Local employment additionality impacts of Chinese overseas foreign direct investment in selected African economies

Many empirical studies have focused on the macroeconomic impact of Chinese Outward Foreign Direct Investment on African economies. However, the results are rarely consistent and often contradictory. This paper approaches the ‘impact’ question from a different perspective using the ‘net additionality’ methodology to test, at the micro level, if Chinese Outward Foreign Direct Investment does positively impact one dimension, employment, at the local level. The data set comprises 80 Chinese investment projects over the 2003–2013 period in seven African economies. Net additionality, as a concept, is much wider than standard multiplier analysis and is more suited to analysing project impacts at the local level in both developed and developing economies. The results demonstrate that Chinese Outward Foreign Direct Investment can have substantial indirect employment effects and induced employment effects can be significant under certain conditions. These include a local supply chain infrastructure, reasonable human capital levels, availability of locally produced goods and local wages spent on such goods. The policy implications arising from the study suggest a dire need for local government action in the areas of training, education, local content minima and enabling policies that encourage small and medium enterprises' (SME) development.