BRICS Trade, FDI and Africa's Premature Deindustrialization


A
frica’s demographics, emergent middle class and rich natural resource endowments has made it a toast of trade and investment, with traditional partners in Europe and emerging partners from global south. Notably, the structure of Africa post-colonization has been toward resource extraction and being feeders for developed countries’ industries. 

 However, as south-south cooperation deepens, new models of development assistance, trade and investment are emerging. In the past, development assistance held most African countries bound to the whims and caprices of their respective western donors, mostly OECD countries. 

 Also, most of the bilateral and multilateral development assistance to developing countries came with stringent conditionalities, such as the structural adjustment programme (SAP), which produced a long term backwash effect. Consequently, for many low-income as well as post-conflict and fragile African states, aid-dependency is still a present reality. 

 The past experiences of African countries in donor-recipient and trade relationships with OECDs stimulate concerns such as: Will trade and investment be the new mechanisms for the ‘colonization’ of Africa? How can Africa coordinate its polity within the framework of trade and investment relationships?



As a latecomer in development, Africa has a lot of potential to leapfrog existing knowledge, production technologies and foreign capital to finance its development objectives. However, it is pertinent to note what kind of FDI is beneficial for the purpose of structural transformation. 

 In a recent study of Africa’s largest economy, Nigeria, FDI was among factors that contribute to a service sector-led structural transformation. 

 Also, recent studies on Indian manufacturing and prospects for Africa highlight possible threats of premature de-industrialization, a fallout of such service-led structural transformation in Africa. 

 Although Rodney noted how Europe underdeveloped Africa by designing its economies to be merely extractive, ‘unfavourable’ BRICS FDI may produce a similar effect on African economies.  

 Given Africa’s dire need for industrial transformation, inclusive growth and skill development, FDI which does not foster manufacturing sector development – a crucial engine of growth and structural transformation – is not ultimately beneficial. 

 If unaddressed, the very nature of premature de-industrialization could create potentially significant economic and political outcomes such as ‘growth slows’ and democratic failure.

My forthcoming paper articulates a narrative on the potential challenges of BRICS FDI in Africa. It proposes a framework for using FDI to facilitate a sustainable structural transformation in Africa as well as measures for combating its imminent premature de-industrialization. 

 The paper addresses the following questions: What are the implications of BRICS FDI composition on Africa’s industrialization experience? What are the mechanisms for promoting FDI which promote skills and manufacturing sector development in Africa? What lessons can a BRICS-Africa partnership learn from OECD-Africa experience for a win-win situation? What are the prospects of ‘colonization by investment’ in the BRICS-Africa partnership? What is the role of BRICS FDI flows in premature de-industrialization experiences of African countries? 

 Set within a new structuralist framework, the findings of the study provides post-2015 policy directions on sustainable structural transformation, investment promotion and coordination for African economies.

The discussion continues…

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