Final Report Asia Africa Trade And Investment Study - Kamiya

The World Bank

STUDIES ON AFRICA-ASIA TRADE AND INVESTMENT RELATIONS: (B) STUDIES OF SELECTED ASIAN COUNTRIES IN DEVELOPING TRADE AND INVESTMENT RELATIONS WITH AFRICAN COUNTRIES

Final Report

June 2004

in association with

UFJ Institute

Studies on Africa-Asia Trade and Investment Relations (B)

Table of Contents

TABLE OF CONTENTS Table of Contents ............................................................................................................. i List of Appendices........................................................................................................... ii List of Tables, Figures, and Boxes ................................................................................ iii Abbreviations .................................................................................................................. v Executive Summary ...................................................................................................... vii 1

Introduction .......................................................................................................... 1-1 A. Background and Objectives .................................................................................. 1-1 B. Proposition and Hypotheses .................................................................................. 1-3

2

Trade and Investment Between Africa and Asia................................................ 2-1 A. Trade Relations..................................................................................................... 2-1 B. Investment Relations ............................................................................................ 2-7 C. Trade and Investment Linkage in Africa Asia Region ........................................ 2-15

3

Overseas Development Assistance To Promote Trade and Investment ........... 3-1

4 Asian Countries’ and Firms’ Policies To Promote Trade and Investment in African Countries ........................................................................................................ 4-1 A. Government Policies and Strategies...................................................................... 4-1 B. Trade and Investment Facilitation and Support Mechanism .............................. 4-16 C. Historical Relationship with African Countries ................................................. 4-21 D. Entrepreneurs Network and Business Communities .......................................... 4-26 5

Cases of Direct Investment in Africa: Strategies and Linkages ...................... 5-1 A. B. C.

6

Backward and Forward Linkages .................................................................... 5-1 Firm Policies and Strategies in Africa ............................................................. 5-2 Accounts of Asian Private Companies in Africa ........................................... 5-17

Recommendations ................................................................................................. 6-1

References.................................................................................................................... R-1

i

Studies on Africa-Asia Trade and Investment Relations (B)

Table of Contents

LIST OF APPENDICES Appendix A Appendix B Appendix C

Classification of Industries...................................................................... 6-1 Japanese Companies in Africa ................................................................... 1 Asia-Africa Trade Regimes ....................................................................... 1

ii

Studies on Africa-Asia Trade and Investment Relations (B)

Table of Contents

LIST OF TABLES, FIGURES, AND BOXES Table ES-1 Level of Development and Market/Policy Instruments ............................................. xi Figure ES-1 Strategies and Goals............................................................................................... xiii Figure 1-1 Hypotheses and Goals .............................................................................................. 1-7 Figure 2-1 Exports to Africa by Asian Country ......................................................................... 2-2 Figure 2-2 Export Distribution to Africa by Asian Country ....................................................... 2-2 Figure 2-3 Exports from Africa by Asian Country ..................................................................... 2-3 Figure 2-4 Export Distribution from Africa by Asian Country .................................................. 2-3 Table 2-1 Asian Countries’ Exports to Major African Countries ............................................... 2-4 Table 2-2 Asian Countries’ Top 6 Import Countries................................................................... 2-4 Table 2-3 Asian Countries’ Exports to Africa by Industry (2001*) ........................................... 2-5 Table 2-4 Asian Countries’ Imports from Africa by Industry (2001*) ....................................... 2-5 Figure 2-5 Primary Sector Comparative Advantage Index by Region ....................................... 2-6 Figure 2-6 Mining Sector Comparative Advantage Index by Region ........................................ 2-6 Figure 2-7 Manufacturing Sector Comparative Advantage Index by Region ........................... 2-7 Figure 2-8 Quantity and Total Amount of Japanese FDI to Africa ............................................ 2-8 Figure 2-9 Quantity and Total Amount of Korean FDI to Africa ............................................... 2-9 Figure 2-10 Quantity and Total Amount of Chinese FDI to Africa ............................................ 2-9 Figure 2-11 Quantity and Total Amount of Taiwanese FDI to Africa ...................................... 2-10 Table 2-5 Top 5 African Destinations for Japanese Investments.............................................. 2-10 Table 2-6 Japanese Investment Structure by Industrial Sector ................................................. 2-11 Table 2-7 Korean Investment Distribution by Country and Industry ....................................... 2-12 Table 2-8 Korea’s FDI in Manufacturing ................................................................................. 2-13 Table 2-9 Countries and Cumulative Investment for China ..................................................... 2-14 Table 2-10 China’s FDI to Africa by Industry .......................................................................... 2-14 Table 2-11 Taiwan’s FDI to Africa by Country and Industry ................................................... 2-15 Figure 2-12: Trend of Japan-Africa Trade, FDI, and ODA Flow ............................................. 2-16 Table 3-1 Levels of Development and Market/Policy Instruments ............................................ 3-1 Box 3-1 Motivations Behind Market Entry................................................................................ 3-2 Table 3-2 Main Promotion Policy and ODA by Asian Country ................................................. 3-3 Table 3-3 Korean Aid by African Country ................................................................................. 3-4 Figure 3-1 Korean ODA and FDI by African Country ............................................................... 3-4 Table 4-1 Korean Bilateral Agreements by African Country ..................................................... 4-5 Table 4-2 Taiwan’s Bilateral Agreements with African Countries ............................................. 4-9 Table 4-3 Malaysian Bilateral Agreements by African Country .............................................. 4-14 Table 4-4 Number of Japanese Subsidiaries in Africa and Japanese Companies Invested ...... 4-26 Table 4-5 Number of Japanese Residents in Africa.................................................................. 4-27 Table 4-6 Number of Korean Residents in Africa .................................................................... 4-29 Table 4-7 Taiwanese Private Companies and Residents in Africa ........................................... 4-31 Table 4-8 Indian Population in Selected African Countries ..................................................... 4-34 Figure 5-1 Linkages and Spillovers in Perspective .................................................................... 5-2 Table 5-1 Three Types of Asian Investment Projects ............................................................... 5-12

iii

Studies on Africa-Asia Trade and Investment Relations (B)

Table of Contents

Box 5-2 Types of Asian Investment to Africa – Case Studies .................................................. 5-14 Table 5-2 Samsung’s Project with EDCF (1987-1996) ............................................................ 5-19 Figure 5-2 Samsung’s Share in Korean EDCF Projects ........................................................... 5-19 Box 5-3 EDCF Projects in Ghana ............................................................................................ 5-20 Table 5-3 MK’s Local Subsidiary Companies.......................................................................... 5-22 Table 5-4 MK’s Performance Record of Engineering Projects in Africa ................................. 5-23 Table 5-5 Tex-Ray’s Garment Factory in Swaziland................................................................ 5-24 Table 5-6 Tex-Ray’s Spinning Factory in Swaziland ............................................................... 5-25 Table 6-1 Economic Zones in Africa .......................................................................................... 6-6 Figure 6-1 Strategies and Goals ................................................................................................. 6-8

iv

Studies on Africa-Asia Trade and Investment Relations (B)

Table of Contents

ABBREVIATIONS AACC AAITPC AGOA AHI ASEAN BIS BITs BLNS CAP CAPEPC CEMAC CII COMESA DAC EBA ECGC ECOWAS EDCF EEPC ESAF FDI FEC GATS GATT GDI GDP GTCs GTP GTZ HIPC IF IMF JITAP KEIC KIEP KITA KOTRA LC LDCs MASSCORP MIGA

Asia Africa Chamber of Commerce Asia-Africa Investment Technology Promotion Center African Growth and Opportunity Act Afrikaanse Handels Instituut Association of South East Asian Nations Bank for International Settlements bilateral investment treaties Botswana, Lesotho, Namibia, and Swaziland Chemical and Allied Products Chemical and Allied Products Export Promotion Council Central Africa Economic and Monetary Community Confederation of Indian Industries Common Market for East and Southern African States Development Assistance Committee Everything but Arms Export Credit Guarantee Corporation Economic Community of West African States Economic Development Cooperation Fund Engineering Export Promotion Council Enhanced Structural Adjustment Facility Foreign Direct Investment Foreign Economic Cooperation General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Income Gross Domestic Product General Trading Companies Global Trader Program Gesellschaft für Technische Zusammenarbeit Heavily Indebted Poor Countries Integrated Framework International Monetary Fund Joint Integrated Technical Assistance Program Korea Export Insurance Corporation Korean Institute for International Economic Policy Korean International Trade Association Korea Trade-Investment Promotion Agency Letter of Credit Less Developed Countries Malaysian South-South Corporation Berhad Multilateral Investment Guarantee Agency

v

Studies on Africa-Asia Trade and Investment Relations (B)

NTBs OAU ODA OECD PRGF PRSC PRSP RTA SACOB SADC SEPC SITC SMEs TDCA TFP TICAD III TRADE TRIMs UNCTAD UNDP UNECA UNIDO UR USAID WTO

