tag:theconversation.com,2011:/au/topics/foreign-direct-investment-7681/articlesForeign direct investment – The Conversation2023-12-03T05:48:50Ztag:theconversation.com,2011:article/2184372023-12-03T05:48:50Z2023-12-03T05:48:50ZAfrican countries lost control to foreign mining companies – the 3 steps that allowed this to happen<p><em>Within a few years of independence, African governments asserted sovereignty over their metal and mineral resources. Prior to this, the resources were exploited by European mining corporations. Since the 1990s, transnational corporations have once again become the dominant force as owners and managers of major mining projects.</em> </p>
<p><em>Ben Radley has researched economic transformation in central Africa, with a particular focus on resource-based industrialisation. He argues in this excerpt of his new book, <a href="https://global.oup.com/academic/product/disrupted-development-in-the-congo-9780192849052?lang=en&cc=gb">Disrupted Development in the Congo: The Fragile Foundations of the African Mining Consensus</a>, that the return of transnationals was carried out through a three-stage process beginning with a misguided reading of African economic stagnation from the mid-1970s onwards. The ceding of resource sovereignty was enabled by pathologising the African state and demonising African miners.</em></p>
<h2>Stage one: Blame the African state</h2>
<p>In the Democratic Republic of the Congo (DRC), president Joseph-Désiré Mobutu took steps early to place resources under state control. The <a href="https://pdf.usaid.gov/pdf_docs/PNAAT376.pdf">Bakajika Law</a> of June 1966 required all foreign-based companies to establish their headquarters in the DRC, then known as Zaire, by the end of the year. In addition, the largest Belgian-owned colonial mining subsidiary, Union minière de Haut Katanga, was nationalised the same year. It became Société générale Congolaise des minerais (Gécamines). By 1970, the Congolese public sector controlled 40% of national value added.</p>
<p>Nationalisation had no immediate adverse effect. In the DRC copper production increased steadily between 1960 and 1974 from around 300,000 tonnes to 500,000 tonnes. It grew over the same period from 500,000 tonnes to 700,000 tonnes in Zambia.</p>
<p>In the DRC, state revenue tripled from US$190 million in 1967 to US$630 million in 1970. A national health system numbering 500,000 employees was established. It was seen as a model for primary healthcare in the global south. The country also achieved 92% primary school enrolment and increased access to the secondary and tertiary sectors.</p>
<p>But soon after, the oil price began to rise. Commodity prices fell due to recession in the global north. In the DRC and Zambia, the copper price crashed from US$1.40 per pound in April 1974 to US$0.53 per pound in early 1975 and stagnated thereafter. Around the same time, from 1973 to 1977, the cost of oil imports quadrupled. In addition, as African government loan repayments became due, interest rates on the loans began to rise as the United States sought to control inflation through monetary policy.</p>
<p>Mining production levels stagnated or dropped. Growth slowed, and debt grew across the continent. Between 1980 and 1988, 25 African countries rescheduled their debts 105 times. In the DRC, copper and cobalt exports decreased sharply, eventually collapsing by the early 1990s. </p>
<p>Of course, external shocks were not the sole cause of the reversal. Nationalisation measures undertaken in 1973 and 1974 were poorly planned and implemented and went badly awry. Agriculture had been neglected, receiving less than 1% of state expenditure from 1968 to 1972, and the Congolese manufacturing sector was in decline. </p>
<p>Yet, a consideration of the impact of external shocks, alongside recognition of the progress made by newly independent African governments in the short time frame up until this juncture, was largely missing from <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/702471468768312009/accelerated-development-in-sub-saharan-africa-an-agenda-for-action">influential analyses</a> of the 1980s seeking to understand the causes of African economic stagnation from the mid-1970s onwards.</p>
<p>Instead, misguided African state intervention and government corruption were put forward as primary causal explanations, to the exclusion of other factors.</p>
<h2>Stage two: Liberalise and privatise</h2>
<p>Between 1980 and 2021, the World Bank provided US$1.1 billion in mining sector grants and loans to 15 of the continent’s 17 mineral-rich and also low-income countries. This gave the bank significant leeway to implement its <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/722101468204567891/strategy-for-african-mining">strategic vision</a> for how mining should be organised and managed:</p>
<blockquote>
<p>The private sector should take the lead. Private investors should own and operate mines. Existing state mining companies should be privatised at the earliest opportunity </p>
</blockquote>
<p>With the regulatory framework overhauled, foreign investment was unleashed to seek out fresh opportunities. Mining exploration in Africa increased from 4% of total mineral exploration expenditure worldwide in 1991 to 17.5% in 1998. Overall mining investment in Africa doubled between 1990 and 1997. </p>
<p>The start of a commodity price surge in 1999 gave fresh impetus. In 2004, the US$15 billion invested in mining in Africa represented 15% of the total of mining investment worldwide, up from 5% in the mid-1980s. From 2002 to 2012, a period spanning most of the supercycle, mineral exploration spending in Africa rose by more than 700%, reaching US$3.1 billion in 2012. </p>
<p>The dramatic increase in foreign direct investment growth since the 1990s has altered the composition of these economies, which have become increasingly dependent upon foreign direct investment as a source of development financing. This level of dependence is greater today relative to other country groups and regions.</p>
<p>The underlying logic of the World Bank’s African mining strategy continues to hold. In 2021, the lender had ongoing mining reform programmes in seven African countries ranging from <a href="https://projects.worldbank.org/en/projects-operations/project-detail/P164271">Niger</a> ($100 million) to the <a href="https://projects.worldbank.org/en/projects-operations/project-detail/P161973">Central African Republic</a> ($10 million). Each programme was geared towards institutional and regulatory change within a general framework giving overall priority to capital-intensive, foreign-owned mining.</p>
<h2>Stage three: Criminalise African miners</h2>
<p>There was one last hurdle for transnational mining corporations. Some prized deposits were already occupied by labour-intensive miners. They mined gold and diamonds mainly. But they were also involved in the production of silver, copper, cobalt, tin, tantalum, iron ore, aluminium, tungsten, wolframite, phosphates, precious and semi-precious stones, and rare earth minerals. </p>
<p>Globally, labour-intensive mining contributes up to 30% of total cobalt production, 25% for tin, tantalum, and diamonds, 20% for gold, and 80% for sapphires. </p>
<p>Labour-intensive African mining directly employs millions of workers across the continent. It has grown significantly since the 1980s, driven by a number of factors. These include rising commodity prices, especially during the supercycle of 1999–2012, which pushed up mining wages and profits. </p>
<p>Despite the sector’s importance to rural employment, African miners have typically been cast by the World Bank, African governments, and parts of the scholarly literature as “primitive”, “basic”, “inefficient”, “rudimentary” and “unproductive”. </p>
<p>In 2017, 70,000 miners were displaced by Ugandan military and police to make way for a Canadian-listed mining corporation. Speaking of the displacement, a Ugandan government official <a href="https://allafrica.com/stories/201711040012.html">said</a>:</p>
<blockquote>
<p>Those people (Ugandan miners) still joking should style up. Now, I’m not only a director (in the Ministry) but also a commander of the Minerals Protection Unit of the Uganda Police Force. So, those illegal miners still behaving like those in Mubende (who were evicted), they should pack and vacate the mines, otherwise, my police force will them help to pack.</p>
</blockquote>
<p>This statement speaks well to the general regard held for African miners within the process of capital-intensive, foreign-owned mining (re)industrialisation. Forcibly displaced and removed from the best deposits, African miners are restricted to working in less productive areas.</p>
<h2>The final act?</h2>
<p>Recent mining code and policy revisions led by African governments such as <a href="https://www.miningreview.com/gold/mining-sector-reform-in-tanzania-the-good-the-bad-and-the-ugly/">Tanzania</a>, the DRC, Sierra Leone and Malawi have begun to push back against this dominance. They draw inspiration from <a href="https://au.int/sites/default/files/documents/30995-doc-africa_mining_vision_english_1.pdf">the Africa Mining Vision</a>, a framework developed by the African Union in 2009 to deepen the linkages between foreign-owned mining and national economies. The vision also seeks to strengthen government capacity to negotiate with and secure developmental benefits from foreign mining corporations.</p>
<p>But these are short of a fundamental challenge to the dominant model of capital-intensive, foreign-owned mining industrialisation on the continent. They remain a far cry from the earlier period of 1960s and 1970s African resource sovereignty.</p>
<p><em>A longer <a href="https://roape.net/2023/11/16/the-three-stage-process-through-which-african-resource-sovereignty-was-ceded-to-foreign-mining-corporations/">version</a> of this excerpt was originally carried in Review of African Political Economy (ROAPE).</em></p><img src="https://counter.theconversation.com/content/218437/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ben Radley received funding from the Leverhulme Trust under grant number SAS-2016-047/7.</span></em></p>Since the 1990s, transnational corporations have once again become the dominant force as owners and managers of major mining projects.Ben Radley, Lecturer in International Development, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2174542023-11-14T14:10:37Z2023-11-14T14:10:37ZProjects funded by the World Bank Group’s private sector arm fuel violent conflict – it’s time to reform the system<p>To what extent does private investment help developing countries to reduce conflict and violence and to achieve the <a href="https://sdgs.un.org/#goal_section">Sustainable Development Goals</a>? </p>
<p>This is a hotly debated issue. Most international institutions such as the World Bank Group take the stance that the problem is <a href="https://documents1.worldbank.org/curated/en/738131573041414269/pdf/Closing-the-SDG-Financing-Gap-Trends-and-Data.pdf">not enough private investment</a>. So they mobilise public resources to subsidise and protect private sector actors with the goal of greatly increasing foreign direct investment. </p>
<p>Meanwhile, community, labour and human rights advocates – particularly in fragile and conflict-affected countries – tend instead to see the dominant patterns of foreign direct investment as part of a continuing history of <a href="https://www.oxfam.org/en/research/suffering-others">exploitation of the developing world</a>.</p>
<p>To help shed light on this debate, we undertook <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4540583">a comprehensive study</a> of thousands of projects of the <a href="https://www.ifc.org/en/home">International Finance Corporation</a> (IFC), the private sector arm of the World Bank Group. We focused on the period between 1994 and 2022. </p>
<p>We chose the IFC because it claims to invest with developmental purpose. It also purports to apply the highest standards of social and environmental performance. Additionally, many other private and public actors follow its lead in setting standards. If the IFC is getting it wrong it would be a good indicator of how things stand in the broader global system. We focused our study on the relationship between IFC projects and armed conflict, as violence has a clear and detrimental effect on human development. </p>
<p>The results establish that IFC projects cause significant increases in armed conflict around the world. A single project, on average, causes 7.6 additional armed conflict events in the year after it is introduced. These findings are consistent with <a href="https://www.jstor.org/stable/3877872">other large quantitative studies</a> that question the relationship between foreign direct investment and development. Foreign direct investment that <a href="https://www.tommasosonno.com/docs/GlobalizationConflict_TommasoSonno.pdf">increases violent conflict</a> and makes development nearly impossible appears the rule, not the exception.</p>
<p>We conclude that current approaches to foreign investment need urgent reconsideration, with particular focus on the risk of violent conflict.</p>
<h2>Our methodology</h2>
<p>Many factors influence violent conflict, including the history of intergroup and state-society relations. So the study used sophisticated econometric analyses to isolate the IFC’s impact. </p>
<p>We first geolocated IFC projects and noted the years in which they were approved. Then we tested whether armed conflict rose in the area proximate to the IFC project in the following year. We controlled for other factors – such as the presence of politically excluded groups, GDP, the regime type, or the population size – that affect conflict. </p>
<p>In the analysis, we were careful to match and compare an IFC project area with those areas without IFC projects to which it is most similar. Finally, we considered and controlled for the possibility that conflict was already rising before the IFC project arrived. By excluding these other explanations for conflict events, we were able to make reasonable causal attributions.</p>
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Read more:
<a href="https://theconversation.com/three-priorities-africas-newbie-on-the-world-bank-board-should-focus-on-181521">Three priorities Africa's newbie on the World Bank board should focus on</a>
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<p>Disturbingly, the study found that increases in armed conflict were concentrated in projects that the IFC told local and international stakeholders had potential limited adverse environmental or social risks. It claimed that these could be readily addressed through mitigation measures. These mitigation measures appear to be either ineffective or under-employed. Alternatively, the IFC is mis-classifying projects that carry more substantial conflict risk than it recognises or cares to make public.</p>
<p>One particularly disturbing example is the Ugandan government’s <a href="http://www.humanrightscolumbia.org/sites/default/files/SIPA%20Listening%20to%20community%20voices%20on%20effective%20remedy%20-%20final.pdf">campaign of terror against local citizens</a> to turn land over to an IFC client. The IFC also has yet to resolve activists’ complaints from 2019 of <a href="https://www.cao-ombudsman.org/cases/liberia-salala-rubber-corporation-src-01margibi-bong-counties">gender-based violence and threats of reprisals and intimidation</a> against one of its project partners, Salala Rubber Corporation in Liberia.</p>
<p>The study also demonstrated that capital-intensive projects (that is, agribusiness, oil, gas, mining and infrastructure) have a larger propensity for socio-political and socio-economic disruption. Areas that receive capital-intensive projects experience, on average, an additional death from armed conflict in the following year.</p>
<h2>Not above the rule of law</h2>
<p>These results should perhaps not be surprising. Civil society groups have long concluded that the IFC prioritises its own profits and business interests over the “<a href="https://www.oxfam.org/en/research/suffering-others">suffering of others</a>” in ways that contribute to “<a href="https://digitalcommons.csbsju.edu/cgi/viewcontent.cgi?article=1159&context=social_encounters">multiple paths of extraction, dispossession, and conflict</a>”. In 2020 Human Rights Watch characterised the IFC as “<a href="https://www.hrw.org/news/2020/08/24/world-bank-group-failing-remedies-project-abuses">failing at remedies for project abuses</a>”. This was based on the World Bank Group’s <a href="https://www.worldbank.org/en/about/leadership/brief/external-review-of-ifc-miga-es-accountability">own commissioned review</a>.</p>
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Read more:
<a href="https://theconversation.com/cautious-welcome-world-bank-and-imf-return-to-africa-but-questions-remain-214888">Cautious welcome: World Bank and IMF return to Africa, but questions remain</a>
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<p>Yet, the IFC’s strategy has been to position itself above the rule of law. It continues to assert sovereign immunity. It claims that, as an international organisation, <a href="https://brill.com/view/journals/iolr/16/1/article-p105_105.xml">it should not be liable</a> in national courts – even to parties it admittedly harms. </p>
<p>It maintains this stance despite <a href="https://theintercept.com/2023/10/17/world-bank-whistleblower-bridge-international/">recent reports</a> of IFC complicity in covering up the sexual abuse of children to further its investment projects. </p>
<p>It appears beyond time for the 186 member governments that own the IFC to demand transparency, accountability and redress for harms done from the corporation and the private sector actors it funds. Others can also play a role. Governments that have perhaps naively relied on the World Bank halo should question the benefits they are told they can expect from IFC investments. The ratings agencies that classify IFC bonds as positive from an environmental, social, and governance perspective may want to question the bases on which such determinations are made.</p>
<p>At the same time, perhaps more credence can be given to recent <a href="https://www.un.org/en/desa/un-secretary-general-calls-radical-transformation-global-finan-cial-system-tackle-pressing">calls by the UN secretary general</a> to reform the global financial system to better support human security and human development. </p>
<p>This could include specialised intermediaries between the IFC and sensitive projects in difficult places. Independent and empowered local oversight appears necessary to ensure more inclusive and accountable forms of contextual analysis and risk mitigation planning, monitoring and evaluation of development impact, proactive conflict management, and accessible redress for harms done. This could <a href="https://issafrica.org/iss-today/conflict-environments-need-a-peacebuilding-approach-to-business-development">reduce violent conflict and open more developmental potential for private investment</a> in the developing world.</p><img src="https://counter.theconversation.com/content/217454/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This work is part of the project Peace Positive Private Sector Development in Africa (P3A), funded by the Research Council of Norway. Additional funding was received from the Peace Finance Initiative.</span></em></p>A single International Finance Corporation project, on average, causes 7.6 additional armed conflict events in the year after it is introduced.Brian Ganson, Professor and Head, Centre on Conflict & Collaboration, Stellenbosch UniversityAnne Spencer Jamison, Assistant Professor of International Economics, Government, and Business, Copenhagen Business SchoolWitold Jerzy Henisz, Vice Dean and Faculty Director, ESG Inititative; Deloitte & Touche Professor of Management, University of PennsylvaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2162732023-10-29T10:05:40Z2023-10-29T10:05:40ZAgoa trade deal talks: South Africa will need to carefully manage relations with the US and China<p>South Africa must tread carefully in its economic relationships to avoid being caught in the escalating tension between east and west, and more specifically China and the US. The country’s hosting, and the outcome, of the <a href="https://agoa.info/news/article/16309-south-africa-confirmed-as-agoa-host-country-for-2023.html">2023 Agoa Summit</a> should strengthen its role in diplomatic relations and contribute towards safeguarding the country’s economic interests. </p>
<p>From <a href="https://agoa.info/news/article/16309-south-africa-confirmed-as-agoa-host-country-for-2023.html">2-4 November 2023</a>, the US and 35 sub-Saharan African countries will meet in Johannesburg for the 20th Africa Trade and Economic Cooperation Forum (Agoa Forum). It entails strengthening trade and investment ties between the US and sub-Saharan Africa through the Africa Growth and Opportunity Act (<a href="https://agoa.info/about-agoa.html">Agoa</a>), US legislation which provides various trade preferences to eligible countries in the region. </p>
<p>Given Russia’s continuing war in Ukraine and its <a href="https://www.nato.int/cps/en/natohq/topics_111767.htm">rising tension with Nato</a>, plus the <a href="https://www.piie.com/research/trade-investment/us-china-trade-war">China-US trade war</a>, tensions between east and west are high. South Africa has <a href="https://theconversation.com/russias-war-in-ukraine-how-south-africa-blew-its-chance-as-a-credible-mediator-181101">come under attack</a> for its <a href="https://www.iiss.org/publications/strategic-comments/2023/the-state-of-non-alignment-in-south-africas-foreign-policy/">non-alignment role</a> in the Ukraine war. It refused to support UN resolutions condemning Russia. This resulted in some US congressmen pushing for the forum <a href="https://agoa.info/news/article/16226-warning-shot-fired-top-us-congressmen-urge-biden-to-move-agoa-forum-away-from-south-africa.html">to be moved out of South Africa</a>.</p>
<p>The country recently hosted the <a href="https://brics2023.gov.za/">15th Brics summit</a>, which resolved to expand the Brazil, Russia, India, China and South Africa grouping to 11 member states. The enlargement will bolster Brics’ role as a <a href="https://theconversation.com/brics-expansion-six-more-nations-are-set-to-join-what-theyre-buying-into-212200">geopolitical alternative to the west</a>, which is dominated by the US. Might this be a direct challenge to American hegemony?</p>
<p>I have been <a href="https://www.ufs.ac.za/econ/faculty-of-economic-and-management-sciences-home/general/staff?pid=zIFzQiuvO3o%3d">researching</a> major global economic developments, such as globalisation and the impact of the 2008 global financial crisis, for 20 years. This body of work shows the risks that come with behaviour like South Africa’s. The country could find itself in the middle of a tense situation. </p>
<p>South Africa needs to pull off an exceptional balancing act in managing its international relations in a sensible way that protects and advances its economic interests. </p>
<p>Note that the <a href="https://www.cfr.org/timeline/us-china-relations">geopolitical tensions between China and the US</a> are not just about trade disputes. They also include <a href="https://asia.nikkei.com/Politics/International-relations/US-China-tensions/U.S.-China-spy-battle-casts-shadow-over-push-for-Biden-Xi-summit#:%7E:text=WASHINGTON%20%2D%2D%20The%20U.S.%20and,trade%20disputes%20and%20technological%20rivalry.">espionage</a>, China’s <a href="https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative">Belt and Road Initiative</a>, climate change and environmental issues, and tensions over <a href="https://www.cfr.org/backgrounder/china-taiwan-relations-tension-us-policy-biden">Hong Kong, Taiwan</a> and <a href="https://www.cfr.org/global-conflict-tracker/conflict/territorial-disputes-south-china-sea">South China Sea disputes</a>. </p>
<p>As a major source of infrastructure financing to sub-Saharan Africa, China is now the region’s largest bilateral official lender. Its total sub-Saharan African external public debt – what these governments owe to China – rose from less than 2% before 2005 <a href="https://blogs.worldbank.org/opendata/slowing-debt-accumulation-growing-risks-unveiling-complexities-sub-saharan-africas-debt">to over 17% in 2021</a>.</p>
<p>Agoa might present a challenge to China as competition for its own interests in Africa. China would like African countries to untie or loosen their agreements with the US. It is thus a good moment to take stock of the actual benefits South Africa has derived from the Agoa agreement with the US.</p>
<h2>What Agoa is about</h2>
<p>The Agoa agreement was approved as legislation by the US Congress in May 2000 for an initial 15 years. On 29 June 2015 it was extended and <a href="https://obamawhitehouse.archives.gov/blog/2015/04/23/supporting-us-africa-partnership-through-agoa-extension-and-enhancement-act-2015">signed into law</a> by then president Barack Obama for a further 10 years to 2025. </p>
<p>It will come into review again in 2024, hence the importance of the upcoming summit. Recently, Louisiana senator John Kennedy <a href="https://agoa.info/news/article/16326-us-senator-wants-agoa-in-place-until-2045-to-deter-china-s-influence.html">introduced a bill</a> to the US Congress to extend Agoa by a further 20 years to 2045. This is a bid to counter China’s <a href="https://blogs.afdb.org/fr/afdb-championing-inclusive-growth-across-africa/post/the-expansion-of-chinese-influence-in-africa-opportunities-and-risks-9612">growing influence in Africa</a>, and to continue to allow sub-Saharan African countries preferential access to US markets. </p>
<h2>Agoa’s benefits to South Africa</h2>
<p>In 2021, the US was the second most significant destination for South Africa’s exports worldwide, mainly thanks to Agoa. China took the top spot; Germany was third. The US ranked third as a source of South Africa’s imports, following China and Germany. In that year, the total trade volume between South Africa and the US reached its zenith at $24.5 billion, with a <a href="https://ustr.gov/countries-regions/africa/southern-africa/south-africa">trade imbalance of $9.3 billion in South Africa’s favour</a>. </p>
<p>Agoa offers preferential entry for about 20% of South Africa’s exports to the US, or <a href="https://agoa.info/news/article/16248-south-africa-asks-us-for-early-agoa-extension.html#:%7E:text=Agoa%20provides%20preferential%20access%20for,US%20market%E2%80%9D%2C%20Patel%20said.">2% of South Africa’s global exports</a>. The stock of South African investment in the US has more than doubled since 2011, <a href="https://unctad.org/news/investment-flows-africa-reached-record-83-billion-2021">amounting to US$3.5 billion in 2020</a>. American foreign direct investment (FDI) in South Africa increased by over 70% over that period, <a href="https://www.state.gov/reports/2022-investment-climate-statements/south-africa/">to US$10 billion</a>. This made the US South Africa’s fifth largest source of FDI in 2019. The US was its third largest destination for outward FDI. </p>
<p>US investment in South Africa is mainly concentrated in manufacturing, finance and insurance, and wholesale trade, <a href="https://ustr.gov/countries-regions/africa/southern-africa/south-africa">which is vital for economic growth</a>. American multinationals doing business in South Africa <a href="https://apps.bea.gov/international/factsheet/factsheet.html#436">employ about 148,000 people</a>.</p>
<p>More specifically, Agoa’s benefits include:</p>
<ul>
<li><p>duty-free and quota-free access to the US market for a wide range of South African products. This benefits South Africa’s textile and apparel industry in particular. To sub-Saharan African countries, Agoa provides duty-free access to the US market for <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/september/joint-statement-us-trade-representative-katherine-tai-and-minister-trade-industry-and-competition#:%7E:text=AGOA%20provides%20eligible%20sub%2DSaharan,Generalized%20System%20of%20Preferences%20program.">over 1,800 products</a>. This is in addition to the more than 5,000 products that are eligible for duty-free access under the US <a href="https://ustr.gov/issue-areas/trade-development/preference-programs/generalized-system-preference-gsp#:%7E:text=GSP%20promotes%20economic%20growth%20and,products%20from%20least%20developed%20countries.">Generalised System of Preferences programme</a></p></li>
<li><p>export diversification, especially of items such as agricultural products, textiles, and manufactured goods. This is vital for increasing export earnings, which help to improve South Africa’s balance of payments, particularly its trade account.</p></li>
<li><p>capacity building through technical assistance and programmes to help South African businesses meet US standards, thus becoming more competitive in the global marketplace.</p></li>
<li><p>economic development and poverty reduction, which aligns with South Africa’s developmental goals.</p></li>
</ul>
<h2>Balancing economic interests</h2>
<p>China is the largest consumer of South African commodity exports, and thus a key influencer of the rand exchange rate. In addition, China and Russia’s planned move towards <a href="https://www.jpmorgan.com/insights/global-research/currencies/de-dollarization">de-dollarisation</a> (trying to replace the petrodollar system with their own system) <a href="https://doi.org/10.1177/10245294221095222">puts American interests under threat</a>. This means South Africa needs to carefully navigate its relations with the US and its Brics partners, China and Russia.</p>
