Making Foreign Direct Investment Work for Sub-Saharan Africa

302 Pages·2013·4.81 MB·English

assistance
support
sectors knowledge
supply mediating
opportunities
manufacturing
firms
evidence
institutionsproductivity absorptive
government foreign FDI
investors
competition
chains
capacity local
spillovers
technologypotential
mining domestic
GVC
agribusiness
linkages
Africa
apparel
DIRECTIONS IN DEVELOPMENT
Trade
Making Foreign Direct Investment
Work for Sub-Saharan Africa
Local Spillovers and Competitiveness
in Global Value Chains
Thomas Farole and Deborah Winkler,
Editors

Making Foreign Direct Investment
Work for Sub-Saharan Africa

Directions in Development
Trade
Making Foreign Direct Investment
Work for Sub-Saharan Africa
Local Spillovers and Competitiveness
in Global Value Chains
Thomas Farole and Deborah Winkler, Editors
© 2014 International Bank for Reconstruction and Development / The World Bank
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Attribution—Please cite the work as follows: Farole, Thomas and Deborah Winkler, eds. 2014. Making
Foreign Direct Investment Work for Sub-Saharan Africa: Local Spillovers and Competitiveness in Global
Value Chains. Directions in Development. Washington, DC: World Bank. doi: 10.1596/978-1-4648-
0126-6. License: Creative Commons Attribution CC BY 3.0
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ISBN (paper): 978-1-4648-0126-6
ISBN (electronic): 978-1-4648-0127-3
DOI: 10.1596/978-1-4648-0126-6
Cover image: © Arne Hoel / The World Bank.
Cover design: Naylor Design, Inc.
Library of Congress Cataloging-in-Publication Data
Farole, Thomas, author.
Making foreign direct investment work for Sub-Saharan Africa : local spillovers and competitiveness in
global value chains / Thomas Farole and Deborah Winkler.
1 online resource. – (Directions in development)
“This book was prepared by Thomas Farole (Senior Economist, World Bank, PRMTR) and Deborah
Winkler (Consultant Economist, World Bank, PRMTR) along with a team including: Cornelia Staritz
(Austrian Research Foundation for International Development); Stacey Frederick (Center on Globalization,
Governance & Competitiveness at Duke University); Rupert Barnard, Michelle de Bruyn, Philippa
McLaren, and Nick Kempson (Kaiser Associates Economic Development Partners).”
Includes bibliographical references.
Description based on print version record and CIP data provided by publisher; resource not viewed.
ISBN 978-1-4648-0127-3 (electronic) – ISBN 978-1-4648-0126-6 (alk. paper)
1. Investments, Foreign—Africa, Sub-Saharan. 2. Technology transfer—Africa, Sub-Saharan. 3. Africa,
Sub-Saharan—Economic conditions. I. Winkler, Deborah. II. World Bank. III. Title.
HG5822
332.673096—dc23 2013045059
Making Foreign Direct Investment Work for Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0126-6
Contents
Acknowledgments xiii
About the Editors and Contributors xv
Abbreviations xvii
Overview 1
pArt 1 introduction 5
Chapter 1 Context, Objectives, and Methodology 7
Abstract 7
Why Does FDI Matter for Developing Countries? 7
Spillovers: What Do We Know Already? What Gaps
Remain in Our Understanding? 10
Introduction to This Book 14
Notes 19
References 19
Chapter 2 Conceptual Framework 23
Abstract 23
Introduction 23
Where and How Do Spillovers Occur? 25
The Role of Mediating Factors 31
Conclusions 47
Notes 48
References 49
pArt 2 Quantitative studies 57
Chapter 3 The Role of Mediating Factors for FDI Spillovers in
Developing Countries: Evidence from a Global Dataset 59
Abstract 59
Introduction 59
Empirical Model 61
Making Foreign Direct Investment Work for Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0126-6   v
vi Contents
Regression Results 67
Conclusions 78
Annex 3A 80
Annex 3B 81
Annex 3C 81
Notes 82
References 83
Chapter 4 Determining the Nature and Extent of Spillovers:
Empirical Assessment 87
Abstract 87
Introduction 87
Which Foreign Investor Characteristics Increase the FDI
Spillover Potential? 88
Which Absorptive Capacities Facilitate FDI Linkages? 97
Which Factors within Transmission Channels Support
FDI Spillovers? 102
Conclusions 111
Notes 113
References 113
pArt 3 sector case studies 115
Chapter 5 Sector Case Study: Mining 117
