, 2007, 2009)
Emerging markets such as Latin America, Asia and Sub – Saharan Africa have seen rapid investment flows in recent years. Since China has opened its economy, it has attracted huge amount of investment from abroad and has become the world’s largest emerging market gaining entry into the World Trade Organisation (WTO). Even though receiving FDI, China is also investing massively in Sub- Saharan Africa. US $ 16.1 billion of FDI are expected in Sub-Saharan African countries by the end of 2009, mainly in Angola, Equatorial Guinea and Nigeria regarding their oil sector. Sub-Saharan Africa FDI inflow in 2006 was only 0.91 % of the World’s FDI inflow (National statistics; IMF; UNCTAD, 2007; Economist Intelligence Unit, 2007). Mauritius has received US $ 820 million from China in February 2009 to increase trading between the two countries (Chinadaily, 2009). This study will therefore, analyse what are the determinants of FDI which attract China more than the rest of the world.
The crisis which the governments of each of these countries and local enterprises are facing are the lack of expertise and funds to produce competitive merchandise, development of their industries, exploitation of natural resources and high level of unemployment owing to poor economic expansion and education level which in turn results in less skilled labour. Low output and poor transport system have discouraged investment from abroad, although labour is cheap and resources are available in large amounts. It is a big issue to local governments on how to attract FDI in their country. The question that arises is why China is so focused on investing in this region of the world more rather than other places.
The incentive and personal awareness to the investigator for undertaking this particular study topic arose since studying Economics at A-levels and in previous modules studied at University level about FDI to date. Also being part of the African community, knowing why Eastern Asian countries are showing a huge interest in Sub-Saharan Africa and Mauritius would be very helpful (Adams, 2009). The study is thus aimed at researching the determinants of FDI from Chinese government and private sector to Sub-Saharan Africa and Mauritius mainly as compared to FDI from other countries in the world. In depth study around the subject has given me assurance that there is sufficient research material on the topic chosen. This question was selected as Africa has a lot of under used resources and China has the expertise and funds to exploit them. Various scholars around the world have developed diverse policies and studies to show the presence of China in Africa. However, none of them have in reality, provided a step by step theory on the reasons why FDI from China is increasing so rapidly in Sub-Saharan Africa and Mauritius as compared to other countries involved in OFDI, which this dissertation is aimed at primarily answering.
Objective of Study
Below is a step-by step plan of how the objective of the study will be achieved:
Evaluate the impact of FDI on Mauritius.
Compare in which Sub-Saharan African countries FDI have increased massively over the passed few years from China than the rest of the world and the reasons why.
Assess the advantages and disadvantages of Mauritius to attract FDI. Economic growth is one of the important aspects gained through FDI and this is what the study will justify.
Analyse the determinants which can boost inflow of FDI from China to Mauritius.
Discuss what positive outcome can be drawn from FDI in Mauritius which benefited from Chinese FDI as compared to the rest of the world.
This study investigates the connection between FDI and important economic indicators, and discusses the inflow of FDI to Sub-Saharan Africa and Mauritius from China as compared to the rest of the world. Secondary data will be used in this dissertation, therefore desk research. Information will be obtained from the sources below:
In dept information will be from the library, both written and online, in The University of Northampton in UK through academic journals via Metalib and various other academic journals which can be accessed.
Other sources of up-to-date information will be through well respected professional articles such as the Financial Times (FT), British Broadcasting Corporation (BBC) and The Economist.
Collection of secondary data will be through United Nations Conference on Trade and Development (UNCTAD), National Bureau of Statistics of China, Republic of Mauritius Central Statistics Office, Bank of Mauritius (BOM), Board of Investment (Mauritius), The State Investment Corporation Ltd (Mauritius), The University of Mauritius (UOM), Southern African Development Community (SADC), The New Partnership for Africa’s Development (NEPAD) and Union Economique et Monétaire Ouest Africaine (UEMOA), all through their official website to obtain latest data.
This study main research methodology will be as follows:
An abstract discussion of the impact of FDI on the economies of the host countries and the factors that encourage inflows of FDI through critical review of literature, providing a theoretical structure for the following of the study.
Descriptive study of the allocation of FDI Mauritius, impact of FDI on their economies especially Mauritius and the advantages and disadvantages of attracting FDI.
Experiential study of the factors influencing inflow of FDI in Sub-Saharan Africa and Mauritius using regression and correlation analysis, and analysis of the strategies involved to attract FDI to these countries.
The literature review consists of all the previous publications by authors concerning the subject area, statistical data, and their findings. This will help me increase my knowledge about the subject area and find the gap in the previous literature to explore further into the subject matter.