<p>It will want to keep strong ties with the US through Agoa without getting into a difficult position between China and the US. The outcome of the November meeting will have serious economic implications.</p><img src="https://counter.theconversation.com/content/216273/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Arno J. van Niekerk does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pretoria needs to pull off a balancing act in managing South Africa’s international relations to advance its economic interests.Arno J. van Niekerk, Senior lecturer in Economics, University of the Free StateLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2072932023-07-02T20:02:11Z2023-07-02T20:02:11ZIndia could soon be the world’s third biggest economy – NZ needs to build the trade relationship urgently<figure><img src="https://images.theconversation.com/files/534971/original/file-20230630-15-ajv047.jpg?ixlib=rb-1.1.0&rect=31%2C15%2C5265%2C3502&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>India’s economy has <a href="https://www.reuters.com/markets/asia/indias-post-covid-spending-boom-drives-two-speed-economy-2022-12-21/">emerged as a bright spot</a> in the aftermath of the COVID-19 pandemic. Currently the fifth largest global economy, it is predicted to become the <a href="https://bfsi.economictimes.indiatimes.com/news/industry/india-set-to-become-3rd-largest-economy-by-2030-driven-by-demographic-dividend-report/99460554">third largest by 2030</a>. </p>
<p>It is expected India will contribute <a href="https://www.livemint.com/news/india/indian-economy-to-contribute-15-of-global-growth-in-2023-imf-md-kristalina-georgieva-11677062849103.html">15.4% to global economic growth</a> this year, second only to China. Prioritising our trade and economic relationship with both countries should be a key goal for New Zealand. </p>
<p>This is already happening with China, where Prime Minister Chris Hipkins has just been leading a <a href="https://www.nzherald.co.nz/nz/politics/prime-minister-chris-hipkins-touches-down-in-beijing-for-make-or-break-china-trip/X34PTCJZZ5CCJNWUEAQ5LEJG7Y/">trade delegation to Beijing</a> that included a meeting with leader Xi Jinping. </p>
<p>But New Zealand’s economic relationship with India has not received the same sort of attention. The last prime minister to lead a trade delegation to India was <a href="https://www.stuff.co.nz/national/politics/85730260/free-trade-agreement-top-priority-as-pm-john-key-finally-arrives-in-india">John Key in 2016</a>. The free trade agreement (FTA) expected from that visit <a href="https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/regional-comprehensive-economic-partnership-rcep/india-and-rcep/">has still not happened</a>, although Hipkins has promised to visit India at a later date.</p>
<p>As of December 2022, India ranked 16th among New Zealand’s trading partners, accounting for a little over 1% of our total trade. Between 2017 and 2022, trade with India declined by NZ$1 billion – largely due to <a href="https://www.stuff.co.nz/national/100949224/number-of-indian-students-seeking-visas-declines-sharply-new-figures-show">plummeting international student numbers</a> both before and after COVID, as well as a <a href="https://www.nzffa.org.nz/article-archive/forest-owners-call-for-forest-trade-mission-to-india/">massive reduction in log exports</a> after New Zealand’s rules for fumigation changed. </p>
<p>And between 2000 and 2023 New Zealand’s <a href="https://dpiit.gov.in/sites/default/files/FDI_Factsheet_March_23.pdf">long-term investment</a> in India was worth just US$79.02 million. This accounted for 0.01% of India’s total inward foreign direct investment (FDI). Australia by contrast invested US$1.1b in India during the same period, accounting for 0.2% of the FDI inflows.</p>
<p>Considering India’s economic growth over the past few years – and its future potential – New Zealand risks missing out if it doesn’t start to prioritise the relationship.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1660736509421703168"}"></div></p>
<h2>Building partnerships</h2>
<p>This needs to begin with what is called an <a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/trade-deal-hope-early-harvest-proposition-of-india-will-be-accepted-by-uk-says-piyush-goyal/articleshow/79782333.cms">“early harvest” framework</a> – an initial agreement that would allow New Zealand and India to identify products suitable for the first wave of tariff liberalisation. </p>
<p>The framework paves the way for a long-term comprehensive economic partnership (CEP), which goes beyond tariff reduction and trade in goods. New Zealand already has a regional <a href="https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/regional-comprehensive-economic-partnership-rcep/rcep-overview">comprehensive economic partnership</a> with a number of countries in the Indo-Pacific region. </p>
<p>This type of partnership can reduce the time exporters spend waiting for goods to clear customs, as well as provide greater certainty for service exporters and investors in key areas of mutual economic benefit. A CEP thereby creates opportunities for New Zealand exporters to get their products and services into regional supply chains. </p>
<p>The advantage of a CEP over an FTA is that it includes services, investment, government procurement, mediation of disputes, and other regulatory aspects of trade. An FTA focuses only on goods. A CEP will likely have more appeal for India than a trade deal that focuses solely on tariff reduction. </p>
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Read more:
<a href="https://theconversation.com/both-australia-and-the-region-would-benefit-from-a-single-market-in-asia-93423">Both Australia and the region would benefit from a single market in Asia</a>
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<h2>Increasing connection and diversity</h2>
<p>A closer relationship with India would help New Zealand address <a href="https://www.newshub.co.nz/home/politics/2022/04/critical-staff-shortages-record-employment-and-huge-demands-for-goods-highlight-need-for-immigrant-workers-business-nz-report.html">critical skilled labour shortages</a>. But to achieve this, the two countries would need to establish mutual recognition of qualifications and identify opportunities for training and development across key service sectors. </p>
<p>COVID’s impact on global supply chains and the subsequent production delays highlighted the importance of economic risk diversification for sustaining our long-term growth. Relying heavily on one single trading partner for our economic needs created <a href="https://www.stuff.co.nz/national/politics/300369437/easy-growth-drives-nzs-risky-reliance-on-china">significant vulnerability during the pandemic</a>. </p>
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<img alt="" src="https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=457&fit=crop&dpr=1 600w, https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=457&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=457&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=574&fit=crop&dpr=1 754w, https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=574&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/534214/original/file-20230627-19-rjhwty.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=574&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The last New Zealand prime minister to visit India was John Key in 2016.</span>
<span class="attribution"><span class="source">Parveen Negi/Getty Images</span></span>
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<p>According to a report from the India New Zealand Business Council, a number of <a href="https://www.inzbc.org/post/india-new-zealand-a-relationship-ready-for-its-next-phase">investment opportunities</a> exist for New Zealand in a closer relationship with India. These go beyond agricultural product exports and include forestry, agricultural and financial technology, education, digitisation, traditional medicines and renewable energy. </p>
<p>The advantages of a closer partnership are not lost on on some of New Zealand’s trade groups. Horticulture New Zealand, for example, has <a href="https://www.nzte.govt.nz/blog/improving-rural-orchardist-production-in-northern-india">already partnered</a> with the northern state of Himachal Pradesh to improve the productivity and yield of the state’s apple production. </p>
<h2>Playing catch-up</h2>
<p>New Zealand needs to move fast. Australia has already made significant moves to build its economic and cultural relationship with India. In 2022, the two countries signed a <a href="https://www.dfat.gov.au/trade/agreements/negotiations/aifta/australia-india-comprehensive-economic-cooperation-agreement">Comprehensive Economic Cooperation agreement</a>. And, <a href="https://www.deakin.edu.au/about-deakin/news-and-media-releases/articles/in-india,-with-india,-for-india-deakin-to-open-world-first-campus">Deakin University</a> and the <a href="https://www.sbs.com.au/language/hindi/en/article/university-of-wollongong-joins-the-list-to-become-australias-second-educational-institution-to-start-campus-in-india/ckm54unet">University of Wollongong (UOW)</a> are set to open foreign campuses in India. </p>
<p>Other countries are also rapidly taking advantage of India internationalising its education sector under the 2020 <a href="https://www.reuters.com/article/us-india-education-idUSKCN24U2K6">New Education Policy</a>. New Zealand universities are nowhere close to such a strong presence in this market. </p>
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Read more:
<a href="https://theconversation.com/a-brics-currency-is-unlikely-to-dislodge-dollar-any-time-soon-but-it-signifies-growing-challenge-to-established-economic-order-206565">A BRICS currency is unlikely to dislodge dollar any time soon – but it signifies growing challenge to established economic order</a>
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<p>The ecosystem to make this happen already exists. There is a growing Indian diaspora in New Zealand, as well as a strong engagement of business stakeholders and the diplomatic community from both countries. </p>
<p>The India New Zealand Business Council report outlines specific policy actions for governments and stakeholders to take this important relationship to the next level. So far, however, there has <a href="https://www.stuff.co.nz/business/the-monitor/130390956/india-is-the-elephant-of-the-global-economy-but-is-new-zealand-investing-enough-in-the-relationship">not been the political will</a> to invest seriously in India. Only a change in mindset and perception will change that.</p><img src="https://counter.theconversation.com/content/207293/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rahul Sen is an Adjunct Researcher at the India New Zealand Business Council. The views expressed here are personal.</span></em></p>New Zealand is falling well behind Australia in its economic relationship with India. Catching up will require significant political engagement.Rahul Sen, Senior Lecturer, School of Economics, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1956572022-12-04T08:56:42Z2022-12-04T08:56:42ZHosting the World Cup: what Qatar can learn from South Africa about nation branding<figure><img src="https://images.theconversation.com/files/498280/original/file-20221130-22-6532fu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African supporters at the 2010 men's football World Cup.</span> <span class="attribution"><span class="source">Phil Cole/Getty Images</span></span></figcaption></figure><p>The eyes of the world are focused on <a href="https://www.britannica.com/place/Qatar">Qatar</a> for the 2022 edition of the men’s <a href="https://www.fifa.com/fifaplus/en/tournaments/mens/worldcup/qatar2022">Fifa World Cup</a> – the globe’s <a href="https://bleacherreport.com/articles/1247928-ranking-the-biggest-events-in-sports">largest</a> single-sport event. Qatar was a somewhat surprising choice. It’s the smallest-ever host in terms of its geographic and population size, and its extreme heat in the usual hosting period (June/July) means the tournament is playing out in November/December. Since the decision was <a href="https://www.theguardian.com/football/2010/dec/02/qatar-win-2022-world-cup-bid">announced</a> in 2010, much media attention has focused on the country’s customs and cultural issues, such as the perceived <a href="https://www.theguardian.com/global-development/2021/feb/23/revealed-migrant-worker-deaths-qatar-fifa-world-cup-2022">abuse of workers’ rights</a> and the lack of acceptance of <a href="https://www.theguardian.com/football/2022/jun/29/qatar-fails-to-offer-world-cup-safety-guarantees-to-lgbtq-fans">LGBTIQ freedoms</a>. </p>
<p>In the lead up to the event, there were calls – from teams and high-profile celebrities – to <a href="https://www.business-humanrights.org/en/latest-news/pressure-mounts-for-teams-to-boycott-2022-world-cup-in-qatar/">boycott the event</a> or protest these issues. The host nation seems largely untroubled: it has continued its <a href="https://www.qatar-tribune.com/article/24485/nation/qatars-branding-legacy-should-be-carried-on-even-after-wc-expert">strategic policy</a> of using major sport events to boost its global reputation and image, especially through showcasing its technological advances and Arabic hospitality. </p>
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Read more:
<a href="https://theconversation.com/world-cup-2022-senegal-and-cameroon-carry-africas-best-hopes-194647">World Cup 2022: Senegal and Cameroon carry Africa's best hopes</a>
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<p>As a scholar who focuses on sport tourism, mega-events, legacy and place branding, I have been studying the nation branding potential of the World Cup in the light of South Africa hosting the men’s event in 2010.</p>
<p>As my research makes clear, South Africa’s <a href="https://www.theguardian.com/news/2017/nov/07/nation-branding-industry-how-to-sell-a-country">nation branding</a> benefited enormously from hosting the <a href="https://www.fifa.com/tournaments/mens/worldcup/2010south-africa">2010 World Cup</a>. So, what can Qatar learn from the South African experience? What lessons might be applied to create a positive legacy?</p>
<h2>What South Africa did right</h2>
<p>Since the turn of the millennium, emerging nations, and especially members of the <a href="https://www.investopedia.com/terms/b/brics.asp">BRICS bloc</a> (Brazil, Russia, India, China and South Africa), have increasingly bid for and hosted sport mega-events. </p>
<p>Brazil, for example, hosted the <a href="https://www.fifa.com/tournaments/mens/worldcup/2014brazil">2014 World Cup</a> and <a href="https://olympics.com/en/olympic-games/rio-2016">2016 summer Olympic Games</a>. Russia hosted the <a href="https://www.fifa.com/tournaments/mens/worldcup/2018russia">2018 World Cup</a> and <a href="https://olympics.com/en/olympic-games/sochi-2014">2014 winter Olympics</a>. India hosted the <a href="https://olympics.com/en/news/2010-commonwealth-games-india-medal-table-sport">2010 Commonwealth Games</a>, China hosted the <a href="https://olympics.com/en/olympic-games/beijing-2008">2008 summer</a> and <a href="https://olympics.com/en/olympic-games/beijing-2022">2022 winter Olympics</a> and South Africa hosted the 2010 World Cup. </p>
<p>All of these nations sought to leverage these sport mega-events for global recognition and reputation enhancement – or nation branding.</p>
<p>My colleagues and I <a href="https://www.sciencedirect.com/science/article/abs/pii/S2212571X14000547">conducted</a> a <a href="https://www.emerald.com/insight/content/doi/10.1108/IJCTHR-06-2015-0051/full/html">variety</a> of <a href="https://www.emerald.com/insight/content/doi/10.1108/IJCHM-09-2015-0523/full/html">studies</a> before, during, and up to eight years after the World Cup in South Africa. The findings indicated that stakeholders – residents, tourists, government agencies, the tourism and event sector, and event sponsors – viewed the country’s overall reputational gains as positive and enduring.</p>
<p>It is often forgotten that South Africa, like Qatar, experienced serious doubts and <a href="https://www.theguardian.com/world/2009/sep/22/south-africa-worldcup-crime-fears">concerns</a> over its ability to host the World Cup. Some of this came down to general “Afro-pessimism”, but global media also highlighted the country’s high crime rate, cautioning that it was <a href="http://edition.cnn.com/2009/SPORT/football/01/29/southafrica.survey.2010/index.html">not safe</a> for visitors. My <a href="https://doi.org/10.1080/19368623.2012.663155">2010 study</a> indicated that crime was the most negative perception among visitors before the event. </p>
<p>Yet, after the event this perception was greatly reduced. People who previously had limited knowledge about South Africa’s cities, people, technology and general development <a href="https://doi.org/10.1080/19368623.2012.663155">knew more</a> about it after the World Cup. Their image of the country became one of a place that welcomed visitors, embraced diversity and had a competent and capable industry – all perceptions that could aid foreign direct investment in the country.</p>
<p>How did South Africa achieve this? I’d like to highlight three key focus areas emerging from my research.</p>
<h2>Nation branding: three key focus areas</h2>
<p>Firstly, South Africa hosted the global media (including <a href="https://www.snhu.edu/about-us/newsroom/liberal-arts/what-is-new-media">new media</a>) – not just during the World Cup, but before it too. To portray accurate reflections of the country, media tours showed off host cities and stadium development. A great effort was made to show key areas of the nation brand image, through being located in iconic areas or with views of city symbols or heritage sites. Importantly, the media were also provided with positive news stories surrounding the event. With an <a href="https://doi.org/10.1080/19368623.2012.663155">estimated 15,000</a> media workers attending the event, this was sure to have an impact on informing more factual opinions of the nation.</p>
<p>Secondly, the country mobilised locals in support of the event. Creating and promoting specific songs, dances and campaigns – such as <a href="http://dx.doi.org/10.1108/IJCTHR-06-2015-0051">“Football Friday”</a>, where residents were encouraged to wear the national team’s football jersey – created social cohesion even before the event kicked off. This also provided a welcoming environment for visitors and a greater sense of security for all.</p>
<p>The third key strategic focus was in leveraging partnerships to cooperate and align strategically around South Africa’s messaging and branding. Stakeholders I interviewed claimed that the event created opportunities for different government levels, the tourism industry, and the private sector to partner and align far better than they had done before. </p>
<p>Nation branding is built on multiple acts of communication and activities by a broad array of private and public sector stakeholders, media and citizens. It’s regrettable that it often takes a mega-event to create the impetus for such cooperation. My interview respondents hoped that such partnerships would be sustained after the World Cup.</p>
<h2>So what can Qatar learn?</h2>
<p>In the short term, Qatar should be encouraged that pre-event negative media issues have given way to more balanced and factual reporting now that the football has taken centre stage and visitors have arrived. Qatar could experience very positive branding gains from the World Cup, especially with a more nuanced understanding of the nation, its culture, history and development.</p>
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Read more:
<a href="https://theconversation.com/can-an-african-team-win-the-world-cup-new-football-study-crunches-the-numbers-194824">Can an African team win the World Cup? New football study crunches the numbers</a>
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<p>Most importantly, Qatar and future hosts need to acknowledge that a sport mega-event in itself is no guarantee of a positive nation branding legacy. It will take strategic leveraging actions that are sustained over time to do so. </p>
<p>While South Africa clearly benefited from the mega-event, stakeholders acknowledged that negative global perceptions of the country, primarily linked with corruption and politically led <a href="https://theconversation.com/south-africas-state-capture-commission-nears-its-end-after-four-years-was-it-worth-it-182898">state capture</a> in the years that followed, have diminished this effect. </p>
<p>This is a reminder that while nation branding portrays a strategic vision for how a country would like to be perceived, this image needs to be consistently reinforced by actions aligned with this image over time.</p><img src="https://counter.theconversation.com/content/195657/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brendon Knott received funding from the South African National Research Foundation (NRF) (2010 - 2016), for studies related to the 2010 FIFA World Cup.</span></em></p>Studies show South Africa did a lot right when it hosted the football World Cup. Qatar can do the same if it learns from South Africa.Brendon Knott, Associate Professor, Cape Peninsula University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1926592022-10-23T08:35:57Z2022-10-23T08:35:57ZNigeria’s 2023 budget is a plan of despair and won’t change the tempo of the economy<figure><img src="https://images.theconversation.com/files/490632/original/file-20221019-17-8yizmx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigeria's 2023 budget may not address food inflation. </span> <span class="attribution"><span class="source">Gettyimages/istock</span></span></figcaption></figure><p>Nigeria’s <a href="https://www.budgetoffice.gov.ng/index.php/resources/internal-resources/call-circular/2023">2023 budget</a>, recently presented by President Muhammadu Buhari to the National Assembly, has generated a furore. </p>
<p>There are concerns about the impact on the country’s <a href="https://www.reuters.com/world/africa/nigerias-public-debt-rises-103-billion-second-quarter-2022-09-20/">rising deficits and debt</a>, as well as its failure to address some of the structural deficiencies behind declining revenues and <a href="https://thenationonlineng.net/rising-deficit-declining-revenue-raise-concerns-over-n20-51tr-2023-budget/">rising inflation</a>.</p>
<p>The 2023 budget <a href="https://businessday.ng/opinion/article/full-text-of-president-muhammadu-buharis-2023-budget-speech/">expenditure</a> of 20.51 trillion naira (US$43.7 billion) is the highest ever. More than half of this is money the government doesn’t have and has to be financed with new debt. This will mean that the country exceeds the 3% of GDP threshold stipulated by the <a href="https://internationalbudget.org/wp-content/uploads/Nigeria-FiscalResponsibilityAct2007-English.pdf">Fiscal Responsibility Act of 2007</a> – a pointer to the worsening of the country’s fiscal health.</p>
<p>More than 60% of the 2023 budget will finance debt repayments (N6.31 trillion), personnel costs (N4.99 trillion) and overheads (N1.11 trillion). This leaves very little for spending to revitalise the economy and raise its growth potential.</p>
<p>Rather than being a budget of hope, Buhari’s proposal is a budget of despair. It won’t significantly change the tempo of the economy. Nor will it reduce the country’s high unemployment, poverty and inflation rates. </p>
<p>In fact it could worsen Nigeria’s cycle of deficits and debts, without the possibility of fostering structural transformation, diversifying the economy, promoting sustainable economic growth, and reducing unemployment and poverty. </p>
<h2>Endless cycle of deficits</h2>
<p>The budget is consistent with previous Buhari administration budgets. </p>
<p>Most importantly, it doesn’t address structural deficiencies in the Nigerian economy. These include the lack of diversification and non-oil sources of revenue. These have been responsible for the country’s cycle of high <a href="https://www.reuters.com/world/africa/nigerias-budget-deficit-will-widen-478-fuel-subsidy-end-2022-10-07/">budget deficits</a> and <a href="https://www.vanguardngr.com/2022/09/why-nigeria-is-in-debt-dmo-dg/">government debts</a>.</p>
<p>The 2023 <a href="https://thenationonlineng.net/roads-rail-varsities-priority-in-n20-5tr-2023-budget/">budget prioritises</a> investment in road and rail projects, power projects, clean water, construction of irrigation infrastructure and dams across the country, and critical health projects.</p>
<p>These are all well and good, but it’s unclear how they will reduce the <a href="https://theconversation.com/nigerias-economy-four-priorities-the-next-president-must-deliver-on-189022">high unemployment</a> and poverty rates in the country. These projects are not widespread and labour-intensive enough to absorb millions of unemployed Nigerians. </p>
<p>It is also unclear how many of the projects will be completed, given the propensity for successive governments in Nigeria to <a href="https://www.vanguardngr.com/2021/12/nigerias-56000-abandoned-projects/">abandon projects</a>. </p>
<p>The biggest problem is that the budget fails to address the issue of diversifying the economy. This is vividly reflected in its title: <a href="https://www.thecable.ng/n9-7trn-projected-revenue-n10-7trn-deficit-highlights-of-2023-budget-proposal">Fiscal Sustainability and Transition</a>. </p>
<p>One cannot have fiscal sustainability without structural transformation. This involves resources being reallocated from low-productivity to high-productivity sectors of the economy. The budget made only a tepid reference to the manufacturing sector. Yet this could deliver a number of benefits.</p>
<p>The first is jobs. Manufacturing uses more labour per unit of output and could absorb the <a href="https://guardian.ng/opinion/unemployment-and-a-nations-40-per-cent-of-hopelessness/">high number</a> of unemployed and underemployed Nigerians. Nigeria’s informal sector contributes about <a href="https://punchng.com/80-4-of-nigerian-employment-in-informal-sector-says-wbank/">80%</a> of the country’s employment, making it difficult to collect taxes. An increase in the number of Nigerians in formal sector jobs would raise more income taxes and reduce the need for borrowing. Manufacturing enterprises also tend to be <a href="https://businessday.ng/companies/article/how-manufacturing-industry-drove-company-income-tax-in-q1/">more stable</a>.</p>
<h2>Gaps</h2>
<p>Nigeria is having to borrow because of two key weaknesses – neither of which are addressed in the budget.</p>
<p>The first is the country’s lingering “dual-gap” economic problem. This refers to a situation in which domestic savings aren’t adequate to fund a country’s desired level of capital investment – the saving-investment gap. </p>
<p>In addition, the country doesn’t generate enough foreign exchange earnings to pay for its imports – the foreign exchange gap. It’s difficult to estimate the magnitude of the foreign exchange gap in Nigeria. But it’s manifested by the fact that foreign airlines in the country have been unable to repatriate about <a href="https://www.icirnigeria.org/trapped-funds-why-airlines-cant-repatriate-money-out-of-nigeria/">$450 million</a> in ticket sales because of acute shortages of foreign exchange. </p>
<p>Nigeria isn’t generating enough foreign exchange earnings to meet the economy’s requirements. This has led to a parallel market in foreign exchange, with most businesses and individuals turning to the parallel market to source major foreign currencies such as the US dollar.</p>
<p>The 2023 budget is based on an exchange of rate of 435.57 naira to US$1, compared to over <a href="https://www.thecable.ng/naira-hits-n742-at-parallel-market-as-fx-scarcity-bites-harder">700 naira</a> at the parallel market. Buhari made no mention of government intention to close this <a href="https://www.premiumtimesng.com/news/headlines/556088-nigerias-forex-crisis-deepens-as-gap-between-nairas-official-black-rates-widest-in-six-years.html">huge gap</a> between the official exchange rate and the parallel market rate. </p>
<p>The only sustainable way to close this gap is to raise the capacity of the economy to generate foreign exchange earnings.</p>
<p>The gap has serious implications for government expenditure outcomes. Many of the ministries, departments and agencies of government buy goods and services from companies that source their foreign exchange requirements from the parallel market. </p>
<p>This automatically makes expenditure estimates in the 2023 budget unrealistic, as the suppliers of goods and services will require a revision to their contracts to cover the higher costs of sourcing foreign exchange. This would then require supplemental budgets and additional borrowings, which in turn, make expenditure projections unreliable. </p>
<h2>Lingering fears</h2>
<p>The first and second quarters of 2023 will be dominated by <a href="https://inecnigeria.org/wp-content/uploads/2022/09/TIMETABLE-FOR-2023-GENERAL-ELECTION.pdf">elections</a> and political transitions. This may have the effect of disrupting economic activities and fuelling uncertainties, especially among domestic and foreign investors. </p>
<p>The economy may therefore fall short of the 3.5% growth rate assumed in the budget parameters, which would subsequently result in lower revenues and additional borrowings.</p>
<p>Nigeria’s overall <a href="https://tradingeconomics.com/nigeria/government-debt-to-gdp">debt to GDP ratio</a> of about 37% is <a href="https://theconversation.com/nigerias-debt-is-sustainable-but-dangers-loom-on-the-horizon-166372">sustainable</a>. However, the new round of budgeted borrowing sends the wrong signal to domestic and foreign investors. </p>
