Published Date: 2023-08-09
Publication:2020.12
Principal Investigator:江文基
Jiang, Wun-Ji
Sub-Investigator:李淳
Lee, Roy Chun
The
aim of the study is to explore the prospects of the African Continental Free
Trade Area (AfCFTA), as well as the advantages and limitations of Taiwanese
enterprises in expanding into seven African countries with growth potential
(Nigeria, Egypt, Kenya, Ghana, Tanzania, Ivory Coast, and Eswatini). A
qualitative analysis was also conducted to identify the modes of market entry
by Taiwanese businesses, potential barriers and strategies, explore the
possibility of entering the African market together with other countries
(including the US, Japan, UK, and South Africa), and solicit industry suggestions
on ways the government and Taiwanese busiensses could expand into the African
market. In so doing, the study developed policy recommendations for the
government on African market entry. The following provides an overview of the analysis
results.
Prospects
of AfCFTA and Opportunities for Taiwan
Without
an AfCFTA membership, Taiwan is not directly entitled to associated
preferential tariffs and trade facilitation measures, and could only benefit indirectly
by investing in an AfCFTA member country, setting up local production facilities
or operational centers, and exporting to other African markets. With such
approach as the key market entry strategy for Taiwanese businesses, the study utilized
the methodology in the African Trade Report 2019 by the African Import-Export
Bank (Afreximbank) to assess the unrealized potential of intra-African trade, which
features export potential assessment tools and database developed by the
International Trade Centre (ITC). The results shows that the top ten industries
with export potential in intra-African trade are mineral products, food, fish
and shellfish, machinery, beauty products and perfume, fertilizers, sugar, motor
vehicles and parts, plastics and rubber materials, and chemicals. A deeper look
into the top three investment targets among these sectors reveals South African
as the primary destination, followed by Egypt. In addition, the beauty products
and perfume, as well as sugar sectors of Eswatini, a diplomatic ally of Taiwan,
exhibit great export potential, and merit investment coniderations by Taiwanese
businesses as a springboard to other African markets.
Strengthening Taiwan's economic and trade
ties with the seven African markets of potential
Previous
research has reported the benefits of AfCFTA in driving economic growth across
African countries, making the continent an attractive target for Taiwan when it
comes to future foreign trade and investment engagements. Deepening the
economic and trade relations with Africa serves to diversify Taiwan’s economy
and trade relations, while creating export opportunities for domestic
businesses. The impact of recent global events, such as the US-China trade war
and the COVID-19 pandemic, have also accentuated the need for Taiwan to enhance
economic resilience and risk management through trade diversification. However,
as it is rather unattainable to explore ways to strengthen Taiwan’s trade
relations with each country respectively, the study prioritized Eswatini,
Egypt, Ghana, Nigeria, Kenya, Cote d'Ivoire, and Tanzania (hereafter referred
to as the “high-potential African markets”), countries with a certain economic
scale or exhibiting rapid economic growth, and conducted separate in-depth
analyses on overall business environment, foreign trade and investment status,
industry policy framework, potential sectors/products for bilateral trade, and
investment opportunities for Taiwan. The analysis results are presented in
Chapter 3 and 4 of this study. The results suggest greater Taiwanese export
potential towards the seven African markets than the other way around.
Taiwanese sectors with export potential include machinery, plastics and rubber
materials, and electronic equipment, while the seven markets have comparably
greater export potential in mostly agricultural products. In addition, except
for Egypt, the other six countries enjoy preferential tariff treatment under
the African Growth and Opportunity Act (AGOA) with the US, and there have been
case studies where Taiwanese textile companies invested in Africa and supplied
the US as the final market. As such, for businesses positioning the US as the
final market with product offerings immune to market volatility (e.g., uniforms
or work clothes), these markets could be considered a gateway to the American
market, with available tariff benefits under the AGOA.
Strategy
of the US, Japan, the UK, and South Africa for the African market
Both
the US and UK have existing economic and trade agreements with African states,
and have supported local economic development and capacity building through
development assistance programs, which have provided American and British firms
a competitive edge in trade or investment activities. Similarly, Japan has,
through delivering aid and development assistance to Africa, helped Japanese
companies in expanding their presence in the continent. South Africa, on the
other hand, has sought to strengthen its economic and trade ties with African
countries by facilitating regional integration. It is worth noting that US and
Japan’s expansion efforts in Africa seem to turn the continent into an arena
for strategic competition, while the UK is seeking to maintain its
international status after Brexit by tapping into Africa's economic growth
potential.
Survey
on industry experience and suggestions on expanding into Africa
1.