Table of Contents

Non Tariff Barriers Organization of African Unity Overseas Development Assistance Organization for Economic Co-operation and Development Poverty Reduction and Growth Facility Poverty Reduction Support Credit Poverty Reduction Strategy Papers Regional trade agreement South African Chamber of Business Southern African Development Community Shellac Export Promotion Council Standard International Trade Classification Small and Medium-Sized Enterprises Trade Development and Co-operation Agreement Total Factor Productivity Third Tokyo International Conference on African Development Trade for African Development and Enterprise Trade Related Investment Measures United Nations Conference on Trade and Development United Nations Development Program United Nations Economic Commission for Africa United Nations Industrial Development Organization Uruguay Round The United States Agency for International Development World Trade Organization

vi

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

EXECUTIVE SUMMARY A. Review of Hypotheses ES.1 This study was conducted in order to develop a full understanding of the potential for trade and investment between Asia and Africa, as well as discovering factual information and creating an analytical framework to identify specific sectors and products to promote either trade or investment. The objective was to test the following hypothesis: Africa is becoming a more strategic production/processing location for Asian industries. Development of global production linkages and various trade preferences have fostered seamless linkages between trade and investment. ES.2 This study shows that indeed Africa is becoming a more strategic location for production and trade for Asian firms, but that it is limited to a select number of countries and industries. The study also determined that there are linkages, but they are limited in number and there is considerable room for improvement and development, which must be fostered by Asian and African governments. ES.3 To verify the hypothesis, the study was divided in eight smaller hypotheses, for which this study findings are as follows: Hypothesis

Factual findings and fields where policies are required

1. Some Asian countries have encouraged their businesses to expand in Africa through inter governmental initiatives.

Several types of government support and incentive mechanisms are available for Asian countries’ enterprises in the form of treaties, export promotion, loans, and ODA. But, these mechanisms appear to be applied only to selected countries in Africa, mainly due to lack of credit worthiness and bilateral political linkages elsewhere on the continent. The human network in local business communities is a powerful instrument to minimize risks (reliability in market information, business customs, and the government systems for maintaining business environments). But, both the human network in Africa and human resources in Asia are still limited compared to European countries and their long history in Africa.

2. Expansion of Asian businesses in Africa has been often accompanied by growing human network in Africa rather than the amount of capital investment (number of expatriates and number of foreign residents).

vii

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

Hypothesis

Factual findings and fields where policies are required

3. Bilateral trade and investment agreements, especially with the US/EU, have become one of the major motivations for Asian firms to diversify their production geographically. 4. Imports of intermediate inputs from Asia are supporting the boost of African exports in manufactured products targeting developed countries. 5. Similarity to the Japanese electronics industry’s diffusion of its production into ASEAN countries, which was followed with technology transfer, when Japan was facing severe trade friction with the U.S., and Japan was challenged by high production costs as a consequence of the appreciation of Yen. Can this analogy apply to textile trade between Asia and Africa? 6. In the past, Asian direct investment in the manufacturing industry had been mostly the result of African import substitution policies. These types of investments have performed poorly due to limited domestic markets and unfavorable business environments. 7. Today, investment from Asia is more driven by the market opportunities in other countries, such as the EU, US, and Asia.

This is especially evident in the textile industry as has been observed in Kenya, Lesotho, Swaziland, and Mauritius as investments by companies from Malaysia, Singapore, Taiwan, China, and India have indicated that the US and EU quotas are a motivating factor. This is an example of the effectiveness of the quota system. There is evidence of exports by Asian countries in intermediate goods such as industrial plants, machinery, raw materials for textile, and chemical products. But, the study has not yet identified the boost of manufactured product exports from African countries, except in the textile sector. Some cases support this hypothesis and are boosted by the US/EU quota provisions. However, it cannot be generally applied to all African countries, since the resource endowment is quite different from ASEAN, where the labor force was the major resource. But this research still indicates opportunities in resource-based export-oriented industries as well as domestic market oriented trade and investment opportunities.

Some import substitution investments began by creating import tariff protection, which enabled the companies to sell the products to the domestic market at higher prices than international market. As the result of recent shift to lower tariffs and open trade in Africa, some of these ventures’ cost/benefit structure collapsed. But, there seems to be a variety of opportunities in viable import substitution industries, due to an absolute lack of local industrial supply and growing needs, though the market size is often small to medium. This is partially correct. But there are still various opportunities for resource-based as well as domestic market oriented trade and investment (See hypotheses 3, 4, and 5).

viii

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

Hypothesis

Factual findings and fields where policies are required

8. There is a potential to create win-win collaboration between Asia and Africa with development of seamless linkages between trade and investment.

Since collaboration between Asia and Africa has been limited in terms of flow of goods, funds, and people, compared to European examples, there are many areas to improve to smooth the flow. But more efforts to create seamless linkages must be undertaken by governments in both Asia and Africa.

B. Recommendations

ES.4 In general, trade and investment strategies can be categorized as domestic-market oriented or export-market oriented. In the case of Africa, given the fact that there is strong competition in natural resource based trade and investment such as mining products, energy resources, and agro-based products, a consideration for seeking further value add is also important. On the other hand, there are also strong demands for various kinds of consumer products in the domestic market, where individual market size is generally small and unattractive for mass production investment. By observing target markets and covering all potential directions, the following analysis attempts to summarize the potential and developing strategy (Policies to promote linkages are shown in Figure 1 with corresponding hypothesis.) ES.5

Strategies Recommended.

ES.6 African Countries. African economies, in general, have been protected by high levels of tariff and non-tariff barriers for foreign trade and investment. However, import tariff rates are gradually declining because of the acceptance of a free trade regime and privatization of state-owned enterprises, in coordination with international donor community. Consequently, an import substitution policy with a high rate of tariff protection became an ineffective policy for industrial development and employment generation. A key word of the trend is “open economy” in which the free flow of foreign business in various sectors and products are able to enjoy both export-oriented and domestic market-oriented trade and investment. The following are recommendations to be considered by African countries. •

Environment for Small- and Medium-Sized Business: An enabling environment for trade and investment that is able to accommodate small- and medium-scale investment and trade. There are a variety of small- and medium-scale business opportunities targeting the domestic market. The business infrastructure for trade, particularly licensing, customs, and transportation, needs to be developed so that foreign small- and medium-sized business would be better able to engage in business. It should be noted that compared to large-scale enterprises, SMEs are weaker in political influence with regards to their needs for a business environment and require reliability and predictability in their business environment. If successful, SMEs bring comparatively larger employment opportunities against invested capital.

ix

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

•

Credit worthiness and reliable financial transaction system. Because of the lack of reliable financial transaction environments, Dubai is playing the trade service role. They provide line of credit mechanisms by banks, mixed commodity container shipping arrangements for the small-sized markets, and a meeting place for buyers and sellers at an off-Africa location. This kind of function should be able to be provided at hub locations in Africa with a government commitment to provide security and fair business transactions.

•

Natural resource oriented investments. Natural resource oriented investments, such as in oil and mineral resources are the primary attractive investment opportunity in African countries. Increases in value added are a serious issue because the world’s commodity prices are at a low level. Natural resource based businesses tend to be largely affected by domestic political and institutional conditions. A competitive environment needs to be expanded for efficiency and higher profitability.

•

Credit risk. There is a limitation in providing export credit and insurance by Asian country governments due to the poor credit rating of many of African countries. Private capital cannot be mobilized without government support in a high-risk environment. Efforts are needed by African countries to improve their credit ratings.

•

Economic Zones and Regional Trade Agreements. Economic Zones and Regional Trade Agreements (RTA) are being created within Africa. Efforts by African countries are needed to make the RTAs effective to bring about trade and investment in the area. A strategic plan to establish regional hubs should be initiated through regional cooperation within Africa.

ES.7 Asian Countries. Asian countries have an historical disadvantage compared to European countries. However, by expanding their own network and utilizing comparative advantages, particularly through small- and medium-size businesses, an elevated level of collaboration between these two regions can be achieved. The following are recommendations. •

For Asian firms there is a disadvantage in the human network compared to European firms, who have an established human network from their long history of conducting business in Africa. A human network supports developing business relations by creating mutual trust and eliminating risks from malpractice and misunderstanding. It is recommended that each Asian country should have a wide range of information exchanges, movement of people, technology transfer, and products exchange by utilizing government supported promotion facilities.

•

There is a need to improve the image of products from Asia, as they are viewed as low cost and low quality in many African countries. European products hold an advantage because they are viewed as high quality in some African countries. It is recommended that Asian countries improve their images of product and x

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

technology by enhancing communication and exchange. •

Investment projects in manufacturing targeted toward domestic markets need to be adjusted for small- and medium-size markets with appropriate technology. Once these conditions are met, there domestic production capacity is possible because it is quite limited. This area can be a comparative advantage for Asian business, particularly from newly industrialized economies including Korea, Taiwan, Malaysia, and India.

•

As African sub-regional RTAs are in development, region-to-region cooperation, for example ASEAN, can be another aspect of promoting a renewed Asia-Africa alliance.

•

ODA loans can be used to attract donor country companies to work with the recipient country, particularly if the ODA loan or grant fund is associated with private sector investment and trade activities. Given that Asian countries are still unfamiliar with many African countries, stages of trade and investment relations need to be developed with government-assisted intervention. As the bilateral economic relations between Asian and African countries develop, more market-oriented programs to promote private sector trade and investment can be utilized by mixing government intervention against market mechanisms. Table ES-1 Level of Development and Market/Policy Instruments Development Stage

Policy interventions to facilitate market transaction

ES.8

Initial Stage - ODA grants - ODA tied loans - Organized Missions - Bilateral Agreements

Developing Stage

Mature Stage

- Tax Incentives - Export Credit - Export Insurance - Overseas investment credit - Merchandise Exhibition - Investment Missions

- Promotion of inward investment - Trade/Investment Information Service

Donor Community. The following are recommendations for international donors.

•

In applying for export credit or export insurance by Asian countries, lowering the country risk is an issue beyond the capability of individual countries. The international donor community can play an important role to encourage improvements in credit ratings of African countries so that more African countries are eligible for bilateral trade and investment promotion schemes.