<p>Deficits and debts imply that taxes will be raised in the future to pay for debts, making investments less profitable. It may also prompt nervous investors to move their capital to more fiscally stable countries.</p>
<p>There are also fears that unrestrained borrowing could tilt the country’s debt portfolio into the realm of unsustainability, which may then lead to defaults in debt repayments and a steep decline in new loans. Government obligations to contractors and other investors would be jeopardised. </p>
<p>The lip service paid by the 2023 budget to structural transformation and sustained economic development will dampen investors’ optimism about the Nigerian economy. The lack of clarity about the future direction of the economy under a new administration, as well as the lingering security challenges in the country, will make matters even worse.</p><img src="https://counter.theconversation.com/content/192659/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onyeiwu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria’s 2023 budget could worsen the country’s cycle of deficits and debts.Stephen Onyeiwu, Professor of Economics & Business, Allegheny CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1898512022-09-29T14:07:24Z2022-09-29T14:07:24ZForeign investment into Nigeria has fallen sharply: rights and freedoms may be one reason<figure><img src="https://images.theconversation.com/files/482945/original/file-20220906-12-e9yk9u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigeria's economy needs to diversify away from oil. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/workers-rehabilitate-the-new-port-harcourt-refinery-built-news-photo/489227316?adppopup=true">Pius Utomi Ekpei/AFP via Getty Images </a></span></figcaption></figure><p>Nigeria has always managed to attract foreign direct investment despite its poor economic outlook. This is thanks to its <a href="https://www.worldometers.info/oil/nigeria-oil/">oil reserves</a> and the consumption potential of its <a href="https://worldpopulationreview.com/countries/nigeria-population">large population</a>. </p>
<p>But these inflows of foreign investment have been in decline and now seem to have hit a halt. Over the past five years, foreign direct investment in Nigeria has dropped by almost <a href="https://hallmarknews.com/nigerias-fdi-reduced-by-81-in-4-years-nbs/">80%</a>. This partly reflects a broader trend for the region: according to the <a href="https://www.afdb.org/en">African Development Bank</a>, inward investment fell by <a href="https://www.afdb.org/en/documents/african-economic-outlook-2022">almost 24%</a> between 2019 and 2020. Investors around the world <a href="https://fbj.springeropen.com/articles/10.1186/s43093-022-00129-5">were also cautious</a> about risky markets during the COVID-19 pandemic. </p>
<p>But foreign investment inflows to Nigeria had been falling even before the pandemic. The country’s net inflows based on balance of payments <a href="https://www.worldbank.org/en/country/nigeria/publication/nigeria-development-update-ndu">fell</a> from about US$9 billion in 2012 to below US$1 billion in 2018. </p>
<p>So Nigeria’s 80% drop is steeper than the region’s, which suggests that there is another dynamic at play. </p>
<p>Economists have looked at a range of factors that contribute to a drop in foreign direct investment. These include <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304387808000382?casa_token=qvA1bHz29skAAAAA:Y-GOIHAJorqW1PSnNjXOOjjnreYJNI4Efpfv2ZAD-cu9_6VGmzizR0S_qtwrBTmdQzwmazkkDi8">institutional underdevelopment</a>, <a href="https://www.cambridge.org/core/journals/international-organization/article/reversal-of-fortunes-democratic-institutions-and-foreign-direct-investment-inflows-to-developing-countries/92316DFB2BC9DE4D88409E8CF0835310">property rights</a> and <a href="https://www.sciencedirect.com/science/article/pii/S0969593118305997">country regulations</a>.</p>
<p>In a paper <a href="https://www.tandfonline.com/doi/full/10.1080/15228916.2019.1583975">published in 2020</a>, I explored the role institutions play in determining foreign direct investment flows. I looked specifically at developing country contexts. I looked at three separate categories of institutions: civil and political liberties, freehold property rights and non-freehold (customary) property rights, with particular attention given to the two property rights. </p>
<p>My findings suggest that, in the case of Nigeria, in the short run, institutions have played a role in determining foreign direct investment. I found that the curtailing of land rights, in the form of the right to manage and the right to use, may have contributed to the fall in foreign direct investment inflows. </p>
<p>An example is the <a href="https://reliefweb.int/report/nigeria/resolving-farmer-herder-conflicts">herder-farmer conflict</a> which has spread from the northern part of Nigeria to the middle belt. This has impaired the right of farmers to manage their property. A knock-on effect is that potential investors in commercial farming ventures – or otherwise – may become cautious.</p>
<h2>A slow unravelling</h2>
<p>There have been drastic changes in the quality of Nigeria’s institutions over time. This goes as far back as pre-independence. </p>
<p>The <a href="https://archive.gazettes.africa/archive/ng/1978/ng-government-gazette-supplement-dated-1978-03-29-no-14-part-a.pdf">Land Use Act of 1978</a> resulted in a rise in land disputes and litigation. During the 1990s military rule period, it became compulsory to renew certificates of occupancy – the legal documents that prove that a person owns land. The certificates are usually required to occupy the property on a daily basis, to sign a contract to sell it and to close a mortgage on it. </p>
<p>Then in 2018, the government announced plans to implement the Rural Grazing Area settlement programme to deal with conflicts between crop farmers and herders. This led to accusations that the government was grabbing land through the back door. The policy was <a href="https://punchng.com/fg-replaces-controversial-ruga-with-new-scheme-begins-camps-in-six-states/">suspended in 2019</a>. </p>
<p>All these changes had implications for both freehold and customary land rights. But did that in turn affect investment?</p>
<p>The study found no evidence of a long-run relationship between any of the institutional variables and foreign direct investment. Surprisingly, freehold property rights did not play a significant role. Evidence generally points in the direction of secure property rights attracting investment, because multinational companies feel better protected and commercial farmers can make long-term plans. Examples include <a href="https://www.sciencedirect.com/science/article/pii/S014759670800022X?casa_token=nYf2DKkaTKwAAAAA:J4QU6oa10jhfsOspPT9Iiope8uFa6FfuQXgoAVVXr88T9-306r33PQ9sjg3zoyFpIMECrxJqvXY">China</a> and <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1813-6982.2011.01283.x?casa_token=xKkCoORZtpgAAAAA%3A1Q9wNlLu3XEMFJRt25AQEf-mNLWVhcAocZ_qeRlD9OeSUnhJX-2s9cpTYPGnpvlOROyUtLVIQRH9n4qY">Zimbabwe</a>.</p>
<p>The short-run – an empirical analysis that takes first difference of the data, to extract short-run attributes – evidence was that the relationship between civil and political liberties and foreign direct investment inflows was significant. So was the relationship between non-freehold property rights and foreign direct investment. </p>
<p>While the political institutions effect is expected, the customary (non-freehold) land rights, which is often neglected by policymakers, is surprising. In fact, this had the larger and only significant and positive relation to foreign direct investment.</p>
<p>What this suggests is that foreign direct investment inflows into Nigeria may react to changes in the quality of civil and political liberties, as well as customary property rights.</p>
<p>An even more interesting result was the significant role that the right to manage property played in attracting investment to Nigeria. This shows that while freehold property rights as a whole may not have a significant impact on investment in the immediate term, certain aspects of freehold property rights, such as the right to manage, are still important. </p>
<p>The right to manage property can involve managing tenants or appointing agents to do so. This is an example of how it affects foreign investment perceptions. The herder-farmer conflict may infringe on farmers’ right to manage their land and plan for long-term farming objectives, and potentially in other indirect ways as well.</p>
<h2>Sustaining Nigeria’s economy</h2>
<p>Nigeria has relied on the strength of its natural resources, population size and power as a consumer. <a href="https://www.sciencedirect.com/science/article/pii/S0176268012000481">Natural resources</a> often water the punishment effect of other confounding factors for foreign direct investment drops. These are no longer able to sustain the country. </p>
<p>The curtailing of land rights, in the form of the right to manage and the right to use, may have contributed to the fall in foreign direct investment inflows. </p>
<p>It will not be easy to solve the herder-farmer conflict. But recognising the way it’s linked to investment, and dedicating resources to addressing it, may be the necessary first step. Acknowledging the role of flailing property rights due to herder-farmer conflict, and then signalling political will to take this on, would assuage fears by potential investors.</p>
<p>Economic theory suggests foreign investment inflows should bring about increased productivity, technological innovation and better allocation of resources. All of these should lead to positive structural change in the recipient country. </p>
<p>Diversifying the economy away from oil would protect inflows from global oil price shocks. Nigeria should create an environment attractive to not just oil-targeted investment, but also industries that leverage the size of Nigeria’s population and their consumption potential.</p><img src="https://counter.theconversation.com/content/189851/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Fadiran does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There should be a better long-term strategy for foreign direct investments in Nigeria that’s not tied to its oil reserves.David Fadiran, Research Fellow, Policy Research in Service and Manufacturing (PRISM), University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1910372022-09-20T23:24:25Z2022-09-20T23:24:25ZFed keeps focus on US economy as the world tilts toward a recession that it may be contributing to<figure><img src="https://images.theconversation.com/files/485733/original/file-20220920-18-tvy2ri.jpg?ixlib=rb-1.1.0&rect=102%2C86%2C3492%2C2306&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Fed has a mandate that keeps its focus on the U.S.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FinancialMarketsWallStreet/7a9a609ec46d4f4389a007e4af49e29a/photo?Query=federal%20reserve%20flag&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=36&currentItemNo=13">AP Photo/Mark Lennihan</a></span></figcaption></figure><p>The U.S. Federal Reserve holds inordinate sway over the world’s economies – yet it acts, in some ways, like they don’t really matter. </p>
<p>Its power is primarily because of the <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html">dominance of the U.S. dollar</a>, which soared in recent months as the Fed’s <a href="https://fred.stlouisfed.org/series/FEDFUNDS">aggressive interest rate hikes</a> made the greenback more attractive to investors. But this has a downside for other countries because it is fueling inflation, raising the cost of borrowing and <a href="https://www.bloomberg.com/news/articles/2022-09-19/central-bank-rate-hikes-risk-global-recession-in-2023?sref=Hjm5biAW">increasing the risk of a global recession</a>. </p>
<p>If you only paid attention to the <a href="https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm">words of Fed Chair Jerome Powell</a>, however, you probably would have no idea this is happening. He hasn’t said a peep in his public speeches about the significant risks to the global economy as central banks jack up interest rates to tame inflation – <a href="https://www.bloomberg.com/news/articles/2022-09-21/key-takeaways-from-fed-decision-to-raise-rates-75-basis-points?srnd=premium">including the Fed’s 0.75 percentage point increase on Sept. 21, 2022</a>. </p>
<p>This may seem a bit odd that the Fed would appear to be so blasé about the global economy that it arguably leads. Yet as a <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">finance scholar</a>, I believe it makes perfect sense – though there are risks.</p>
<h2>The Fed’s domestic focus</h2>
<p>The Federal Reserve is <a href="https://www.federalreserve.gov/aboutthefed/fract.htm">mandated to focus on the U.S. economy</a>, and it takes this job very seriously. </p>
<p>While central banks are aware of all global economic data, they focus on their own economies, helping them do what is best for their own nations. In the U.S., that means the Fed is focused on improving the American economy through
<a href="https://www.stlouisfed.org/in-plain-english/the-fed-and-the-dual-mandate#:%7E:text=The%20Federal%20Reserve%20System%20has,other%20words%2C%20conducting%20monetary%20policy.">stable prices and full employment</a>. </p>
<p>As a result, when the U.S. economy is slowing too quickly and people are losing jobs, such as <a href="https://www.npr.org/2021/01/28/961372699/us-economy-slows-sharply-as-pandemic-resurges">early in the pandemic</a>, the Fed <a href="https://fred.stlouisfed.org/series/FEDFUNDS">lowers interest rates</a> – no matter the impact on other countries. Similarly, when the economy is growing but consumer prices are rising too fast, the central bank raises interest rates. </p>
<figure class="align-center ">
<img alt="Hands hold and pick up US dollar bills next to euros at an exchange counter" src="https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The U.S. dollar is the world’s main reserve currency.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/EuropeEconomy/314bfcbc4d44474083da9a5c4b8a0178/photo?Query=us%20dollar%20exchange&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1171&currentItemNo=2">AP Photo/Gregorio Borgia</a></span>
</figcaption>
</figure>
<h2>And its global impact</h2>
<p>Yet it’s unavoidable that the Fed’s policies will influence economies, companies and citizens in virtually every country in the world.</p>
<p>While all central banks influence the rest of the world, the Fed has a much larger impact because of the size of the U.S. economy – it <a href="https://worldpopulationreview.com/countries/countries-by-gdp">remains by far the largest in absolute terms</a> – and the prominence of the U.S. dollar in international markets and trade. </p>
<p><a href="https://www.nber.org/digest/digestsep18/debt-markets-are-biased-toward-home-country-currencies">Approximately half of the world’s international debt is denominated</a> in <a href="https://www.phenomenalworld.org/analysis/acute-dollar-dominance/">dollars</a>, which means countries need to pay interest and principle on what they borrow in greenbacks. The dollar has soared <a href="https://www.marketwatch.com/investing/index/dxy">almost 15% this year relative to a basket of foreign currencies</a>, largely as a result of the Fed interest rate hikes that began in March. That means it’s, on average, 15% more expensive to finance those dollar-denominated debts – and for some countries, it could be a lot more.</p>
<p>Moreover, <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html">about 60% of all global foreign exchange reserves</a> – that’s the money central banks hold to protect the value of their own currencies – are in dollars. And since <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html">most major commodities</a> <a href="https://www.energyvoice.com/markets/259645/understanding-how-oil-and-currency-prices-are-connected/">like</a> <a href="https://www.washingtonpost.com/business/energy/in-the-oil-market-the-strong-dollar-is-the-worlds-problem/2022/06/08/acec9ba8-e6e8-11ec-a422-11bbb91db30b_story.html">oil</a> and <a href="https://goldprice.org/live-gold-price.html">gold</a> are priced in dollars, a stronger dollar makes everything cost a lot more for businesses and consumers in every country. </p>
<p>Finally, when U.S. interest rates are high relative to those in other countries, more foreign investment flocks to the U.S. to get more bang for their buck. Since there’s only so much money to go around, this drains <a href="https://www.morningstar.com/articles/1101202/whats-the-impact-of-the-strong-dollar-on-my-portfolio">investment</a> from other <a href="https://tylerpaper.com/news/business/what-does-a-strong-dollar-mean-to-investors/article_57fa9361-bac5-5854-8fb0-1ef18231f0ce.html">economies</a>, especially emerging markets. And it means <a href="https://theconversation.com/three-reasons-why-the-us-federal-reserve-bank-holds-the-world-in-its-hands-190936">they have to raise interest rates</a> to keep foreign direct investment flowing into their countries, which can hurt their local economies.</p>
<h2>Risks in a global world</h2>
<p>Unfortunately, focusing solely on the domestic economy has its own risks.</p>
<p>It may sound cliche, but we do live in a global, interconnected world – something demonstrated powerfully by the COVID-19 pandemic and the supply chain issues that repeatedly <a href="https://www.nytimes.com/2022/04/14/business/economy/biden-supply-chain.html">rippled across the world</a>. American businesses depend on other countries for supplies, workers and consumers.<br>
That means even if the Fed manages a proverbial soft landing and is able to reduce inflation without causing a recession, a global downturn may still ultimately reach American shores. This could threaten much of the Fed’s success if the global slowdown results in <a href="https://www.imf.org/en/Blogs/Articles/2022/07/26/blog-weo-update-july-2022">international instability or food insecurity</a>.</p>
<p>So while I believe the Fed is correct to keep its focus on the U.S. economy and lift rates as much as it deems necessary, I’ll be looking closely at how the central bank’s economic projections evolve. If the data shows the U.S. economy’s inflation problems diminishing, the Fed may be able to begin to think a bit less about what’s happening in its own backyard and more about the impact of its policies on the rest of the world.</p><img src="https://counter.theconversation.com/content/191037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>D. Brian Blank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Fed’s recent rate hikes are contributing to higher prices and growing recession risks around the world, yet there are good reasons why the US central bank has to keep its focus domestic.D. Brian Blank, Assistant Professor of Finance, Mississippi State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1860032022-07-21T14:00:06Z2022-07-21T14:00:06ZIs the world retracting from globalisation, setting it up for a fifth wave?<figure><img src="https://images.theconversation.com/files/473172/original/file-20220708-23-wlj7k3.jpg?ixlib=rb-1.1.0&rect=68%2C122%2C4955%2C3135&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fourth wave of globalisation saw China's increasing role as a global powerhouse.</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Over the past 25 years there has been lots of research and debate about the concept, the history and state of globalisation, its various dimensions and benefits. </p>
<p>The World Economic Forum has set out <a href="https://www.weforum.org/agenda/2019/01/how-globalization-4-0-fits-into-the-history-of-globalization/">the case that</a> the world has experienced four waves of globalisation. In a 2019 <a href="https://www.weforum.org/agenda/2019/01/how-globalization-4-0-fits-into-the-history-of-globalization/">publication</a> it summarised them as follows.</p>
<p>The first wave is seen as the period since the late 19th century, boosted by the industrial revolution associated with the improvements in transportation and communication, and ended in 1914. The second wave commenced after WW2 in 1945 and ended in 1989. The third commenced with the fall of the Berlin Wall in 1989 and the disbanding of the former Soviet Union in 1991, and ended with the global financial crises in 2008. </p>
<p>The fourth wave kicked off in 2010 with the recovery of the impact of the global financial crises, the rising of the digital economy, artificial intelligence and, among others, the increasing role of China as a global powerhouse. </p>
<p>More <a href="https://www.weforum.org/whitepapers/four-futures-for-economic-globalization-scenarios-and-their-implications/">recent debates</a> on the topic focus on whether the world is now experiencing a retraction from the fourth wave and whether it is ready for the take-off of the fifth wave.</p>
<p>The similarities between the retraction period of the first wave and the current global dynamics a century later are startling. But do these similarities mean that a retraction from globalisation is evident? Is there sufficient evidence of de-globalisation or rather “slowbalisation”? </p>
<h2>Parallels</h2>
<p>The drawn-out retreat from globalisation during the 30-year period – 1914 to 1945 – was characterised by the geopolitical and economic impact of WWI and WWII. Other factors were the 1918-1920 <a href="https://www.britannica.com/story/how-long-did-the-flu-pandemic-of-1918-last">Spanish Flu pandemic</a> ; the <a href="https://www.britannica.com/event/stock-market-crash-of-1929">Stock Market Crash of 1929</a> followed by the <a href="https://www.britannica.com/event/Great-Depression">Great Depression of the 1930s</a>; and <a href="https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/communist-bloc">the rise of the Communist Bloc under Stalin in the 1940s</a>. </p>
<p>This period <a href="https://www.cambridge.org/core/journals/journal-of-economic-history/article/abs/slide-to-protectionism-in-the-great-depression-who-succumbed-and-why/4DBED88D9AD4102C7B922E54CC83D076">was further typified</a> by protectionist sentiments, increases in tariffs and other trade barriers and a general retraction in international trade.</p>
<p>Looking at the current global context, the parallels are remarkable. The world is still fighting the COVID pandemic that had devastating effects on the world economy, global supply chains and people’s lives and well-being.</p>
<p>For its part, the <a href="https://blogs.imf.org/2022/03/15/how-war-in-ukraine-is-reverberating-across-worlds-regions/">Russia-Ukraine war</a> has caused major global uncertainties and food shortages. It has also <a href="https://blogs.worldbank.org/developmenttalk/how-war-ukraine-reshaping-world-trade-and-investment">led to</a> increases in gas and fuel prices, further disruptions in global value chains and political polarisation. </p>
<p>The <a href="https://blogs.worldbank.org/developmenttalk/how-war-ukraine-reshaping-world-trade-and-investmentsure">increase in the price</a> of various consumer goods and in energy have put pressure on the general price level. World inflation is <a href="https://www.weforum.org/agenda/2022/06/inflation-stats-usa-and-world/">aggressively on the rise</a> for the first time in 40 years. Monetary authorities worldwide are trying to fight inflation. </p>
<p>Global governance institutions like the World Trade Organisation and the UN, which functioned well in the post-WWII period, <a href="https://www.weforum.org/agenda/2020/10/united-nations-un-people-belief-positive-impact/">now have less influence</a> while the Russian-Ukraine war has split the world politically into three groups. They are the Russian invasion supporters, the neutral countries and those opposing, a group dominated by the US, EU and the UK. This split is contributing to complex geopolitical challenges, which are slowly leading to <a href="https://www.carnegie.org/our-work/article/how-is-russias-invasion-of-ukraine-likely-to-alter-the-post-world-war-ii-international-order/">changes in trade partnerships and regionalism</a>. </p>
<p>Europe is already looking for new suppliers for oil and gas and early indications of the potential expansion of the Chinese influence in Asia are evident. </p>
<h2>A less connected world</h2>
<p><a href="http://www.chathamhouse.org/2021/10/what-deglobalization/">De-globalisation</a> is seen as</p>
<blockquote>
<p>a movement towards a less connected world, characterised by powerful nation states, local solutions and border controls rather than global institutions, treaties, and free movement. </p>
</blockquote>
<p>There’s now talk of <a href="https://www.pwc.com/gx/en/research-insights/economy/global-economy-watch/predictions-2020.html">slowbalisation</a>. The term was first used by trendwatcher and futurologist <a href="https://www.amazon.com/Capitalism-Slowbalization-market-state-century/dp/9491932160">Adjiedji Bakas</a> in 2015 to describe the phenomenon as the</p>
<blockquote>
<p>continued integration of the global economy via trade, financial and other flows, albeit at a significant slower pace.</p>
</blockquote>
<p>The data on economic globalisation paint an interesting picture. They show that, even before the COVID pandemic hit the world in 2020, a deceleration in the intensity of globalisation is evident. The data which represent broad measures of globalisation, includes:</p>
<ul>
<li><p><a href="https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS">World exports of goods and services</a>. As a percentage of world GDP, these reached an all-time high of 31% in 2008 at the end of the third globalisation wave. Exports fell as a percentage of global GDP and only recovered to that level during the early stages of the fourth wave in 2011. Exports then slowly started to regress to 28% of global GDP in 2019 and further to a low of 26% during the first Covid-19 year in 2020.</p></li>
<li><p>The volume of <a href="https://unctad.org/topic/investment/world-investment-report/fdi-flows-2022">foreign direct investment inflows</a>. These reached a peak of US$2 trillion in 2016 before trending lower, reaching US$1.48 trillion in 2019. Although the 2020 foreign direct investment inflows of US$963 billion are a staggering 20% below the 2009 financial crises level, they recovered to US$1.58 billion in 2021.</p></li>
<li><p><a href="https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS">Foreign direct investment as percentage of GDP</a> started to increase from a mere 1% in 1989 to a peak of 5,3% in 2007. After a retraction following the global financial crises, it peaked again in 2015 and 2016 at around 3,5%. It then declined to 1,7% in 2019 and 1,4% in 2020.</p></li>
<li><p>Multinational enterprises have been the major vehicle for economic globalisation over time. The number of them indicates the willingness of companies to invest outside their home countries. In 2008 the UN Conference on Trade and Development reported approximately 82 000. The number <a href="https://espace-mondial-atlas.sciencespo.fr/en/topic-strategies-of-transnational-actors/article-3A11-EN-multinational-corporations.html">declined to 60 000</a> in 2017.</p></li>
<li><p>Data on world private capital flows (including foreign direct investment, portfolio equity flows, remittances and private sector borrowing) are not readily available. However, <a href="https://data.oecd.org/drf/private-flows.htm#indicator-chart">Organisation for Economic Co-operation and Development data show</a> that private capital flows for reporting countries reached an all-time high of US$414 billion in 2014, followed by a declining trend to US$229 billion in 2019 and a negative outflow of US$8 billion in 2020.</p></li>
</ul>
<p>These declining trends are further substantiated by the evidence of deeper fragmentation in economic relations caused by <a href="https://journals.sagepub.com/doi/full/10.1177/1024529420921481">Brexit</a> and the problematic US/China relations, in particular during <a href="https://journals.sagepub.com/doi/full/10.1177/1024529420921481">the Trump era</a>. </p>
<h2>What next?</h2>
<p>The question now is whether the latest data is:</p>
<ul>
<li><p>indicative of either a retraction from globalisation similar to that experienced after the first wave a century ago;</p></li>
<li><p>or it is merely a process of de-globalisation;</p></li>
<li><p>or slowbalisation in anticipation of the world economy’s recovery from the impact of Covid-19 pandemic and the war in Ukraine?</p></li>
</ul>
<p>The similarities between the first wave of globalisation and the existing global events are certainly significant, although embedded in a total different world order.</p>
<p>The current dynamics shaping the world such as the advancement of technology, the digital era and the speed with which technology and information is spread, will certainly influence the intensity of the retraction of the already embedded dependence on globalisation. </p>
<p>Nation states realise that blindly entering into contracts and agreements with companies in other countries, may be problematic and that trade and investment partners need to be chosen carefully. The events over the past three years have certainly shown that economies around the world are deeply integrated and, despite examples of protectionism and threats of more inward-looking policies, it will not be possible to retract in totality. </p>
<p>What may occur is fragmentation where supply chains becoming more regionalised. Nobel prize winning economist <a href="https://www.dailymaverick.co.za/opinionista/2022-05-31-davos-2022-missed-an-opportunity-to-reflect-on-globalisation/">Joseph Stiglitz refers</a> to the move to “<a href="https://www.atlanticcouncil.org/news/transcripts/transcript-us-treasury-secretary-janet-yellen-on-the-next-steps-for-russia-sanctions-and-friend-shoring-supply-chains/">friend shoring</a>” of production, a phrase coined by US Treasury Secretary Janet Yellen.</p>
