Research Paper

Aditya Amit Piyush Rahul Sachin Sumit

081124 081126 081163 081166 081173 081177

Group 4 SPARKS ALIVE

Paper

Foreign Direct Investment from China, India and South Africa in sub-Saharan Africa: A New or Old Phenomenon?
John Henley Stefan Kratzsch Mithat Kulur Tamer Tandogan
March 2008

Methodology
Focuses on firm-level investments originating from China, India or South Africa in fifteen host countries in Sub Saharan Africa (SSA). Sample of 1,216 foreign-owned firms participating in the UNIDO Africa Foreign Investor Survey, carried out in 2005.

Analysis in terms of firm characteristics, past and Forecast performance in SSA over three years and management’s perception of ongoing business conditions.

Foreign Investments in SSA (Mean Values)

Older established firms are mainly from the North & newcomer firms originate from the South Chinese firms are the youngest one with an average age of 7 years in 2005 Average age of Asian firms of operational experience in SSA is 7.4 years

South African firms are comparable to the firms from North in terms of sales and assets Most of the South African are formal subsidiaries of a parent company Most of the Indian firms are very small and have a low level of financial commitment

80 percent of Indian firms don’t have any formal organizational links with any corporate headquarters in another country. This shows the growing importance of international entrepreneurs in SSA Continuous lowering of trade and investment barriers in SSA

Firm Performance

South African firms are more capital inventive than those from North South African firms obtained the highest productivity in terms of gross sales Indian firms are better than those frm China in terms of productivity and operational experience.

Sectors

Sub-Sectors Investments
SUB-SECTOR INVESTMENTS IN VARIOUS COUNTRIES
120 % OF INVESTMENT 100 80 60 40 20 0 CHINA INDIA SOUTH AFRICA NORTH
OTHERS TRA NSPORTA TION& COMMUNICA TION PROFESSIONA L SERV ICES FINA NCIA L INTERMEDIA TION A GRICULTURE,FISH &NA T.RESOURCES FOOD,BEV ERA GES & TOBA CCO GA RMENT,A PPA REL & LEA THER CHEMICA L.PLA STIC & RUBBER A UTO,MACHINERY & EQUIPMENT MA RKETING,SA LES & DISTRIBUTION TEXTILE

COUNT RIES

Market Orientation

Mode of Entry and Ownership

Nearly half of South African investors are using acquisitions as a ‘catch-up’ entry mode in SSA including taking advantage of privatization Chinese investors favour mainly a Greenfield investment strategy.

Last Years Sales Growth

Future Annual Sales Growth

Chinese firms experienced a very high growth(48 %) but are not very much optimistic about their future sales. On the other side, both Indian and South African firms are anticipating doubling their sales growth over the next three years

Export As Percentage of Sales

Employment Growth (past 3 years)

Correlation used……..

 

Used Pearson Product moment correlation coefficient to measure the degree of linear relationship between three variables Value lies between -1 and 1 Value = positive; two variables tend to increase together = negative ; when one variable tends to increase as the other decreases

Data used…………
Countries Sales growth (%) Annual wages (USD) Share of Migrant Graduates in workforce (%) China India South Africa SSA Asia MENA North 48.3 13 17.6 20.5 39 12.6 14.6 1104 2106 7426 4462 2338 2054 5869 36.9 40.1 22.7 21.4 29.4 17.7 17

Partial correlation…..

To determine the correlation between sales and annual wage, after adjusting the linear effect of migrant labour. Regress the sales on migrant labour and store the residuals( Resi. 1) Regress the annual wage on migrant labour and store the residuals (Resi.2)

Resi.1(Sales on migrant labour)

Resi.2(Annual wage on migrant labour)

Correlations of the Residuals

Conclusion……….
  

Uncorrected correlation value=-0.473 Corrected value =-0.265 Inverse linear relation between two variables Difference between corrected and uncorrected values is due to linear effect of third variable( migrant labour)which has been adjusted in the corrected method.

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