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.

Chinese：https://web.wtocenter.org.tw/Page/126/388722