Abstract 117
The Context for Mining FDI Spillovers 117
Supply Chain Effects 125
Labor Market Effects 146
Demonstration, Competition, and Collaboration Effects 151
Conclusions 156
Notes 160
References 160
Chapter 6 Sector Case Study: Agribusiness 163
Abstract 163
The Agribusiness Global Value Chain 163
The Context for Spillovers: Commercial Production
and FDI 168
Supply Chain Effects 175
Labor Market Effects 189
Demonstration, Competition, and Collaboration Effects 195
Conclusions 203
Notes 205
References 206
Making Foreign Direct Investment Work for Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0126-6
Contents vii
Chapter 7 Sector Case Study: Apparel 209
Abstract 209
The Apparel Global Value Chain 209
FDI in the Apparel Global Value Chain 215
The Context for Spillovers in Sub-Saharan Africa 221
Supply Chain Effects 226
Labor Market Effects 234
Technology and Knowledge Spillovers: Demonstration
and Collaboration Effects 238
Conclusions 241
Notes 243
References 244
pArt 4 conclusions and policy implications 245
Chapter 8 Main Conclusions 247
Abstract 247
The Evidence: Does FDI Deliver Significant Spillovers
in Developing Countries? 247
The Determinants: What Mediating Factors Shape the
Nature and Extent of FDI Spillovers? 254
The Role of Global Value Chains 259
Chapter 9 Policy Implications 263
Abstract 263
Introduction 263
Prioritizing the Extent of Support for Spillovers 264
Cross-Cutting versus Value Chain–Specific
Interventions 265
Attracting the “Right” Foreign Investors 265
Promoting FDI–Local Economy Linkages 268
Establishing an Environment That Maximizes the
Absorption Potential of Local Actors 273
Institutional and Implementation Arrangements 276
Notes 279
References 279
Boxes
1.1 Why Do GVCs Matter in the Discussion of FDI Spillovers? 15
1.2 Limitations on Robustness of Survey Findings 18
5.1 Mozambique Mining Supplier Development—Soradio 131
5.2 Supplier Upgrading in Chile—Drillco Tools 133
5.3 Does Location Matter? 134
5.4 Australian Industry Participation Plans 136
Making Foreign Direct Investment Work for Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0126-6
viii Contents
5.5 Ghana Chamber of Mines 137
5.6 Newmont Ghana’s Local Procurement Policy 140
5.7 Vale SA Supplier Development Program (2012) 141
5.8 Supplier Databases in Chile and Australia 142
5.9 FDI-Driven Innovation and Supplier Upgrading: Chile’s World
Class Supplier Development Program 144
5.10 Skills Developments for the Mining Industry in Chile 152
6.1 Unilever’s Support for Distribution Systems Upgrading 180
6.2 Cocoa and Tea: Certification Examples 183
6.3 Palm Oil: Indonesia’s Nucleus-Plasma Model 186
6.4 Coffee and Cocoa: Technical Support Programs 187
6.5 Coffee: Governance and Organizational Capacity Building 188
6.6 Special-Purpose Vehicles for Technical Assistance: The Source
Trust (Armajaro) 189
6.7 Examples of Entrepreneurship Linked to FDI in the
Agribusiness Value Chain 191
6.8 Industry-Driven Training Programs in Kenya and Ghana 194
6.9 Fresh Produce: Horticultural Practical Training Centre, Kenya 196
6.10 National Labor Skills Certification System for Horticulture,
Chile 196
6.11 Demonstration Effects—Formal and Informal 197
6.12 KenyaGAP 202
7.1 The Role of Joint Ventures in Upgrading the Sri Lankan
Apparel Sector 227
7.2 Subsidized Factory Shells and an Unlevel Playing Field for
Local Firms in Swaziland 234
Figures
1.1 Global Growth of FDI, 1971–2011 8
2.1 The Role of Mediating Factors for FDI Spillovers: A Conceptual
Framework 24
5.1 Mining Value Chain and the Main Inputs across the Chain 118
5.2 Average Annual Sales of Domestic- and Foreign-Owned
Suppliers 125
5.3 Sourcing of Goods and Services by Foreign-Owned
Mining Firms 127
5.4 Domestic Firms Obtaining Quality Certifications 130
5.5 Value of Domestic Firms’ Output to Foreign Customers
and Market Links 132
B5.2.1 Evolution of Drillco (1990–2012) 133
5.6 Domestic Firms’ Sales to Foreign Firms by Type 135
B5.9.1 Vision of the World Class Supplier Model 144
5.7 Percentage of Local Employees in Foreign Firms, by Job
Category 146
Making Foreign Direct Investment Work for Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0126-6