Summary
of common challenges of marketing in Africa
Table
7-3 presents the experience and feedback of industry leaders at home and abroad
on African market entry, detailing their opinions on marketing/investing in
Africa, recommendations for the government/Taiwanese businesses, and views on
partnering with businesses from the US, Japan, the UK, South Africa, and other
countries. In summary, the common challenges encountered include rampant trade
fraud, inefficient customs procedures and non-transparent charges and fees,
inadequate infrastructure (including water, electricity, and transportation),
strict foreign exchange controls and large currency fluctuations in certain
countries, low quality of labor and management difficulties, competition from
low-priced Chinese products, threats to personal safety, and unstable political
situations in some countries. Furthermore, the Covid-19 outbreak in 2020 has
severely impacted Taiwanese businesses' expansion into Africa. While most
companies adopt a wait-and-see approach, some have taken proactive measures
that require less face-to-face contact, for instance equipment investment or
asset acquisition, gearing up for future business expansion in the African
market during the slow season.
2.
Industry-specific
insights on expanding into Africa
To
begin with, Taiwanese machinery companies believe the African agriculture and
food machinery, as well as the second-hand machinery markets have massive
growth opportunities. As such, companies in Taiwan could consider exporting not
only individual products, but turnkey projects as a market entry strategy.
Plastic and rubber material suppliers have observed growth potential in hard
plastics (consumer plastic products) in Africa, and according to tire
manufacturers, while competition from cheap Chinese tires is expected for new
entrants at this stage, there is still an opportunity for local tire repair
services and related tire repair tools. When it comes to the electronics
equipment sector, China is the biggest competitor for Taiwan in solar power
generation equipment and most electronic products on the continent, while
second-hand electronic products also exhibit market potential. Therefore,
Taiwan's market expansion strategy should prioritize enhancing awareness of
Taiwanese products in Africa, and considering product improvements based on
local needs (such as language and ease of use). As for metal products,
companies believe it is critical to select local business partners carefully
and maintain good customer relations to build trust and customer base in the
African market. In addition, some companies have used Egypt and its FTAs with
other African states as a stepping stone to expand into other African
countries, which makes Egypt a viable option for setting up an operational base
if companies intend to enter the northwest African market. Finally, serious
locust infestation in Africa has led to urgent demand for related agricultural
chemical products. Taiwan could expand its market presence through electronic
products and innovative technologies (such as drones); however, Taiwanese
companies alone may not be able to meet such a huge demand, as domestic
pesticide production capacity is rather limited.
3.
Possibility
of partnering with businesses from the US, Japan, the UK, South Africa, and
other countries for African market entry
Most
of the interviewees in the study considered it unlikely to work with businesses
from other countries (US, Japan, the UK, South Africa) to expand into Africa,
who already have their own supply chain networks and normally do not accept new
comers. Therefore, it may be more feasible to expand into the African market by
integrating the upstream and downstream supply chains of an individual sector
at home. However, some companies still observed room for cooperation in
specific sectors/areas with American, Japanese, British, and South African
countries, including (1) plastic packaging materials: with large local US-based
food companies; (2) automotive and motorcycle-related metal products: with
Japanese companies; and (3) drones: with countries advanced in science and
technology such as the UK and US to jointly combat locust outbreaks. The
interviewees also commented on methods for Taiwanese businesses to enhance
supply chain cooperation with companies from other countries, such as (1)
establishing a one-stop procurement service; (2) setting up shipping warehouses
and working with companies from friendly countries to reduce product
transportation and storage costs; and (3) deepening cooperation in public
welfare with friendly countries and NGOs.
Policy
Recommendations
Seeking to facilitate government decision-making, the study proposed the following policy recommendations on African market entry by Taiwanese business: (1) organizing exhibitor delegations and trade missions for Africa-focused business development events, without excessive advertising; (2) in addition to promoting exports to Africa, increasing import of products with comparative advantage from African countries could also be considered for the purpose of reciprocity; (3) Taiwan should pool resources and prioritize select countries as a starting point for expansion; (4) setting up industrial demonstration centers and inviting African prospects to Taiwan for business visits to create export opportunities; (5) developing and deploying language and international trade talents in the target African markets to increase access to market information; (6) attracting more African students to study in Taiwan, who could help foster industrial partnership between Taiwan and African countries; (7) setting up Taiwan product exhibition centers in Africa and using digital marketing tools to enhance brand awareness and exposure; (8) leveraging the advantages of specialization by integrating the up- and down-stream supply chains for effective market expansion, and (9) expanding local branch network of Taiwan's Export-Import Bank (Eximbank) in Africa and use of relending facility.