Paste China’s growth and its huge capacity to move in thirty years from under-development and extreme poverty to an emerging global power and one of the largest exporter of manufactured goods as well as services has attracted the attention of many developing countries particularly Africa. China has served as a development template for Africa and an alternative source of trade and finance from Africa’s old guards or traditional development partners. The impact of China on African economies has been diverse, depending in part on the sectoral peculiarities and composition of each country’s production and capabilities. In general, China’s increased engagement with Africa has generated important gains for African economies. This work reviews the different impacts implications of Chinese companies in Africa, quantifies the advantages and challenges, and policy solution suggestions necessary to maximize the development impact. One pertinent consideration in reaping the full benefits from Chinese trade and investment is substantial improvements in each stakeholder understanding of what is to be done particularly governance in African economies.
The theories of internationalization encompass a wide variety of explanatory elements that follow the firms’ responses to distorted, imperfect markets. Whilst traditional theories were concentrated on foreign direct investment and on how multinationals enlarged their involvement in international markets, recent theories have focused their attention on small to medium businesses following either a staged model or a networked approach. There has been wide disagreement regarding all theories of internationalization. This paper provides a light literature review on the main theories of internationalization and concludes that due to the emergence of a new polycentric economic world a new theory encompassing new important factors is in high demand.
2.0 Traditional Theories of multinational companies
The theories of internationalization encompass a wide variety of explanatory elements that follow the firms’ responses to distorted and imperfect markets. Whilst traditional theories are concentrated on foreign direct investment and on how multinationals enlarge their involvement in international markets, recent theories also focus their attention on small to medium businesses following either a staged model or a networked approach. There has been wide disagreement regarding all theories of internationalization. This section provides a light literature review on the main theories of internationalization and concludes that due to the emergence of a new polycentric economic world a new theory encompassing new important factors is in high demand
The basic traditional view of the multinational firm, (2) from the early analyses in the 1960s and early 1970s, a multinational firm is defined as one of a large industrial company with operations in multiple countries and a centralized chain of command. By definition, a multinational firm has activities in more than two countries. Although this simple definition is not widely used, it is a reasonable baseline from which to begin thinking about such firms. If the firm has sales operations in multiple countries, production in multiple countries, or some other permutation of international business activities physically present in multiple countries, then it is multinational company or firm.
2.0.1 Fundamental concepts of Traditional Theories of FDI
(i) Comparative Advantage and Gains from investments
Comparative advantage is one of the most fundamental concepts in trade theory. A country has comparative advantage in a good if has a lower opportunity cost of producing the good than an-other countries. While other countries are expected to export goods for which their autarky (no trade) relative prices are lower than other countries. In so doing countries gain from trade when they have different in relative prices of goods.
(ii) Hecksher-Ohlin Theory
one of the reasons why countries might have comparative advantage in a good is that countries differ in their factor endowments. There are two factors, capital and labor disparities. The home country is the capital abundant one, the one with more capital per unit of labor. One of the goods is more capital intensive than the other: it uses more capital per unit of labor than the other good. Countries have access to same technologies – factor endowments only differs between countries. Under free trade or internationalization, the capital abundant country (home) is expected to produce relatively more of the capital intensive good than the other country. Capital abundant country (home) therefore is expected to export the capital intensive good if no strong bias in consumption. Owners of capital in the capital abundant country (home) benefit due to seeing their rents rise relative to prices of goods, while owners of labor (home workers) suffer due to seeing their wage fall relative to prices of goods. As long as capital endowments in the two countries are not too different and which good is capital intensive is the same in both countries, the wage and rent will be the same across countries under free trade with no transport costs, ‘but in reality, we can never do away with the transport cost’
Daniels, Readebaugh, and Sullivan (2004), explain that FDI can exist solely when the investment, in addition to at least 10 percent shares, give the investor the control of the company. They emphasis on the element of control, they argue that, though a foreign investor may own 100 percent shares of a company, he may not have the control of the company if regulations in the host country do not permit this. As it is in every country to have regulations just like in Cameroon.