•

Both international and bilateral donors can provide technical assistance to improve human resources to create a sound business environment, enhance entrepreneurship, and establish institutional framework for market mechanism.

•

The framework, organization, and effectiveness of regional economic zones are xi

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

currently being left to the member countries’ initiative. The international donor community can assist in RTA development by strengthening its function through technical assistance provided to those RTA secretariats. •

By creating a multilateral trade system under the WTO, it is recommended that the donor communities discuss the application of the concept of special and differential treatment of developing countries announced in the Doha Declaration to adjust the system to a free trade regime. This is important for African countries, particularly the least developed countries (LDC), in opening their economy to world trade.

xii

Studies on Africa-Asia Trade and Investment Relations (B)

Executive Summary

Figure ES-1 Strategies and Goals Policies by African countries - Import substitution - Export Promotion

Potential for Trade and Investment Development Among Asian and African Countries

Strategy

Business Environment for Trade and Investment in African countries -

Type-1: Export to Asian Market -

-

Natural resource Human resource Domestic market Human network Country risk

-

-

RTA as expanded regional market

Natural resource based goods Intermediate goods

Type-3: Export to Third Country Market and Supply Chain Linkage - US and Europe market - Labor Intensive model

Type-2: Domestic Market Strategy

Policies by Asian Countries

Strategy by African Countries - Business environment development - SME trade and investment - Higher value added for resources - Improve credit ratings

-

Needs for variety of consumer goods Regional market integration

Bilateral ODA Human Network

xiii

-

Strategy by Asian Countries Develop human network Improve image of products SME investment opportunity Make use of African RTA ODA as instrument to induce trade and investment

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

1 INTRODUCTION A. Background and Objectives 1.1 Study Background. During 1960s and 1970s, the prevalent economic development model applied to developing countries, including Africa, was an import substitution strategy with high tariff and non-tariff barriers to foreign imports to protect and promote domestic industry. However, in most African countries, the import substitution policy has resulted in market distortions, misallocation of resources, and the intervention of governments to private sectors. While many Asian countries changed the focus of their development strategy in 1980s to export orientation, most countries in Africa continued to utilize import substitution and there is now considerable evidence that the inward-looking strategy discouraged investment and trade and negatively affected growth and living conditions in the region. In more recent years, African countries have been shifting to a more open economy, and there are clear results indicating that the change in policy framework have been positive for macroeconomic stability. 1.2 However, in terms of Foreign Direct Investment (FDI), Africa’s inflows are below those of Asia, Latin America, and China. If investment in Africa is disaggregated by country, South Africa and northern Africa receive most of the investments, while Sub-Saharan Africa is practically neglected. Also, international flows of FDI to developing countries almost doubled in the last decade in percentage terms, but FDI to Africa has remained low. 1 Trade patterns for Africa are still dependent on natural resources: its main exports are fossil fuels, minerals and stone, and forestry products. This is different from the general trend for other developing countries over the last three decades in which manufacturing has been acquiring increasing importance as an export sector. This situation is being exacerbated because of the declining trend in non-oil commodity prices. 1.3 In this regard, for Asian countries, Africa represents a small market, but Asia is a large market for Africa. Total imports from Africa as a share of total Asian imports were just over 1% in 2001. In the same year, Asia as a percentage of total African exports was almost ten times as large. Asia is also a sustained growing market for African exports; in 1990 Africa exported US$6.4 billion to Asia, while ten years later, in 2000, Africa exported $17.2 billion. 2 Based on these figures and increasing globalization, the underlying hypothesis is that there are opportunities for expansion of Asian-African trade and investment.

1 2

See Table 3-1 for more detail. IMF Direction of Trade Statistics Yearbook.

1-1

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

1.4 Recognizing these circumstances, the World Bank launched two sets of studies on trade and investment relations between Africa and Asia, one of which is entitled Studies on Africa-Asia Trade and Investment Relations (A): Factual Study of Africa-Asia Trade and Investment Relations Using Global Trade Data. The other is this study, entitled Study on Africa-Asia Trade and Investment Relations (B): Study of Selected Asian Countries in Developing Trade and Investment Relations with Africa. The outcome of these studies will be presented in preliminary form at TICAD III (Third Tokyo International Conference on African Development), as the intellectual basis for policy dialogue among policymakers and business communities. 1.5 Objectives. The main objectives of the study are (i) to present factual information and an analytical framework for potential growth of trade and investment between Africa and Asia for policymakers and businesses in both regions and (ii) to formulate policy options based on the identification and assessment of the information collected and analysis provided for the benefit of African development, contributing to the overall objectives of the TICAD III process. 1.6 Major Activities Undertaken. PADECO Co., Ltd. of Japan, in association with the UFJ Institute, has been commissioned by the World Bank to implement this study. The consultant team’s work is divided into three principal tasks as follows: • Task 1: define scope and select countries for study; collect statistical data on trade and investment activities with Africa; and document qualitative information; • Task 2: conduct quantitative analysis; conduct institutional and policy analysis; and analyze incentives and linkages; and • Task 3: prepare Mid-term review and Synthesis Paper (Draft Final Report) at the appropriate times during the execution of Tasks 1 and 2. 1.7 Field Visit and Investigation. A visit to South Korea was conducted from 27 July to 31 July 2003 to collect trade and investment related information and interview particular cases of private companies. The consultant team held meetings with trade and investment promotion agencies, financial institutions, governmental research institutions, and private companies. The findings from this field visit have been reflected in Chapters 2, 3 and 5 of this report. Specific names of visited agencies and companies are as follows: • • • • • • • • 1.8

Korean Institute for International Economic Policy (KIEP); Korea Trade-Investment Promotion Agency (KOTRA); The Export-Import Bank of Korea; UFJ Bank Soul Brach Office; Korean International Trade Association (KITA); Samsung Corporation; M. K. International Inc.; and United Nations Industrial Development Organization (UNIDO), Seoul Office. The team also employed local sub-contractors to collect relevant information in 1-2

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

China, Taiwan, Singapore, Malaysia, and India. Specific names of hired sub-contractors are as follows: • • • • •

UFJ Institute (Shanghai) Ltd.; Prof. Lu Tsong-Ming, Seijo University; Attisse Research & Consulting Service (Singapore); Federation of Malaysian Manufacturers; and TATA Consultancy Services (India).

1.9 Structure of Report. This Final Report summarizes the major findings of work conducted between June 2003 and October 2003. The consultant team collected trade and investment-related reference materials from various sources, conducted data collection through a field visit and studies in South Korea, China, Taiwan, Singapore, Malaysia, and India and prepared the analysis as set out in Task 2 above. 1.10 • • • •

The study identified the following key issue areas: Trade and investment relations between Africa and Asia (Chapter 2); Overseas Development Assistance to Promote Trade and Development (Chapter 3); Policies for promoting trade and investment in Asian countries (Chapter 4); and Cases of Direct Investment in Africa (Chapter 5).

1.11 The following chapters elaborate on the above issues and provide potential industrial sectors for expanding trade and investment between Africa and Asia, and recommendations to institutional and policy improvement for African/Asian countries.

B. Proposition and Hypotheses 1.12 According to the Terms of Reference (TOR), this study is to be conducted to test and verify based on factual data a key proposition as well as supporting hypotheses with respect to trade and investment relations between Africa and Asia, with key proposition below. Africa is becoming a more strategic production/processing location for Asian industries. Development of global production linkages and various trade preferences have fostered seamless linkages between trade and investment. 1.13 This study is based on the expectation that dynamic Asian economies, showing sharp increase in exports, will be able to act as investment partner as the result of globalization of Asian enterprises, partly surpassing the activities taken by Africa’s traditional trade and investment partners, the EU and US. The TOR presented eight hypotheses as starting points to initiate the study. The preliminary test on these hypotheses was conducted by the Study Team, and resulted in a flow diagram of factors related to the starting point and goals as stated in the diagram, Hypotheses and Goals (Figure 1-1). In this diagram starting point is defined as below.

1-3

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

Business Environment for Trade and Investment in African Countries, mainly consists of natural resources, human resources, domestic markets, human networks and country risk Then the goal has been identified as follows. Boost in Trade and Investment through “win-win” collaboration between Asia and Africa. 1.14 The eight hypotheses are identified within the flow diagram with some factors, but it is recognized that there are other factors that will contribute to realizing the goal. The preliminary test on hypotheses by the Study Team is conducted as follows. 1.15 Preliminary Test on Hypotheses. The following are brief relevant facts obtained to test each of the eight hypotheses. 9. Some Asian countries have encouraged their businesses to expand in Africa through inter-governmental initiatives. Several kinds of government support and incentive mechanisms are available for the respective Asian countries’ enterprises. For example, export credit, export insurance, and trade promotion missions are available for trade promotion in Korea and Japan. Overseas development assistance grants, technical assistance, and soft term loans are provided to assist enterprises in overseas ventures by the governments of China, Japan, and Korea. Promotional funds targeted to Africa are utilized in India and China. Tax incentive schemes are available for Singaporean enterprises conducting studies and visits for project formulations. Trade agreements and investment guarantee agreements and double taxation treaties are made between selected Asian and African countries. These mechanisms, incentives, and bilateral treaties appear to be applied only to selected countries in Africa, mainly due to lack of credit worthiness and bilateral political linkages. The relevant argument with this hypothesis is being taken place in Chapter 4-A: Government Policies and Strategies. 10. Expansion of Asian businesses in Africa has been often accompanied by growing human network in Africa rather than the amount of capital investment (number of expatriates, number of foreign residents, etc.). One of difficulties for business in Africa is a lack of reliability in market information, business customs, and the government systems for maintaining business environments. The human network in local business communities is a powerful instrument to minimize these risks. Although quantitative data is not available, Indian businesses in the eastern part of Africa are considered to be strongly supported by Indian residents. A relevant case is a Korean ex-military personnel who used to stationed in Angola for peacekeeping operation and is now working to promote trade and investment between Korea and Africa.

