Discussion of BRICS investment in Africa tends to conjure up images of Chinese-built superhighways and controversial mining projects. On his first trip to Africa, President Xi Jinping has defended his country's growing influence on the continent ahead of a BRICS summit meeting in South Africa.
But a new report from the U.N. Conference on Trade and Development shows that the picture of who is investing the most in the continent is a bit different than you might expect. For one thing, China isn't even East Asia's top investor in Africa -- that would be Malaysia:
A 2010 article from Consultancy African Intelligence described Malaysia's investment in Africa as "dispersed both in terms of the countries and the industries targeted" and noted that "Malaysian firms – such as Petronas and Telekom Malaysia - accounted for more than 1/2 of mergers and acquisitions between Asian and African multinational corporations (MNCs) between 1987 and 2005, with the largest recipients having been Mauritius and South Africa." Reuters reports that "Malaysia sent 24 percent of its outward FDI to Africa in 2011, mainly to Mauritius in that year."
What's so attractive about Mauritius? Well apart from a stable democracy and what are apparently lovely beach resorts, it's also an emerging tax haven -- though the government objects to the label -- as the Wall Street Journal reported last year:
By the end of 2010, Mauritius hosted 27,500 holding companies controlling more than $400 billion in assets. Setting up a company there takes just two weeks and $10,000, and such companies as JP Morgan Chase JPM +0.06% & Co., Citigroup, C +0.25% PepsiCo PEP +1.19% and most private-equity groups now have Mauritius subsidiaries.
The influx has boosted employment and living standards. About 15,000 Mauritian accountants, lawyers and other professionals work with offshore companies, representing 5% of Mauritius's gross domestic product. Glass towers housing Barclays BARC.LN +1.84% and Ernst & Young in Ebene's new commercial district have replaced sugar-cane fields.
The UNCTAD report notes that money from other BRICS countries is also finding it's way to the islands east of Madagascar:
With US$18 billion, South Africa was the fifth largest holder of FDI stocks in Africa in 2011 and the second largest developing country - after Malaysia. The majority of this outward stock could be attributed to reinvested earnings in the private non-banking sector. Most of the outward FDI stock in Africa is held in Mauritius. A significant amount of FDI stock are also present in Nigeria and in two of South Africa's neighbours: Mozambique and Zimbabwe. Mining is the sector in Africa that has attracted the largest volumes of FDI in terms of value, but the sectoral distribution of the outward investment has been more diversified from the perspective of number of projects.
Indian FDI in Africa has traditionally been concentrated in Mauritius, taking advantage of the latter country's offshore financial facilities and favourable tax conditions; as a result, the final destinations of these investments have often been elsewhere.
According to the Journal, China got Mauritius to amend its tax treaty in 2007 so that Chinese investors would have to pay capital gains taxes back home. India has attempted to negotiate a similar deal. UNCTAD reports that Russian investors have been slower to move into Africa, but perhaps the meltdown in Cyprus will speed the process along.
Of course, this isn't exactly the kind of investment that BRICS leaders will be touting at the summit in a few days.
War of Ideas is a blog on the theory behind the practice of global politics. Foreign Policy associate editor Joshua E. Keating brings you the latest research, data, and intellectual debates from around the world.