Tuesday, April 26, 2016

Surprises from our CARI Working Paper on Chinese Manufacturing Investment in Nigeria

photo credit: Irene Sun
The SAIS China Africa Research Initiative (CARI) has published a new working paper on Chinese Manufacturing Investment in Nigeria: "Learning from China? Manufacturing Investment, and Technology Transfer in Nigeria." This paper builds on our Center for Economic Policy Research grant, "The Role of Asian Investment in Manufacturing in Catalyzing Economic Development in Africa," which is intended to study linkages and FDI spillovers from Asian/Chinese investment in four countries: Nigeria, Ghana, Tanzania and Ethiopia.

We gathered data from 20 Chinese and 21 Nigerian manufacturers, looking for linkages between Chinese and Nigerian firms and institutions. Our research in Nigeria found some surprising things:

Private firms. Most of the factory investors we interviewed were private investors or single entrepreneurs without state support; most have relocated directly from the coastal regions of the mainland such as Zhejiang, Shandong and Jiangsu.

Political backing from Nigerians. Instrumental actors such as the former governor of Ogun State, Daniel Gbenga, a staunch advocate of Chinese investment in Nigeria, played a role in attracting Chinese FDI, telling one of the authors: "the Ogun-Guangdong FTZ (Free Trade Zone) is my baby."

Local distributors, not Chinese shops. Nearly all Chinese factories in Nigeria relied on local distributors for their goods. According to Hong Kong businessmen with longtime investments in Nigeria, there is an "unwritten rule that Chinese business stops at the factory door," at which point local distributors take over.

No investment in supplier upgrading. None of the Chinese factories we interviewed had actively invested in upgrading the technology or skills of their local suppliers. Chinese firms still import the majority of their raw materials from China; only low-value and bulky materials such as rock for ceramics, scrap metal, and wood for furniture are purchased locally. Many entrepreneurs complained about the poor quality of local materials.

Learning is happening. The Chinese firms we sampled employ over 80 percent of their workforce locally. In Calabar, the Baoyao steel mill uses ship wreckages as raw material. This requires a higher level of technical ability; as such, its welders have become renowned for their skill and speed. "It's like we opened a school!" said Mr. Zhang.

A growing role of "agent suppliers," Chinese traders and businessmen living in Nigeria whose business it is to serve as middlemen between Nigerian manufacturing firms (generally in the south-east) and Chinese suppliers. They arrange contacts between factories in China that specialize in the required area and often earn commissions.

Training Nigerians in China. The Nigerian manufacturers had robust linkages to Chinese equipment suppliers, their "technical partners," who sent engineers and technicians to install machinery and train Nigerians. Some Nigerian firms have also sent staff for training in China.

The mystery of Yumei solved: The only intentional experiment of industrial clustering appears to have been the so-called Yuemei Fabric Industrial Zone (YFIZ), which Shen (2013) discusses as a successful case of a private industrial estate. Shen reported that twenty firms had invested in the zone, which was said to have been built by a Zhejiang company, Yuemei. We actually visited the so-called Yuemei cluster in Calabar, which was renting space in the Calabar Free Trade Zone. The Zone operators reported that only two firms ever came to invest in this cluster: Mawa, which specialized in textile dying and printing, and Jinmei, which specialized in embroidery. Both were evicted in early 2014.

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