delivering sustainable growth in africafurther boosted apparel exports. • the industry employed...
TRANSCRIPT
Delivering Sustainable Growth in Africa:
Linkage between FDI and Local Economy
Public Lecture by Embassy of Japan in Kenya 11/15/2013
Institute of Developing Economies
Takahiro Fukunishi
Structure of Presentation
• Introduction: Will current growth be sustained?
• FDI-led economic development
• Case studies in Africa Horticulture in Kenya
Pineapple in Ghana
Beer industry in Uganda
Garment industry in Madagascar
Construction industry in Burkina Faso
• Policy recommendations
Steady Growth of African Economy
-6
-4
-2
0
2
4
6
8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
GDP per capita Growth %
Low income
Sub-Saharan Africa(developing only)
Low & middle income
Source: World Development Indicators
Concern on Sustainability of Growth
0.222 0.118
0.278
0.130
0.505 0.644
0.586
0.745
0.266 0.225 0.127 0.107
0.000
0.200
0.400
0.600
0.800
1.000
1999 2008 1999 2008
All SSA Excl. SA and SACU
othersh
mnfgsh
resourcesh
agrifoodsh
Composition of Exports from Africa
Source: UN Comtrade
• Growth dependent on resource is recognized as unstable.
Commodity price fluctuation
Limited resource endowment per capita e.g. $488 p.c. in Nigeria, $15,841 p.c. in Gulf countries
“Resource Curse”
• Diversification of economic structure is necessary to sustain the current steady growth.
Productivity Growth
• Productivity growth is a key for development of the non-resource sector.
• But, overall productivity did not grow in Africa until 1990s. > African farmers and firms generally lack experience of steady productivity growth.
• New challenges are needed.
• How to realize productivity growth?
Training, supply of credit, facilitation of business environment, and so on..
We focus on learning from FDI; “FDI spillover”
7
FDI-led Industrialization: Asian Experience
• Multinational firms in developing countries facilitate technology transfer through ▫ Vertical linkage with local firms ▫ Labor turnover
MNC
Local supplier
Local subcontractor
Local competitor
8
• Advantage of FDI spillover MNC demonstrates technology on commercial basis MNC provides technical assistance and markets
• MNCs have incentive to use local suppliers
lower cost, shorter lead time, tax incentives
• In Asia, FDI contributed to develop local firms in apparel, electric appliances, automobile, motorbike etc.
• Applicable in Africa?
Pessimistic view: very small non-resource FDI, poor capacity of local firms, low skill of workers and low quality of biz env’t, and so on.
Case Studies in Africa
1. Non-traditional agriculture for export markets
cut flower (Kenya, Ethiopia)
fresh fruits (Ghana, SA)
vegetables (Kenya, Zimbabwe, Tanzania)
Supermarket in Europe
Exporter
Multinational growers
Local growers
10
11
12
1-a. Cut flower in Kenya (Jodie Keane)
• Kenyan roses account for 26% of total imports in the European market (2010).
• MNCs are from Holland and Israel. Several large growers and most of small growers are local origin (Kenya).
• Cut flower, particularly rose, requires large capital investment and compliance to sanitary standards. An estimated 97% of flower exports are from large, foreign growers.
• Small growers concentrate on decorative flowers.
1-b. Pineapple in Ghana (Aya Suzuki)
• Many local farmers are producing pineapples with assistances by exporters.
• Producing export pineapple requires meeting the sanitary standards as well as quality. Exporters provide inputs, training and some services (harvesting).
• It is more productive than other crops, e.g. cassava, and income of pineapple farmers was five times higher ($2200).
• However, educated, wealthier farmers tends to grow pineapple.
• And it is risky as exporters manipulate rejection rate of pineapples according to market demands.
> Profitable opportunity but not suitable for poor farmers.
Case Studies 2
2. Manufacturing
Export-oriented garment industry
Local-oriented beer industry
Retailors in Europe, US
Trading companies in
Asia
Multinational assemblers
Local assemblers
Multinational breweries in
Africa
Farmers association
Farmers
2-a. Beer Industry in Uganda (Akio Nishiura)
• Two multinational breweries, SAM Miller and East African Breweries, built malting plants in Uganda.
• Motivated by tax incentive and brand images, they have promoted sourcing locally produced barley.
hl 1000
0
200
400
600
800
1000
1200
1400
2006 2007 2008 2009 2010
Beer production at Nile Breweries, 2006–2010
Source: Nishiura (forthcoming), originally from SAB Miller website (http://www.sabmiller.com/index.asp?pageid=1169)
• The beer companies contracted with farmers associations in terms of purchase of barley. They provide seeds at subsidized price and technical service.
• Due to competition, beer companies offer better conditions to farmers; higher price, faster payment and better technical assistance.
• This encouraged participation of young and female farmers into barley production.
2-b. Garment Industry in Madagascar (Fukunishi, Ramiarison)
• In Madagascar, export-oriented garment industry started in the 1990s. Provision of preferential access to US, AGOA, further boosted apparel exports.
• The industry employed more than 100,000 workers (2008) who are mainly female and uneducated.
Source: United Nations Commodity Trade Statistics, report by US and EU27.
Apparel exports from Madagascar
• Local firms account for 28% of garment exporting firms.
• They tend be smaller than multinational assemblers, but as productive as them.
• But they are severely affected by the suspension of AGOA.
Multinational assemblers
Local assemblers
expatriates local workers
sub- contracting
Retailors in US, EU
Case Studies 3
3. Construction industry
Drastic increase of aid on infrastructure construction.
Construction demand for public works has hiked.
Sources: Tokuori (forthcoming), originally from ICA Annual Report (2008, 2009) Note: No data is available for the private sector, India, Arab Funds and African Regional Development Banks (ARDB) in 2005 and 2006.
Infrastructure Financial Contributions to Africa / US$ billion
3-a. Construction Industry In Burkina Faso (Tomomi Tokuori)
• Emergence of a few large and competitive local construction firms
• SMEs are not benefitted from increased construction demands.
Government, International organization
Foreign construction
firms
Local construction
firms
Local construction
firms
sub- contracting
Public works
International tender
Findings
• Mixed evidence about development of local producers, but some of them successfully learned and penetrated into export and local markets. > African producers can effectively learn when support is provided.
• Not all local producers but those with richer financial resource and human capital tend to be more benefitted.
• At the same time, supplying to export market entails substantial risks; e.g. price fluctuation, financial crisis, AGOA cancellation, etc.
Static Impact of FDI
0
10000
20000
30000
40000
50000
60000
70000
80000
1
profit
dividend
interest
rent
wage
depreciation
input, other cost
Sales of Safaricom (2009, mil.Ksh)
Source:Author’s calculation from
Safaricom Annual Report 2009
Value added
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Share of Net Factor Income From Abroad in GNI
Sub-Saharan Africa
East Asia & Pacific
Low & middle income
Source: World Development Indicators
-20.0%
-16.0%
-12.0%
-8.0%
-4.0%
0.0%
4.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Gap between GNI and GDP
Source: World Development Indicators
Dynamic Impacts: Facilitation of Linkage
• It is important to consider facilitation of linkages between FDI and local industry, so that FDI does not creates enclave.
• But governments do not have effective measure to facilitate FDI spillover.
• Given high risks and asymmetric relationship with international buyers, supports to mitigate adverse shocks are needed.
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• Supports for farmers and firms with less resource may help to enhance spillover effects. They can be benefitted from FDI pursuing local market.