Short Abstract:
Market entry of firms from emerging markets becomes increasingly important in sub-Saharan Africa. This panel examines a) the characteristics of these new players, b) the interconnections of them with their local counterparts and c) the implications for local entrepreneurship and business growth.
Long Abstract:
Foreign firms from developing countries have become increasingly important investors in sub-Saharan Africa. Alongside the larger firms, an increasing number of small scale immigrant entrepreneurs enters sub-Saharan African markets. Many of these start small scale businesses in the informal sector, where entry barriers are low.
These foreign (immigrant) firms typically have advantages over domestic firms, such as better access to information and capital as well as management skills. On the one hand, this may have positive effects on the development of domestic enterprises and the economy as a whole. For example, increasing competitive pressure may force domestic firms to improve productivity. In addition, modern technologies and products introduced by foreign (immigrant) firms may induce spillover effects and increase creativity of domestic entrepreneurs. On the other hand, consumer demand may shift away from domestic firms, resulting in predatory competition and job losses. What does the empirical evidence tell us about these ambiguous effects? Do financially stronger foreign (immigrant) firms push away local enterprises and further constrain their development, or can they become central agents of job creation and economic development? What can we learn from business characteristics of foreign minorities with regard to the factors constraining growth especially that of informal domestic enterprises?
This panel invites papers that qualitatively and/or quantitatively investigate foreign/immigrant enterprises in sub-Saharan Africa with regard to:
a. their characteristics and strategies;
b. their differences to and their interconnections with local counterparts;
c. the implications of their market entry for local entrepreneurship and business growth.
Accepted papers:
Session 1
What can be learnt from the performance of migrant entrepreneurs? The case of Indian migrant enterprises in the informal economy of Uganda
Sarah Linde
(GIGA)
Lena Giesbert
(German Institute of Global and Area Studies (GIGA))
Paper short abstract:
This paper investigates performance differences of domestic and Indian migrant enterprises in Kampala. It tests whether Indian firms benefit from stronger social ties and better access to capital and how relevant this is for explaining differences in profitability and investment activities of MSEs.
Paper long abstract:
n many countries in sub-Saharan Africa, foreign ethnic minorities play a dominant role in private sector and economic development. To date the economic literature on migration and foreign ethnic minorities has primarily focused on the impact of emigration on business development in the emigrant's country of origin. However, the question of how enterprise activities of foreign ethnic minorities affect the economic development in the host country remains largely unaddressed.
We use own firm survey data to investigate differences in terms of firm size, productivity levels, capital accumulation, profitability and employment generation amongst domestic and Indian migrant enterprises. The survey was conducted in 2012 in Kampala, Uganda and includes 466 micro and small enterprises (MSE) of which about 8% are run by entrepreneurs of Indian descent.
Our analysis will help to identify similarities and differences regarding economic constraints and opportunities across these groups. In particular, we will take a deeper look into the role social networks play in explaining firm performance. Results from recent studies suggest that the strength of social networks can be crucial in explaining firm performance differences between various ethnic or social groups. We therefore examine whether foreign ethnic minority firms benefit from stronger social ties and thus better access to capital and how relevant this is for differences in the profitability and investment activities among micro and small enterprises in Uganda.
Chinese entrepreneurs in Angola: the role of state-to-state cooperation
Sofia Fernandes
(Lisbon University Institute)
Paper short abstract:
From 2004 on Chinese entrepreneurs started setting up in Angola, following the first bilateral financial agreements. This paper reflects on the strategies of Chinese companies in Angola, namely how they link with local partners, and the effects of their entry on other players in the market.
Paper long abstract:
Chinese economic cooperation with Angola starts only after the end of the civil war in 2002. From then on, China gained the status of a privileged and strategic partner within the political milieu in the country. The number of Chinese in the territory has been increasing steadfastly since 2004, with official references to 259.000 citizens in April 2012 (Visão 25-04-12).
State-to-state relations are at the origin of Chinese economic activity in Angola. Chinese had, in the early days of the partnership, a privileged status accorded to them by the government. However as their role in the national reconstruction program became more clearly defined - there was a clear distinction between investors and wage workers looking for an unskilled job - this privileged status has tended to disappear. Based on empirical research carried out in Luanda, we found that besides the pervasiveness of Chinese people in every sector of the economy, and the fact that Chinese companies follow the Chinese family-based management model, they are being quite successful in establishing their businesses in Angola. This success relates to the fact that they easily adapt to local content regulations, such as the requirement of "angolanisation" which imply having a national partner in every sort of business venture. As for the implications of their market entry to other players, we highlight the heightened competitiveness and renewed interest that Chinese companies imprinted on the Angolan market.