<p>It is becoming obvious that the process of globalisation certainly shows characteristics of both de-globalisation and slowbalisation. It’s also clear that the global external shocks require a total rethink, repurpose and reform of the process of globalisation. This will most probably lead the world into the fifth wave of globalisation.</p><img src="https://counter.theconversation.com/content/186003/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elsabe Loots does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The global external shocks require a total rethink, repurpose and reform of the process of globalisation.Elsabe Loots, Professor of Economics and former Dean of the Faculty of Economic and Management Sciences, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1772002022-02-23T16:44:52Z2022-02-23T16:44:52ZRisky business: What protests and blockades could do to Canada’s global reputation<figure><img src="https://images.theconversation.com/files/447850/original/file-20220222-21-1us52x.JPG?ixlib=rb-1.1.0&rect=22%2C15%2C4991%2C2810&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A protester walks with a Canadian flag as police move in to clear downtown Ottawa near Parliament Hill a few weeks into the 'freedom convoy' occupation of the city.</span> <span class="attribution"><span class="source"> THE CANADIAN PRESS/Justin Tang</span></span></figcaption></figure><p>Canada’s political and economic classes have managed to tiptoe around the proliferation of populism, far-right electoral inroads <a href="https://theconversation.com/hard-soft-smooth-rough-we-need-better-words-if-brexit-is-going-to-work-67739">and referenda</a> that have plagued other democracies over the past decade.</p>
<p>But Canada’s moment under the spotlight has arrived. Political risk must now be assessed for any organization pondering investing in Canada.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/islamophobia-and-hate-crimes-continue-to-rise-in-canada-110635">Islamophobia and hate crimes continue to rise in Canada</a>
</strong>
</em>
</p>
<hr>
<p>Contentious weeks of country-wide border blockades and the exhausting occupation of Ottawa by large trucks and protesters have created an increasingly dire perception of uncertainty among institutions and governments outside of Canada. </p>
<p>The protests <a href="https://www.cbc.ca/news/canada/ottawa/ottawa-businesses-convoy-protest-reputation-1.6355504">have raised questions about Canada’s general ability to enforce the rule of law</a> and uphold some of the basic tenets of safety and stability for its citizens and businesses — qualities Canadians have been renowned for. This could represent a watershed moment for Canada’s reputation as a safe and reliable investment environment.</p>
<figure class="align-center ">
<img alt="A drone that says police hovers in front of the peace tower." src="https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&rect=0%2C12%2C4031%2C2287&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=344&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=344&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=344&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=433&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=433&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447641/original/file-20220221-16-1flby93.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=433&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A police drone flies near the Peace Tower on Parliament Hill on Feb. 20, 2022, in Ottawa.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<h2>Political risks to investments</h2>
<p>Normally reserved for the likes of investment houses, analytics teams and large corporations interested in emerging economy opportunities, analyzing political risk is a multi-faceted concept. It can be broadly understood as occurrences in which government actions or politically charged events in a host country interfere with the performance of an investment operation. </p>
<p>In many countries, the stability and profitability of foreign business ventures are difficult to predict due to concerns related to political volatility, social upheaval, unrest, expropriations and regulatory or policy uncertainties. </p>
<p>The purpose of political risk analysis is therefore to provide companies and investors with specific information on the protection of their potential investments abroad, and on the likelihood that the investment will encounter problems specific to a country. </p>
<p>Foreign direct investment — known as FDI — is predicated on some form of stability, including the assumption of reasonably predictable government institutions and policies.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1493341489010724869"}"></div></p>
<h2>The Great Safe North?</h2>
<p>Canada has long had a reputation as a stable investment environment, with strong key indicators of <a href="https://www.sgi-network.org/2020/Canada/Quality_of_Democracy">democracy quality</a>, anti-corruption measures, <a href="https://www.heritage.org/index/country/canada#:%7E:text=Canada's%20economic%20freedom%20score%20is,the%20regional%20and%20world%20averages.">economic freedom</a> and a lack of political violence, maintaining <a href="https://www.coface.com/Economic-Studies-and-Country-Risks/Canada">country risk</a> and <a href="https://tradingeconomics.com/canada/rating">credit ratings</a> in the stable triple-A range. Recent events suggest that could change.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/understanding-canadas-crisis-has-trumpism-arrived-or-are-people-just-tired-of-pandemic-restrictions-177207">Understanding Canada's crisis: Has Trumpism arrived or are people just tired of pandemic restrictions?</a>
</strong>
</em>
</p>
<hr>
<p>Increasing levels of political and economic anxiety have ensued based on <a href="https://www.thestar.com/politics/political-opinion/2022/02/12/can-trump-style-populism-take-hold-in-canada-heres-what-the-trucker-convoy-tells-us.html">concerns around populism</a>, the future of trade agreements, retaliatory tariffs and industrial policies.</p>
<p>Without a sense of confidence in the overall investment environment — particularly stable institutions, policies and trust in the rule of law — foreign-owned businesses cannot clearly plan for the future and will consider moving capital elsewhere.</p>
<h2>Siege and response</h2>
<p>The protests ballooned through much of early 2022, initially comprising peaceful and disillusioned citizens tired of COVID-19 restrictions, but also by more <a href="https://www.theglobeandmail.com/canada/article-a-look-at-the-main-organizers-behind-ottawas-protests/">nefarious anti-government</a> and even <a href="https://www.ctvnews.ca/canada/convoy-fundraising-leak-shows-substantial-u-s-donations-75k-from-canadian-donor-1.5780989">foreign-funded </a> groups intent on disrupting the economy and destabilizing government. </p>
<p>They’ve included border blockades, city occupations and even the discovery of <a href="https://calgary.ctvnews.ca/alberta-rcmp-arrest-13-people-at-coutts-border-blockade-seize-weapons-1.5780676">a large weapons cache</a>.</p>
<p>Perhaps more concerning in the eyes of foreign businesses and governments was Canada’s lacklustre and politically paralyzed response to the unrest. Jurisdictional and political bickering is a common occurrence in Canadian federalism, but this time the world was watching.</p>
<p>Seemingly few leaders or law enforcement agencies at the municipal, provincial or federal levels took ownership of the crisis for weeks, seeking to pass the buck to other levels of government. Uncertainty over legal and regulatory issues around the enforcement of laws was obvious, and the Canadian public grew impatient. </p>
<p>Political calculations were undoubtedly at play, even as the world started to take notice of our collective institutional failure to organize a proper response until three weeks into the protest. </p>
<figure class="align-center ">
<img alt="A line of armoured police, some holding batons." src="https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&rect=0%2C0%2C3687%2C2257&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447642/original/file-20220221-19-10qh7na.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Police, armed with a variety of batons and armoured with riot helmets, hold a line as they take action to put an end the ‘freedom convoy’ occupation of Ottawa.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Justin Tang</span></span>
</figcaption>
</figure>
<h2>Leadership sorely lacking</h2>
<p>While <a href="https://www.cbc.ca/news/canada/windsor/ambassador-bridge-protest-cost-1.6351312">hundreds of millions of dollars of daily trade were being held up by border blockades</a>, leadership and clarity were sorely lacking. </p>
<p>These events required a national and provincial response, yet it was not until days of border blockades and weeks of Ottawa’s occupation that Ontario’s Premier Doug Ford declared a state of emergency and the federal government enacted the Emergencies Act. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Doug Ford leans forward with flags behind him." src="https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447645/original/file-20220221-28-1vcnm2u.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Ontario Premier Doug Ford attends a news conference at the Ontario legislature.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Chris Young</span></span>
</figcaption>
</figure>
<p>One of the reasons cited by the federal government in invoking the act for the first time since its creation was over <a href="https://globalnews.ca/news/8621148/canada-emergencies-act-reason/">concern about serious political violence</a> among different elements of the so-called “freedom convoy.”</p>
<p>It arguably took <a href="https://www.thestar.com/politics/political-opinion/2022/02/11/border-protests-may-end-but-the-lasting-damage-to-canadas-economy-has-already-been-done.html">pressure from the United States, along with international attention</a>, for Canadian leaders to jump into action to fight for our supposed competitive business advantage.</p>
<p>Since then, border crossings have reopened and a more organized enforcement plan took shape in Ottawa, but only after the city’s police chief resigned. </p>
<p>These events may be symptomatic of pandemic fatigue, but also increasing polarization, far-right influence and eroding trust in institutions. Canada’s abysmal response to these dangerous events requires serious reflection.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/understanding-canadas-crisis-has-trumpism-arrived-or-are-people-just-tired-of-pandemic-restrictions-177207">Understanding Canada's crisis: Has Trumpism arrived or are people just tired of pandemic restrictions?</a>
</strong>
</em>
</p>
<hr>
<h2>A rocky road ahead</h2>
<p>Ultimately, the state will prevail, and order has seemingly been returned to Ottawa by a massive police operation that was generally peaceful.</p>
<p>But the damage to Canada’s trade and investment reputation is already done, especially with respect to its American partners. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-the-ambassador-bridge-and-other-freedom-convoy-blockades-mean-for-canada-u-s-trade-176965">What the Ambassador Bridge and other 'freedom convoy' blockades mean for Canada-U.S. trade</a>
</strong>
</em>
</p>
<hr>
<p>What does this mean for global trade and foreign direct investment given that new forms of political risks in once-stable democracies are on the rise, including in Canada?</p>
<p>These issues are different than the more traditional risks such as civil war, expropriation, terrorism and others, but they’re caused in part by underlying socio-political and economic conditions that can no longer be ignored. They’re certainly not going to disappear in Canada once the protests end.</p><img src="https://counter.theconversation.com/content/177200/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julian Campisi received funding from SSHRC, and currently from the University of Toronto-Scarborough. </span></em></p>Canada may no longer be seen to be the safe haven for investment in the eyes of the global business world, given recent protests events and lacklustre institutional responses.Julian Campisi, Assistant Professor of Political Science, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1649702021-07-27T15:23:47Z2021-07-27T15:23:47ZHow the Bui Dam set up China’s future engagement strategy with Ghana<figure><img src="https://images.theconversation.com/files/413130/original/file-20210726-15-d5my2e.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Bui Dam is a tangible reminder of China's influence in Ghana</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>Aid, trade and foreign direct investments typify China’s global rise and its African activities. Central to China’s <a href="https://www.jstor.org/stable/42704810?seq=1#metadata_info_tab_contents">expanding relationship</a> with African countries is infrastructure, including fibre optics, transport networks and energy-generating projects. In addition, China supports African projects on <a href="https://www.jstor.org/stable/42704810?seq=1#metadata_info_tab_contents">less stringent terms</a> than western countries, thus endearing China to African leaders.</p>
<p>Contemporary China-Ghana relations follow a similar script with the Bui Dam playing a crucial role in the narrative. The magnitude of the Bui Dam and the amount involved set it apart from previous China-funded projects, including the <a href="https://www.myjoyonline.com/china-writes-off-cost-of-national-theatre/">National Theatre</a> which was built in 1993.</p>
<p>The 400-megawatt dam was completed by China’s Sinohydro Corporation in 2013. It was part of the <a href="https://www.sjsu.edu/faculty/watkins/volta.htm">Volta River Project</a> which delivered the <a href="https://theconversation.com/lessons-about-housing-from-ghanas-volta-river-project-50-years-on-123920">Akosombo</a> and Kpong dams in 1965 and 1982. The US government and World Bank funded the Akosombo and Kpong dams. The Bui Dam was erected about 200km upstream of Akosombo and Kpong across the Black Volta river, in the Bono region. </p>
<p>Before China’s involvement, the World Bank and European Investment Bank had rejected the dam proposal due to environmental sustainability fears. This followed <a href="https://theconversation.com/ghanas-bui-dam-raises-concerns-again-about-hydro-power-projects-155788">investigations</a> by the World Commission on Dams and fears about Ghana’s inadequate handling of socio-economic issues resulting from the Akosombo and Kpong dams.</p>
<p>When sod for the Bui project was cut in 2007, it represented China’s most significant investment in Ghana. It was also the second highest foreign direct investment in Ghana after the Akosombo Dam. At the cost of <a href="http://www.ejolt.org/wordpress/wp-content/uploads/2015/07/FS-25.pdf">$790 million</a>, the dam had the trappings of everything China needed to build a positive image. </p>
<p>When construction started in 2006, Ghana wasn’t producing enough electricity. Shortfalls led to rationing. The government touted the dam as a solution to this problem. The construction also <a href="http://www.ejolt.org/wordpress/wp-content/uploads/2015/07/FS-25.pdf">promised</a> to create 4,000 jobs and socio-economic transformation.</p>
<p>In my <a href="https://www.tandfonline.com/doi/full/10.1080/00083968.2021.1929360#b0001">research</a>
I examined the dam’s significance to relations between the two countries. I looked at how China used the project to cultivate soft power. The American political scientist <a href="https://www.e-ir.info/2013/03/08/joseph-nye-on-soft-power/">Joseph Nye</a> describes soft power as a country’s ability to persuade others to want what it wants. A country’s soft power can derive from its culture, political values and foreign policies. </p>
<p>I concluded that indeed the project facilitated market expansion by Chinese companies in the intervening decades. These included Sinohydro, Shanghai Corporation and China International Water and Electric Corporation. I also found that soft power was productive at the macro level such as increased government-to-government interactions. But it was limited at lower levels involving people-to-people relations. </p>
<h2>Beyond soft power</h2>
<p>The arrangement between China and Ghana that enabled the completion of the dam was done under a <a href="https://negotiationsupport.org/glossary/resource-infrastructure-deals">resource-for-infrastructure framework</a>. This approach involved the exchange of African resources for China-funded infrastructure. The Bui Dam was secured by exporting 40,000 tons of cocoa beans from Ghana to China until the power sale arrangement kicked in when the project was completed.</p>
<p>There are actors in Ghana’s administration who were deeply enthusiastic about China’s involvement. As one ministry of finance official told me: Bui wouldn’t have materialised without China’s help.</p>
<p>But my <a href="https://www.tandfonline.com/doi/full/10.1080/00083968.2021.1929360">research</a> shows that, like other actors in Africa, China is a self-interested player. It used its soft power to facilitate its broader foreign policy goals, especially the market expansion of its companies and goods, employment of its citizens, and its companies’ long-term stays.</p>
<p>This was achieved in a number of ways.</p>
<p>The first was through the structure China uses for all mega water projects. It involves government agencies as well as private corporations working in China that manage water. Members interact with each other – and outside networks – to get dams built. </p>
<p>Overseas the structure also uses its influence and power to facilitate other investments, and the creation of other businesses. </p>
<p>The Bui Dam project was an example of this. It involved China providing labour, engineering and financing opportunities for its members. The role played by Sinohydro illustrates this. Even though the company handed over the dam to Ghanaian authorities in 2013, it stayed in the country, diversifying from dam to road and bridge construction. </p>
<p>The project was approved by Ghana’s Parliament, which also established the Bui Power Authority to coordinate and manage the dam’s construction. The contract with the Chinese company had a quota for how many Chinese could be employed on the project. This was never made public but I learnt it in several interviews with Ministry of Finance and Ministry of Energy officials. </p>
<p>The goodwill engendered by the project also allowed private Chinese citizens to visit Ghana and prospect for business opportunities. State investment data show that the number of Chinese projects and investments in Ghana has rapidly accelerated over the past two decades. Today, China is not only Ghana’s primary source of foreign direct investment, but principal trading partner and infrastructure financier. </p>
<p>Another conspicuous dimension of growing China-Ghana relations is the surge in Chinese migrants to Ghana and vice versa. Although the Ghana Immigration Service does not make public the number of Chinese migrants, some <a href="https://www.mideq.org/en/migration-corridors/china-ghana/#:%7E:text=Recent%20estimates%20suggest%20that%20the,is%20between%2010%2C000%20and%2030%2C000.">academics</a> have pegged the numbers at about 30,000, a number that’s much larger than the estimates of two decades ago.</p>
<p>Ghana has emerged as the African country with the <a href="https://www.africanexponent.com/post/10464-ghanaian-students-in-china">most students in China</a>.</p>
<p>These commercial and associated activities and exchanges will continue to deepen with the <a href="https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative">Belt and Road Initiative</a>. Ghana signed on to the initiative in 2018 and has already <a href="https://www.scmp.com/news/china/diplomacy/article/3037993/ghana-goes-ahead-us2-billion-chinese-bauxite-barter-deal-has">negotiated a $2 billion deal</a> enabling Sinohydro to provide infrastructure, such as roads and bridges, across the country in exchange for refined bauxite. </p>
<h2>Future lessons</h2>
<p>The outcomes of the Bui Dam offer crucial lessons for future engagements between China and Ghana. </p>
<p>Ghana must see beyond China’s do-good narratives and try to engage on equal terms. The Belt and Road Initiative brings new opportunities and challenges that require a proactive and effective state strategy to optimise the gains. </p>
<p>It’s commendable that the government has formed an advisory committee to formulate strategies to engage China productively. Hopefully, its recommendations will help shape China-Ghana relations for the better and eliminate the prevailing asymmetries.</p><img src="https://counter.theconversation.com/content/164970/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kwame Adovor Tsikudo receives funding from the Interdisciplinary Center for the Study of Global Change at the University of Minnesota for part of this study. He is affiliated with Afro-Sino Center for International Relations. </span></em></p>China’s engagement with Ghana was solidified by its willingness to undertake an expensive project Western partners had run away from.Kwame Adovor Tsikudo, Visiting Assistant Professor,, University of Illinois at Urbana-ChampaignLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1620462021-06-16T16:06:11Z2021-06-16T16:06:11ZCOVID-19 has shone a light on how globalization can tackle inequality<figure><img src="https://images.theconversation.com/files/406292/original/file-20210614-102344-1jidy13.jpg?ixlib=rb-1.1.0&rect=0%2C375%2C4256%2C2446&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Predictions about the death of globalization were, in hindsight, grossly exaggerated. Recovery efforts took hold early compared to two other major economic crises of the past 100 years, suggesting global trade is much more resilient than anticipated.</span> <span class="attribution"><span class="source">NASA/Unsplash</span></span></figcaption></figure><p><a href="https://kof.ethz.ch/en/forecasts-and-indicators/indicators/kof-globalisation-index.html">Globalization</a> is a multifaceted concept that describes the process of creating networks of connections around the world. It involves the interdependence of national economies and the integration of information, goods, labour and capital, to name a few.</p>
<p>In recent years, globalization has been the subject of <a href="https://www.project-syndicate.org/commentary/globalization-new-discontents-by-joseph-e--stiglitz-2016-08">growing discontent and criticism</a>, particularly after the election of former U.S. president <a href="https://hbr.org/2017/07/globalization-in-the-age-of-trump">Donald Trump</a>, <a href="https://www.theguardian.com/business/2016/jun/26/brexit-is-the-rejection-of-globalisation">Brexit and</a> <a href="https://www.piie.com/blogs/trade-and-investment-policy-watch/why-did-trump-end-wtos-appellate-body-tariffs">the American refusal</a> to appoint members to the World Trade Organization’s Appellate Body. </p>
<p>The backlash represents a major setback to the pace of globalization and sets the stage for growing protectionism and nationalism around the world. Many criticisms have been political, but the ongoing <a href="https://repub.eur.nl/pub/135563">COVID-19 pandemic has introduced new health threats to globalization</a>. </p>
<p>In a sense, the pandemic has illuminated both globalization (a virus went global in a few weeks thanks to globalization and interconnectedness) and deglobalization (the breakdown of international co-operation and the re-emergence of nationalism when it came to personal protective gear, medical devices and vaccines). </p>
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<h2>COVID-19 and globalization</h2>
<p>In <a href="https://repub.eur.nl/pub/135563">our recent research</a>, we detail the pandemic’s impact on the world economy via three components of globalization: economic, social and political. The pandemic and the economic policy response to the crisis have had an impact on these three aspects to varying degrees.</p>
<p>1) <a href="https://link.springer.com/article/10.1007/s11558-019-09344-2">Economic globalization</a> involves the flow of goods, services, capital and information through long-distance market transactions. Although the pandemic is global, regions and countries have experienced it differently based on various economic indicators.</p>
<p><a href="https://unctad.org/news/covid-19-drives-large-international-trade-declines-2020">Merchandise trade contracted for the global economy</a>, but <a href="https://unctad.org/system/files/official-document/osg2020d1_en.pdf">the rate of decline was more pronounced in advanced economies</a> than in developing and emerging economies. Not only were trade flows affected, but the the impact of COVID-19 on foreign direct investment (FDI) <a href="https://unctad.org/news/global-foreign-direct-investment-falls-49-first-half-2020">was immediate as global FDI flows declined by nearly half in 2020</a>.</p>
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<img alt="A large port on a hazy day." src="https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=468&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=468&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406291/original/file-20210614-135666-fqngni.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=468&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The port of Los Angeles, mid-pandemic.</span>
<span class="attribution"><span class="source">(AP Photo/Damian Dovarganes)</span></span>
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<p>2) <a href="https://link.springer.com/article/10.1007/s11558-019-09344-2">Social globalization</a> was also significantly impacted by COVID-19. It pertains to interactions with people abroad including via migration, international phone calls and international remittances paid or received by citizens.</p>
<p>Social globalization has been heavily affected by the COVID-19 pandemic because many countries have imposed travel restrictions on both residents and foreign travellers. Border closures hinder migration, especially the movement of tourists and international students. <a href="https://www.migrationpolicy.org/research/covid-19-unemployment-immigrants-other-us-workers">Migrant remittances were also affected</a>, not because of any formal restrictions on remittances, but mainly because of the impact the pandemic had on immigrant employment.</p>
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<a href="https://theconversation.com/canadas-emergency-response-benefit-does-nothing-for-migrant-workers-136358">Canada's Emergency Response Benefit does nothing for migrant workers</a>
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<p>3) Political globalization involves the ability of countries to engage in international political co-operation and diplomacy, as well as implementing government policy.</p>
<p>The initial outbreak of the COVID-19 pandemic affected international co-operation negatively, <a href="https://www.mei.edu/publications/us-and-china-getting-beyond-covid-19-blame-game">in part because of the blame game between the two largest economies in the world, the United States and China</a>. </p>
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<a href="https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two men, one in a mask, stand together." src="https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=427&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=427&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=427&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=536&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=536&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406456/original/file-20210615-19-1j1fiek.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=536&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">An Italian hospital director is flanked by the vice-president of China’s Red Cross in Rome in March 2020, when Italy was being decimated by COVID-19.</span>
<span class="attribution"><span class="source">(AP Photo/Domenico Stinellis)</span></span>
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<p>Later, many nations worked together to fight the pandemic. <a href="https://www.dw.com/en/covid-19-china-steps-in-to-help-italy-battle-the-virus/a-52901560">China, for example, supported</a> countries like Italy, which became the epicentre of the COVID-19 pandemic in Europe. </p>
<p>Politically, the outbreak of COVID-19 could be used as a building block in the future to reinforce international co-operation and strengthen the pillars of political globalization.</p>
<h2>COVID-19 and previous economic crises</h2>
<p>Because of well-established and interdependent global production and supply chains, economic forecasts were pessimistic in the early months of the pandemic due to international border closures and business shutdowns.</p>
<p>The prospect of the world plunging into another major and long-term economic recession similar to the Great Depression in the <a href="https://time.com/5876606/economic-depression-coronavirus/">1930s and the 2008 recession</a> was top of mind for economists, governments and citizens. </p>
<p>But predictions about the <a href="https://www.imperial.ac.uk/business-school/ib-knowledge/strategy-leadership/does-covid-19-really-mean-the-death-globalisation">death of globalization</a> were, in hindsight, grossly exaggerated. Recovery efforts took hold early compared to those two major economic crises, suggesting global trade is much more resilient than anticipated.</p>