China has been the recipient of huge amount of FDI inflows since the 21st Century as the government decided to open its economy on the world stage. Since recent years FDI outflow from China has been increasing rapidly. Outflow of FDI (OFDI) was virtually none existent in the 1980’s from China, but the latter is now ranked 4th largest developing country involved in OFDI and predictions are that they will soon be the leading country (OECD, 2008). This suggests that Chinese economy is growing very fast and that it is prepared to grab any opportunity, either inflows or outflows of FDI, in various sectors that are available to them.
Source: Ministry of Commerce (MOFCOM) FDI website, www.fdi.gov.cn.
The graph above shows how OFDI from China has increased rapidly over recent years. Although the world incurred a huge economic crisis in 2008, OFDI from China doubled in that year, reaching to US $ 40.7 billion, compared to 2007 (OECD, 2009). Such figures demonstrate the rate of expansion of China on the world stage and that it is not prepared to slow down even during difficult periods.
Relationship between China and Africa dated back from the 1950’s. The Bandoeng Conference was organised to link African countries and other countries against the imperialist nations. Following another conference in 2000, China decided to cancel African debt of US $ 10 billion and in 2006 agreed concessional loans of US $ 10 billion to 48 African Countries over the next three years (ECOWAS-SWAC/OECD 2006). Li Xiao Dong, manager of a mineral company in Africa said: “Africa is full of opportunities – it’s just like China when we started opening up a few years ago” (BBC News 2007). This shows Chinese interest’s in Africa and especially Sub-Saharan Africa where many countries are politically unstable, therefore suggesting under exploitation of resources. This shows that many other countries invest in Africa just for exploiting the resource.
Source: Doing Business, International Finance Corporation
The table above shows the ranking of Sub-Saharan countries and Regions in which it is best to do business in. Although Sub-Saharan Africa was ranked 136th (International Monetary Fund, 2008), China is not afraid to invest there as it knows there is a lot of potential for development.
Mauritius is linked with China since the dawn of the discovery of the island. Chinese community in the island is a major percentage of the whole population of the island as compared to other nations with Chinese community. On the 17 February 2009, during a visit in Mauritius, Chinese President, Hu Jintao, agreed to spend US $ 700 million for the development of houses, offices and factories in the country and to lend US $ 260 million for the expansion of the international airport. Mauritius was one the countries chosen out of five where establishment of special investment zones will be done by China (Oxford Analytica, 2009). It is the only country chosen out of the five that is non-oil producing. This shows that Mauritius is emerging in sectors such as sea-food hub and offshore banking. Moreover, the reform of 2006, aiming at encouraging the economy’s world competitiveness had a colossal impact because of policies such as tax cuts, reduction in red tap, new labour law and to come in aid to small and medium entrepreneurs (SMEs).
The dissertation will be organised into six chapters:
A background of FDI and economic development in different regions of Sub-Saharan Africa and Mauritius, and the problem definition. It will also indicate the objectives and the following methodology.
This literature review which will show the detailed academic structure which will be use to study the issue stated. It will show the effects of FDI on the developing world and the importance of it.
This section will show the distribution of FDI in the different countries involved; the effects on their economies; and discuss the reasons that might limit investment from China. Advantages and disadvantages of attracting FDI from China will also be looked at as compared to other countries.
This part will be the analysis of the different economic variables and FDI through the secondary data gathered.
Investigation of the influential factors of FDI on Sub-Saharan Africa and Mauritius by regression and correlation analysis will be carried out, proving the link between FDI growth and economic growth. This will show the major conditions these countries will have to get together to attract inflows of FDI from China.
Finally, there will be a conclusion and recommendations for the government and companies involved, which will find measures to attract inflows of FDI from China to help increase economic growth.
1.9. Dissertation Plan
The dissertation is due on the 6 May 2010 which is week 18 of The University of Northampton academic calendar. The Gantt chart below illustrates the schedule for my dissertation:
Primary/Secondary data collection
Analysis of secondary data
Initial draft of the Dissertation
Revising draft of the dissertation
Updated Literature Review
Second draft of Dissertation
Revising draft of the dissertation
Submission of Final Dissertation
(Word Count: 2026 Words)
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China Daily. (2009), Chinese trade zone to bolster Mauritius economy. [Online] Available From: http://www.chinadaily.com.cn/world/2009-09/17/content_8702540.htm. [Accessed on 20 November 2009].
Economist Intelligence Unit (2007), World investment prospects to 2011: Foreign direct investment and the challenge of political risk. New York: Columbia Program on International Investment.
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