1-4

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

Nevertheless, both the human network in Africa and human resources in Asia are still limited compared to European countries and their long history in Africa. (Chapter 4-B: Trade and Investment Facilitation) 11. Bilateral trade and investment agreements, especially with the US/EU, have become one of the major motivations for Asian firms to diversify their production geographically. This has been observed in Kenya, Lesotho, Swaziland, and Mauritius as investments by companies from Malaysia, Singapore, Taiwan, China, and India have indicated that the US and EU quotas are a motivating factor. This is especially evident in the textile industry. For example, a Korean firm is negotiating with Ghana and Senegal to export second-hand textile machinery to be used in the export-oriented textile industry – evidence of the effectiveness of the quota system. (Chapter 5-B: Firm Policies and Strategies in Africa) 12. Import of intermediate inputs from Asia is supporting the boost of African exports in manufactured products targeting developed countries. There is evidence of exports by Asian countries in intermediate goods such as industrial plants, machinery, raw materials for textile, and chemical products. The export of Malaysian palm kernel crushing plants to Nigeria, Tanzania, and Mozambique is an interesting and promising example of trade to support resource-based industries of export-oriented agro-products. However, the study has not yet identified the boost of manufactured product exports from African countries, except in the textile sector. (Chapter 2-A: Trade Relations) 13. Similarity to the Japanese electronics industry’s diffusion of its production into ASEAN countries, which was followed with technology transfer, when Japan was facing severe trade friction with the U.S., and Japan was challenged by high production costs as a consequence of the appreciation of Yen. Can this analogy apply to textile trade between Asia and Africa? Some cases support this hypothesis and are boosted by the US/EU quota provisions. However, it cannot be generally applied to all African countries, since the resource endowment is quite different from ASEAN, where labor force was the major resource. Some of African countries are endowed with rich natural resources and have potential in resource based industry development as comparative advantage, rather than encouraging labor-intensive export-oriented industry. The research still indicates opportunities in resource-based export-oriented industries as well as domestic market oriented trade and investment opportunities. (Chapter 2-B: Investment Relations) 14. In the past, Asian direct investment in the manufacturing industry had been mostly the results of African import substitution policies. These type of

1-5

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

investments have performed poorly due to limited domestic markets and unfavorable business environments. Some import substitution investments began by creating import tariff protection, which enabled the companies to sell the products to the domestic market at higher prices than international market. As the result of recent shift to lower tariffs and open trade in Africa, some of these ventures’ cost/benefit structure collapsed. One of such example is Matsushita Battery, a Japanese investment in Tanzania established in the 1980’s, but now facing profitability problems. On the other hand, there seems to be variety of opportunities in viable import substitution industries, due to an absolute lack of local industrial supply and growing needs, though the market size is often small to medium. For example, a Korean medium-sized enterprise has been investing in various manufacturing projects in several African countries for their supplies for the domestic market. (Chapter 2-A: Trade Relations) 15. Today, investment from Asia is more driven by the market opportunities in other countries, such as the EU, US, and Asia. This is partially correct. But there are still various opportunities for resource-based as well as domestic market oriented trade and investment, as have been argued in hypotheses 3, 4, and 5. (Chapter 4-B) 16. There is a potential to create win-win collaboration between Asia and Africa with development of seamless linkages between trade and investment. Since collaboration between Asia and Africa has been limited in terms of flow of goods, funds, and people, compared to European examples, there are many areas to improve to smooth the flow. The efforts to create seamless linkages must be undertaken by governments in both Asia and Africa. (See diagram).

1-6

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

Figure 1-1 Hypotheses and Goals (Past & Current)

(Goals)

Policies by Asian Countries - Bilateral scheme (1)

Policy Strategies by Asian Countries

Potential for Trade and Investment Development Among Asian and African Countries

Business Environment for Trade and Investment in African countries - Natural resources - Human resources - Domestic markets - Human networks (2) - Country risk

Export-Oriented Strategy -

Labor Intensive Model US/EU Quota Provision (3) Asian Intermediate goods (4) Japan-ASEAN Model (5)

Boost in Trade and Investment Through “Win-win” Collaboration between Asia and Africa (8)

Natural Resource Based Model

Domestic Market Strategy -

Strong needs for variety of goods Small and diversified market

Policies by African countries - Import substitution (6)

Policy Strategies by African Countries

1-7

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter1. Introduction

Note: The number in parenthesis indicates hypothesis number.

1-8

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2 TRADE AND INVESTMENT BETWEEN AFRICA AND ASIA A. Trade Relations Initially, the trade relations between Asia and Africa were reviewed by country and sector and an analysis was attempted to indicate different market characteristics between Europe and the US and Asia. During the course of this research, it became evident that trade data in African countries was not accurately collected, which presented difficulties in assessing the situation.3 Therefore, the consultants utilized trade data from the surveyed Asian countries, as well as the EU, US, and Canada, to obtain trade data about Africa. 4 In addition, the consultants categorized sectoral trade data into three groups – agriculture, forestry and fishing, and mining and manufacturing – and five sub-categories to understand the trends of exports and imports, as well as the level of economic and industrial development based on the concepts of product cycle as follows: resource-intensive industries, labor-intensive industries, scale-intensive industries, differentiated goods (industries), and science-based industries.5 This sub-categorization is considered to be in line with the level of economic and industrial development, which may suggest future industrial competitiveness based on the market potential of Asia as an export destination. The following sections show the results of the analysis of general trends, geographical and sectoral compositions of trade between selected Asian countries and Africa, and any comparative advantages of Africa’s trade to other regions. 2.1

2.2 Trend of Export and Import Between Africa and Asia.6 Based on the export statistics of the surveyed Asian countries, exports to Africa increased in the latter half of the 1990s with a peak in 1998 (see Figure 2-1). The share of Japan’s exports to Africa declined continuously through the second half of the 1990s, while China’s share increased continuously during in the same period (see Figure 2-2). 3

“On the Recent Trade Performance of Sub-Saharan African Countries: Cause for Hope or More of the Same?” Francis Ng and Alexander J. Yates, Trade Research Team, The World Bank, September 2000. 4 Asian countries include Japan, South Korea, China, Singapore, Malaysia and India; European countries include United Kingdom, Germany, France and Italy; Northern American countries include United States and Canada. 5 According to the OECD (Organization for Economic Co-operation and Development. 1987. Structural Adjustment: Economic Performance. Paris; France.), by using ISIC classification, “manufacturing industries” were classified by the five categories. Based on this classification, Takanaka (Takanaka, Kimio. 2000. Foreign Trade and Economic Development (in Japanese). Keiso Shobo: Tokyo, Japan) made conversion of manufacturing goods to SITC classification. The characteristics of each industry are as follows: resource-intensive industries (comparative advantage can be gained by the affluent natural resources, labor-intensive industries (comparative advantage can be gained by cheap labor costs), scale-intensive industries (comparative advantage can be gained by length of process of production), differentiated goods industries (characterized by order production with various demands) and science-based industries (comparative advantage can be gained by the progress of science technology). Detailed classifications are attached in the Appendix-A. 6 In this analysis, due to the limitation of data obtained from UN Comtrade, which supplies consistent trade data set for Asian countries, Taiwan is not included.

2-1

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Figure 2-1 Exports to Africa by Asian Country (Millions of US$) 20,000

19,374 16,918

15,504

16,566

1995

1996

1997

18,106

18,200

17,135

15,000 9,133 10,000

5,000

0 1990

Japan

South Korea

China

1998 Singtapore

1999

2000

Malays ia

2001

India

Source: UN Comtrade.

Figure 2-2 Export Distribution to Africa by Asian Country 70.0 60.0 Japan Korea China Singapore Malaysia India

50.0 %

40.0 30.0 20.0 10.0 0.0 1990

1995

1996

1997 1998 Year

1999

2000

2001

Source: UN Comtrade.

2.3 African exports to Asia gradually increased through the 1990s, with a peak in 1997, followed by a decline in 1998, and a rise thereafter (see Figure 2-3). Japan imported the largest share of goods until 1999, when China took over (see Figure 2-4). This is further exemplified by comparing the percentage in exports by country between 1990 and 2001 – Japan dropped from importing 64% of African goods in Asia to 30%, while both China and India By comparing the share percentage of 1990 and 2001, Japan’s share dropped from 64% to 30%, while India and especially China showed a large increase.

2-2

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Figure 2-3 Exports from Africa by Asian Country (Millions of US$) 20,000 16,228

17,363

16,924 15,067

13,439

15,000

11,400

12,282

10,000 5,977 5,000

0 1990

1995 Japan

1996 South Korea

1997 China

1998 Singtapore

1999

2000

Malaysia

India

2001

Source: UN Comtrade.

Figure 2-4 Export Distribution from Africa by Asian Country 70.0 60.0 Japan Korea China Singapore Malaysia India

50.0 %

40.0 30.0 20.0 10.0 0.0 1990

1995

1996

1997 1998 Year

1999

2000

2001

Source: UN Comtrade.