<p>In fact, there’s reason to be optimistic about the COVID-19 economic recovery as well as the future of globalization.</p>
<p>Multinational enterprises already had their stress test during the 2008-2009 <a href="https://voxeu.org/article/great-trade-collapse-what-caused-it-and-what-does-it-mean#:%7E:text=The%20%E2%80%9Cgreat%20trade%20collapse%E2%80%9D%20occurred,sudden%2C%20severe%2C%20and%20synchronised.">collapse of world trade</a>. That collapse kickstarted a process of deglobalization, but global merchandise trade and industrial production recovered to previous highs quickly — and they’ve done so even more swiftly during the COVID-19 crisis. The shock was sharp and immediate, but so was the recovery. </p>
<p>The so-called invisible flows (FDI, remittances, tourism, official development co-operation) have been hit harder, and full recovery is not to be expected until vaccination rollouts are sufficiently global in scope. Nonetheless, it’s not unrealistic to expect a speedy economic recovery once the pandemic has passed.</p>
<h2>The disease of inequality</h2>
<p>Ironically, the attacks on globalization were a symptom of an underlying disease — inequality — that have been illuminated by the pandemic.</p>
<p>Globalization lacked a trickling down of benefits to those who most needed them. The pandemic taught us that inequalities are the breeding ground for the spreading of literal diseases and the suffering that follows. Reducing vulnerabilities to future epidemics requires tackling those inequalities. </p>
<p>But the fight against future crises cannot be limited to domestic developments only, because inequality is global. <a href="https://sdgs.un.org/goals">Adhering to the United Nations Sustainable Development Goals</a> is therefore a high-return investment project.</p>
<p>The push towards deglobalization certainly still exists. But economies are now digitally connected in ways they’ve never been before. </p>
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<img alt="Medical staff wearing masks look out of a hospital window." src="https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=487&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=487&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406463/original/file-20210615-19-asrgn2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=487&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Medical staff look out from a hospital window as officials prepare to begin Kenya’s first COVID-19 vaccinations in Nairobi in March 2021.</span>
<span class="attribution"><span class="source">(AP Photo/Ben Curtis)</span></span>
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<p>That’s a positive development, because ending the COVID-19 pandemic and preventing future crises requires international co-operation and a global effort to ensure no single country is left behind. Vaccines must be made available and affordable to all countries, as just reiterated by the leaders of G7 nations in their promise to supply <a href="https://www.bbc.com/news/uk-57461640">one billion doses of the COVID-19 vaccine to poorer nations</a>. </p>
<p>Just as globalization has ramifications for all countries, the health of one nation affects the health of all nations. It requires a global approach to ensure equality for all the world’s citizens.</p><img src="https://counter.theconversation.com/content/162046/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sylvanus Kwaku Afesorgbor receives funding from OMAFRA </span></em></p><p class="fine-print"><em><span>Binyam Afewerk Demena and Peter A.G. van Bergeijk do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The outbreak of COVID-19 could be used as a building block in the future to reinforce international co-operation and strengthen the pillars of globalization.Sylvanus Kwaku Afesorgbor, Assistant Professor, Agri-Food Trade and Policy, University of GuelphBinyam Afewerk Demena, Postdoctoral research fellow, International Institute of Social StudiesPeter A.G. van Bergeijk, Professor of International Economics and Macroeconomics, International Institute of Social StudiesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1621372021-06-15T14:25:20Z2021-06-15T14:25:20ZAreas in Africa with more Chinese-backed projects were more likely to experience protests<p>Chinese investment in Africa has helped spark economic growth and improve social outcomes across the continent. Yet Chinese projects often seem to go hand in hand with civil protests. We wanted to find out whether these were isolated incidents or signalled broader discontent among the population.</p>
<p>In new <a href="https://www.sciencedirect.com/science/article/abs/pii/S0014292121000945">research</a>, we show that regions hosting Chinese-led projects are more likely to experience protests. </p>
<p>China’s financial involvement on the continent has grown dramatically since the launch of the Forum on China-Africa Cooperation (FOCAC) in 2000 and the China-Africa Development Fund in 2006. Today, China is Africa’s <a href="https://qz.com/africa/1844049/trade-between-china-and-africa-dropped-14-percent-in-the-first-quarter/">largest trading partner</a>. China also spent an estimated <a href="http://docs.aiddata.org/ad4/pdfs/WPS46_Aid_China_and_Growth.pdf">US$350 billion</a> (£250 million) on development programmes on the continent between 2000 and 2014 (the most recent data), on a par with what the US spent in the same period. </p>
<p>The social, economic and political implications of this vast investment are subject to much controversy. Western countries are critical of China’s attempt to gain “soft power” (gaining economic and cultural power without coercion) on the continent, saying it might <a href="https://www.tandfonline.com/doi/full/10.1080/10670564.2014.898893">undermine good governance</a> and <a href="https://www.jstor.org/stable/pdf/90001834.pdf?refreqid=excelsior%3A4e069aee8c090c80762752e7b0a57abc">human rights</a>. But what do Africans citizens think about China’s impact on their lives? </p>
<p>It is easy to find evidence of protests against Chinese projects and investments. In the Kenyan archipelago of Lamu, for instance, residents and local businesses recently managed to <a href="https://chinadialogue.net/en/energy/lamu-kenyan-coal-project-chinese-investors-take-environmental-risks-seriously/">block</a> a proposed Chinese coal power plant, which they said would hurt the local tourist industry. People in the Gambia have <a href="https://theconversation.com/protests-in-the-gambia-highlight-tensions-over-chinese-investment-in-africa-119221">protested against Chinese fish factories</a>, which have drained waste into nearby wildlife reserves, hurting the local fish industry and the environment. Or in 2012, Zambian workers protested against low pay and hazardous working conditions in Chinese-run mines and even <a href="https://www.bbc.co.uk/news/world-africa-19135435">killed a Chinese manager</a>. </p>
<p>Of course, these are just a few examples from across a huge continent – we wanted to explore whether there is a systematic link between Chinese projects and civil protests. </p>
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Read more:
<a href="https://theconversation.com/protests-in-the-gambia-highlight-tensions-over-chinese-investment-in-africa-119221">Protests in the Gambia highlight tensions over Chinese investment in Africa</a>
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<p>To do this, we used a global database on local protests that located around 125,000 protests across Africa and combined it with data on the location of Chinese projects across the continent. We did find a link: areas with more Chinese projects were more likely to experience protests. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Map of Africa with green and red dots" src="https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=418&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=418&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=418&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=525&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=525&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405973/original/file-20210611-27-1srcebl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=525&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Map of Chinese projects and protests in Africa between 2000 and 2014. (Chinese projects in green; protests in red)</span>
<span class="attribution"><span class="source">Iacoella, Martorano, Metzger, Sanfilippo (2021)</span>, <span class="license">Author provided</span></span>
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<p>We also found that the type of project and its location matter. For instance, energy projects, often hydropower, are generally far away from towns and cities. By contrast, big infrastructure projects could be more likely to promote public demonstrations because they have visible effects on local and regional activities. </p>
<h2>Perceptions influence and trust in governments</h2>
<p>There are a couple of potential explanations for this link between projects and protests. First, we know from previous research that, compared with World Bank aid, Chinese finance is prone to being <a href="https://www.sciencedirect.com/science/article/abs/pii/S030438781831099X">used by local elites</a> to pursue their own interests and obtain <a href="https://www.sciencedirect.com/science/article/pii/S0047272718300021">many of the benefits</a>, perhaps because of a <a href="https://www.aiddata.org/publications/how-china-lends">lack of transparency</a> in loan conditions, or because of China’s principle of <a href="https://www.sciencedirect.com/science/article/abs/pii/S030438781831099X">not interfering in domestic affairs</a> when granting loans, which gives local political leaders more power to allocate resources to projects. All this can lower citizens’ trust in their government institutions. When people lose trust in institutions, they may prefer protesting to voting. Our analysis confirms that areas with a larger number of Chinese projects do see lowered trust in local government. </p>
<p>Second, using data from the <a href="https://afrobarometer.org/data">Afrobarometer</a>, which surveys Africans on their view on democracy, governance and other issues, we observe a growing sense of China’s rising domestic economic influence among citizens who are more strongly exposed to Chinese projects. This perception can stir protests when citizens feel that the economic changes are serving Chinese rather than domestic interests. </p>
<p>But under what circumstances will citizens’ grievances and distrust effectively result in protests? Almost unsurprisingly, and reminiscent of the Arab spring, we find that improved mobile connectivity may have played an important role in helping citizens to coordinate. </p>
<p>Protests are an interesting way to explore how African citizens are responding to Chinese investment. A direct and legitimate form of political participation, protests can draw attention to grievances and to demand accountability from governments. Our study shows a systematic link between Chinese projects and the occurrence of protests.</p><img src="https://counter.theconversation.com/content/162137/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We looked at 125,000 protests across Africa and mapped them against Chinese investments.Bruno Martorano, Assistant Professor, Maastricht University and Maastricht Economic and Social Research Institute on Innovation and Technology (UNU-MERIT), United Nations UniversityFrancesco Iacoella, Researcher, Maastricht Economic and Social Research Institute on Innovation and Technology (UNU-MERIT), United Nations UniversityLaura Metzger, Postdoctoral Fellow, Center for International Development, Harvard Kennedy SchoolMarco Sanfilippo, Associate Professor of Economics, Università di TorinoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1499662020-12-15T02:37:59Z2020-12-15T02:37:59ZAs China’s trade war with Australia shows, New Zealand must be careful to balance its own economic priorities<figure><img src="https://images.theconversation.com/files/374956/original/file-20201214-17-1oqmig7.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5194%2C2928&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>New Zealand and China are being <a href="https://unctad.org/system/files/official-document/diaeiainf2020d5_en_0.pdf">pushed toward</a> further regional economic integration as part of the Regional Comprehensive Economic Partnership (<a href="https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/regional-comprehensive-economic-partnership-rcep/rcep-overview">RCEP</a>) signed last month.</p>
<p>On the face of it, the RCEP is a positive step for cross-border investments. It further integrates trade between the two nations, along with Japan, South Korea, Australia and the ten countries in the Association of Southeast Asian Nations (ASEAN).</p>
<p>But perhaps we should stop to ask whether the haste with which this is happening will generate equitable and sustainable benefits.</p>
<p>One of the main criticisms of globalisation is that, in an aggressive and politically driven push for economic integration, the institutional (legal, political) differences between trading and investment partner countries have been overlooked.</p>
<p>The US-China trade war in the past three years, and now COVID-19, have <a href="https://www.scmp.com/comment/opinion/article/3107066/what-lessons-does-chinas-fast-economic-recovery-covid-19-hold-us">highlighted the differences</a> in responses to trade, investment and the pandemic by countries with very different political and economic ideologies. </p>
<p>In particular, China is using its global power to expand its influence and <a href="https://www.nytimes.com/2020/11/23/world/asia/china-xi-jinping-globalization.html">reset the rules</a> of trade relationships. New Zealand must be cautious about its exposure to Chinese influence at this level.</p>
<h2>Rebalancing the books</h2>
<p>Our analysis of foreign direct investment (FDI) application data from the New Zealand Overseas Investment Office from the beginning of 2017 to the end of 2019 shows two conflicting trends.</p>
<p>In financial and insurance services, and the information, communications and technology sectors, application approvals favoured the US and Australia. But in manufacturing, even after the US–China trade war broke out, approvals favoured China.</p>
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Read more:
<a href="https://theconversation.com/an-all-out-trade-war-with-china-would-cost-australia-6-of-gdp-151070">An all-out trade war with China would cost Australia 6% of GDP</a>
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<p>This greater receptiveness to Chinese investments in manufacturing might reflect the push for more economic integration with China in recent years.</p>
<p>But this approach needs to be scrutinised in light of the current stand-off between China and Australia.</p>
<h2>The downside of economic integration</h2>
<p>The recent <a href="https://www.scmp.com/news/asia/australasia/article/3081020/australia-wants-international-probe-coronavirus-origins">call by Australia</a> (supported by New Zealand, the EU and Canada) for an independent investigation into the origin of COVID-19 shows how much deeper institutional differences matter.</p>
<p>China <a href="https://www.smh.com.au/world/asia/if-you-make-china-the-enemy-china-will-be-the-enemy-beijing-s-fresh-threat-to-australia-20201118-p56fqs.html">imposed tariffs and other trade restrictions</a> on Australian beef, barley, minerals, wine and most recently <a href="https://www.theguardian.com/australia-news/2020/dec/14/china-formalises-cut-to-australias-coal-imports-state-media-reports">coal</a> in response to that call and to Australian government criticism of Beijing’s suppression of political dissent in Hong Kong.</p>
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Read more:
<a href="https://theconversation.com/nz-remains-unscathed-by-us-china-trade-war-but-thats-no-reason-for-complacency-125710">NZ remains unscathed by US-China trade war, but that's no reason for complacency</a>
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<p>In an ideal world, the free trade agreement between Australia and China and the much-hyped regional economic integration represented by the RCEP might have salvaged the relationship and allowed the parties to talk more openly about their disputes.</p>
<p>But the opposite has happened. The stronger economic relationship and mutual economic dependency have actually made <a href="https://www.bloomberg.com/news/articles/2020-11-03/china-to-halt-key-australian-commodity-imports-as-tensions-mount">China’s retaliation</a> even more painful for Australia. The less powerful party is always hurt more when a relationship goes wrong.</p>
<h2>The lessons for New Zealand</h2>
<p>New Zealand and Australia are not alone in being at something of a crossroads with China. Many countries are confronting the difficulty (impossibility, even) of balancing the pressure to be part of China’s economic orbit and their fundamental institutional differences.</p>
<p>In essence, it is the tension between greater political and economic freedoms, and state intervention and control. The implications for resolving trade disputes and other economic disagreements are profound.</p>
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<strong>
Read more:
<a href="https://theconversation.com/beyond-travel-a-trans-tasman-bubble-is-an-opportunity-for-australia-and-nz-to-reduce-dependence-on-china-137062">Beyond travel, a trans-Tasman bubble is an opportunity for Australia and NZ to reduce dependence on China</a>
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<p>For that reason, New Zealand’s FDI policies and application approvals should reflect a preference for countries with similar institutional conventions. While balancing its trade interests is critical for New Zealand, it should not be driven purely by immediate economic benefits.</p>
<p>New Zealand’s FDI policies should reflect its own best long-term interests: continued regional economic integration with Australia, enhanced <a href="https://www.rnz.co.nz/news/political/419218/nz-begins-free-trade-talks-for-comprehensive-deal-with-uk">post-Brexit leverage</a> of the political, historical and cultural links with the UK, and closer economic ties with developing economies (especially Commonwealth countries such as India and Malaysia).</p>
<p>In doing so, New Zealand will reduce the political and economic risks of over-integration with China and avoid the kind of conflicts based on deep institutional differences we are now witnessing.</p><img src="https://counter.theconversation.com/content/149966/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Monica Ren is affiliated with King's College London.</span></em></p><p class="fine-print"><em><span>Hongzhi Gao and Ivy Guo do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The recently signed RCEP trade agreement encourages even closer ties with China, but this puts New Zealand’s long-term interests at risk.Hongzhi Gao, Associate professor, Te Herenga Waka — Victoria University of WellingtonIvy Guo, Research Assistant, Te Herenga Waka — Victoria University of WellingtonMonica Ren, Lecturer/ Assistant Professor, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1437532020-08-05T14:40:15Z2020-08-05T14:40:15ZZimbabwe wants to raise money through a sovereign bond. Why this is ill-advised<figure><img src="https://images.theconversation.com/files/351048/original/file-20200804-16-1igb83g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Central bank (in the background) can no longer perform its function of being the lender of last resort</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Zimbabwean government recently <a href="https://www.aljazeera.com/amp/news/2020/07/zimbabwe-pay-white-farmer-35bn-land-compensation-deal-200729135752062.html">signed an agreement</a> to pay 4,500 white farmers US$3.5 billion for infrastructure improvements on the land expropriated by the government during the chaotic land <a href="https://www.hrw.org/reports/2002/zimbabwe/ZimLand0302-02.htm">reform programme</a> of 1997/8. </p>
<p>The initiative shows commitment to constitutionalism and respect for property rights and restoring the rule of law. The agreement is also a noble attempt at bringing closure to a questionable episode of the country’s land history. </p>
<p>But the proposal to fund the exercise by issuing a sovereign bond is highly ambitious. With <a href="https://www.cnbc.com/2020/07/17/zimbabwe-could-be-headed-for-political-upheaval-as-economic-health-crises-spiral.html">an ailing economy</a>, the country simply doesn’t have the resources to meet its commitment to white farmers. In his <a href="https://zimbabwe.shafaqna.com/EN/AL/734195">letter dated 2 April 2020</a> to the heads of the International Monetary Fund (IMF), World Bank, African Development Bank (AfDB), Paris Club and European Investment Bank, Finance Minister Mthuli Ncube clearly outlined that the country does not have the medical and financial resources to fight the COVID-19 pandemic. Although the government cleared its US$107.9 million arrears with the IMF in 2016, it is still <a href="https://www.herald.co.zw/why-zim-didnt-get-imf-covid-19-debt-relief/">struggling to settle its US$2.2 billion debt</a> to other international financial institutions, including the World Bank and African Development Bank.</p>
<p>The government has proposed issuing <a href="https://www.bloomberg.com/news/articles/2020-07-30/zimbabwe-sees-bond-sale-as-answer-to-two-decade-land-dispute">a long-term sovereign bond</a>, a process where the government sells bonds to investors on either domestic or international financial markets to raise funds. This year, only Ghana, Gabon and Egypt have managed to do so.</p>
<p>It has also <a href="https://www.aljazeera.com/news/2020/07/zimbabwe-pay-white-farmer-35bn-land-compensation-deal-200729135752062.html">called on international donors</a> to help it raise the needed funding. If these options do not raise sufficient funds, another proposal is to sell municipal land around the nation’s biggest cities. </p>
<p>In my view issuing a sovereign bond would be ill-advised. The main reasons for this are that the economic and political conditions are not conducive to an issuance of such a bond. For a country to successfully issue a sovereign bond, it needs some basics in place. It needs an international sovereign credit rating, stable domestic economic fundamentals and investor confidence. None of these are currently present in Zimbabwe.</p>
<h2>Why it’s a bad idea</h2>
<p>Most of the factors relate to internal political and economic fundamentals.</p>
<p>Firstly, Zimbabwe does not have a sovereign credit rating from the three international credit rating agencies – Fitch, Moody’s or Standard & Poor’s. Without a rating, it is impossible to successfully issue a sovereign bond on international markets because it’s a <a href="https://theconversation.com/qanda-why-credit-rating-agencies-matter-for-developing-countries-51964">key input in determining</a> yield and coupon payment on a bond. The government has not yet solicited a rating from the big three rating agencies. It is among the 23 African countries that are yet to request an international sovereign rating.</p>
<p>Secondly, the country has no domestic debt market. If it did, it could try to mobilise local investors who understand the associated risk exposures and could perform their own due diligence. Domestic institutional investors would have to subscribe for the government’s bond issuance to be successful.</p>
<p>Thirdly, the country has changed its currency more than 10 times since 2000. In 2019, <a href="https://www.bbc.com/news/world-africa-48757080">the Central Bank banned</a> the use of foreign currency for trading and reintroduced the Zimbabwe dollar quasi-currency that had been abandoned in 2009. The local currency <a href="https://www.mycurrencytransfer.com/currency-converter/ZWL-to-USD">depreciated</a> by more than 320% in less than a year. This eroded savings and pensions, and saw a further loss of confidence in the entire financial system. Strength of a country’s currency determines the attractiveness of its bond issues. A weak currency compounds the risk of default and debt sustainability as repayments will still have to be made in foreign currency. </p>
<p>Fourthly, the increasing economic crisis in the country has eroded the goodwill that the current government accrued post-Mugabe era. President Emmerson Mnangagwa’s <a href="https://www.aljazeera.com/news/2020/08/zimbabwe-president-vows-flush-opponents-200804141615075.html">actions</a> have failed to tally with his “open for business” mantra. His trips to Davos have <a href="https://www.aljazeera.com/news/2018/01/eyes-zimbabwes-mnangagwa-wef-davos-180124125748504.html">failed to yield</a> any significant foreign direct investment as investors question his credibility.</p>
<p>The government is also in bad favour with institutions such as the <a href="https://www.news24.com/fin24/Economy/Africa/locked-out-of-aid-zimbabwe-begs-imf-and-world-bank-for-help-20200504">IMF and World Bank</a>. It has <a href="https://www.voanews.com/africa/zimbabwe-among-african-nations-defaulting-imf-loans">defaulted</a> on IMF loans and failed to implement reforms agreed with the organisations.</p>
<p>Fifth, the government has been hostile to the private sector. It ordered the <a href="https://www.bloomberg.com/news/articles/2020-07-06/for-zimbabwe-investors-stock-exchange-closing-is-the-last-straw">closure of the stock exchange</a> on 29 June 2020 and accused businesses of fuelling <a href="https://www.aljazeera.com/ajimpact/zimbabwe-president-currency-attack-prices-spiral-200610173443771.html">currency devaluation</a>. State security agencies attempted to stop certain business operations of <a href="https://www.developingtelecoms.com/telecom-technology/mobile-financial-services/9799-zimbabwe-issues-econet-warrant-over-alleged-money-laundering.html">Econet</a> and <a href="https://www.biznews.com/global-investing/2020/07/12/old-mutual-zimbabwe">Old Mutual</a>, the two largest companies listed on the stock exchange. They were accused of fuelling hostilities against the government. It is these companies and their multinational networks that would support the bond issuance by purchasing the government bonds.</p>
<p>Sixth, the government’s brand has been damaged by a number of government officials being targeted for sanctions. Some are <a href="https://www.dailymaverick.co.za/article/2020-07-29-peter-hain-calls-for-stronger-sanctions-against-zimbabwe-for-human-rights-abuses/">calling for stronger sanctions</a> for human rights abuses. Investors perceive a country that does not respect its rule of law as unlikely to respect its sovereign bond covenants nor honour its obligations on time.</p>
<p>In addition, the government’s commitment to transparency and integrity has been called into question on the back of accusations of <a href="https://anticorruptiondigest.com/2020/06/08/zimbabwes-mnangagwa-govt-engulfed-in-corruption-scandals/#axzz6TjHsXutV">mass corruption</a>. Despite promises, there has been little to no action against government officials embroiled in <a href="https://www.businesslive.co.za/bd/world/africa/2020-07-07-mnangagwa-fires-zimbabwes-health-minister-after-corruption-charge/">corruption scandals</a>. </p>
<p>Seventh, Zimbabwe’s economy has failed to pick up in the post-Mugabe era. Instead, <a href="https://www.ft.com/content/ecae3702-bde1-11e9-89e2-41e555e96722">it has become worse</a>. Food production is at its all time low, the health sector has been paralysed by constant protests and inflation has been <a href="https://businesstech.co.za/news/trending/408053/zimbabwes-inflation-rate-hits-785-55/">estimated at more than 800%</a>.</p>
<p>The last internal factor to consider is that the country’s central bank <a href="https://www.theindependent.co.zw/2020/06/19/inefficient-foreign-exchange-market-costing-zim-billions/">can no longer perform</a> its functions as the lender of last resort and facilitating cross-border transactions, because of the lack of foreign exchange reserves. Forex access has been restricted to government agencies, departments and selected individuals. Local banks technically have the liberty to make their own forex transaction arrangements with other international corresponding banks.</p>
<p>There are also some external factors that make raising capital this way a bad idea right now. The international debt market has been <a href="https://www.bloomberg.com/news/articles/2020-02-26/coronavirus-chaos-brings-corporate-debt-market-to-its-knees">depressed</a> as a result of COVID-19 and is likely to remain so for the next two years as investors wait to see how countries emerge from the crisis. And the cost of issuing a bond has doubled, which has priced most African countries out of the market. Zimbabwe is no exception.</p>
<p>All these factors are not favourable for Zimbabwe to issue a sovereign bond.</p>
<h2>Solutions</h2>
<p>Zimbabwe has many pressing issues. Given that the economy is at its lowest, compensating farmers is a luxury the country cannot afford. It will not yield the implied results of increasing foreign direct investment. </p>
<p>Instead, Zimbabwe should focus on demonstrating the political will to restore business confidence. Evidence of this will include the removal from public office and prosecution of people involved in corruption. </p>
<p>It should also acknowledge the challenges it faces and commit to genuine political dialogue. International partners and investors interpret the denial of the challenges faced by the country as being dishonest and untrustworthy.</p>
