Africa Foreign Investor Survey 2005 - unido

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AfrIPANet The bi-annual FDI surveys are the empirical input for the design of regional and sector-level strategies and activities for SSA countries. As a platform for the development and implementation of these strategies, UNIDO hosts a network of sub-Saharan IPAs, referred to as the Africa Investment Promotion Agency Network (AfrIPANet). Through this platform the region’s IPAs can interact with each other and with UNIDO as well as with selected interlocutors that can contribute timely knowledge and opinion. AfrIPANet was initiated in 2001 and currently covers 15 SSA countries where UNIDO has been involved in implementing integrated industrial development programmes. The network builds upon the achievements of UNIDO programmes to bring permanence to the partnerships established with National Investment Promotion Agencies (IPAs) in the course of those programmes. In addition to the 15 member IPAs 6 , the Network is composed of UNIDO Investment and Technology Promotion Offices (ITPOs) 7 and an Advisory Panel from the private sector and academia. The meetings of the Network provide an opportunity for member IPAs and ITPOs to renew contacts and initiate bilateral activities between their respective countries. The Advisory Panel is a resource group to convey the concerns of actual investors at the meetings as well as the findings of current research on FDI 8 .The recommendations that emerge represent a compendium of activities for the agencies, national governments, regional organizations, donors and UNIDO. The Network also serves as a means for continuous capacity building and introduction of relevant products and services into the activities of the IPAs and facilitates interchanges between the IPAs and UNIDO Investment and Technology Promotion Offices (ITPO). Objectives of the survey This survey is primarily meant as an input for the formulation of IPA strategies and a programme of coordinated action to be designed and implemented within the framework of AfrIPANet. The data is limited to the 15 member countries of AfrIPANet but the empirical discussion of the issues could have broader implications. 6 The 15 member countries of the Network include: Burkina Faso, Cameroon, Côte d’Ivoire, Ethiopia, Ghana, Guinea, Kenya, Madagascar, Malawi, Mali, Mozambique, Nigeria, Senegal, Uganda, and the United Republic of Tanzania. 7 UNIDO ITPO Offices are in Bahrain, Belgium, Brazil, China, Egypt, France, Greece, Italy, Japan, Jordan, Morocco, Poland, Republic of Korea, Russian Federation,Tunisia, Uganda, United Kingdom. 8 More information about the 2006 AfrIPANet Meeting in Johannesburg (South Africa) under: www.unido.org/doc/53663. Information about the 2003 AfrIPANet Meeting available under: www.unido.org/doc/10820. As the third in the series, this year’s survey focuses on specific areas of enquiry.These are the impact of FDI and the importance of South-South FDI flows for the SSA region. The study of impact, particularly empirical analysis of positive spill-overs in a developing country context, is limited. Enterprise level data from this survey not only contributes new evidence on the subject, but breaks it down according to source of investor from developed and developing economies. The study also looks at investors according to date of start of operations to note changes in investor characteristics over time. The analysis is carried out at several levels as discussed below. Organizational structure One issue flagged in the 2003 survey for closer investigation was the definition of the foreign investor in the region. A single definition, i.e. subsidiaries of TNCs headquartered in other countries, seemed inadequate for capturing the full extent of the nature of FDI in the region. There appeared to be a large population of foreigners who had invested in and were managing operations in these countries, but these operations were not subsidiaries of international enterprises. Most other attributes of FDI applied to this class of foreign investor. They had invested but it was not clear how much capital was brought in and how much was locally sourced. Substantial know-how, both technological and managerial, usually resided with these owner/managers and the expatriate staff they brought along. These foreign entrepreneurs often owned and managed other operations in the same host country, in their home country or in third countries. Such a group of companies owned by the same person or family exhibited some of the characteristics of multinational firms, but they did not have formal subsidiary/parent relationships, rather operated as independent, stand-alone operations. There was evidence that many of these enterprises benefited from the international links of the owner/manager and were exporting or involved in other forms of international activity, sometimes playing the role of facilitators. Some were providing critical services or products that strengthened the linkages between the host economy and global markets. They were internationally mobile and made location decisions using similar criteria that TNCs use for locating their subsidiaries. Sometimes they moved their operations from one country to another within SSA as conditions dictated. The question was how these entities should be treated in analysing FDI in SSA countries. Do they qualify as FDI? Would ignoring them distort the fundamental dynamics of FDI? How should they figure in the strategies of IPAs? Most importantly, what was their influence and effect on the local economies? 4 Africa Foreign Investor Survey 2005