2.4 Trade Partner Countries. Asia’s major African export partners are limited to a few countries – South Africa, Liberia, Egypt, and Nigeria. Mauritius, Morocco, Algeria, and Kenya also account for small but stable shares in Asian exports (see Table 2-1). Each of the eight Asian countries surveyed indicated that South Africa was the largest exporter. In India, Japan, and Malaysia, South Africa accounts for more than 50% of imports and in China, Singapore, South Korea, and Taiwan, it accounts for between 25-33% of imports. Other import countries were spread throughout the continent, although Angola, Congo, Egypt, Morocco, Nigeria, and Sudan all provided imports as well (see Table 2-2).

2-3

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Table 2-1 Asian Countries’ Exports to Major African Countries Rank

Japan

Korea

1

South Africa 34.7%

China

Taiwan

Singapore

Liberia

24.8% South Africa 17.6% South Africa 45.9%

Liberia

Malaysia

23.6% South Africa 32.1% 26.4%

19.6%

Egypt

16.1%

Liberia

14.1%

Angola

17.5%

Nigeria

15.4%

Egypt

3

Egypt

13.3%

Egypt

10.8%

Egypt

14.6%

Nigeria

11.2%

Nigeria

17.2%

Nigeria

4

Nigeria

10.3% South Africa 10.6%

Benin

8.7%

Morocco

3.3%

Egypt

8.9%

Mauritius

4.9%

Mauritius

5.7%

5

Algeria

3.8%

Nigeria

Morocco

5.0%

Mauritius

3.1%

Mauritius

5.9%

Algeria

3.9%

Kenya

5.4%

6

Kenya

3.3%

Libya

Tunisia

2.9%

Angola

2.6%

Kenya

2.6%

Sudan

4.2%

5.1% Cote d'Ivoire 4.3%

Egypt

Nigeria

2

10.4%

15.6% South Africa 18.4%

India

6.1% South Africa 12.3%

* 1999 for Taiwan; 2001 for the rest Source: UN Comtrade; OECD, International Trade by Commodity Statistics

Table 2-2 Asian Countries’ Top 6 Import Countries Rank 1

Japan

Korea

China

Taiwan

Singapore

Malaysia

India

South Africa 61.7% South Africa 33.0% South Africa 24.5% South Africa 31.9% South Africa 31.0% South Africa 67.2% South Africa 55.3%

2

Sudan

6.5%

Congo

18.6%

Sudan

19.6%

Congo

26.6%

Morocco

24.8%

Zambia

3.9%

Morocco

10.2%

3

Morocco

6.4%

Angola

10.5%

Angola

15.1%

Angola

13.9% Madagascar 11.0%

Tunisia

3.4%

Senegal

5.1%

4

Nigeria

6.1%

Egypt

6.7%

Equatorial 10.6% Guinea

Nigeria

8.6%

Br. Indian 7.3% Ocean Terr.

Egypt

3.0%

Tunisia

4.0%

5

Zimbabwe

2.9%

Gabon

6.5%

Gabon

5.4%

Cameroon

5.9%

Egypt

6.6% Cote d'Ivoire 2.6%

Egypt

3.8%

6

Egypt

1.7%

Algeria

5.5%

Nigeria

4.7% Cote d’Ivoire 3.0%

Congo

4.1%

Nigeria

3.3%

Kenya

2.3%

* 1999 for Taiwan; 2001 for the rest Source: UN Comtrade; OECD, International Trade by Commodity Statistics

2.5 Sectoral Composition. The sectoral composition of Asian countries’ exports to Africa differs by country. Exports from Japan and Korea are concentrated in scale-intensive industries. The percentage of differentiated goods is also relatively high in these two countries’ exports. Labor-intensive industries play the major role in exports from China, India, and Taiwan and resource-intensive industries play a large role in Malaysia’s exports (see Table 2-3). With regards to imports from Africa, resource-intensive industries are dominant in most countries except India. In China, Japan, Korea, and Taiwan, the percentages of those industries are greater than 60%. Mining also captures a high percentage in those countries.7 Agriculture and forestry and fishing occupy a reasonable percentage of exports to China, Japan, and Singapore and scale-intensive industries have are a high percentage of exports to Malaysia and India (see Table 2-4).

7

In the sectoral categories used in this analysis, certain commodities (petrol oils, crude, & crude oils obtained from bituminous minerals) are categorized to both mining and resource-incentive industries.

2-4

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Table 2-3 Asian Countries’ Exports to Africa by Industry (2001*) Japan

Export to Africa

Korea

China

Taiwan

Singapore

Malaysia

India

Agriculture, forestry, fishing

11

0.3 %

0

0.0%

224

4.1%

20

1.9%

23

2.5%

26

4.4%

210

8.3%

Mining

1

0.0%

0

0.0%

61

1.1%

1

0.1%

2

0.2%

0

0.0%

14

0.5%

891

97.3%

570

95.6% 2,300 91.1%

Manufacturing

3,794 99.7% 3,836

100%

5,183 94.8% 1,047 98.0%

Resource-intensive industries

76

2.0%

97

2.5%

27

2.5%

143

15.6%

189

31.7%

232

9.2%

Labor-intensive industries

196

5.1%

509

13.3% 2,550 46.6% 422

39.5%

206

22.5%

122

20.5%

832

33.0%

Scale-intensive industries

2,184 57.4% 2,627 68.5%

373

957

6.8%

17.5% 271

25.3%

136

14.8%

100

16.8%

634

25.1%

Differentiated goods

920

24.2%

545

14.2% 1,031 18.9% 296

27.7%

341

37.2%

145

24.3%

248

9.8%

Science-based industries

418

11.0%

58

1.5%

2.9%

65

7.1%

14

2.3%

354

14.0%

272

5.0%

31

Note: US$ Millions. *1999 for Taiwan. Source: UN Comtrade; OECD, International Trade by Commodity Statistics.

Table 2-4 Asian Countries’ Imports from Africa by Industry (2001*) Export to Africa

Japan

Korea

China

Taiwan

Singapore

Malaysia

India

Agriculture, forestry, fishing

583

11.6%

0.6%

122

17.2%

21

6.4%

258

16.0%

Mining

909

18.2% 1,018 33.8% 3,113 44.1% 1,377 40.4%

42

5.9%

18

5.5%

199

12.3%

Manufacturing

3,516 70.2% 1,949 64.6% 3,452 48.9% 2,008 59.0%

547

76.4%

288

88.1% 1,158 71.7%

Resource-intensive industries

2,788 55.6% 1,678 55.6% 2,937 41.6% 1,687 49.5%

243

34.2%

179

54.7%

323

20.0%

33

4.6%

10

3.0%

76

4.7%

49

1.6%

499

7.1%

20

Labor-intensive industries

155

3.1%

85

2.8%

168

2.4%

36

1.1%

Scale-intensive industries

549

11.0%

145

4.8%

226

3.2%

239

7.0%

112

15.8%

78

23.9%

721

44.6%

Differentiated goods Science-based industries

14

0.3%

23

0.7%

108

1.5%

30

0.9%

153

21.5%

16

4.9%

24

1.5%

11

0.2%

17

0.6%

13

0.2%

15

0.4%

6

0.8%

5

1.5%

14

0.8%

Note: US$ Millions. *1999 for Taiwan. Due to the duplicated categorization of certain commodities (petrol oil, crude, and crude oils obtained from bituminous minerals) to both mining and resource-incentive industries, total percentage is not 100%. Source: UN Comtrade; OECD, International Trade by Commodity Statistics.

2.6 Comparative Advantage of Africa by Sector. In order to assess the comparative advantages of Africa and countries trading with Africa by sector, the consultants utilized the specialization index as shown below. The concept behind using this index is related to the product cycle theory. This means that levels of generation, growth, maturation and decline of manufacturing lead to the beginning of import, acceleration of domestic production and promotion of exports. The index is useful to analyze the long-term and multilayered trends, which enable reviews and comparisons of long-term changes of industries by categorized goods. Index = (Ei – Mi) / (Ei + Mi) •

Ei: Africa’s export of “i” product by each industry to Asia, Europe, and North America.

•

Mi: Africa’s import of “i” product by each industry from Asia, Europe, and North America. 2-5

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2.7 The index indicates a value of minus one (-1.00) if the country is totally dependent on importing product “i.” The index indicates a value of plus one (+1.00) if the country completely exports product “i.” The results of the calculation are shown as follows:8 2.8 Agriculture, Forestry and Fishing. In this sector, Asian countries as well as European countries are net importers from African countries. However, the US and Canada are net exporters to African countries (see Figure 2-5). Figure 2-5 Primary Sector Comparative Advantage Index by Region 1.00

Agriculture, forestry and fishing

0.50

Asia Europe US and Canada

0.00

T otal

-0.50 -1.00 1990 1995 1996 1997 1998 1999 2000 2001

2.9 Mining. In mining sector, Africa has a strong comparative advantage over Asia, Europe, the US, and Canada. The results demonstrate 0.97 to 0.99 (see Figure 2-6). Figure 2-6 Mining Sector Comparative Advantage Index by Region Mining 1.00 0.50

Asia Europe

0.00

US and Canada T otal

-0.50 -1.00 1990 1995 1996 1997 1998 1999 2000 2001

2.10 Manufacturing. African countries have a comparative advantage over Europe, the US, and Canada in resource-intensive and labor-intensive industries. However, Asian countries possess a relatively strong comparative advantage in these industries in Africa, as well as in scale-intensive industries, differentiated goods, and science-based industries. 8

Because of the data restriction, Taiwan has been eliminated.

