Africa Foreign Investor Survey 2005 - unido

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taking advantage of the opening up of economies that were previously closed to foreign investors and/or were affected by severe political instability. Others seem to be responding to the establishment of freer regional trading links, for example, the resurrection of the East African Community offering easier access to member countries. Uganda and the United Republic of Tanzania appear to be particular beneficiaries. Many of the new investors originate from Kenya. Mozambique also seems to be benefiting from a catch-up process, attracting regional market seekers from Portugal and South Africa. The appearance of this new generation of regional market seeking investors suggests that it pays off for governments to reduce the risk premium for investors through improving the investment climate, and co-operating with neighbouring countries to reduce regional trade barriers. The UNIDO survey indicates that foreign entrepreneurs from around the world, including from Sub-Saharan Africa itself, respond to these opportunities. 5. The fifth group of firms contains the subsidiaries of small TNCs established after 1990 to service the local market. More than forty percent originate from SSA or South Africa. Over two-thirds operate in the services sector.These firms are the second most capital intensive of the six groups and, as a reflection of this characteristic, employ the highest proportion of graduates on the payroll. However the average S-TNC subsidiary is small, employing less than 130 people. Sales achieved last year per dollar of capital invested were comparable to those of post-1990 local market-oriented L-TNC subsidiaries (Group Three) and were above the average for the whole sample.The future looks promising for this group. All relevant future growth indicators i.e. future sales, employment and investment growth are above or in keeping with the growth rates of the whole sample. 6. The last group consists of foreign-owned entrepreneurial firms (FEs) without formal links to a ‘parent’. From the UNIDO survey, it would seem to be a form of enterprise governance that is ubiquitous and becoming increasingly popular in Sub-Saharan Africa, if under researched and largely ignored by policy makers. Although FEs are not controlled by a parent company through a formal governance structure, half of FEs has associated operations in other countries. Of these associated firms, some sixty percent are located exclusively in Africa and a quarter of foreign owners manage different lines of business outside the region. Eighty percent of owners from SSA or MENA operate exclusively in Africa. Half of the post-1990 FEs operate in the manufacturing sector, are small in size and operate in labour intensive sub sectors like chemicals, food and beverages and wood. Those FEs in the group operating in the services sector are about the same size as manufacturers, employing on average around a hundred people. More than forty percent of these services FEs operate in marketing, sales and distribution and a fifth provide a variety of professional services. The most noteworthy feature of FEs from the South, whether the firms are manufacturers or services providers, is the high forecast investment rate per dollar of sales; and this is a good predictor of future sales performance. FEs from the South, regardless of whether they are grouped according to their date of establishment, market orientation or sector, are forecasting invest- Figure 9.2 Future employment and investment growth for sector and investor origin types Future investment (over next 3 years as % of current sales) 90 % 80 % 60 % 40 % 20 % South Pre-90 Service (24) North Pre-90 Service (92) North (358) South Pre-90 MF (42) North Post-90 MF (76) South (234) South Post-90 MF (98) South Post-90 Service (61) North Post-90 Service (70) 0% North Pre-90 MF (99) 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14 % Future annual employment growth (over next 3 years) Note: Number in parenthesis indicates the frequencies of firms in the respective group, the bubble size indicates the total employment in the respective group 128 Africa Foreign Investor Survey 2005
ing at a faster rate than FEs from the North. South manufacturing FEs have also been hiring at a rate eight percentage points higher than their North counterparts. Sector Groups and the North-South Divide Another way of grouping firms is by which sector they operate in and whether they originate from the North or South. Then, in order to highlight the influence of the time period in which the firms were established, firms were further differentiated in terms of whether or not they were founded before 1991.There is, of course, a survivor bias in this procedure. However, even with that caveat, Figure 9.2 is highly suggestive of the differences between North and South investors in SSA. First, all South investor groups anticipate a faster future investment growth rate over the next three years than do comparable investors from the North. This difference is most marked between South and North firms established before 1991. Post-1990 North and South firms are more similar. Second, rapid employment growth is expected to come from both North and South post-1990 investors in the services sector rather than in manufacturing. However, as manufacturers from the South employ more people overall (indicated by the bubble size), their total contribution to employment generation is greater than from the services sector as a whole. Third, foreign investors arriving from the North since 1990 are contributing significantly to employment generation, although in terms of new investment their future plans are more modest. Country Groups The groups used above focus on the characteristics of firms. It is also possible to utilize the data to differentiate between countries.The bubble diagram Figure 9.3 plots all fifteen countries by forecast investment growth per dollar of sales and future employment growth rate over the next three years. Countries themselves may be clustered according to whether the investment climate has changed significantly for the better over the last ten years. However this is only part of story, for it is the transactions involving the competitive advantages of firms and host countries as locations that generates economic impacts. Thus the investment landscape of countries like Cote d’Ivoire, Cameroon, Senegal, Kenya and Malawi is very much shaped by the subsidiaries of established resource-based L-TNCs (Group One). These firms do not anticipate major new investment or employment creation. One of the challenges for IPAs in these countries is to work with established L-TNCs to increase linkages with local firms and widen the dynamic impact on the host economy. By contrast, countries such as Ghana, Uganda and Tanzania that have come through a period of significant economic and political change have a higher proportion of firms established since 1990 in the foreign investor population. A larger proportion of these firms originates from the South and is typically foreign ownermanaged. Many firms have significant exports to regional markets. Overall, these three countries are currently anticipating a significant increase in employment Figure 9.3 Future employment and investment growth in host countries Future investment (over next 3 years as % of current sales) 100% 80% 60% 40% Senegal (41) Ethiopia (27) Nigeria (82) Burkina Faso (33) Mozambique (44) Guinea (20) Madagascar (49) Ghana (21) Tanzania, UR (43) Uganda (46) 20% Cameroon (44) Cote d'Ivoire (31) Malawi (37) Kenya (59) Mali (33) 0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% Future annual employment growth (over next 3 years) Note: Number in parenthesis indicates the frequencies of firms in the respective group, the bubble size indicates the total employment in the respective group 9 | Conclusion 129
