Economic Effects of China’s Outward Foreign Direct Investment in South Africa and Nigeria ––– a GTAP-FDI Model Assessment

This paper examines how increasing Chinese outward foreign direct investment (OFDI) in South Africa and Nigeria would impact host countries’ economies, using an extended version of the GTAP model with foreign affiliate sales and FDI stock data incorporated. China’s OFDI positions in SSA increased dramatically since 2010-- in 2017, China’s OFDI positions in SSA amounted to $39.9 billion, an increase from $11.7 billion in 2010. Meanwhile, the top receipt markets for China’s OFDI in 2017 were South Africa, the Democratic Republic of Congo (DRC), Zambia and Nigeria. The patterns of Chinese OFDI differ a lot in the top recipient SSA countries: for instance, Chinese OFDI have been more diverse and spread across a variety of sectors (autos, construction, etc) in South Africa while the majority of Chinese OFDI were concentrated in energy and infrastructure sectors in Nigeria. Given the large number of SSA countries that receive Chinese OFDI, this paper focuses on South Africa and Nigeria, two of the top recipient countries of Chinese OFDI, which also appear to be impacted the most by increasing Chinese OFDI positions, though in different ways. To analyze the impact more accurately, this analysis uses the GTAP-FDI model with a baseline of 2014, and relies on transaction-level FDI data from 2014 to 2018 to calculate the policy shocks. Simulation results indicate that China’s increasing OFDI have improved South Africa and Nigeria’s overall economic welfare in terms of output, GDP and employment, though sectoral impact differs a lot in these two countries.