2-6

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Europe, the US, and Canada also have a relatively strong comparative advantage in differentiated goods and science-based industries (see Figure 2-7). Figure 2-7 Manufacturing Sector Comparative Advantage Index by Region Labor-intensive industries

Resource-intensive industries

1.00

1.00 0.50

0.50

Asia Europe

0.00

US and Canada T otal

-0.50

Asia Europe

0.00

US and Canada T otal

-0.50 -1.00

-1.00

1990 1995 1996 1997 1998 1999 2000 2001

1990 1995 1996 1997 1998 1999 2000 2001 Scale-intensive industries

Differentiated goods

1.00

1.00

0.50

0.50

Asia Europe

0.00

US and Canada T otal

-0.50

Asia Europe

0.00

US and Canada T otal

-0.50 -1.00

-1.00

1990 1995 1996 1997 1998 1999 2000 2001

1990 1995 1996 1997 1998 1999 2000 2001 Science-based industries 1.00 0.50

Asia Europe

0.00

US and Canada T otal

-0.50 -1.00 1990 1995 1996 1997 1998 1999 2000 2001

B. Investment Relations 2.11 Among selected Asian countries, outward direct investment data toward African countries at the sectoral level is available only in Japan and Korea. Singapore, Malaysia, and India do not have such data even in aggregated form. China has outward investment data by country and sector respectively, but this data is not aggregated by country and sector. Taiwan has outward investment data by country for a limited number of African countries, but does not have the data by sector. Under the limited data available, the results of the analysis of foreign direct investment (FDI) inflows to Africa from Japan, Korea, China, and Taiwan are indicated in the following section.

2-7

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2.12 Investment Trend. Japan. During the 1990s, Japanese outward direct investment to Africa sharply decreased although there were some fluctuations. Investment in 2002 was only 23% compared to the level in 1991. Japan’s FDI to Africa is heavily biased towards Liberia because ship registration is part of FDI. Removing Liberia, the FDI trend during the 1990s is fairly stagnant with the exceptions in 1996, 1997, and 1999, when there were sizable amount of investments in South Africa and Tanzania (Figure 2-8). Figure 2-8 Quantity and Total Amount of Japanese FDI to Africa Value(\100million)

Cases

1,200

80 Cases Cases(without Liberia) Value Value(without Liberia)

1,000 800

70 60 50

600

40 30

400

20 200

10

0

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Source: Ministry of Finance, Japan

2.13 Korea. Korea’s direct investment in Africa indicates the presence of aggressive investment activities in the 1990s. The cumulative investment value from 1968 to 2002 amounted to $726 million for 139 projects, in which 95% of investments were made after 1990 (Figure 2-9). The expansion of Korea’s direct investment to Africa in this period occurred in parallel to the expansion of its FDI in South East Asia to deal with the abrupt increase of domestic labor costs and frequent strikes. The investments were not interrupted by the Asian economic crisis in 1997-98.

2-8

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Figure 2-9 Quantity and Total Amount of Korean FDI to Africa Amount ($ million) 180 160

Project 18 16

Project invested Amount invested

140

14

120

12

100

10

80

8

60

6

40

4

20

2

0

0 1990

91

92

93

94

95

96

97

98

99

2000

01

02

Source: The Export-Import Bank of Korea

2.14 China. China’s direct investment in 49 African countries significantly increased during the 1990’s, from 0 in 1990 to $214 million in 2000 (see Figure 2-10). Although trade and economic relations between China and Africa grew in the 1980s with the dramatic increase in China’s economic power, President Jiang Zemin’s visit to six African countries in 1996 is considered to have inaugurated a new era in the relations between China and Africa. China’s FDI to Africa in value exceeded the FDI of Japan in 2000, when the first China-Africa Co-operation Forum was held in Beijing. Figure 2-10 Quantity and Total Amount of Chinese FDI to Africa Value($ million)

Cases

250

60

50

200

Cases Value

40

150 30 100 20 50

10

0

0 1990

91

92

93

94

95

Source: Ministry of Commerce, PRC

2-9

96

97

98

98

2000

01

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Taiwan. Taiwan’s direct investment in Africa during the 1990’s shows fluctuations (Figure 2-11). However, the cumulative investment value from 1993 to 2002 amounted to $176.3 million, which equates to 3.7 times the $47.3 million invested from 1953 to 1992. Investments prior to 1998 had been mostly devoted to Liberia and, to a much lesser degree, South Africa. However, since 1999, the share occupied by other African countries has increased. 2.15

Figure 2-11 Quantity and Total Amount of Taiwanese FDI to Africa Cases

Value ($ million) 45.0

20 Cases Value

40.0

18 16

35.0

14

30.0

12

25.0

10

20.0

8

15.0

6

10.0

4

5.0

2

0.0

0 1993

94

95

96

97

98

99

2000

01

02

Source: Ministry of Economic Affairs, Taiwan

Country and Sectoral Composition. Japan. Japanese direct investment to Africa is concentrated in two countries, Liberia and South Africa, which accounted for 93% of the total accumulated investment from 1991-2002. However, considering that direct investment to Liberia has been focused on obtaining flag-of-convenience ships, the majority of FDI has been concentrated on South Africa and has ignored other countries. 2.16

Table 2-5 Top 5 African Destinations for Japanese Investments (Cumulative Value in Each Period) Rank 1971-80 1981-90 1991-2002 1 Liberia (57.9%) Liberia (92.3%) Liberia (74.9%) 2 Zaire (16.9%) Zambia (2.2%) South Africa (18.2%) 3 Nigeria (10.5%) Egypt (1.1%) Tanzania (2.7%) 4 Niger (5.4%) Gabon (0.9%) Mauritius (1.1%) 5 Gabon (2.3%) Zaire (0.9%) Egypt (0.9%) Note: Figures in parentheses indicate countries’ share in total accumulated investment in each period. Source: Ibid.

2-10

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2.17 Similar to country composition, Japanese direct investment to Africa is concentrated on two industrial sectors, manufacturing and transportation. Within the manufacturing sector, transportation machinery occupies the highest share. Examining these two sectors by country, as one would expect from the country composition, manufacturing (and above all, transport machinery) is concentrated in South Africa and transportation service is mainly absorbed by Liberia. 2.18 Comparing investment in major industrial sectors through the 1970s and 1980s (see Table 2-6) and the change of major recipients of Japanese FDI (Table 2-5), the following points are noted: •

•

Manufacturing has increased its share in the 1990s mainly due to the increase in transport machinery. This is mainly because of the increase in the automobile industry in South Africa Within the non-manufacturing sector, a sharp contrast can be seen between mining and transportation, which reflects the decline of Nigeria, Zaire, and Zambia and monopoly of Liberia. A temporary rise in the service sector is recorded in the 1980s and a steady increase in finance and insurance is notable as well. These industries have also been concentrated in Liberia, which has an advantage of liberal tax laws and flag-of-convenience status. Table 2-6 Japanese Investment Structure by Industrial Sector Food T e x t il e L u m b e r & P u lp C h e m ic a l M e tal M a c h in e r y E le c t r i c a l T ra n sp o rt o th e rs M a n u fa c tu rin g T o ta l F a r m in g & F o r e s t r y F is h e r y M in in g C o n s t r u c t io n T ra d e F in a n c e & I n s u r a n c e S e r v ic e T ra n sp o rta tio n R e a l E state o th e rs N o n - M a n u f a c t u r in g T o t a l TOTAL

1 9 7 1 -8 0 0 .2 1 .6 0 .0 1 .0 1 .3 0 .0 0 .2 0 .4 0 .4 5 .3 0 .4 3 .6 3 0 .5 1 .5 0 .1 0 .0 1 .6 5 6 .6 0 .0 0 .0 9 4 .5 1 0 0 .0

1 9 8 1 -9 0 0 .0 0 .0 0 .0 0 .2 2 .5 0 .0 0 .1 0 .2 0 .0 3 .1 0 .0 1 .1 2 .5 0 .1 0 .3 0 .8 1 6 .1 7 3 .8 1 .6 0 .6 9 6 .9 1 0 0 .0

( u n it : % ) 1 9 9 1 -0 2 2 .3 0 .1 0 .0 0 .4 1 .8 0 .2 0 .1 1 0 .0 2 .7 1 7 .5 1 .9 1 .0 1 .0 0 .2 1 .1 3 .9 1 .6 7 1 .2 0 .0 0 .5 8 2 .4 1 0 0 .0

Note: share in cumulative value in each period

2.19 Although Japanese direct investment to South Africa is concentrated in the transportation industry, mainly automobile assembly and related parts manufacturing, it also extends to other industries such as mining, metal manufacturing (ferrous and non-ferrous), and various trading industries. Among other countries and industries to which Japan’s FDI has been delivered during 1990s, food manufacturing (Tanzania), service (Mauritius), and chemical and metal manufacturing (Egypt) are notable. 2-11

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2.20 Korea. The major FDI destination countries are Algeria, Sudan, which has received over US$100 million cumulatively, followed by South Africa, Morocco, Gabon, and Ghana. The major sectors for investment are diversified to some extent into Hotels and Restaurants, Manufacturing, Mining, and Retail and Trade. Looking at the major destination countries of FDI in the above sectors, Algeria (Mining, Hotels and Restaurants, Trade and Retail), Sudan (Manufacturing, Trade and Retail, Hotels and Restaurants), South Africa (Manufacturing, Trade and Retail), and Morocco (Manufacturing, Hotels and Restaurants) are marked (see Table 2-7). Table 2-7 Korean Investment Distribution by Country and Industry (unit: $ thousand) Total

Agriculture

Mining

Manufacturing Construction Trade & Retail Transportation

Ghana 1,857 0 24 Gabon 9,089 0 0 Nigeria 22,676 0 0 South Africa 76,084 25 322 Liberia 260 0 0 Morocco 53,166 1,348 1,050 Sudan 148,321 0 0 Algeria 214,623 0 18,714 Angola 125 105 0 Congo Republic 742 0 0 Note: Figures are cumulative total from 1968 to 2002

860 0 526 20,127 0 23,993 91,050 0 20 242

0 0 542 100 0 0 0 0 0 0

650 9,089 1,806 55,196 10 2,665 33,271 16,191 0 0

0 0 0 0 250 0 0 0 0 0

Telecom.