<p>Lastly, the government should implement the <a href="https://www.reuters.com/article/us-zimbabwe-imf/zimbabwe-reaches-agreement-with-imf-on-economic-reform-program-idUSKCN1RN0PZ">economic reforms previously agreed</a> with multilateral lenders. Under the agreement, policies should focus on eliminating the government’s double-digit fiscal deficit and adopting reforms to allow market forces to drive the functioning of foreign exchange and other financial markets. These will help stabilise the currency and monetary policy. Without fully implementing these reforms agreed with multilateral agencies, mobilising foreign direct investment will remain a dream.</p><img src="https://counter.theconversation.com/content/143753/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Misheck Mutize is the Lead Expert consultant with the African Union - African Peer Review Mechanism (APRM) on supporting countries on their engagements with international credit rating agencies.</span></em></p>Zimbabwe wants to issue a sovereign bond to raise $3.5 billion it has agreed to pay as compensation to white farmers, but the economic and political conditions aren’t conducive to such an issuance.Misheck Mutize, Post Doctoral Researcher, Graduate School of Business (GSB), University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1356602020-05-05T14:11:25Z2020-05-05T14:11:25ZHow coronavirus is changing the rules on foreign investment in essential areas<figure><img src="https://images.theconversation.com/files/329569/original/file-20200421-82684-1kcjxfm.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C909%2C540&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The ongoing coronavirus crisis appears to be speeding up the deglobalization process. </span> <span class="attribution"><a class="source" href="https://www.piqsels.com/en/public-domain-photo-zbhlp">(Piqsels)</a></span></figcaption></figure><p>Despite the <a href="https://www.consilium.europa.eu/en/press/press-releases/2020/03/16/g7-leaders-statement-on-covid-19/">G20 commitment</a> to keep foreign direct investment (FDI) and trade going during COVID-19, some countries are placing restrictions on incoming investment. </p>
<p>For them, strategic industries like health care are a primary area of concern. How do these measures manifest in practice and why are they being implemented by host countries?</p>
<p>While investment screening measures are not new, the scope of their expansion is. Before the pandemic, <a href="https://www.publicacoes.uniceub.br/rdi/article/view/5365">a study</a> analyzing FDI-screening measures established three justifications for these measures — fear of becoming dependent on a foreign company for the delivery of critical goods and services, a desire to ensure that domestic technology and expertise remain within national borders and the prevention of surveillance or sabotage of essential services. </p>
<p>The pandemic has added new dimensions to these insecurities that will have global ramifications for FDI and trade flows.</p>
<p>In late March 2020, the European Union released <a href="https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX:52020XC0326(03)">updated guidance</a> for FDI screening, urging member states to support European public security by protecting “companies and critical assets” in health-related industries — including medical products, protective equipment, medical research and biotechnology — from foreign buyout. </p>
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<a href="https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=378&fit=crop&dpr=1 600w, https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=378&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=378&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=475&fit=crop&dpr=1 754w, https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=475&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/330562/original/file-20200426-163122-1rfvzin.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=475&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Margrethe Vestager is seen in Munich, Germany, in February 2020.</span>
<span class="attribution"><span class="source">(Sven Hoppe/dpa via AP)</span></span>
</figcaption>
</figure>
<p>Subsequently, <a href="https://www.reuters.com/article/us-health-coronavirus-antitrust-eu/eus-vestager-says-eu-nations-should-buy-stakes-to-block-chinese-takeovers-ft-idUSKCN21U0TI">Margrethe Vestager</a>, the EU competition policy head, suggested that if necessary, countries should consider taking ownership stakes in companies threatened by takeover, particularly by Chinese companies.</p>
<p>Several other countries also took action. Australia announced <a href="https://firb.gov.au/about-firb/news/changes-foreign-investment-framework-0">temporary measures</a> to lower investment review thresholds to zero for all economic sectors as of March 29, 2020.</p>
<p>Similar measures followed in France, which reduced investment screening <a href="https://www.lw.com/thoughtLeadership/foreign-investments-in-france-new-regime-effective-april-1-2020">threshold to 25 per cent,</a> and Spain, which imposed a <a href="https://www.boe.es/boe/dias/2020/03/18/pdfs/BOE-A-2020-3824.pdf">10 per cent threshold</a> on non-European FDI flows and <a href="https://www.boe.es/boe/dias/2020/04/01/pdfs/BOE-A-2020-4208.pdf">released guidelines</a> to protect public security, order and health. <a href="https://www.ft.com/content/ad3f84b0-fb75-4588-97e8-4a657ad67883">India</a>, concerned by the prospect of a Chinese takeover of critical companies, also tightened its FDI regulations.</p>
<h2>Canada tightens FDI rules</h2>
<p>On April 18, 2020, Canadian policy-makers released a similar <a href="https://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/lk81224.html">policy statement</a> on COVID-19 and FDI. The federal government tightened FDI review for corporations in public health and those involved in the supply chains of critical goods and services. It also lowered the threshold for review of FDI made by foreign state-owned enterprises to zero. </p>
<p>This aligns with Canada’s commitment to the protection of critical infrastructure, including “services essential to the health, safety, security or economic well-being of Canadians,” under the <a href="https://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/home">Investment Canada Act</a>.</p>
<p>Although FDI screening in the United States does not appear to have changed due to COVID-19, prior to the pandemic, <a href="https://home.treasury.gov/sites/default/files/2018-08/The-Foreign-Investment-Risk-Review-Modernization-Act-of-2018-FIRRMA_0.pdf">the country had already enhanced the protection of critical technologies from FDI</a>, including items related to <a href="https://www.govinfo.gov/content/pkg/CFR-2012-title15-vol2/pdf/CFR-2012-title15-vol2-part774-appNo-.pdf">health care</a> and <a href="https://home.treasury.gov/system/files/206/FR-2018-22182_1786904.pdf">biotechnology</a>. <a href="https://www.skadden.com/insights/publications/2020/04/covid19-early-effects-on-foreign-investment">But legal experts</a> predict that COVID-19 may lead to more stringent reviews of health-care-related investment by the country’s Committee on Foreign Investment.</p>
<p>A trend towards increasing stringency of FDI screening mechanisms is afoot, with increasingly severe restrictions on investment in strategic industries. Health care is probably just one of them. </p>
<p>At the same time, the economic consequences of the pandemic may create the conditions for successful <a href="https://www.dentons.com/en/insights/alerts/2020/april/9/strategies-for-canadian-public-companies-in-a-covid19-volatile-marketplace">hostile bids</a> for undervalued technology companies. </p>
<h2>Concerns about state-owned Chinese firms</h2>
<p>This concern has mostly been expressed with respect to <a href="https://foreignpolicy.com/2020/04/15/china-is-bargain-hunting-and-western-security-is-at-risk/">Chinese firms</a> — in particular, those that are state-owned. While the fear is not new (for example in <a href="https://www.tandfonline.com/doi/abs/10.1080/17538960903083467">Australia</a>, <a href="https://www.tandfonline.com/doi/abs/10.1080/09557571.2019.1642849">Canada</a> and <a href="https://home.treasury.gov/system/files/206/FINSA.pdf">the U.S.</a>), the EU is thinking about adopting <a href="https://www.ft.com/content/e14f24c7-e47a-4c22-8cf3-f629da62b0a7">additional measures</a> to screen investment by state-owned enterprises.</p>
<p>More worrisome is the rise in political attempts to interfere with free trade in essential goods. One example is the ultimately unsuccessful attempt by U.S. President Donald Trump’s administration to block the flow of protective masks <a href="https://www.reuters.com/article/us-health-coronavirus-canada/canada-blasts-us-block-on-3m-exports-of-masks-as-coronavirus-cases-set-to-soar-idUSKBN21L2DD">made by 3M to Canada</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/330566/original/file-20200426-163126-1u1imiw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In this March 2020 photo, Deborah Birx holds a 3M N95 mask as she and Vice-President Mike Pence visit 3M headquarters in Maplewood, Minn.</span>
<span class="attribution"><span class="source">(Glen Stubbe/Star Tribune via AP)</span></span>
</figcaption>
</figure>
<p>Lastly, changes are likely in the locations of supply chains of strategic industries as more countries seek to bring corporate activities back to domestic soil. This is illustrated by <a href="https://www.economist.com/china/2020/02/29/covid-19-is-teaching-hard-lessons-about-china-only-supply-chains">anxiety in the U.S. and EU about their dependence on drugs manufactured in China during COVID-19</a>. </p>
<p>Governments may also offer firms incentive packages to diversify supply chains away from China, as is <a href="https://www.bloomberg.com/news/articles/2020-04-08/japan-to-fund-firms-to-shift-production-out-of-china">the case in Japan</a>. That means the COVID-19 crisis may hasten the <a href="https://www.wsj.com/articles/pandemic-makes-u-s-china-economic-breakup-more-likely-u-s-businesses-in-china-say-11587113926?emailToken=e356...">disengagement</a> between the U.S. and China, especially in strategic industries.</p>
<h2>Accelerating deglobalization</h2>
<p>As a result, the current crisis appears to be speeding up the deglobalization process. <a href="https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d1_en.pdf">UNCTAD</a>, the main United Nations body dealing with trade, investment and development issues, reports that global FDI flows may fall by 40 per cent in 2020-21, and <a href="https://unctad.org/en/PublicationsLibrary/diaeinf2020d2_en.pdf">cross-border mergers and acquisitions will continue to decline</a>. </p>
<p>The extent of the decline will depend on the degree to which the restrictive FDI measures become binding and <a href="https://www.wsj.com/articles/pandemic-makes-u-s-china-economic-breakup-more-likely-u-s-businesses-in-china-say-11587113926?emailToken=e356">supply chains are relocated to home markets</a>.</p>
<p>One consequence is that multinational enterprises will almost certainly experience increasing levels of social and political uncertainty that will require sophisticated <a href="https://books.google.ca/books?id=5Ko0DwAAQBAJ&printsec=frontcover&dq=corporate+diplomacy+heinsz+book&hl=en&sa=X&ved=0ahUKEwiGu5qY8OroAhVDIDQIHbezCJ8Q6AEIMDAB#v=onepage&q=corporate%20diplomacy%20heinsz%20book&f=false">corporate diplomacy</a>. </p>
<p>It’s true that even before COVID-19, there was widespread recognition that large firms should embrace a more <a href="https://www.brookings.edu/blog/future-development/2020/01/21/stakeholder-capitalism-arrives-at-davos/">stakeholder-oriented model</a> — one that pays attention to multiple stakeholders, including communities, customers and employees, that are impacted by the activities of particular businesses. </p>
<p>COVID-19 will, in our view, accelerate this trend as the social obligations and political pressures on firms increase.</p><img src="https://counter.theconversation.com/content/135660/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anastasia Ufimtseva is affiliated with Jack Austin Center for Asia Pacific Business Studies at Simon Fraser University's Beedie School of Business.</span></em></p><p class="fine-print"><em><span>Daniel Shapiro receives funding from SSHRC</span></em></p><p class="fine-print"><em><span>Jing Li receives funding from the Canada Research Chair programs and the Social Sciences and Humanities Research Council of Canada. </span></em></p>The coronavirus is accelerating the deglobalization process. Here’s why that’s happening and what it means for the post-pandemic future.Anastasia Ufimtseva, Post-Doctoral Researcher, Beedie Business School, Simon Fraser UniversityDaniel Shapiro, Professor of Global Business Strategy, Simon Fraser UniversityJing Li, Associate Professor of International Business, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1213962020-03-24T14:18:29Z2020-03-24T14:18:29ZChina’s investments in Africa: a fresh lens offers more balanced insights<figure><img src="https://images.theconversation.com/files/321879/original/file-20200320-22606-g9t3bh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Coverage of Chinese presence in Africa has been somewhat misleading</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The rise of China in Africa has triggered an <a href="https://www.economist.com/leaders/2019/03/07/the-new-scramble-for-africa">ongoing debate</a> about whether Chinese capital is a barrier that entraps African governments in practices that hinder poverty reduction. </p>
<p>The most recent contribution to these debates is a book by a professor of sociology at the University of California, Los Angeles, <a href="https://www.press.uchicago.edu/ucp/books/book/chicago/S/bo22657847.html">Ching Kwan Lee</a>. The book is based on Lee’s ethnographic study in the copper and construction industries in Zambia. It interrogates Chinese state capital in relation to global private capital.</p>
<p>She argues that the terms frequently used in the discussion about Chinese capital in Africa – such as empire building, colonialism and hegemony – are limiting. They don’t allow for the interrogation of the actual behaviour, practices and possibilities of Chinese capital.</p>
<p>How then does Lee help us to re-frame the Chinese narratives in Africa? Rather than focus on migrant entrepreneurs or private companies, Lee <a href="https://doi.org/10.1080/14631369.2018.1539826">argues</a> that the uniqueness of Chinese investment has to do with state capital. And, she argues, China’s growing power and influence has been accompanied by misleading</p>
<blockquote>
<p>aggregate, continent-wide statistics on trade, investment and migration. </p>
</blockquote>
<p>There has hardly been any critical examination of the different sorts of capital traversing Africa, related behaviour, and the actual trends and patterns of foreign direct investment stocks.</p>
<h2>Negative messages</h2>
<p>Coverage of Chinese presence in Africa has been somewhat misleading. Media as well as policy and academic experts provide inaccurate data about China’s expanding investment patterns. For example, they <a href="https://www.foreignaffairs.com/reviews/capsule-review/2009-12-20/dragon-s-gift-real-story-china-africa">overestimate</a> Chinese loans. </p>
<p>This misleading coverage conceals the fact that Chinese capital is just one instance of capital <a href="https://unctad.org/en/PublicationsLibrary/wir2016_en.pdf">still contending on the continent</a>. In fact, Chinese capital is far from being the leading source of foreign direct investment. UK and French investment into Africa <a href="https://infogram.com/chart-4-major-investor-economies-by-fdi-stockbn-usd-1h8n6mq98vyz2xo%20;%20see%20also%20https://doi.org/10.1111/geoj.12291%20in%20relation%20to%20agriculture">remain larger</a>.</p>
<p>Lee draws from the negative portrayals of Chinese capital to shed light on the practices in Zambia. She uses three historical frames: the 2008 global financial crisis, policy developments of windfall tax and value addition. </p>
<p>She shows how Chinese capital is shaped by two imperatives: accommodating national demands and development strategies in Zambia. Development strategies include, for example, Zambia’s policies on adding value to mineral resources before they are exported. </p>
<p>This behaviour of Chinese capital contradicts the extractive nature of western capital. Western capital is driven by a profit motive. It pays little attention to national development goals including labour, taxation and value addition.</p>
<p>Lee also examines the question of Chinese capital from the perspective of African states. She notes that national states have been amenable to Chinese capital under <a href="https://www.jstor.org/stable/40339267?seq=1#metadata_info_tab_contents">a mandated south-to-south relationship</a>. </p>
<p>As with other African countries, Zambia’s resource dependency limits value added products being made from copper and other minerals. But, as Lee shows, cooperation from Chinese capital has helped change this trajectory. She points to the Chambishi Multi-Facility Economic Zone project. This project has involved an investment of more than $900 million and potential to generate about 7,000 local employment opportunities and up to $300 million local procurement contracts. </p>
<p>But there have been problems too. Lee shows that Chinese capital hardly behaves differently in employment practices from those prevailing in the rest of the private sector in Zambia. Subordination and exploitation remain the order of the day. </p>
<p>This shows that key political and economic instruments as well as policies should be strengthened to address the negative social implications of Chinese capital on the continent.</p>
<h2>What’s missing</h2>
<p>The book’s narrative is limited in explaining why Chinese capital remains controversial in Zambia and across Africa. Nor does it sufficiently address why a negative perception of “Chinese investors” persists often <a href="https://www.worldpoliticsreview.com/insights/27027/china-must-be-stopped-zambia-debates-the-threat-of-debt-trap-diplomacy">alongside</a> the failure of countries to manage natural resources better.</p>
<p>Nevertheless, Lee’s book is important because it departs from generalisation to interrogate actual practices of Chinese capital.</p>
<p>Rather than attempts to find strategies to regulate and manage the influence of China on the continent, probably the focus should be on how China’s presence can be made to respond more to national and regional development aspirations than is the case currently – a feature for national policy and development actors. </p>
<p>While the battle for political and economic influence between the West and East is playing out <a href="https://www.economist.com/leaders/2019/03/07/the-new-scramble-for-africa">across the continent of Africa</a>, the behaviour of capital will greatly influence current and future narratives. </p>
<p>Lee shows that China seems to hit the right note in many countries and in crucial economic sectors. But perils remain in areas such as those related to labour relations. </p>
<p>She also shows that characterisations of Chinese capital in Africa should not rely on a set of implications and generalisations about the ways in which Chinese capital works, and the ways in which national states change as a result of Chinese engagements. Rather it should depend on actual practices and realities and what they mean for national development. </p>
<p>Currently, however controversial, China appears to have been set apart as a partner of choice. And Lee shows the reasons why.</p><img src="https://counter.theconversation.com/content/121396/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Manda, PhD does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Frequently used phrases to frame discussion about Chinese capital in Africa don’t allow for the interrogation of the actual behaviour, practices and possibilities of Chinese capital.Simon Manda, PhD, Lecturer of Agriculture, value chains and Environmental Sustainability, University of ZambiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1318562020-02-23T07:14:57Z2020-02-23T07:14:57ZAfrican countries aren’t getting as much as they should from foreign direct investment<figure><img src="https://images.theconversation.com/files/316270/original/file-20200219-11044-1ooq2qm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There has been a slide in the levels of foreign direct investment in Africa</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>Economic growth is driven by a number of factors. These include foreign direct investment, national savings, household spending, fiscal and monetary policies. Since the late 1980s African governments have fully embraced foreign direct investment as a major driver of growth. </p>
<p>One of the avenues through which countries have sought to attract more foreign direct investment has been investment summits. These are hosted jointly with developed countries. They include the <a href="https://www.odi.org/blogs/10674-focac-2018-what-expect-next-weeks-china-africa-summit">Africa-China Investment Summit</a>, <a href="https://www.un.org/africarenewal/news/first-uk-africa-investment-summit-signals-post-brexit-plans-continent">Africa-UK Investment Summit</a> and the <a href="https://www.businessghana.com/site/news/business/199915/2020-U-S-Africa-Business-Summit-to-be-Hosted-in-Morocco">Africa-US Investment Summit</a>.</p>
<p>Despite these efforts, <a href="https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf">data</a> shows that Africa has not been a major <a href="https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=ZG">recipient</a> of these flows. In fact, it attracts a lot less than other developing countries. </p>
<p>There’s a bigger problem too – the impact on economic growth of the foreign direct investment the continent attracts is lower than other comparable parts of the world. In <a href="https://www.tandfonline.com/doi/full/10.1080/20430795.2019.1683504">our research</a> we set out to understand why. To do this, we looked at the financial services sector which is underdeveloped in most African countries.</p>
<h2>The search</h2>
<p>We examined <a href="https://www.tandfonline.com/doi/full/10.1080/20430795.2019.1683504">data</a> from 45 countries between 1980 and 2016. The variables we looked at included economic growth, foreign direct investment, financial sector development, human capital, government expenditure and gross fixed capital formation. </p>
<p>The countries were selected based on data availability. They comprised several countries from all the regional blocs, including six countries from Northern Africa.</p>
<p>Overall, the countinent’s financial sector is under-developed compared to other emerging economies, with the exception of South Africa which is relatively well-developed. The countries’ financial sectors are bank-based, thus providing limited space for the equity (capital) markets. </p>
<p>We sought to examine the relationship among three factors: foreign direct investment, economic growth, and financial sector development. Financial sector development measures a country’s financial institutions to make financial services available to citizens. It also includes the provision of finance to businesses.</p>
<p>There has been a lot of economic literature on the impact of foreign direct investment on economic growth. And there have been many <a href="https://www.researchgate.net/publication/266079304_FOREIGN_DIRECT_INVESTMENT_FINANCIAL_SECTOR_DEVELOPMENT_ECONOMIC_GROWTH_EMPIRICAL_EVIDENCE_ON_LINKS_FROM_GHANA_INTRODUCTION">studies</a> on the linkages between foreign direct investment, financial sectors and economic growth. But less has been done on the extent to which Africa’s financial sector is a conduit through which foreign direct investment drives economic growth.</p>
<p><a href="https://www.mdpi.com/1911-8074/12/4/176/pdf">Research</a> findings on the impact of foreign direct investment on a country’s economic growth are mixed. This implies that the extent of the impact is determined by other <a href="https://www.researchgate.net/publication/325657823_The_Impact_of_Foreign_Direct_Investment_on_Economic_Growth_a_Causal_Study_in_the_United_States">factors</a> and characteristics of a country’s economy. </p>
<p>That’s why we chose to look at how the financial sector, in particular its stage of development, can moderate the impact of foreign direct investment on economic growth.</p>
<h2>What attracts foreign direct investment</h2>
<p>For the most part, foreign direct investment inflows to Africa have generally been attributed to five factors. These are regulations (ease of doing business), the general investment climate, broader economic reforms, information communication and technology development, and improvements in infrastructure.</p>
<p>Foreign direct investment plays an important role in economic development. It provides financial resources, technological spillovers and improvement in human capital. These are all critical factors that can spur Africa’s economic development by addressing infrastructural deficits and reducing unemployment. </p>
<p>The effect of foreign direct investment on economic growth is well documented globally. Funds from foreign investors are channelled through a country’s financial system before being allocated to the targeted beneficiary of the investment. </p>
<p>In Africa’s case we <a href="https://www.tandfonline.com/doi/full/10.1080/20430795.2019.1683504">found</a> that the continent’s underdeveloped financial sector has dampened the impact of foreign direct investment on economic growth. </p>
<p>To measure financial sector development we calculated credit provided by the financial sector to the private sector as a percentage of GDP. On this measure, Africa’s financial sector fails to allocate financial resources effectively and efficiently to the productive sectors of the economy. </p>
<p>When the financial sector does allocate resources, it invests in risky projects. The net effect is that it hurts economic growth and therefore fails to support foreign direct investment.</p>
<h2>What’s to be done</h2>
<p>Foreign direct investment inflows to Africa are increasing, albeit marginally. What our study shows is that African governments need to spend more effort on maximising the impact of foreign direct investment on economic growth. This is over and above current efforts to gain a bigger share of global foreign direct investment flows. Failure to raise the impact of foreign direct investment on economic growth will mean that African countries will not fully benefit from higher inflows.</p>
<p>Improving the performance of the financial sector should be one of the major preoccupations of African policymakers. This should include regulators improving their supervisory roles. And they should strengthen the financial sector’s ability to allocate resources effectively to the productive sectors of the economy. Improvements in corporate governance and risk management strategies would also help.</p>
<p><em>This article was co-authored with Abraham Mensah Acquah. He holds BA (Integrated Business Studies) and a Master of Commerce degree in Banking and Finance from the School of Business and Law, University for Development Studies, Wa, Ghana.</em></p><img src="https://counter.theconversation.com/content/131856/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Muazu Ibrahim works for the Department of Banking and Finance, School of Business and Law (SBL), University for Development Studies (UDS), Wa, Ghana.</span></em></p>African governments need to spend more effort on maximising the impact of foreign direct investment on economic growthMuazu Ibrahim, Lecturer, Department of Banking and Finance, University for Development StudiesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1076112018-12-04T12:47:11Z2018-12-04T12:47:11ZHow Nigeria can attract and keep the right kind of foreign direct investment<figure><img src="https://images.theconversation.com/files/247927/original/file-20181129-170238-v28vln.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigeria's President Muhammadu Buhari at the US-Africa Business Forum in New York in 2016. </span> <span class="attribution"><span class="source">EPA/Drew Angerer</span></span></figcaption></figure><p>Two of the largest banking and financial services institutions in the world, HSBC and UBS, have <a href="https://www.bloomberg.com/news/articles/2018-11-03/hsbc-ubs-shut-nigeria-offices-as-foreign-investment-declines">recently closed their local representative offices</a> in Nigeria. </p>
<p>There’s also trouble brewing elsewhere in Nigeria’s business world that’s prompted fears about the climate for foreign direct investment in the country. Foreign direct investment is an investment made by a firm or individual in one country into business interests located in another country.</p>
<p>For instance, Nigeria’s government in September <a href="https://www.bloomberg.com/news/articles/2018-09-17/nigeria-fires-back-at-hsbc-after-bank-criticizes-president">accused HSBC of money laundering</a> after an analyst working for the lender said a second term for President Muhammadu Buhari <a href="http://dailypost.ng/2018/09/11/2019-second-term-buhari-will-nigerias-economy-hsbc/">may stall economic recovery </a> in Africa’s biggest oil producer.</p>
<p>There are also tensions between Nigeria’s central bank and the South African telecom company MTN. In 2015, MTN was <a href="https://www.bbc.co.uk/news/world-africa-45424537">fined about $5bn</a> for failing to cut off unregistered SIM cards. This was later reduced to $1.7 billion after a long legal dispute and the intervention of South Africa’s then President Jacob Zuma.</p>