Exporting firms in disguise: the case of the Chinese special economic zone in Mauritius
Honita Cowaloosur
(University of St Andrews)
Paper short abstract:
As Chinese Special Economic Zones in Africa delay in delivering development, the African host countries are bearing the cost, while the Chinese developers remain largely unaffected. How?
Paper long abstract:
Although Africa is acquainted with investment inflow from one-off Chinese firms, Chinese Special Economic Zones in Africa (CSEZAs) introduce a twist to this phenomenon. Negotiated as bilateral cooperation zones, CSEZAs benefit from fiscal packages more preferential than what African countries offer to singular foreign immigrant ventures. Ranging from expensive offsite infrastructural provisions funded through public money, land-lease of strategically located plots at low rent for a minimum of 79 years (with the right to pledge the landrights to foreign banks), passports to investors, and allowing the importation of construction materials from China, this new format of organised Chinese immigrant investment impinges upon the development of the host African communities rather than contribute to it. While the host African governments have done their part, the Chinese SEZs developers have failed to deliver the backward linkages (creation of local jobs, transfer of technology, skills and knowledge). The strategies adopted by the Chinese SEZ developers are distinct: (i) use of special purpose vehicles allowing an isolation of financial risks and also camouflaging of ownership identity, hence accountability (ii) local incorporation of SEZ as a company instead of a project, and (iii) creation of adjacent business activities as subsidiary to the SEZ company--though operating outside the SEZ--thereby benefitting from both, preferences allocated to the SEZ and access to the domestic market. In light of fieldwork carried out in Mauritius, this paper investigates the exportation of Chinese businesses into Africa under the guise of diplomatic mutual development ventures.
The influence of the China-Nigeria bilateral relationship on FDI determinants of resources seeking Chinese MNEs in Nigeria
Ojo Olukayode Iwaloye
(University of Saint Joseph)
Paper short abstract:
We investigate the influence of China-Nigeria bilateral relationship on determinants of resources seeking Chinese MNEs FDI in Nigeria. Institutional and country’s specific factors make the FDI determinants different from other countries and give Chinese MNEs control over the resources.
Paper long abstract:
Availability and access to resources, supporting infrastructures and good government policies in a politically stable environment are importance factors to any resources seeking MNEs FDI. Also, the measures of risk in a market place determine attractiveness of a location as investment destination. The resources seeking Chinese MNEs recognize that these conventional factors are not available in Nigeria and most of African countries. Since the FDI decision of Chinese MNEs reflects political objectives of Chinese government that are not consistent with profit maximizing-strategies of private organizations. Therefore, China-Nigeria bilateral relationship umbrella under which the two countries cooperate on trades and investments provides opportunity to Chinese government to realize their objectives through their firms. The importance of institutional factors and country's specific factors are explored to internalize their firm's ownership advantages. The bilateral trade and investment relations create the platform for Chinese firm to form partnership with local resources regulators and stakeholders
In this present research, we match theoretical and empirical evidences together to analyze the influence China-Nigeria bilateral relationship on four location specific attributes specifically for resources seeking Chinese MNEs. The implications of this relationship are two folds. The combination of institutional factors and country's specific advantages make the FDI determinants different from other countries. Also, the partnership of Chinese MNEs with regulators of local resources gives them control and autonomy to use the resources.
The role of Chinese migrants in reproducing and altering employment and business opportunities in Lesotho
Sarah Hanisch
(University of Vienna)
Paper short abstract:
The paper presents the findings from a study of 86 Chinese migrants and their influence on existing employment and business opportunities in Lesotho's micro- and small scale business sector.
Paper long abstract:
Despite the fact that Chinese migration to Lesotho is not a new phenomenon, we still know little about these migrants and their economic activities in general, and their influence on the reproduction or altering of Lesotho's employment and business opportunities in particular. Identifying this knowledge gap, I conducted a survey among 86 Chinese migrants in seven towns in Lesotho in November 2011 and February 2012. My analysis shows that Chinese migrants in Lesotho, by establishing small shops and supermarkets, appear to give in to structural constraints (low demand and high entrance barriers into the large-scale wholesale and retail sector) and are thereby reproducing existing business opportunities. However, by being rather successful and employing Basotho, they are at least partially altering existing employment opportunities. At the same time, they are also outcompeting Basotho businesses by engaging in different business practices (different setups of the businesses and sourcing strategies). This has several implications: on the negative side it leads to an exposure of Basotho to the competition from Chinese migrants; on the positive side, Basotho are adapting several aspects of Chinese business practices, thus at least partially increasing the Basotho's overall economic competitiveness.