20 0 19,802 0 0 0 0 0 0 0

Finance & Insurance

0 0 0 0 0 0 0 0 0 0

Hotel & Restaurant

42 0 0 0 0 24,110 24,000 179,718 0 0

Real estate & Services

261 0 0 314 0 0 0 0 0 500

Source: The Export-Import Bank of Korea

2.21 Manufacturing is the industry in which Korean companies have most actively undertaken FDI in Africa and involves various businesses such as textiles and apparel, leather and footwear, wood and furniture, petroleum and chemical products (including medical implements and pharmacies), electrical and electronic appliances, food, metals, motors, and automobile tires. Korea is expecting further investment in labor-intensive industries in African countries to realize continuous development.9 The service industry is another area for Korean investment, including hotels and restaurants, casinos, commerce, department stores, and photo studios. In particular, photo studios are the most successful businesses for self-employed Koreans.

9

Africa Business Guide, Ministry of Foreign Affairs and Trade, Government of Korea, 2003.

2-12

Others

0 0 0 0 0 0 0 0 0 0

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Table 2-8 Korea’s FDI in Manufacturing

Country Ghana

No. Project 5

Sub-sector Food, Wood, Non-metal, Electronics, Motors

South Africa

8

Morocco

2

Textile, Leather (2), Petroleum, Metals, Machine. Electronics Textile, Electronics

Mauritius

2

Electronics, Motors

Senegal

2

Others

Sudan

4

Textile (2), Leather Petroleum

Swaziland

1

Electronics

Angola

1

Others

Egypt

4

Textile, Electronics, Motors (2)

Central Africa

1

Others

Cameroon

1

Non-metallic

Kenya

2

Textile, Petroleum

Cote d’Ivoire

1

Basic Metals

Congo Democratic Rep

2

Others (2)

Tanzania

3

Textiles (2), Metals

Togo

1

Textiles

Tunisia

2

Petroleum, Others

Total 42 Source: Overseas Direct Investment Statistics Yearbook, 2003.3, The Export-Import Bank of Korea

2.22 China. China’s direct investment destinations in Africa are quite diversified. The top two countries in cumulative investment, Zambia and South Africa, receive 18.5% and 15.3% respectively (see Table 2-9). It should be noted that most of the direct investment in African countries was made during the 1990s. Manufacturing and resource development account for a large percentage of total investments. Within manufacturing, light industry and spinning and weaving were identified as the main targets for investment (see Table 2-10).

2-13

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

Table 2-9 Countries and Cumulative Investment for China

(Cumulative Value through 2001)

Zambia

17

(3.8)

South Africa

83

(18.5)

Mali

5

(1.1)

Value ($ thousand) 134,12 (18.5) 6 110,84 (15.3) 9 58,122 (8.0)

Tanzania

14

(3.1)

39,483

(5.4)

Zimbabwe Nigeria

11 33

(2.5) (7.4)

33,257 31,144

(4.6) (4.3)

Egypt

17

(3.8)

30,635

(4.2)

7

(1.6)

24,242

(3.3)

17 21

(3.8) (4.7)

19,212 18,475

(2.6) (2.5)

Cases

Congo, Dem. Ghana Kenya

Cases

Value ($ thousand)

Gabon

11

(2.5)

17,045

(2.3)

Benin

4

(0.9)

16,723

(2.3)

Mauritius Cote D’Ivoire Cameroon Niger Mozambiqu e

20

(4.5)

16,657

(2.3)

13

(2.9)

16,033

(2.2)

15 3

(3.3) (0.7)

15,851 14,964

(2.2) (2.1)

6

(1.3)

14,638

(2.0)

Guinea

5

(1.1)

11,827

(1.6)

Sudan Eq. Guinea

9 4

(2.0) (0.9)

11,675 (1.6) 11,315 (1.6) 726,53 Africa total 448 2 Note: Figures in parentheses indicate shares in total cases/amount. Africa total consists of 49 countries. Source: Ministry of Commerce, PRC

Table 2-10 China’s FDI to Africa by Industry

(Cumulative Value through 2001) Number of projects Service Manufacturing Machinery Electric appliances Light industries Spinning and weaving Others Agriculture Resource development Others Total

200 230 20 36 82 58 34 22 44 3 499

(40.1) (46.1) (4.0) (7.2) (16.4) (11.6) (6.8) (4.4) (8.8) (0.6)

Amount invested ($ Million) 124.5 (18.3) 315.27 (46.3) 16.06 (2.4) 25.4 (3.7) 86.54 (12.7) 101.6 (14.9) 85.67 (12.6) 48.13 (7.1) 187.6 (27.5) 5.85 (0.9) 681.35

Note: Figures in parentheses indicate shares in total number/amount. Source: Ministry of Commerce, PRC

2.23 Taiwan. Taiwan’s direct investment in Africa has been mostly concentrated in Liberia because of the shipping-related opportunities. Since the end of the 1990’s, however, Taiwan FDI started to diversify across the continent. Based on data below that indicates countries other than Liberia receiving investments, spinning, apparel, and trade are the major sectors in Africa receiving investments by Taiwanese companies (see Table 2-11).

2-14

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2.24 Taiwan’s partners for direct investment are basically limited to a small number of countries with which Taiwan has or had diplomatic relations. Among those countries indicated in Table 2-10, Taiwan has no diplomatic relation with South Africa, Lesotho, Cote D’Ivoire and Ghana, but has representative offices in South Africa and Cote D’Ivoire. In Lesotho, about 700 immigrants from Taiwan remain key players in the foreign business community and have made a significant contribution to Lesotho’s economy. Table 2-11 Taiwan’s FDI to Africa by Country and Industry

(Cumulative Value through December 2002) (Unit: $ million) Country South Africa Lesotho

Cases 620 30

Value 1,500 600

Type of business Spinning, plastic processing, shoes, trade and distribution Spinning and apparel

Swaziland

20

45

Apparel, restaurant, entertainment and mold manufacturing

Mauritius

8

20

Cote d’Ivoire Ghana Senegal Malawi Africa total

9 12 4 9 712

11 8 3 23 2,209

Hotel, apparel, shoes, food processing and pottery manufacturing Steel, restaurant, trade and vegetables Steel, car part import, farm and trade Battery, fishery and trade Apparel, lumber processing, metal goods and trade

Source: Ministry of Economic Affairs, Taiwan

C. Trade and Investment Linkage in Africa Asia Region 2.25 Previously, trade and investment relations between Africa and Asia were described respectively based on data and facts collected through this study. The subject in this section is whether trade and investment are connected and if so, will there be policy implications that will lead to the promotion of trade and investment. As a general argument, three types of investments and their possible linkages to trade are discussed in this section. 2.26 Type-1: Export of African Resources to Asia
Investment in Equipment and Processing Industry. African exports to Asia are dominated by natural resources either as unrefined products or processed for use in resource-intensive manufacturing products. The statistics also indicate a high percentage of those resource-related items to Asian countries. As being indicated by Table 2-4, the share of resource intensive industry products is 80% for Korea, 76% for Taiwan and 61% for China and Japan. The expected development for linkages to investments is investing in local exploitation and processing, typically observed in mining, petroleum, and agricultural products.

2-15

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter2. Trade and Investment Relations

2.27 Promoting Asian investment in Africa will have implications on foreign investment policies, export promotion policies, and regulation and licensing on natural resource exploitation. As Asian firms are relatively new to the African market compared to European firms, they are at a disadvantage in dealing with natural resource exploitation investments. Enhancing competition to promote foreign investments may be effective for attracting Asian firms investment. 2.28 Type-2: Import from Asia to Africa
Investment in Local Production for Local Market. As indicated in Table 2-3, the share of manufacturing products among exports from Asia to Africa ranges between 63% for Singapore to 96% for Korea. Among manufacturing goods exported to Africa, labor-intensive products encompass a larger share from countries such as China and Taiwan, while scale-intensive products are greater from countries such as Japan and Korea. There is a greater possibility for the labor-intensive industry to be developed for local production rather than scale-intensive industries. This is best demonstrated by the Korean firm example that produces household products and kitchenware. 2.29 The policy mechanisms should relax import regulations and tariffs, promote more imports from Asia, and finally provide an environment for small- and medium-scale investments in the manufacturing sector to target the domestic market. The domestic trade regulations against foreign investment companies could present a barrier to foreign partners and future investments. 2.30 Type-3: Export of African Goods Manufactured via Asia Investments
Import of Parts and Components from Asia. China and Taiwan firms have undertaken investments in textile and labor-intensive industries to increase their exports utilizing AGOA. Because of AGOA’s parameters, this type of investment not only creates more exports, but also induces imports of raw materials, parts, and components from Asia. 2.31 The relevant policy instruments would be the creation of an export processing zone with incentives and an uncomplicated environment for foreign investment. 2.32 An analysis was made using Japanese-African trade and investments over the past 20 years. The graph can be seen below in Figure 2-12. It appears that there might be an association between the two, but because of the varying investments, a clear linkage could only be found with further study disaggregated by country.