FDI is an investment resulting from the desire of having direct or partial ownership of operations outside the home country as postulated by Keegan and Green (2002). Therefore, the concept of FDI could be seen as owning a foreign investment and making the highest possible gain from it hence exercising control over the entity. Therefore FDI, in addition to the transfer of resources (capital), involves control. Most investing company rather than doing what is supposed to be best for its operations in a country may rather do what is best for their operation in that country that is why it is important to talk of control motive in investment operations.
Proponents of FDI explain that government should not have interest in private investments from abroad. However, critics are of the opinion that the national interest of a host country will ache if MNEs make decisions not in line with its own national or global objectives. For example, a multinational corporation can undertake decisions about employment or relating to an industry that is off national pride from its headquarters. This means that control is a huge concern for host countries. Recipient government’s controls do not have negative impact on the firm; rather, ensure sustainability to the benefits and advantages of both the home and foreign countries. Charles Chetcho (2015).
2.1: Theoritical and empirical literature
2.1.1 China’s Foreign direct investment to Cameroon
Chinese investment in Cameroon represents a small 3 to 4 percent in 2011of the growing piece of total Chinese outward foreign direct investment (OFDI) worldwide. Africa is the third largest recipient of Chinese OFDI behind Asia and Europe, totaling nearly $90 billion. (16) The outward foreign direct investment from China has increased considerably in recent years, and China is the source of FDI in a great number of host African economies. While the open-door policy in the late 1970s lead to modest outward FDI, the liberalization associated with Deng Xiaoping’s tour of South China in 1992, and the Go Global strategy initiated in 1999, lead to boosts in Chinese outward FDI, and dramatically fueling the outward FDI in recent years which has led to more substantial increases. While China accounted for 3.3% of total outward investments from developing countries in 1996, its share had risen to more than 10% in 2012. This makes China the 3rd largest developing country in terms of outward FDI. (16)
Cameroon, just like other African countries, sees FDI as an important way to boosting its economic growth. Karim and Ahmad (2009), describe that in developing countries like Cameroon, leaders think or believe that FDI will generate more capital for investment, and assist domestic firms to be productive and adopting efficient technology. Just like most fast-growing economies today depend on Capital inflows from FDI to boost their growth.
Johnson (2010) argues that, African emerging nations like Cameroon need FDI to speed up their determinations in economic enlargement. Cameroon’s leaders together with the Cameroon population that more capital inflows from FDI into the country would lead to the creation of employment opportunities (as in the example of the Cameroon Kribi port project) which was as bringing development and growth to the locals in terms of employment, transfer of skills and further increase productivity in the area for many locals, this in turn wasn’t the case.
There have been on-going debates as to why Chinese investments in Africa and to what extend these investments has influenced growth and development in the African continent. This debate could be seen in the lights of the pessimists’ schools of thoughts who argued that china’s FDI in African host countries has a negative impact. Meanwhile on the other side of this argument the optimistic school argued against negative impacts of china’s FDI on the African continent.
Kiggundu (2008) suggested that Chinese investments are resource-driven. ‘Results show that largely driven by monopolistic state-owned enterprises (SOE), china’s outward FDI is concentrated in a few large resource-rich African countries characterized by high risk governance environments and poor global competitiveness’
Elu & Price (2010) said, growing trade openness with China is not an avenue of higher living standards in the long-term for SSA. Increasing trade openness with China in the long run will have little or no significant increase in the standard of living and productivity of the Cameroonian Economy if this openness is not being checked or regulated by the Cameroonian government, by their investments agreement policies and implementation put in place even before investment in done. Therefore, a favorable investment ground is important to be established to favor both the host country and the partner. Asongu (2016) suggest that increasing trade openness with China is not a long run source of higher living standards for sub-Saharan Africa’.