<p>Recently, the central bank has <a href="https://www.bloomberg.com/news/articles/2018-08-29/nigeria-orders-mtn-banks-to-refund-8-billion-exported-funds">ordered MTN to repatriate $8 billion</a> it said has been taken out of the country illegally. </p>
<p>Analysts are <a href="https://nextedition.com.ng/2018/11/09/analysis-hsbc-ubs-left-nigeria/">concerned</a> that the Nigerian government’s attitude towards MTN and the two banks may erode the confidence of foreign direct investors. Their fears seem to be well founded: foreign direct investment in Nigeria <a href="https://tradingeconomics.com/nigeria/foreign-direct-investment">fell to</a> <a href="https://www.ceicdata.com/en/indicator/nigeria/foreign-direct-investment">$1 billion in the first half of 2018, from $1.48 billion in the first half of 2017</a>. </p>
<p>Foreign direct investment is crucial for any economy. So how can Nigeria attract and keep the right kind of investment from global companies? Compromise will be key, both for the government and foreign firms.</p>
<h2>Why foreign direct investment?</h2>
<p>Foreign direct investment is often preferred to exporting. That’s because while exports merely involve moving goods from one country to another, foreign direct investment actually involves an investor establishing foreign business operations or acquiring foreign business assets. </p>
<p>This often includes establishing ownership or controlling interest in a foreign country (for instance an American business establishing a physical business presence in Nigeria). Many emerging economies like China, Brazil, Vietnam and India have <a href="https://www.industryweek.com/leadership/top-10-countries-receiving-foreign-direct-investment/gallery?slide=1">built their growth on FDI flows</a>.</p>
<p>The trick is to attract “quality foreign direct investment” that links foreign investors into the local host country economy. The International Growth Centre, a <a href="https://www.gov.uk/government/organisations/department-for-international-development">British-funded</a> research centre that aims to promote sustainable growth in developing countries, <a href="https://www.theigc.org/blog/attracting-quality-foreign-direct-investment-developing-countries/">characterises</a> “quality” here as contributing to:</p>
<ul>
<li><p>decent and value-adding jobs and enhancing the skill base of host economies;</p></li>
<li><p>transfer of technology, knowledge and know-how;</p></li>
<li><p>boosting competitiveness of domestic firms and enabling their access to markets.</p></li>
</ul>
<h2>What Nigeria can do</h2>
<p>There are a few things Nigeria can do to boost foreign direct investment. For starters, it must play fair. Foreign and domestic businesses should be treated equally. They should be open, transparent and dependable conditions for all kinds of firms. </p>
<p>Another area that needs attention is infrastructure. Businesses need easy access to ports, an adequate and reliable supply of energy and relative certainty that the country will be good to invest in. Good institutions <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9701.2006.00758.x">also promote FDI</a>. </p>
<p>The government should encourage partnerships between foreign and local businesses. Foreign firms might be familiar with global good business practices, but local firms will be more familiar with the indigenous context. This synergy could be very beneficial.</p>
<p>It’s also critical that Nigeria gets its regional governments involved: there are many regions in Nigeria, and these regions all have unique opportunities and challenges. <a href="https://journals.aom.org/doi/abs/10.5465/AMBPP.2018.11006abstract">Our latest research</a> shows that when the central government of Nigeria ran out of ideas and foreigners wanted to exit the agricultural sector, the regional government of Kwara state stepped in to create a positive business climate based on the cooperation of local banks, community members, and the foreigners themselves culminating in the <a href="https://www.dailytrust.com.ng/learning-commercial-farming-through-shonga-farmss-approach.html">Shonga farms</a> public-private venture. </p>
<p>This has kept the firm in Nigeria. It’s also brought private investors to the table, bolstering the firm and the local economy.</p>
<p>Nigeria should also tap into its huge <a href="https://www.bbc.co.uk/news/av/business-37727761/how-can-investors-tap-in-to-nigeria-s-diaspora">diaspora</a>. There are many Nigerians living outside the country who understand its challenges. They should be encouraged to help, or asked to work with their networks to invest in the country.</p>
<h2>What foreign firms can do</h2>
<p>Foreign firms also have a role to play. They can enhance their success in Nigeria (and elsewhere on the African continent) in several ways.</p>
<p>First, they need a long term strategic plan. This means thinking carefully about what sectors or activities to target. Many foreign firms come to developing countries when things are rosy but leave when conditions change. They don’t properly consider that solving such problems will gain them a competitive advantage in the long run. </p>
<p>If they stay and follow a learning curve, foreign firms will better understand the local business context. They’ll also gain credibility among ordinary people and possibly get more customers and support that way.</p>
<p>In the same vein, foreign businesses should create local solutions that meet ordinary people’s needs. The banks leaving Nigeria have <a href="https://www.vanguardngr.com/2018/11/breaking-hsbc-ubs-close-their-offices-in-nigeria/">been accused</a> of only catering to the needs of wealthy Nigerians, who are <a href="https://www.aljazeera.com/business/2010/10/201010116251929702.html">perceived as corrupt</a>. A more diverse portfolio that catered to the needs of ordinary Nigerians would have nullified this claim.</p>
<p>Foreign firms must also work closely with credible and strategic local firms, and be willing to enter into dialogue with the Nigerian government where necessary. This is crucial especially as administrations may change or government policy may evolve. Dialogue could ensure that all parties are on the same page.</p>
<h2>Act local, think global</h2>
<p>It’s unfortunate that these banking institutions have decided to leave Nigeria. Hopefully both the Nigerian government and other foreign investors can learn from this. </p>
<p>The main takeaway for both foreign investors and governments involved in foreign direct investment is that it would be prudent for all parties to act locally but think globally.</p><img src="https://counter.theconversation.com/content/107611/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tolu Olarewaju does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is concern that Nigeria’s attitude towards foreign direct investors may erode inward capital flows.Tolu Olarewaju, Lecturer in Economics, Staffordshire UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1032692018-09-27T13:27:34Z2018-09-27T13:27:34ZNigeria must wake up to the changing role of state governments<figure><img src="https://images.theconversation.com/files/238156/original/file-20180926-48631-rvjpem.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigeria needs to review existing structures to drive growth.</span> <span class="attribution"><span class="source">xtock/Shutterstock</span></span></figcaption></figure><p>There have been sustained efforts to diversify Nigeria’s economy since the country returned to democratic civilian rule in 1999. Successive governments have made foreign direct investment a priority to achieve this aim.</p>
<p>Originally, the organised private sector was intended as the primary driver of investment-led economic reforms. But, in the process, the policy space was inadvertently opened up for state governments. Nigeria has three constitutionally recognised <a href="http://www1.worldbank.org/publicsector/decentralization/march2003seminar/fiscalfedreport.pdf">levels of government</a>. These are the federal government, 36 state governments and 774 local governments. Each level of government has defined powers under the constitution. States are not meant to engage in foreign economic relations. </p>
<p>However, successive economic reforms have given impetus to Nigerian states to grow in stature as gatekeepers to foreign direct investment. It’s now common to hear of states introducing specialised agencies to facilitate and coordinate investment inflows. Examples include the <a href="http://kadipa.kdsg.gov.ng/">Kaduna State Investment Promotion Agency</a>, the <a href="http://www.lagosglobal.org/">Lagos Office of Overseas Affairs and Investment</a> and the <a href="https://www.ansippa.ng/who-we-are/">Anambra State Investment Promotion and Protection Agency</a>. </p>
<p>Some states have also floated development focused corporate entities in which they have controlling stakes. A recent example is the <a href="http://dawncommission.org/whatWeAre.php">Development Agenda for Western Nigeria Commission</a>. This was set up by the six state governments in Nigeria’s South-West. They are pursuing a regional economic integration strategy. </p>
<p>All these initiatives invariably lead to foreign entities including diplomatic envoys, multinational companies and international organisations getting directly involved at state level. </p>
<p>The emerging practice is an interesting example of bottom-up economic development. However, the current state of affairs isn’t optimal. This is because having states all pursuing separate deals and arrangements makes central coordination problematic. If coordination is weak, there’s the potential for unnecessary duplication of processes and institutions. This in turn would have a knock-on effect on the ease of doing business in Nigeria. </p>
<p>There are also constitutional questions over the legality of agreements which Nigeria’s state governments have signed with foreign entities. If left unchecked, these could expose the Nigerian state to legal claims by foreign investors. And there’s a question mark over the constitutional status of states opening foreign offices, as <a href="https://allafrica.com/stories/201406271083.html">Bayelsa state</a> did in 2013. On the face of it, this was unconstitutional. States in Nigeria don’t have constitutional powers to operate quasi-diplomatic offices.</p>
<p>The trend of decentralised economic development has striking similarities with how things worked in the <a href="http://countrystudies.us/nigeria/68.htm">first Nigerian Republic</a>, from 1960 to 1966. Regional governments in this era had constitutional authority to participate in Nigeria’s foreign economic engagements. </p>
<p>An example was the control of commodity boards by states (then regions). Surplus from levies imposed on export commodities was a vital source of funds for economic development in the respective regions. </p>
<p>Given this history it’s not surprising that states today are keen to take control of foreign investment inflows to fund their economic development objectives. </p>
<h2>Why action is needed</h2>
<p>No constitutional disputes have been raised between the federal government and the states. This can be taken as tacit acceptance of these emerging practices by states. Alternatively, the federal government prefers to deal with any fall-out on an ad hoc basis. This would make sense, given the benefits that can accrue from the arrangements. </p>
<p>But those responsible for Nigeria’s economic development policy coordination need to wake up to the changing realities of the times. Other federal systems have been proactive in restructuring the cooperation mechanisms for foreign relations. These include the US, Canada, Belgium, Argentina, Austria, and Germany. </p>
<p>These countries have recognised the need to adjust their existing regime to catch up with an emerging reality about sub-national governments – like states. These groupings are critical stakeholders in the 21st-century global economy. </p>
<p>In Nigeria, meanwhile, there’s little evidence that states going abroad is viewed as a matter of urgency. It’s time it was. </p>
<h2>Time to review</h2>
<p>The emergence of states as gatekeepers of Nigeria’s investment-led economic reforms demonstrates the dynamic nature of federalism. States have already carved out the autonomy they need to determine the pace of their economic development. And they have done so with no formal constitutional changes. </p>
<p>Now the federal government must realise that it’s no longer the sole determinant of Nigeria’s foreign economic policy. It would be both impossible and undesirable to try and reverse the trend. </p>
<p>Instead, there’s an urgent need to review existing arrangements for cooperation. These reviews must happen at the constitutional and institutional levels. The aim should be to maximise the benefits of the drive and impetus that states are bringing to the Nigerian economic reform agenda. </p>
<p>Nigeria stands to benefit immensely if states drive economic development. But effective coordination is critical.</p><img src="https://counter.theconversation.com/content/103269/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ohio Omiunu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>State governments in Nigeria are increasingly playing the role reserved for the federal government.Ohio Omiunu, Senior Lecturer in Law, De Montfort UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/999062018-07-16T10:39:53Z2018-07-16T10:39:53ZTrade war could chill China’s growing investment in US economy<figure><img src="https://images.theconversation.com/files/227706/original/file-20180715-27042-fhkag9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. is the biggest destination for Chinese foreign investment.</span> <span class="attribution"><span class="source">Jason Lee/Pool Photo via AP</span></span></figcaption></figure><p>The U.S. and China are currently engaged in an <a href="https://www.brookings.edu/blog/unpacked/2018/07/12/unpacked-the-us-china-trade-war/">ever-escalating trade war</a> with no end in sight. While the focus of the dispute has centered on tariffs, the consequences <a href="https://www.independent.co.uk/news/business/analysis-and-features/trade-war-explained-tariffs-donald-trump-us-china-imports-exports-a8434626.html">are expected to spill</a> well beyond imports and exports to other aspects of the countries’ complex relationship. </p>
<p>One such area is what economists call foreign direct investment, in which companies invest in businesses in another country. The United States’ ability to draw investments from around the world has been a <a href="http://www.areadevelopment.com/LocationUSA/2017-US-inward-investment-guide/importance-of-FDI-to-US-economy.shtml">significant driver</a> of its economic growth. Indeed, the U.S. was the <a href="https://ofii.org/sites/default/files/FDIUS%202017.pdf">top destination</a> for foreign investment in 2016, as it usually is. </p>
<p>China’s investments in the U.S., however, remain relatively paltry, despite the country’s growing clout on the world stage. And while most have been small and low-profile, a few bigger deals have made headlines and even been blocked over “national security” concerns. </p>
<p><a href="https://scholar.google.com/citations?user=eubX-aYAAAAJ&hl=en&oi=ao">I research</a> the international political economy of China’s rise. Even though most Chinese investment in the U.S. has little to do with national security, I believe the current tense environment will put a chill on Chinese-American deals – with severe long-term consequences. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tesla CEO Elon Musk greets new owners of his company’s Model S sedans in Beijing in 2014. China’s Tencent took a 5 percent stake in Tesla in 2017.</span>
<span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span>
</figcaption>
</figure>
<h2>A snapshot of China FDI in the US</h2>
<p>The reality is that the vast majority of the <a href="https://www.aei.org/wp-content/uploads/2018/01/Chinese-Investment-Jan-2018.pdf">232 investments</a> made by Chinese companies in the United States since 2005 have little to do with national security. </p>
<p>A typical example is <a href="https://www.theguardian.com/technology/2004/dec/08/business.china">Beijing-based Lenovo’s acquisition</a> of IBM’s personal computer business in 2004 for US$1.75 billion, which raised little fanfare or objection. Or consumer electronics company <a href="https://www.scmp.com/business/companies/article/2116486/chinas-haier-has-plan-help-continue-turnaround-ge-appliances">Haier’s purchase</a> of General Electric’s home appliance unit in 2016 for $5.6 billion, again without a fuss. </p>
<p>In more recent years, Chinese companies have taken stakes in some well-known Silicon Valley companies. For example, last year, Chinese tech and media investment firm Tencent <a href="https://www.reuters.com/article/us-snap-tencent-stake/chinas-tencent-takes-12-percent-stake-in-snap-as-shares-plunge-idUSKBN1D81G3">acquired</a> a 12 percent stake in the owner of the messaging app Snapchat and <a href="https://www.bloomberg.com/news/articles/2017-03-28/tencent-buys-1-8-billion-tesla-stake-ahead-of-musk-s-model-3">5 percent</a> of Elon Musk’s Tesla. Also in 2017, China’s sovereign wealth fund invested $100 million in room-sharing service Airbnb. </p>
<p>Overall, China remains a minor U.S. investor – and the data suggest the president’s <a href="https://abcnews.go.com/Politics/10-times-trump-attacked-china-trade-relations-us/story?id=46572567">rhetoric on the campaign trail</a> may have already had a disruptive impact. Last year, China <a href="https://www.aei.org/wp-content/uploads/2018/01/Chinese-Investment-Jan-2018.pdf">invested</a> $24 billion in the U.S., down from $54 billion in 2016, excluding deals under $100 million in size. </p>
<p><iframe id="pnI8Q" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/pnI8Q/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>While that’s a sharp rise from just $5 billion a decade ago, it’s barely a drop in the bucket for the U.S. economy. <a href="https://ofii.org/sites/default/files/FDIUS%202017.pdf">China’s cumulative investments</a> in 2016 made up less than 2 percent of all $3.7 trillion invested in the U.S., ranking it 11th, a fraction of the U.K.’s $598 billion and Canada’s $454 billion, the top sources of funding.</p>
<p>California and New York alone <a href="https://www.bloomberg.com/news/articles/2017-04-25/chinese-investment-creates-and-protects-u-s-jobs-rhodium-says">received</a> the lion’s share of China’s $171 billion in investments from 2005 to 2017, or 51 percent. All but 14 states have received at least one investment in the period. </p>
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<p>By sector, the biggest chunk has gone into property investments – such as prime real estate in New York along Park Avenue – which tallied $26 billion, or 15 percent, in the period. Financial firms such as BlackRock took in the next largest share of 14 percent, while 13 percent went to technology businesses like IBM and Motorola. </p>
<h2>National security and politics</h2>
<p>Two of the reasons Chinese investment in the U.S. isn’t higher are national security and politics. A number of high-profile deals have rung alarm bells among U.S. officials and politicians and ended up getting killed as a result. </p>
<p>For example, in 2003, Hong Kong conglomerate Hutchison Whampoa <a href="https://www.wsj.com/articles/SB105168669140493600">withdrew</a> from a joint bid for fiber-optic carrier Global Crossing after the <a href="https://fas.org/sgp/crs/natsec/RL33388.pdf">Committee on Foreign Investment</a> opened an investigation of the deal as some defense officials grew concerned the company’s chairman was too close to Chinese government officials. </p>
<p>Two years later, China oil producer CNOOC <a href="https://www.wsj.com/articles/SB112295744495102393">dropped its effort</a> to buy U.S. rival Unocal for $18.5 billion. In this case, it was lawmakers in Congress who managed to scuttle the deal. CNOOC <a href="https://www.wsj.com/articles/SB112298888643902543">blamed</a> a “political environment.”</p>
<p>The Committee on Foreign Investment, <a href="https://fas.org/sgp/crs/natsec/RL33388.pdf">established</a> by President Gerald Ford in 1975, has the power to veto investments if they might damage U.S. national security. Proposed Chinese investments get reviewed more often than those from any other country. Though the launch of an investigation is often enough to stop a deal – as was the case with Hutchison – the committee has only vetoed five deals, four of which involved China. </p>
<p>One came in 2012, when <a href="https://www.nytimes.com/2012/09/29/us/politics/chinese-company-ordered-to-give-up-stake-in-wind-farms-near-navy-base.html">President Barack Obama cited the committee’s recommendation</a> as he ordered Ralls Corp., a U.S. company owned by Chinese nationals, to divest its interests in wind turbines being built close to a Navy military site in Oregon. It was the first time the power was used since 1990, when President George Bush blocked the sale of an American aircraft manufacturing company to a Chinese agency. </p>
<p>And last year, President Donald Trump <a href="https://www.reuters.com/article/us-lattice-m-a-canyonbridge-trump/trump-bars-chinese-backed-firm-from-buying-u-s-chipmaker-lattice-idUSKCN1BO2ME">prevented</a> Chinese investment firm Canyon Bridge Capital Partners from acquiring U.S. chipmaker Lattice Semiconductor. </p>
<p>And the president <a href="https://www.nytimes.com/2018/06/27/us/politics/cfius-expansion-trump.html">supports a bipartisan bill</a> in Congress that would grant the Committee on Foreign Investments even more power. </p>
<h2>FDI as foreign policy</h2>
<p>While China may not make up a significant portion of the U.S. total, its spending there makes up the <a href="https://www.aei.org/wp-content/uploads/2018/01/China-Tracker-Jan2018.pdf">largest share</a> of Chinese outbound FDI by country. </p>
<p>From 2005 to these days, China invested $171 billion of its $1.87 trillion in total foreign investment in the U.S. </p>
<p><a href="https://www.cambridge.org/core/journals/business-and-politics/article/dissuasive-effect-of-us-political-influence-on-chinese-fdi-during-the-going-global-policy-era/34345FFDB008BD612F7469857CBCA10C">My own research</a> into China’s investments shows that state-owned companies are very sensitive to the government’s foreign policy goals. An agency known as the <a href="https://www.bloomberg.com/news/videos/2018-04-12/sasac-s-xiao-on-soe-reform-china-soe-investment-in-u-s-video">State-owned Assets Supervision and Administration Commission</a> of the State Council coordinates all foreign investments by major Chinese businesses. </p>
<p>Any drop in investments to the U.S. will probably be compensated by more spending in other destinations, especially those countries that are part of the <a href="https://theconversation.com/us/topics/one-belt-one-road-33049">One Belt, One Road</a> initiative such as Australia, Singapore and Vietnam. </p>
<h2>Going forward</h2>
<p>And in fact, the current trade dispute between the U.S. and China will most likely lead to less Chinese investment as deals will encounter increased scrutiny and resistance. </p>
<p>The president has said he <a href="https://www.express.co.uk/news/world/986966/trump-news-trade-war-us-china-tariffs">launched</a> the trade war because Chinese companies <a href="https://www.wsj.com/articles/china-started-the-trade-war-not-trump-1521797401">have a track record</a> of “stealing” Western technology and not respecting intellectual property. Hence, the administration will likely block investments that look along these lines or threaten national security.</p>
<p>But politics will also play a role as members of Congress and others <a href="https://www.bbc.com/news/av/world-us-canada-42405458/trump-china-and-russia-rivals-in-new-era-of-competition">regard China</a> warily as a growing rival that must be confronted. One risk is that <a href="http://www.pewglobal.org/2013/07/18/chapter-3-attitudes-toward-china/">anti-China sentiment</a> in the U.S. increases and makes it harder for the country to use “soft power” via cultural and economic means to achieve its ends – which is preferable to hard power at the end of a bayonet. </p>
<p>It’s unfortunate because <a href="https://dash.harvard.edu/bitstream/handle/1/3450062/helpman_tradewars.pdf?sequence=4">years on international political economy research</a> suggest trade wars and discouraging investment <a href="http://www3.nccu.edu.tw/%7Elorenzo/Ikenberry%20Rise%20of%20China.pdf">are exactly the wrong ways</a> for the U.S. to deal with China’s rise. The U.S. can find other strategies to challenge any unfair trading or business practices without jeopardizing good economic relations, which <a href="https://www.cambridge.org/core/books/renegotiating-the-world-order/B0878F74F44B1F08F3C7535019FBAEE3">have always been</a> the best way to prevent clashes and even war among great powers. </p>
<p>Beyond that, deeper business ties lead to better relations and stronger economies. Economic interdependence raises the costs of direct confrontation, leading to a more peaceful international system.</p>
<p>What concerns me from the current trade war is that it could make geopolitical clashes between China and U.S. stronger and more frequent in the long run.</p><img src="https://counter.theconversation.com/content/99906/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Francisco Urdinez does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese investment in the US has never been high, but the ongoing trade war could dampen it further, with significant long-term repercussions.Francisco Urdinez, Professor of International Political Economy, Universidad Católica de ChileLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/939632018-04-02T10:51:06Z2018-04-02T10:51:06ZWhy natural resource finds are more than just a curse: the case of Mozambique<figure><img src="https://images.theconversation.com/files/212177/original/file-20180327-109185-xijvll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Pemba in northern Mozambique has seen a surge of new arrivals in step with investments to exploit off-shore gas deposits. </span> <span class="attribution"><span class="source">Flickr</span></span></figcaption></figure><p>Natural resources are often thought of as a <a href="https://www.aeaweb.org/articles?id=10.1257/jel.49.2.366">curse</a> in developing countries, slowing economic growth rather than driving it. But new results from our <a href="https://www.theigc.org/project/21002/">research</a> show that discoveries themselves – before extraction happens – have their own economic consequences. </p>
<p>Our research shows that countries where natural resources are discovered are inundated with injections of capital, much like boomtowns during a gold rush. Giant and unexpected oil and gas discoveries act as news shocks, driving the business cycle by triggering foreign direct investment (FDI) bonanzas. Across countries, we find that FDI inflows driven by new projects in new industries increased by 58% in the two years following a giant discovery.</p>
<p>We illustrate how this works using Mozambique as a case study. Following a prolific gas discovery in 2009, foreign companies came pouring in and FDI ballooned off the chart. By our calculations 21,500 out of the 25,500 created by FDI in the five years following the first giant gas discovery in 2009 could be due to the discovery.</p>
<p>Our research upends conventional wisdom that the impact of new resource finds, such as gas, only have negative effects on the economy. Our results suggest that discoveries may lead to simultaneous foreign direct investment in many sectors, possibly diversifying economies and increasing capabilities and thus providing a window of opportunity for a growth takeoff. </p>
<p>This is important because it opens the door to policies being developed that exploit the early gains that can accrue from natural resource finds.</p>
<h2>Mozambique’s offshore finds</h2>
<p>Mozambique’s offshore natural gas discoveries in the Rovuma basin since 2009 have been nothing short of <a href="https://www.ft.com/content/39f0b2be-a2b0-11e7-8d56-98a09be71849">prolific</a>. They are now valued at approximately 50 times the country’s gross domestic product (GDP). </p>
<p>While these gas fields are still under development, data from <a href="https://www.fdimarkets.com/">fDiMarkets</a> – a branch of the Financial Times Group that collects and tracks FDI projects around the world – suggest that foreign companies moved in right after the first discovery in a multitude of industries. These companies created around 10,000 jobs across the country in the following three years.</p>
<p>In 2014 alone, the discovery attracted $9 billion worth of FDI. FDI inflows boomed from 2010 onwards. In 2012 Mozambique received 15% of all sub-Saharan African FDI. In 2013-2015, FDI amounted to 70% of the country’s average GDP, the highest share of all African countries.</p>
<p>Analysis suggests that none of this would have come in without the gas discovery. And very few jobs would have been created. A comparison of the weighted average of other developing countries with no discoveries shows that if Mozambique had not discovered natural gas, the number of jobs created by non-extractive FDI would have remained flat at around 1500 per year. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=514&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=514&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212191/original/file-20180327-109185-15y0mea.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=514&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The FDI effect of the Mozambique gas discovery.
