Do the Belt and Road Initiative and Chinese Investments Promote Moroccan FDI in African Countries?: An Empirical Investigation Using Panel Data

Introduction

The rise of competition in developed economies pushes foreign investors to think of African territories since it is becoming an area of ​​entrepreneurial development and a strategic partner for any economy. Africa has become the new Eldorado of the global economy. According to Mckinsey Global Institute (Bughin et al.,2016), the African emergence can take place on the horizon of 2040 due to three main factors: a demographic potential through population densification of 1.1 billion people of working age, the rise in commodity prices that will increase the Gross Domestic Product up to 3 billion USD, and the emergence of a middle class of 128 million households with a regular income and a significant consumption expenditure.

On the one hand, Morocco presents itself in Africa through its multinational enterprises (MNEs). Moroccan direct investment flows in sub-Saharan Africa experienced an average annual growth rate of 4.5% between 2008 and 2016. In addition, the average annual flows of these FDI to sub-Saharan Africa is estimated at 100 million USD in 2010, representing 92% of the total flow of Moroccan direct investments abroad. In 2015, these average annual flows were estimated at 300 million USD, representing 40% of the flow of Moroccan direct investments abroad. The top receivers of Moroccan FDI flows are Cote d'Ivoire and Nigeria. Moreover, the sectoral distribution of Moroccan FDI flows is 44% in the banking sector, 21% in the holding company, 9% in real estate, and the rest in telecommunications, transport, insurance, energy, and mining (Office des Changes, 2017).

On the other hand, China is also present in Africa within the Belt and Road Initiative. Bilaterally, China has invested in 49 African countries which have already signed memoranda of understanding. Geographically, 22 countries in West Africa, 12 countries in East Africa, 9 in North Africa, and six countries in Central Africa. These memoranda of understanding formalize Chinese FDI in African countries with the recognition of local governments. It facilitates the investment process for Chinese MNEs in these countries¹.

Generally, the Belt and Road Initiative projects in Africa are emerging in sectors related to infrastructure and logistics to improve territorial competitiveness in Africa. China is investing in ports and port areas along the coastline from the Gulf of Aden to the Suez Canal to the Mediterranean Sea. In addition, China uses its connectivity projects (20% of all its projects in Africa, including rail and road lines) to link its industrial (10% of all its projects, including mineral processing) and energy projects (15% of all its projects, including oil and renewables) in the African hinterland to infrastructure projects (nearly 45 percent of all its projects, including ports) along the coastline African. It appears to have made significant progress on the Mali-Guinea cross-border railway project, the Chad-Cameroon pipeline, Sudan (Port Sudan) –Chad – Niger – Mali-Senegal (Port of Dakar) rail line, and the Central African Republic-Chad water diversion project (Transaqua Project).

The research conducted by this chapter is of great interest to public decision-makers and the private sector as joining the Belt and Road Initiative is an indicator of the territorial competitiveness of African countries. The African continent remains a black box for foreign investors because information on economic stability, macroeconomic aggregates, and any relevant information for investors are not published or reliable. To this end, foreignness liability remains a thing for any firm wishing to invest in Africa. However, the Belt and Road Initiative is a good indicator of territorial performance, and it is a sign of the territorial health of host countries insofar as the massiveness and importance of Chinese investments constitute a signal effect for other investors so that they can follow the Chinese by minimizing the risks associated with ignorance of the local business climate in Africa².

This chapter aims to study the effect of the Belt and Road Initiative on the location choice of Moroccan FDI in African countries. In other words, the authors will conduct an empirical investigation using the hypothesis testing method to validate the idea that Chinese infrastructure investments contribute to the African attractiveness of inward FDI in general and Moroccan FDI in particular.