Chemingui & Bchir (2010), Africa will not benefit much from Sino-African relations because the continent is characterized by low levels of diversification and small productive capacities. Results by Asongu (2016) also show that even in the case where China will offer more market access for African countries, the situation will not improve much for most of them. The reason is that Africa is still suffering from small productive capacities and a low level of diversification of its economy.
Power (2008) The relations between Africa and china are harmful to SSA’s industrial growth because it challenges the very wisdom of industrialization being a crucial development strategy component. These challenges could be seen through bilateral and free trade agreements between these countries and also competition in the host country’s country markets. These impacts are greatly harmful for SSA's industrial growth, as expressed through its recent experience in the exports of clothing to the US under AGOA (African Growth & Opportunity Act). ‘If Washington Consensus policies prevail, these harmful impacts will be sustained and deepened’ Asongu (2016).
Also, Kaplinsky & Morris (2009) suggest that SSA should device rational policies to benefit from the exploitation of its natural resources. SSA countries should make the most of the opportunities opened to them by their resource-base by adopting a similarly integrated and focused response to Chinese and other investors who seek to make use of the continent's natural resources.
Friedman (2009) explained that, China is transforming Africa by exporting entrepreneurial talents and economic dynamism. Most African state sees Chinese investment as a means to an end, by ending poverty and transforming the African economy towards growth, in the context of this study, the author stands also with the fact that china is already transforming Africa through entrepreneurial talents, and even cultural dynamism. This is due to the corrupt and weak African regime, China is found to be exporting entrepreneurial talent to Africa and to be dynamizing the African economy through East Asian practices.
Drogendijk & Blomkvist (2013), Chinese firms have similar motivations to Western firms. They find that African countries enjoy a higher likelihood of Chinese outward FDI than the rest of the world. Moreover, they find that Chinese firms invest in African markets for market-seeking, natural resource’seeking, and strategic asset’seeking motives; hence, the motives for Chinese FDI in Africa seem to match those of Western firms’ investments in global markets.
This study goes beyond the main determinants of natural resource seeking, profit and market seeking to establish the reason and impact of Chinese FDIs in the Cameroon.
2.1.2 How much is Chinese investment in Cameroon
How much has China invested in Cameroon? Is a simple question that any common man would wish to know, the recent Sino Africa summit in Beijing china saw every speaker ranging from then president HU Jintao to many African leaders and government in attendance cheers up the cooperation saying "China's investment in Africa has increased a staggering 30-fold since 2005, with 2,000 Chinese firms now present in 50 African countries." Let's look first at the arithmetic of the whole show, here are the annual official figures for Chinese investment in Cameroon from MOFCOM:
FDI inflows to Cameroon, traditionally low compared to the potential of its economy, declined even further in 2016, reaching only USD 128 million, compared to USD 627 million in 2015 and USD 726 million in 2014 (UNCTAD, 2017). Consequently, net FDI stocks represent a modest percentage of GDP (7% in 2016). Most of FDI come from the European Union, particularly France and Germany and target the mining industry, including oil extraction. (Source: INS 2004) and INS 2006)
Wishing to know how many Chinese companies are active in Cameroon is another critical point. The figure from China's Ministry of Commerce states that there are 2000 firms in all the ten regions of the countries, but to be more precise, numbers from national institute of statistics shows that are mostly in littoral, center, NW, SW, South and east and Adamawa. The investments that have gone through and acquired approvals for operation, as of March 2013. (17) is encouraging and still have much potential to grow. Some firms have multiple projects. On the other hand, the greater percentage includes a number of small enterprises that including all the Chinese shops so the true number of "firms" is undoubtedly higher.
China is stepping up strategies in improving the level of its investment in Africa. Currently, over 2,000 Chinese enterprises are investing and developing in more than 50 African countries and regions, and cooperation fields have expanded from agriculture, mining and building industry to intensive processing of resource products, industrial manufacturing, finance, commercial logistics and real estate. The figure bellow illustrates the Distribution of China's Direct Investment in Cameroon .
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