Note: The MOZ line is the estimated number of jobs created by FDI projects, as reported by fDiMarkets. Synthetic MOZ is a synthetic counterfactual – a weighted average of FDI jobs in non-OECD countries with no discoveries that mimic Mozambique until its first large discovery in 2009.</span>
</figcaption>
</figure>
<h2>One new FDI job creates an extra six</h2>
<p>Our study also measured direct and indirect job-creation stemming from Mozambique’s investment boom. We did this by linking projects from the fDiMarkets database and data on firms from the country’s 2002 and 2014 firm censuses to employment outcomes across districts, sectors, and periods. Data from the country’s 2002-2014 <a href="http://www.ine.gov.mz/operacoes-estatisticas/inqueritos/inquerito-sobre-orcamento-familiar">Household Budget Surveys</a> was used. </p>
<p>Our estimate suggests that for each new FDI job, an extra six were created in the same sector in the same district. This is because newly arrived foreign companies might demand services such as catering, driving, and cleaning services, as well as services from local law firms and consultancies experienced with the economic and legal environment. </p>
<p>Moreover, newly created FDI jobs are likely to be associated with higher salaries. Research elsewhere in sub-Saharan Africa has shown that foreign-owned firms <a href="http://www.ilo.org/global/research/publications/working-papers/WCMS_592292/lang--en/index.htm">pay higher wages</a> to non-production and managerial workers. They also offer more secure – or less temporary – work. </p>
<p>Thus, these jobs are likely to increase local income, and in turn, demand for local goods and services. For example, the multinational’s employees might increase the demand for local fruit and vegetables, as well as for services such as housing, restaurants, and bars. This increase in demand is likely to be met by local businesses, creating more jobs and multiplying the initial number created directly by multinationals. </p>
<p>Our results also point to other interesting aspects of the extra jobs created. This includes the fact that around 55% are informal, that around 65% are taken by women, and that only workers with at least secondary education benefit. </p>
<p>To better grasp the magnitude of the multiplier effect of FDI, we asked: if we removed all foreign direct investment projects from Mozambique in 2014, how many jobs would disappear? This includes all the jobs directly associated with incoming investments (131,486 jobs in 2014) but also all the non-FDI jobs due to the multiplier.</p>
<p>We find there would be almost 1 million fewer jobs, out of a total of around 9.5 million jobs in Mozambique. The drop would be especially large in the manufacturing sector and in the capital of Maputo, where more than half would disappear. </p>
<h2>Facing reality</h2>
<p>Of course, economic growth and diversification do not automatically follow from a large discovery. The Mozambique foreign investment bonanza occurred while the government accumulated an unsustainable level of debt, and many of the FDI projects may only have short-run effects. </p>
<p>This has happened before. For example, a foreign investment boom in Tete province in northern Mozambique went from El Dorado to nightmare when a coal project failed to materialise in 2014-15. This prompted Rio Tinto to <a href="http://www.mining.com/rio-tintos-3-7bn-mozambique-coal-business-sold-for-50m-72265/">sell</a> its $3.7 billion coal business in the country for $50 million. </p>
<p>Additionally, the economy is still reeling from a debt scandal that led the International Monetary Fund to <a href="https://www.wsj.com/articles/imf-cancels-mozambique-credit-meeting-following-wsj-report-1460733681">cancel</a> its funding for Mozambique in 2016.</p>
<p>Even so, foreign investment bonanzas stemming from natural resource discoveries do provide an important economic growth opportunity, and the FDI effect needs to be considered when analysing the effects of natural resources on economic development.</p><img src="https://counter.theconversation.com/content/93963/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gerhard Toews received funding from the International Growth Center. </span></em></p><p class="fine-print"><em><span>Pierre-Louis Vézina received funding from the International Growth Center.</span></em></p>Across countries, we find that FDI inflows driven by new projects in new industries increased by 58% in the two years following a giant discoveryGerhard Toews, Post-doctoral researcher, Oxford Centre for the Analysis of Resource Rich Economies, University of OxfordPierre-Louis Vézina, Assistant Professor in Economics, Departments of Political Economy and International Development, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/898102018-01-12T13:38:40Z2018-01-12T13:38:40ZIs the EU subsidising autocracies? Hungary and the rise of the ‘illiberal’ model<p>The rise of self-proclaimed illiberal democracies in East Central Europe arguably constitutes one of the most formidable – albeit perhaps still underestimated – challenges the EU is currently facing. </p>
<p>Whether and how the EU should react has been debated. All sides portray the EU’s role in these illiberal regimes as that of an outsider. But a closer look at the political-economic functioning of these nations suggests that the EU – through its structural development funds – is actually part of their illiberal model. That, in turn, suggests that cutting funding from Brussels could be a potentially powerful incentive to bring them back into line.</p>
<p>After years of relative inaction, the EU has started to take measures against some of these states. In June 2017, it launched <a href="https://theconversation.com/europes-illiberal-states-why-hungary-and-poland-are-turning-away-from-constitutional-democracy-89622">infringement proceedings</a> against Poland, Hungary and the Czech Republic for refusing to comply with agreed quotas by taking in refugees.</p>
<p>In December 2017, the European Commission took actions against Poland based on the view that a recent reform undermined the political independence of Polish judges. The Commission took the unprecedented step of proposing action under <a href="https://ec.europa.eu/commission/news/poland-brexit-negotiating-directives-and-investment-firms-2017-dec-20_en">Article 7</a> of the EU treaty. That could potentially lead to Poland losing its voting rights in EU decision-making.</p>
<p>There is some debate about how efficient and legitimate such measures are. French ex-MEP Daniel Cohn-Bendit wants to go further. He says illiberal democracies should be encouraged to <a href="http://www.spiegel.de/politik/ausland/daniel-cohn-bendit-sieht-brexit-als-vorbild-fuer-andere-eu-mitglieder-a-1185651.html">exit the EU altogether</a>. Meanwhile, Polish MEP <a href="https://global.handelsblatt.com/opinion/its-time-to-rescue-europes-illiberal-democracies-869139">Danuta Huebner</a> warned that the EU would only hurt the citizens of these countries, not their elites, if it were to cut off funding. In her view, that could serve to further reinforce anti-liberal sentiments.</p>
<h2>Funding from Brussels</h2>
<p>To decide these moral and practical questions about intervention, it may be necessary to look more closely at the political-economic functioning of the illiberal model and the role the EU has played in its emergence. One of the key features of the Visegrad countries (Poland, Hungary, Slovakia, Czech Republic) during the 1990s was their heavy reliance on foreign direct investment. The process of post-socialist industrial restructuring and modernisation depended on support from outside their own borders.</p>
<p>Social scientists Andreas Nölke and Arjen Vliegenthart dubbed this emerging model of capitalism <a href="https://muse.jhu.edu/article/316716">“dependent market economy”</a>. The FDI-led industrial modernisation meant that these countries lived by decisions made outside their national borders in the headquarters of multinational companies. </p>
<p>Part of this model was what social scientists Dorothee Bohle and Bela Greskovits called an <a href="https://www.researchgate.net/publication/233090034_Neoliberalism_Embedded_Neoliberalism_and_Neocorporatism_Towards_Transnational_Capitalism_in_Central-Eastern_Europe">“embedded neoliberal arrangement”</a>. This consisted of providing multinationals with very favourable conditions, both in terms of taxes and relatively low wage levels, in exchange for relatively highly-skilled workers. To compensate for low wages and other negative consequences of industrial restructuring, the state offered its citizens generous welfare payments. </p>
<p>For some time, this model enabled these countries to grow economically. It provided citizens with decent jobs in fairly high-value-added industries, such as car manufacturing. Further to the east, countries such as Russia and various central Asian republics were struggling with resources-export-based models.</p>
<h2>Hungary spurns international investors</h2>
<p>Events in Hungary illustrate how the rise of illiberal governments has all but put an end to this model. After years of wooing multinationals, the government of prime minister Viktor Orbán has started to take increasingly aggressive steps against them.</p>
<p>Our <a href="https://ssrn.com/abstract=3100775">research</a> shows that many companies are increasingly experiencing pressure from a regime that doesn’t shy away from using what one of the CEOs we interviewed called “mafia tools” to increase its control over the economy. These methods include essentially blackmailing companies to partially or completely give up control of the firm to members of the Orbán clan. The threat of arbitrary tax audits, prohibitive special taxes or special legislation directly geared towards undermining specific companies’ business models are also concerns.</p>
<p>There is nothing fundamentally wrong with a state deciding to assume a more prominent role in the economy, including (re)nationalising private companies. Yet in Hungary these measures seem to be mainly aimed at enriching members of the clan around Orbán.</p>
<p>Such an aggressive stance – both in rhetoric and action –- against foreign capital seems surprising given the country’s dependence on foreign direct investment. It can partly be explained by Hungary’s membership of the EU. Joining the union in 2004 meant Eastern and Central European countries could access structural funds – an alternative source for much-needed finance for industrial restructuring and modernisation.</p>
<p>Recent <a href="http://unipub.lib.uni-corvinus.hu/2922/1/199-879-1-PB.pdf">research by Dénes Bank</a> found that these EU funds are now more important to these nations than FDI inflows. Between 2007 and 2013, EU funds for Hungary alone amounted to €35 billion whereas total FDI inflow was €28 billion.</p>
<p>These structural funds may largely explain why Orbán and his clan can afford the luxury of boldly expanding their grip on the economy without fearing the consequences of an increasingly hostile investment climate. As such, EU structural funds may be much more central to the emerging illiberal model in Central and Eastern European countries than is commonly acknowledged. Indeed, it doesn’t seem too far-fetched to draw the troubling conclusion that they may be the very fuel that makes the illiberal motor turn. </p>
<p>From this perspective, the <a href="https://euobserver.com/political/139720">idea</a>, which is part of discussions about the next EU budget, of making some EU funding conditional on criteria such as respecting the rule of law should be very seriously considered. Removing the fuel may well be a necessary measure to make sure the illiberal fire does not spread any further.</p><img src="https://counter.theconversation.com/content/89810/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Poland and Hungary have recently clashed with Brussels over democratic freedoms, but economic drivers are at play, too.Gerhard Schnyder, Reader in International Management, Loughborough UniversityDorottya Sallai, Senior Lecturer in International Business, University of GreenwichLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/754392017-04-14T02:14:13Z2017-04-14T02:14:13ZExpert conversation: Can we do without Chinese capital?<p><em>This article is from the “International Economics Campaigning” series of France’s Research Centre in International Economics (CEPII), a CEPII-La Tribune-The Conversation-Xerfi-Canal partnership. Andrea Goldstein, adjunct professor at the Catholic University of Milan, and Françoise Lemoine, advisor at CEPII, are specialists in the Chinese economy. They answer questions from Isabelle Bensidoun and Jézabel Couppey-Soubeyran, CEPII economists.</em></p>
<p><strong>Isabelle Bensidoun, Jézabel Couppey-Soubeyran: China is now the world’s second <a href="https://www.ft.com/content/5136953a-1b3d-11e5-8201-cbdb03d71480">largest international investor</a>, after the United States. How has its investment changed in recent years?</strong></p>
<p><em><strong>Andrea Goldstein, Françoise Lemoine</strong></em>: In 2016, Chinese companies’ foreign investment (FDI) reached a new record: <a href="https://www.merics.org/en/merics-analysis/newsletterchina-update/merics-china-update-no-12017/">nearly US$200 billion</a>, about one-sixth of total world FDI. China’s investment abroad now exceeds that of foreign multinationals in China.</p>
<p>Initially, investors from China <a href="https://theconversation.com/china-india-and-australian-gas-who-controls-energy-in-the-asian-century-6243">focused on natural resources</a>, particularly in <a href="https://theconversation.com/shedding-fresh-light-on-chinas-investment-choices-in-africa-46435">Africa and the developing world</a>, but their focus has now shifted to manufacturing and services, in Europe and the United States.</p>
<p>Europe has become Chinese investors’ main target, especially Italy, France, Germany and the United Kingdom. <a href="http://www.scmp.com/business/banking-finance/article/2025385/china-overtakes-us-worlds-largest-assets-acquirer">Chinese acquisitions there jumped</a>, more than doubling between 2014 (€14 billion) and 2016 (€35 billion). From high-tech to tourism, real estate, automobiles, food, fashion, energy, no sector escapes.</p>
<p><strong>What are Chinese companies looking for through these acquisitions?</strong></p>
<p>First, they seek patents, brands and know-how. This reflects the priority given to technological catch-up in the government’s “<a href="https://www.csis.org/analysis/made-china-2025">Made in China 2025</a>” plan, which was adopted in 2015. What Chinese companies mainly want is to improve their supply, including in their own market where foreign brands are sought after, and meet the demand of a rapidly expanding middle class that is increasingly exacting in terms of quality, safety and image. A typical example is the <a href="https://www.wsj.com/articles/SB10001424052702303369904579420591913631968">powdered milk factory currently built in Brittany</a>, whose entire production is destined for the Chinese market.</p>
<p><strong>Is this activism causing concerns?</strong></p>
<p>Yes, quite a few. In particular, there is concern about the role of state-owned enterprises, which are seen as an instrument for political pressure. Europeans are alarmed at the possibility of the Chinese controlling major infrastructure, such as electricity generation and distribution, or sensitive technologies. </p>
<p>There is also a fear of impoverishing the European industrial system if these companies intend to transfer production to China’s domestic market, where social protections are weak and labour rights and environmental standards are poorly respected. </p>
<p>Finally, there <a href="http://www.atimes.com/eus-great-firewall-chinas-unfair-investment/">is outrage over the asymmetry</a> between the European market, which is open to Chinese companies, and the difficult-to-penetrate Chinese market. While Chinese investments in Europe are soaring, Europe’s are stagnating in China.</p>
<p><strong>How does this anxiety materialise?</strong></p>
<p>For the time being, Germany and China is where tensions have mainly increased. At the end of 2016, <a href="https://www.ft.com/content/f1b3e52e-99b0-11e6-8f9b-70e3cabccfae">Berlin blocked the purchase</a> of two gems of the German high-tech industrial sector: Aixtron, the semiconductor equipment manufacturer, and a subsidiary of the lighting company Osram.</p>
<p>We’ve seen nothing equivalent in France. After Dongfeng Motors bought up 14% of French multinational automotive manufacturer PSA in 2014 and sovereign wealth fund China Investment Corporation bought 30% of French utility GDF Suez, Chinese acquisitions multiplied. The year 2015 saw the purchase of French resort group <a href="https://www.bloomberg.com/news/articles/2015-01-12/chinese-buy-french-companies-as-club-med-caps-busiest-m-a-year">Club Med</a>, the <a href="https://www.ft.com/content/05d84b74-7c6e-11e4-9a86-00144feabdc0">Toulouse airport</a> and the <a href="https://www.wsj.com/articles/shanghai-jin-jiang-to-buy-frances-louvre-hotels-group-1421298939">Louvre Hotels group</a>. </p>
<p><a href="https://www.bloomberg.com/news/articles/2016-03-21/paris-lure-dims-for-china-s-tourists-not-for-its-investors">Last year we saw the rise</a> of Chinese capital in hotels (Accor Hotels) and leisure property Pierre & Vacances, as well as the acquisition of a majority stake in the SMCP (Sandro, Maje, Claudie Pierlot) fashion group. These operations have been met with mixed feelings, between satisfaction and mistrust, and sometimes triggered the vigilance of the public authorities.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/164487/original/image-20170407-29403-13z4cpb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Qi Ji, CEO of Huazhu Hotels Group Ltd., and French Accor CEO Sebastien Bazin (right) pose in Paris, December 15 2014.</span>
<span class="attribution"><span class="source">Philippe Wojazer/Reuters</span></span>
</figcaption>
</figure>
<p><a href="http://www.egeaonline.it/ita/prodotti/economia/capitalismo-rosso_.aspx">In Italy</a>, the phenomenon is less controversial, although the Chinese have significant investments in many sectors: they are in control <a href="http://www.reuters.com/article/us-pirelli-chemchina-idUSKBN0MI0PQ20150323">at Pirelli</a> and several priced fashion or machinery companies, and have significant participation in the energy sector (40% of Ansaldo Energia and 35% of CDP Reti).</p>
<p><strong>How can we promote reciprocal openness between China and Europe?</strong></p>
<p>A first step would be to introduce reliable, transparent rules at the global level that ensure equal treatment of all companies, whether local or foreign, which is far from being the case in China.</p>
<p>A second step would be to establish shared European principles: what should be done when an investment seems motivated by aggressive industrial policies and backed by public subsidies? How can we avoid a “race to the bottom” between EU member countries, each lowering the demands facing Chinese groups wishing to set up shop in Europe?</p>
<p>The rise of overseas investment is one manifestation of China’s growing economic power, and as we have seen it arouses many concerns. However, for European companies it is also a welcome source of funding to enable more development. Closing the borders would create a risk of escalation at a time when Donald Trump <a href="http://www.newsweek.com/donald-trump-china-xi-jinping-economy-threats-carry-through-ruin-us-economy-579976">has repeatedly stated</a> that the US and China are in an economic war. </p>
<p>Blind optimism is not the right thing either. France – like other European countries including Germany – has a legal basis for protecting itself against certain types of foreign investment. But the lack of agreement at European level on a common policy in this area is likely to leave the advantage to Chinese decision-makers.</p><img src="https://counter.theconversation.com/content/75439/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrea Goldstein is general director of research for economic observatory Nomisma.</span></em></p><p class="fine-print"><em><span>Françoise Lemoine, Isabelle Bensidoun, and Jézabel Couppey-Soubeyran do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China is now the world’s second-largest international investor. Should the US and Europe be scared?Isabelle Bensidoun, Économiste, CEPIIAndrea Goldstein, Économiste, DG recherche de Nomisma, Adjunct Professor, Università Cattolica del Sacro Cuore - Catholic University of MilanFrançoise Lemoine, Économiste, conseillère au CEPII, CEPIIJézabel Couppey-Soubeyran, Maître de conférences en économie à l’Université Paris 1 Panthéon-Sorbonne et conseillère éditoriale, CEPIILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/748802017-04-03T12:36:08Z2017-04-03T12:36:08ZHow Brexit could put a strain on EU-China relations<p>The prospect of Brexit has created many imponderables for the future of the EU’s relationship with the UK. At the same time, it also has significance for other international relationships. In particular, it is likely to impact trade and investment between the EU and China.</p>
<p>The UK has taken a leadership position in Europe in terms of <a href="https://www.theguardian.com/politics/2016/jun/30/china-britain-and-brexit-vote-to-leave-eu-robs-golden-relationship-of-its-lustre">its relations with China</a>. For example, it has led European countries, in the face of opposition from the US, into membership of the <a href="https://theconversation.com/why-everyones-joining-the-asian-infrastructure-investment-bank-39256">China-led Asian Infrastructure Investment Bank</a>. With Britain’s exit from the EU, China is losing a champion on similar trade and investment issues, which are central to its relationship with the EU. </p>
<p>In recent years, Europe has become an important destination for China’s outward foreign direct investment. Among the EU member states, the UK’s receptivity to Chinese investment is reflected in it being the recipient of the <a href="http://rhg.com/wp-content/uploads/2017/01/RHG_Merics_COFDI_EU_2016.pdf">largest share of Chinese investment into the EU</a>. The UK’s unique openness to investment from China includes investment in areas of critical infrastructure such as <a href="http://www.telegraph.co.uk/business/2016/05/07/made-by-china-the-uk-is-on-the-frontline-of-the-next-industrial/">energy and telecommunications</a> – areas considered sensitive by some other countries.</p>
<p>Although the response across Europe to investment from China has tended to be far more welcoming since the eurozone crisis, there remains considerable skittishness around such investment. This was evident last summer in Germany, with <a href="https://www.wsj.com/articles/chinas-one-way-deals-grate-on-germany-1466486040">negative</a> <a href="https://www.ft.com/content/1b892ae4-9cd6-11e6-8324-be63473ce146">reactions</a> to the acquisition of the German advanced manufacturing technology company Kuka by China’s Midea. That such reactions should have occurred in Germany, which has long been receptive to Chinese investment, indicates the potentially fraught nature of the environment for Chinese investment within Europe.</p>
<h2>Concluding a comprehensive agreement</h2>
<p>Since 2013, the EU and China have been engaged in negotiations to conclude a comprehensive investment agreement that covers investment from China into the EU and vice versa. So far, the two parties have agreed the scope of an agreement but not the actual terms of it. </p>
<p>The agreement covers the improvement of market access for European and Chinese investors. And it also addresses key challenges of the regulatory environment, including protection for investors and their investments. </p>
<p>With the UK’s exit from the EU, the question that arises from China’s perspective is whether – in the absence of a very supportive Britain – the remaining member states adopt a more restrictive stance to Chinese investment. They might be more demanding of reciprocity towards EU investment into China. If so, securing a comprehensive investment agreement may be more problematic. </p>
<p>Already, the EU Chamber of Commerce in China <a href="http://www.europeanchamber.com.cn/en/publications-archive/473/China_Manufacturing_2025_Putting_Industrial_Policy_Ahead_of_Market_Force">has pushed back</a> against China’s strategy of developing national champions in ten advanced technology manufacturing sectors such as semi-conductors. This strategy involves heavily subsidising investments in and acquisitions of foreign companies, as well as forced foreign technology transfers in return for market access to overseas firms and requiring or encouraging customers in China to source from Chinese companies. </p>
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<img alt="" src="https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/162077/original/image-20170322-31190-he5t0m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Serious about semi-conductor investment.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
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<h2>What now for the EU-China relationship</h2>
<p>For similar reasons, China is concerned with its trading relationship with the EU. The EU and China trade more than €1 billion in goods <a href="http://trade.ec.europa.eu/doclib/docs/2009/september/tradoc_144591.pdf">every day</a>. The EU is China’s biggest trading partner and China is the EU’s second largest trading partner <a href="http://ec.europa.eu/trade/policy/countries-and-regions/countries/china/index_en.htm">after the US</a>. </p>
<p>China was long unequivocal in <a href="https://www.ft.com/content/6af8da62-bf5d-11e6-9bca-2b93a6856354">its demand</a> that the EU grant China “market economy” status under World Trade Organisation rules by the end of 2016. The UK has been a strong supporter of it having that status and establishing an open trading relationship. The UK was reluctant to support calls within Europe for the imposition of tariffs and restrictions on imports from China. For example, the UK was at the <a href="https://fullfact.org/europe/is-uk-calling-for-lower-eu-duties-chinese-steel/">forefront</a> in resisting calls for the imposition of higher duties on low cost imports from China – as in the case of steel, one of several sectors where China has over-capacity.</p>
<p>Again, the consideration that arises for China is whether an EU without Britain is likely to become less accommodating in its trading relationship with China. Plus, China, which has long sought a free trade agreement with the EU, is likely to find that without the UK, the EU will be even less inclined to move towards one than it already has been in the past. </p>
<p>As a consequence of Brexit, China is losing a key member state within the EU whose stance on matters related to trade and investment have been beneficial to China’s interests. Without the UK, the voices within the EU advocating a stronger assertion of EU interests with respect to China have been strengthened. China’s current over-capacity in a number of industrial sectors, already a source <a href="http://data.consilium.europa.eu/doc/document/ST-11252-2016-INIT/en/pdf">of serious concern for the EU</a>, and its strategy in relation to its high-tech industries, are likely to be a source of greater friction between the EU and China.</p><img src="https://counter.theconversation.com/content/74880/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Louis Brennan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With Britain’s exit from the EU, China is losing a champion on similar trade and investment issues.Louis Brennan, Professor of Business Studies, Trinity College DublinLicensed as Creative Commons – attribution, no derivatives.