Chinese outward foreign direct investment (OFDI) in Africa has increased significantly since the turn of the century. After the global financial crisis, the emergence of a variety of Chinese private firms (mostly small and medium-sized) relocated their industrial capital in the form of OFDI to Ethiopia’s manufacturing sector.
With the increasingly supportive ‘Go Out’ (zou chu qu) policy that the Chinese government is promoting, ferocious competition in the domestic market due to increasing globalisation and the experience and skills that Chinese private firms have accumulated, the nature of private OFDI in Africa is becoming far from one-dimensional and is growing increasingly dynamic.
The vast literature on Chinese private OFDI in Africa claims that factors such as entrepreneurship, social networks and other social factors are important determinants that drive SMEs to invest in Africa. However, these factors alone are not sufficient enough to compete in the global market. There is a gap in the literature of Chinese private FDI in Africa. Although much literature claims entrepreneurship, work ethic and ‘guanxi’ (network) are important determinants for private firms to invest in Africa, rarely are social-cultural factors integrated into a broader analytical framework (such as government policies and institution) to analyse economic development.
This paper will take Ethiopia as a country study, particularly focusing on the Ethiopian Investment Commission (EIC), the Chinese business institutional mechanism, and tacit networks to explore the dynamic interactions between multi-stakeholders and its political economic implications.
How do the EIC, Chinese government agencies such as the China-Africa Development Fund (CADFund) and the Ministry of Commerce (MOFCOM), and the private sector such as the Chinese Business Association (CBA), jointly form an institutional mechanism with Chinese investors to foster Chinese business? How is the tacit network structured and what’s the politics behinds it？
It is argued that Chinese FDI in Ethiopia is highly dynamic and the EIC-Chinese business institutional mechanism and networks provides an important platform to guide, manage and facilitate Chinese business to respond actively and flexibly to the political aspirations and economic interests of ‘industrial cooperation’ and ‘strategic complementarity’ between Chinese and Ethiopian governments.