Identifying Forward and Backward Linkages From China's Infrastructure Investment in Africa

Identifying Forward and Backward Linkages From China's Infrastructure Investment in Africa

Ehizuelen Michael Mitchell Omoruyi
Copyright: © 2021 |Pages: 31
DOI: 10.4018/JCAD.2021010101
Article PDF Download
Open access articles are freely available for download


The continent of Africa must industrialize to eradicate poverty and create jobs for its 12 million African youth who join its workforce yearly. One of the major factors hindering industrialization has been the insufficient stock of productive infrastructure that would permit companies to thrive in industries with robust comparative advantage. Within the context of Africa-China cooperation, China has emerged as a key partner to several African nations, including financing as well as constructing large-scale infrastructure projects. With emphasis on the Tazara railway, Mombasa-Nairobi railway, and Ghana Bui hydropower dam, this paper employs backward and forward linkages theory to investigate what role these three Chinese-led infrastructure projects play in African infrastructure development and what the infrastructure investment leads to concerning creating new opportunities and businesses for Africa. The paper discovers that these three Chinese-led infrastructure projects have multiple gains and linkages for and beyond the three various projects areas. Above all, these three Chinese-led infrastructure projects were seen by the Chinese government to fulfil its goals in Africa.
Article Preview

1. Introduction

Five of the top ten fastest growing economies in the world in 2019 are in Africa, and four in Sub-Saharan Africa (SSA) (Deloitte, 2019). Yet, for GDP growth to produce structural changes required across Africa, it needs to be inclusive. Essentially, more focus must be placed not only on quantity (high growth) but also on the qualitative aspect of growth. All these can be possible if African economies invest more in infrastructure. This is because infrastructure holds a transformative power in the global economy. No wonder the Chinese proverb says: “If you want to prosper, first build roads” (Deloitte, 2018). That was why when China launched its own economic development it built roads, ports, rural power plants, modernized agriculture, invited in factories and experimented with different approaches: special economic zones for instance. The Chinese did this because they know that through the construction of electricity, roads, ports, airports, railways, and communications networks, nations can power the homes of their citizens and commerce, connect producers to markets, and share information speedily, thereby boosting worldwide and regional trade, competitiveness, economic opportunities, and the quality of life (Sy, 2017).

With that said, notably, better infrastructure can benefit African the economy through these three channels. Firstly, cheaper transport costs can help create new markets and realize the return to agglomeration, which in turn fosters competition, spurs innovation, lower prices, and raises productivity, thereby leading to a surge in the standard of living (Henckel and McKibbin, 2010). Secondly, transport infrastructure can have a direct effect on the economic efficiency of an economy by reducing transport costs and an indirect effect by lowering inventories. Thirdly, as an economy moves up the global value chain, adapting its infrastructure can be a catalyst for promoting private activities and industrialization, and ensuring that enough employment is created for the 12 million young African youth entering the labor force yearly,1 attracting foreign investment in other sectors and increasing business confidence, fosters innovation and productivity, promote the manufacturing sector, skills development, integration, intra-African trade, tourism, competitiveness, economic opportunities, quality of life and leading to more trade with the rest of the world. This shows that infrastructure can help propel FDI and in turn help to develop forward and backward linkages which will permit domestic companies to be better integrated into global supply chains.

With that said, Mckinsey Global Institute (MGI) estimates that infrastructure typically has a socioeconomic rate of return of around 20 percent (MGI, 2016). In other words, one dollar of infrastructure investment can raise GDP by 20 cents eventually. Simulations show that in developing nations, increasing the public-investment-to-GDP ratio from 7.0 percent of GDP to 14.0 percent of GDP in about three years and stabilizing it at 9.0 percent of GDP afterwards can substantially raise the output by 7.0 percent over the long term (IMF, 2014).2 The potential benefits of infrastructure are even larger when the network and cross-sectoral impacts and synergies are accounted for. The World Bank estimates that SSA gross domestic product (GDP) per capita growth would surge by 1.7 percentage point yearly if the region were to close the infrastructure gap (in terms of both quantity and quality) relative to the developing world median.3

No wonder Park (1989) has confirmed that the infrastructure industry generates one of the highest multiplier effects through its extensive backward and forward linkages with other sectors of the economy. As such, for a nation to develop that nation needs to first move for developing infrastructure facilities to the backward regions of the nation to boost up the economic performance of that nation by means of facilitating major economic activities, namely agriculture, industry and service. Also, the nation follows the same path and try to invest further so that there is a parallel surge in the levels of investment expenditures which accelerate the process of growth and development of the economy. The former one is known as the forward linkage and the latter is known as the backward linkage.

Complete Article List

Search this Journal:
Volume 20: 1 Issue (2024)
Volume 19: 1 Issue (2022)
Volume 18: 2 Issues (2021)
View Complete Journal Contents Listing