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Burkina Faso Cameroon Côte d’Ivo
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The designations employed and the p
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Preface Investment is the key to un
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Foreword This is a pioneering and m
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Abbreviations ACP AfrIPANet AGOA AN
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Africa IPA Network (AfrIPANet) serv
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historical roots and regional marke
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cially in the services sector) pay
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small, labor intensive manufacturin
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mostly subsidiaries of small TNCs,
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1. Introduction Little empirical st
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The simplest linkages involve being
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One of the objectives of this surve
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2. Survey methodology Outline of th
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The initial design of the questionn
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transformation explains the differe
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adds up to higher than the total FD
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Figure 3.5 Share of the 15 survey c
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Figure 3.8 FDI stock - book value o
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Table 3.2 Top-5 foreign investor su
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majority of firms global exporters
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Continuing links with the North Fig
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Figure 3.24 Sales, book value, and
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The 25 largest companies in the sur
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Figure 4.1 Sales according to organ
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Figure 4.5 Sales by main sector and
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In terms of job creation, it is cle
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Figure 4.17 Sales by organizational
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clear trend of increasing South com
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of Tanzania. In Western Africa, Cô
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ook value of South controlled, loca
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Figure 4.37 Sales by investor origi
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Figure 4.43 Sales in each start-up
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Figure 4.50 Share structure distrib
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Figure 4.52 Sales by share structur
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Entry period (start of operations)
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Figure 4.65 Sales by market orienta
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Figure 5.2 Investors’ self-evalua
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Figure 5.7 Last year’s sales grow
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Figure 5.10 Annual sales growth (pa
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sales, old L-TNC, is among the lowe
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Figure 5.18 Classification tree of
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mean and median of the output per e
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Figure 5.23 Sales per USD book valu
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6. Impact on the local economy This
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ices firms pay wages that are more
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may be affected by the small size i
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Page 105 and 106: Table 6.2 gives the distribution by
Page 107 and 108: for accuracy. The whole sample expe
Page 109 and 110: Figure 6.16 Expected re-investment
Page 111 and 112: Local content impacts The analysis
Page 113 and 114: other hand, the thesis, according t
Page 115 and 116: Figure 6.25 Distribution of main in
Page 117 and 118: Technology and know-how transfer In
Page 119 and 120: Figure 6.29 Expenditure on training
Page 121 and 122: Table 6.17 Number of university gra
Page 123 and 124: control is of paramount importance
Page 125 and 126: Table 6.18 Foreign investor’s bra
Page 127: Summary Wage and employment growth
Page 130 and 131: Table 7.1 Exports for main investor
Page 132 and 133: Figure 7.2 Past and future export g
Page 134 and 135: Table 7.7 Top regional export desti
Page 136 and 137: Export markets The long-established
Page 138 and 139: global exporters’ contribution to
Page 140 and 141: Table 8.2 Location factors consider
Page 142 and 143: Figure 8.2 Assessments of changes i
Page 144 and 145: Figure 8.7 Comparison of importance
Page 146 and 147: Figure 8.11 Classification tree of
Page 148 and 149: Figure 8.15 Pre-investment services
Page 150 and 151: period (average of 15 years) over w
Page 152 and 153: Figure 9.1 Future employment and in
Page 156 and 157: associated with FDI. In these count
Page 158 and 159: Table 9.1 Major characteristics of
Page 161 and 162: List of tables and figures FIGURES
Page 163 and 164: Figure 4.65 Sales by market orienta
Page 165 and 166: Table 3.1 FDI stock - book value of
Page 167: Annex table 6.10 Expenditures on su
Page 170 and 171: a work permit? How many engineers/s
Page 173 and 174: ANNEX
Page 175 and 176: Annex table 2.1 Detailed definition
Page 177 and 178: Annex 2.4 Sample size requirements
Page 179 and 180: Annex table 3.2 Distribution of for
Page 181 and 182: BOOK VALUE(in USD) WORKFORCE Number
Page 184 and 185: Annex: Chapter 4 Annex table 4.1 Sa
Page 186 and 187: Annex table 4.2 Sales, book value a
Page 188 and 189: Annex table 4.3 Sales, book values
Page 194 and 195: Annex table 4.6 Subsectors by inves
Page 196 and 197: Annex: Chapter 5 Annex table 5.1 In
Page 198 and 199: Annex table 5.7 Last year’s sales
Page 200 and 201: Annex table 5.13 Annual sales growt
Page 202 and 203: Annex table 5.19 Sales per USD book
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Annex: Chapter 6 Annex table 6.1 Wa
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Annex table 6.3 Annual employment g
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Annex table 6.6 Ratio of expected r
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Percentage of local content MEAN ME
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Annex table 6.11 Expenditure on tra
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Annex table 6.14 Proportion of univ
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Annex table 6.16 Proportion of expa
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Annex figure 6.1 Classification tre
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Annex figure 6.5 Classification tre
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Annex: Chapter 7 Annex table 7.1 To
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Annex table 7.4 Export growth (past
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Annex: Chapter 8 Annex table 8.1 Lo
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Annex table 8.4 Ranking of countrie
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Annex figure 8.1 Assessment of chan
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Economist Intelligence Unit (EIU) (
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Printed in Austria March 2007 UNITE
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