One of the objectives of this survey therefore, was to examine this group within the context of FDI and provide some clues for IPAs in structuring their strategies taking into consideration the potential effects of these investors, their actions, motivations and perceptions. For the purposes of this survey three investor types have been defined to delineate and study in isolation their characteristics and dynamics of operations. These three types, grouped under a category called ‘organizational structure’, are: the commonly referred to multinational enterprises that seek international locations for their subsidiaries within the context of their global strategies; smaller enterprises that are globalized in a limited way, entering into cross-border activity through subsidiaries either to carry their operations into a new market or access lower cost inputs to compete in their traditional markets; and the foreign owned and managed standalone enterprises that are not formal subsidiaries. The first group is referred to throughout this report as large transnational corporations or L-TNC and are corporations with annual global sales of more than $200 million.The second group is referred to as small TNCs or S- TNC, with global sales under $200 million.This pure size distinction probably does not catch the small but truly global companies.The third group is referred to as the foreign entrepreneur or FE, the foreign owned enterprise that is not a formal subsidiary of a global corporation. In distinguishing these three types of “organizational structures” and separating the sample accordingly to study their individual behaviour, it is hoped that better understanding is gained about their respective operational characteristics. The purpose is primarily to explore the utility of the two subgroups (S-TNC and FE) in approximating the benefits that accrue from FDI of the recognized global enterprises (L-TNC).The next stage would be to craft strategies for SSA countries, taking into consideration the realities of the investors in those countries. Developing countries are advised to exploit the global value chains and internal and external trading channels of multinational enterprises (L-TNC), and to find ways to insert their productive sectors into those linkages.This is the recipe for getting out of marginalized status and benefiting rather than suffering, from globalization.The potential for doing this in a proactive way however is increasingly dependent on the ability of local enterprises to interact with L-TNCs and their subsidiaries. The weaknesses of SSA countries in this respect have lead to disappointments in attracting L-TNC investments. The presence of S-TNCs and FEs help SSA economies facilitate better linkages with the L-TNCs’ global networks. In short, if these countries are not succeeding in penetrating global FDI and trade flows to a large extent by partnering with the main actors of those networks, the L- TNCs, then an alternative may involve adjusting FDI strategies to target these second-tier players more actively. It may have similar consequences to simulate mobilizing domestic entrepreneurship and investment resources to improve the ability of the economy to attract L-TNCs in sectors other than resourced-based investments. The survey therefore attempts to shed light on these questions by looking at the relative size of companies that fit the FE and S-TNC definitions, their role in export, employment generation, linkages with local suppliers and the dynamism they show in terms of growth. Their preferred sectors and how much of the FDI sector they represent in the different countries are also explored. South-South FDI As mentioned above one of the objectives is to investigate in both quantitative and qualitative terms the relevance of South-South FDI flows.This has come to the fore as a significant future development matter (for both developed as well as developing countries) with the recent upsurge in outward FDI flows from several large emerging economies.That enterprises from other developing countries would be technologically more “appropriate” to LDCs and thus generate more effective technology dissemination throughout the economy is one hypothesis that predicts positive future outcomes from South-South FDI. Another is that enterprises from South are more accustomed to working and thriving in uncertain developing country environments, and thus would put more realistic risk premiums on their investments in LDCs. These hypotheses, that could have vital implications on LDC strategies, are examined by separating the survey sample according to origin. Investors from the industrialized “North” are compared with investors from the emerging developing country markets, the “South”.The way in which the two groups display similarities and differences may give clues about the significance of the optimistic scenarios and point to approaches that LDCs and their IPAs could adopt to realize the potential benefits. Impact of FDI In this survey an attempt is also made to assess the impact of FDI on the host economies.The FDI effects discussed earlier will be looked at to see how much of these expected benefits actually accrue and which subgroups contribute the most. To accomplish this, the survey asked investors to specify how much operating inputs they source locally; how much local sub-contracting expenditures they have (separated into core operations and support services); and how much they have spent locally on training and research and development (R&D).They were also asked to rate the importance to the local operation of the foreign investor’s 1 | Introduction 5
Page 1: Burkina Faso Cameroon Côte d’Ivo
Page 4 and 5: The designations employed and the p
Page 7: Preface Investment is the key to un
Page 11 and 12: Foreword This is a pioneering and m
Page 13: Abbreviations ACP AfrIPANet AGOA AN
