Research Paper

Research Paper

Group 4 SPARKS ALIVE

Aditya

081124

Amit

081126

Piyush

081163

Rahul

081166

Sachin

081173

Sumit

081177

Paper 

Foreign Direct Investment from China, India and South Africa in sub-Saharan Africa: A New or Old Phenomenon? John Henley Stefan Kratzsch Mithat Kulur Tamer Tandogan March 2008

Methodology Focuses on firm-level investments originating from China, India or South Africa in fifteen host countries in Sub Saharan Africa (SSA). Sample of 1,216 foreign-owned firms participating in the UNIDO Africa Foreign Investor Survey, carried out in 2005.

Analysis in terms of firm characteristics, past and Forecast performance in SSA over three years and management’s perception of ongoing business conditions.

Foreign Investments in SSA (Mean Values)

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Older established firms are mainly from the North & newcomer firms originate from the South Chinese firms are the youngest one with an average age of 7 years in 2005 Average age of Asian firms of operational experience in SSA is 7.4 years

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South African firms are comparable to the firms from North in terms of sales and assets Most of the South African are formal subsidiaries of a parent company Most of the Indian firms are very small and have a low level of financial commitment

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80 percent of Indian firms don’t have any formal organizational links with any corporate headquarters in another country. This shows the growing importance of international entrepreneurs in SSA Continuous lowering of trade and investment barriers in SSA

Firm Performance

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South African firms are more capital inventive than those from North South African firms obtained the highest productivity in terms of gross sales Indian firms are better than those frm China in terms of productivity and operational experience.

Sectors

Sub-Sectors Investments SUB-SECTOR INVESTMENTS IN VARIOUS COUNTRIES

% OF INVESTMENT

120 100

OTHERS TRA NSPORTA TION& COMMUNICA TION

80

PROFESSIONA L SERV ICES FINA NCIA L INTERMEDIA TION

60

A GRICULTURE,FISH &NA T.RESOURCES

40

FOOD,BEV ERA GES & TOBA CCO GA RMENT,A PPA REL & LEA THER

20

CHEMICA L.PLA STIC & RUBBER A UTO,MACHINERY & EQUIPMENT

0 CHINA

INDIA

SOUTH AFRICA

COUNT RIES

NORTH

MA RKETING,SA LES & DISTRIBUTION TEXTILE

Market Orientation

Mode of Entry and Ownership

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Nearly half of South African investors are using acquisitions as a ‘catch-up’ entry mode in SSA including taking advantage of privatization Chinese investors favour mainly a Greenfield investment strategy.

Last Years Sales Growth

Future Annual Sales Growth

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Chinese firms experienced a very high growth(48 %) but are not very much optimistic about their future sales. On the other side, both Indian and South African firms are anticipating doubling their sales growth over the next three years

Export As Percentage of Sales

Employment Growth (past 3 years)

Correlation used…….. 

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Used Pearson Product moment correlation coefficient to measure the degree of linear relationship between three variables Value lies between -1 and 1 Value = positive; two variables tend to increase together = negative ; when one variable tends to increase as the other decreases

Data used………… Countries

Sales growth (%)

Annual wages (USD)

Share of Migrant Graduates in workforce (%)

China

48.3

1104

36.9

India

13

2106

40.1

South Africa

17.6

7426

22.7

SSA

20.5

4462

21.4

Asia

39

2338

29.4

MENA

12.6

2054

17.7

North

14.6

5869

17

Partial correlation….. 

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To determine the correlation between sales and annual wage, after adjusting the linear effect of migrant labour. Regress the sales on migrant labour and store the residuals( Resi. 1) Regress the annual wage on migrant labour and store the residuals (Resi.2)

Resi.1(Sales on migrant labour)

Resi.2(Annual wage on migrant labour)

Correlations of the Residuals

Conclusion……….   

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Uncorrected correlation value=-0.473 Corrected value =-0.265 Inverse linear relation between two variables Difference between corrected and uncorrected values is due to linear effect of third variable( migrant labour)which has been adjusted in the corrected method.

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