China’s Outward Foreign Direct Investment in Africa: How are Ghana Benefiting and its Issues on the Economy?

Abstract

As more nations continue to embrace foreign direct investment (FDI) inflow to enhance economic development, China has increased its outward foreign direct investment on the African continent of which most countries have benefited from it with Ghana not an exemption. To investigate whether China is contributing significantly to the number of projects by foreign investors over the years, the total number of FDI registered projects by the top investing countries within the Ghanaian economy were considered. This paper makes use of quantitative analysis through a descriptive statistical approach based on the data generated from the Ghana Investment Promotion Centre (GIPC) between 2013 and 2018. It was revealed that, China's contribution to the total number of FDI registered projects is very significant, but the estimated cost of these Chinese projects is lower. However, Chinese investment is mostly found in the manufacturing sector of the Ghana's economy. It is suggested that, as the government prepares to roll out on the one-direct-one factory initiative, sound investment policies should be established to protect these infant industries and promote outward FDI.

Measuring the Efficiency of China’s Foreign Direct Investment in Ghana

“…This enables global specialization in which organizations seek to benefit from product difference and variegate risk in factor price. Using cultures, institutional arrangements, diverse factor endowments, economic systems and regulations, and market structures, foreign enterprises concentrate output in a restricted number of places to service various markets in searching for efficiency (Habyarimana & Wu, 2017;Yeboah & Antwi, 2019). Market searching is another primary motivation for investors looking to invest internationally.…”

“…Most Ghanaians have developed a great desire in made-in-China products such as smartphones and other industrial goods, which has had an influence on Chinese investment in the Ghanaian economy. As a consequence, Chinese investors were given permission to establish a branch in Ghana to service their clients (Habyarimana & Wu, 2017;Yeboah & Antwi, 2019). Habyarimana and Wu (2017) mentioned that market searching and resource hunting remain the major reasons of China's investment worldwide.…”

“…Ghana on the other side with vast stock of resources but insufficient capital base to develop however allows Chinese investors with the considerable reserves to invest. Chinese and other developed nations, on the other hand, in-vest in Ghana in order to find and secure natural resources such as gold, diamonds, bauxite, and aluminum, as well as raw materials and lower labor costs (Yeboah & Antwi, 2019). When investors attempt to acquire existing firms or assets in order to safeguard a certain superiority, this is referred to as asset-seeking.…”

“…When investors attempt to acquire existing firms or assets in order to safeguard a certain superiority, this is referred to as asset-seeking. Key domestic established enterprises, market expertise and pre-market entry by rivals, and local skills are among the acquisitions targeted at strengthening its international competition's stance (Yeboah & Antwi, 2019). Many West African countries prefer FDI coming from China and these countries have enjoyed streams of FDI because of China's fast-growing economy and prior FDI experience.…”

“…The rising entry of FDI from China into Ghana has sparked a lot of interest in researching China's FDI in Ghana, particularly the factors that influence it. Although research on the drivers of FDI in Ghana has been undertaken, there have been few papers on the determinants of China's FDI to Ghana and, to a greater degree, the effectiveness of the investments (Asiamah, Afful, & Ofori, 2019;Yeboah & Antwi, 2019;Tang & Gyasi, 2012;Boakye-Gyasi & Li, 2017;Boakye-Gyasi & Li, 2016). To contribute and broaden the studies on the determinants of China's FDI in Ghana, this study explores the determinants of China's FDI in Ghana and how efficient it has been to the Ghanaian economy.…”