Page 16 and 17: Africa IPA Network (AfrIPANet) serv
Page 18 and 19: historical roots and regional marke
Page 20 and 21: cially in the services sector) pay
Page 22 and 23: small, labor intensive manufacturin
Page 24 and 25: mostly subsidiaries of small TNCs,
Page 27 and 28: 1. Introduction Little empirical st
Page 29: The simplest linkages involve being
Page 33 and 34: 2. Survey methodology Outline of th
Page 35 and 36: The initial design of the questionn
Page 37: transformation explains the differe
Page 40 and 41: adds up to higher than the total FD
Page 42 and 43: Figure 3.5 Share of the 15 survey c
Page 44 and 45: Figure 3.8 FDI stock - book value o
Page 46 and 47: Table 3.2 Top-5 foreign investor su
Page 48 and 49: majority of firms global exporters
Page 50 and 51: Continuing links with the North Fig
Page 52 and 53: Figure 3.24 Sales, book value, and
Page 54 and 55: The 25 largest companies in the sur
Page 56 and 57: Figure 4.1 Sales according to organ
Page 58 and 59: Figure 4.5 Sales by main sector and
Page 60 and 61: In terms of job creation, it is cle
Page 62 and 63: Figure 4.17 Sales by organizational
Page 64 and 65: clear trend of increasing South com
Page 66 and 67: of Tanzania. In Western Africa, Cô
Page 68 and 69: ook value of South controlled, loca
Page 70 and 71: Figure 4.37 Sales by investor origi
Page 72 and 73: Figure 4.43 Sales in each start-up
Page 74 and 75: Figure 4.50 Share structure distrib
Page 76 and 77: Figure 4.52 Sales by share structur
Page 78 and 79: 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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eveals a group of 77 subsidiaries o
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Table 6.2 gives the distribution by
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for accuracy. The whole sample expe
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Figure 6.16 Expected re-investment
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Local content impacts The analysis
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other hand, the thesis, according t
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Figure 6.25 Distribution of main in
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Technology and know-how transfer In
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Figure 6.29 Expenditure on training
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Table 6.17 Number of university gra
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control is of paramount importance
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Table 6.18 Foreign investor’s bra
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Summary Wage and employment growth
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Table 7.1 Exports for main investor
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Figure 7.2 Past and future export g
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Table 7.7 Top regional export desti
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Export markets The long-established
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global exporters’ contribution to
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Table 8.2 Location factors consider
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Figure 8.2 Assessments of changes i
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Figure 8.7 Comparison of importance
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Figure 8.11 Classification tree of
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Figure 8.15 Pre-investment services
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period (average of 15 years) over w
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Figure 9.1 Future employment and in
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taking advantage of the opening up
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associated with FDI. In these count
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Table 9.1 Major characteristics of
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List of tables and figures FIGURES
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Figure 4.65 Sales by market orienta
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Table 3.1 FDI stock - book value of
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Annex table 6.10 Expenditures on su
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a work permit? How many engineers/s
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ANNEX
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Annex table 2.1 Detailed definition
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Annex 2.4 Sample size requirements
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Annex table 3.2 Distribution of for
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BOOK VALUE(in USD) WORKFORCE Number
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Annex: Chapter 4 Annex table 4.1 Sa
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Annex table 4.2 Sales, book value a
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Annex table 4.3 Sales, book values
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Annex table 4.6 Subsectors by inves
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Annex: Chapter 5 Annex table 5.1 In
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Annex table 5.7 Last year’s sales
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Annex table 5.13 Annual sales growt
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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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Africa Foreign Investor Survey 2005 - unido

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