Figure 2-12: Trend of Japan-Africa Trade, FDI, and ODA Flow

2-16

Studies on Africa-Asia Trade and Investment Relations (B)

4.0

Chapter2. Trade and Investment Relations

TotalofBilateralODA Export Im port Direct Investm ent

3.0 2.0 1.0

-1.0 -2.0 -3.0

2-17

01

00

99

20

98

97

96

95

94

93

91

90

89

88

87

86

85

84

83 19

92

ee

0.0

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter3. Institutional Arrangements

3 OVERSEAS DEVELOPMENT ASSISTANCE TO PROMOTE TRADE AND INVESTMENT 3.1 Trade and Investment Promotion Policies by Stage of Trade/Investment Relations. Based on observations of Asian countries’ governments’ roles in promoting trade and investment to Africa, the role of government promotion policies can be categorized largely by three stages of progress in trade and investment relations. (Figure 3-1) At the initial stage where many enterprises in Asian countries are not familiar with Africa, the government’s initiative is quite effective in bringing their private sector to an unknown business environment with rich resources and new market opportunities. Besides the promotion measures such as publicly organized missions and bilateral trade and investment agreements, ODA programs with equipment grants and technical and financial assistance provide business opportunities for the private sector under tied procurement. 3.2 At the developing stage of trade and investment business activities, export and overseas investment credit and insurance schemes are indispensable government tools to minimize the risk. Tax incentives are also provided to assist importers and investors. 3.3 During the mature stages, market mechanisms should occupy some of the functions played by government support measures. Therefore, the government policy instrument should become a market information service. However, given the fact that operating in many African countries still involves various commercial and non-commercial risks, government support to minimize those risks is considered to still be indispensable. Table 3-1 Levels of Development and Market/Policy Instruments Development Stage

Policy interventions to facilitate market transaction

Initial Stage - ODA grants - ODA tied loans - Organized Missions - Bilateral Agreements

Developing Stage - Tax Incentives - Export Credit - Export Insurance - Overseas investment credit - Merchandise Exhibition - Investment Missions

Mature Stage - Promotion of in-ward investment - Trade/Investment Information Service

3.4 Strategic Utilization of ODA. ODA is considered to be an effective instrument to engage the private sector in opportunities to Africa for trade and investment, given their disadvantageous geographical and historical relations with Africa, as compared to Europe. In utilizing government intervention for trade and investment promotion, it is effective that the application of the policy instruments and the level of bilateral economic 3-1

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter3. Institutional Arrangements

relationships to be closely related. 3.5 A survey conducted by the Japan External Trade Organization (JETRO) in 1999 among Japanese firms in eight African countries discovered that the existence of Japanese ODA played a major role in Japanese companies’ establishment of operations in Africa. The main motives for operations in the eight African countries were the future of the potential market and Japanese ODA (Box 3-1). In southern and western Africa, another motive was abundant natural resources.

Box 3-1 Motivations Behind Market Entry Market Size

Future Potential of the Market

Egypt

**

***

*

Kenya

*

***

**

Tanzania

***

Request of Local Govern.

Abundant Natural Resources

*

Profitability

Others

*

**

Zimbabwe

*

**

*

South Africa Nigeria

**

***

*

***

**

*

Ghana

*

**

*

Ivory Coast

Japanese ODA

***

***

* *** **

*

Note: The survey allowed for multiples entries, where *** is mentioned most often, ** is mentioned second most often, * is mentioned third most often. The survey was sent to 145 companies, from which 136 responses were received. Source: JETRO (2000). “Survey on Current Conditions for Investment of Japanese Companies in Africa” (Zai Afurika Shinshutsu Nikkei Kigyo Jittai Chosa). Japan External Trade Organization. Unpublished document March 2000. Tokyo, Japan.

3.6 Table 3-1 indicates the policies and ODA programs of the selected Asian countries for this study. Most of these countries can be categorized in the developing stage, beyond introductory, but not yet mature, except for China and Taiwan, which employ stronger policy interventions to utilize ODA programs for trade and investment promotion. A linkage between ODA and export and investment activities is also recognized in some of the Korean investment projects.

3-2

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter3. Institutional Arrangements

Table 3-2 Main Promotion Policy and ODA by Asian Country Country

Promotion Policy

ODA

Japan

Duty-free and quota free access to LDCs’ ODA to Africa accounts for 10% of products, export credit and insurance, trade Japanese ODA in forms of grant, technical fair, missions assistance and loan.

Korea

Duty drawback, tax incentives, export credit and insurance, trade fair and missions

Technical assistance in training and experts. ODA loans tied to Korean enterprises, shares 11% of the entire loan

China

Chinese Trade and Investment Development Centers in 11 African countries. Credit facility for private corporation and special fund scheme for joint venture.

Agreements on economic and technical cooperation with 53 African countries. Up to 2000, nearly 800 projects, including various construction projects, have been completed.

Taiwan

Financial support for Taiwanese enterprises investment in African countries with diplomatic relations.

Technical assistance and grants in field of agriculture for countries with or likely to have diplomatic relations. Finance and investment to specific projects. Technical assistance for granting training program in development experience, particularly for export development (Singapore Cooperation Program). Economic, technical, scientific and cultural cooperation agreement with 20 African countries.

Double tax deduction for costs for expanding overseas market and investment, international exhibition program, various tax incentive schemes. Double tax deduction for export promotion, Malaysia export credit refinancing, market development grant. “Focus Africa Program” to increase interactions with 7 major African partners Commonwealth African Assistance for Joint Trade Committee, Joint Business Special India Councils and Export Promotion. Exim Plan for technical assistance to 34 African Bank provides equity, loans and guarantee countries. to support Indian direct investment abroad. Source: Results of interviews to the respective authority by PADECO/UFJI Team Singapore

In Korea, Economic Development Cooperation Fund (EDCF) provides soft loans to African countries with tied procurement conditions to Korean firms. The African region shares 8.4% of EDCF’s outstanding loan amount, including 6% for the Sub-Sahara region in transportation (26%), telecommunication (18%), energy (13%), health (13%), education (8%), and water supply (8%). Apart from the soft loans, Korea has been providing grant and technical aid to several African countries since 1977. Observing that the African recipients of Korean aid are also the major recipients of Korean investment, it should be noted that Korea’s ODA programs have supported its business activities in Africa (see Table 4-2 and 2-7), and for some countries (Nigeria, Morocco, and Gabon), the amount of ODA and FDI demonstrate positive correlation (Figure 3-2).

3.7

3-3

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter3. Institutional Arrangements

Table 3-3 Korean Aid by African Country Unit: Million Won, As of year 2002 1991

92

93

94

95

96

97

98

99

2000

2001

Total (91-01)

Ghana Gabon Liberia South Africa Angola Algeria Congo Republic Nigeria Sudan Morocco

148 41 5

140 41 2

143 0 37

183 57 0

213 73 0

285 46 0

301 45 0

192 29 12

162 26 0

172 66 0

251 66 0

2,190 491 57

0

0

0

33

0

0

103

733

99

2,124

661

3,753

6 0

132 22

106 82

98 26

106 65

119 0

86 11

0 0

0 0

12 31

272 97

936 334

160

153

141

132

120

114

0

0

38

9

42

910

268

197

198

177

237

190

197

271

12

0

42

1,788

142

208

227

1,217

793

553

366

154

0

39

101

3,798

73

86

0

139

301

253

26

21

41

44

121

1,107

Total for Africa*

3,729 (21.5)

4,276 (18.5)

4,131 (16.8)

4,102 (13.3)

4,816 (12.7)

4,737 (11.0)

4,657 (8.8)

4,731 (8.8)

2,634 (5.8)

4,765 (9.3)

4,107 (5.9)

46,687 (10.4)

Note: Figures in parentheses indicate share in total aid to African countries. Total of grant, loan and technical assistance. Source: Korean International Cooperation Agency, 2002

Figure 3-1 Korean ODA and FDI by African Country (Unit: million won)

250 Nigeria FDI(1968-2002)

200 Morocco

150 100 Liberia

50

Algeria

Gabon Congo Rep. Angola

Ghana

S.Africa

0 0

500

1,000

1,500 2,000 2,500 ODA(1991-2001)

3,000

3,500

Sudan 4,000

3.8 China is more aggressive than Korea in utilizing ODA programs to promote Chinese firms’ business activities in Africa. The special fund for joint ventures is offered to African countries that receive ODA from China, based on the bilateral agreement for specific projects. Foreign Economic Cooperation (FEC), which provides contract engineering, labor service cooperation, and design consultation on a fee basis, is also associated with ODA construction programs in Africa. The Chinese government also offers to assist in establishing the financial and insurance mechanisms to facilitate the FEC exports and offers support to FEC enterprises, which include establishing insurance funds to specifically serve the needs of FEC projects.

3-4

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter3. Institutional Arrangements

Box 3-1 China’s Official Development Aid

Since the 1950s, China has provided economic aid to developing countries. Since the adoption of the policies of reform and opening to the outside world, China has quickened its pace of foreign aid, involving agriculture, forestry, water conservation, light industry, textiles, food, power, machinery, chemicals, transportation, culture, education, public health, and public utility projects. China began to provide aid to Africa in 1956. So far, it has provided aid to 53 African countries. Through year 2000, nearly 800 projects in the social, economic, and other fields have been completed, of which the Tanzania-Zambia railway is a notable example. From 1986 to 2000, the Chinese government provided multilateral aid to 42 African countries and trained more than 660 technicians. In 2000, China announced the forgiveness of 10 billion Yuan (US$ 1.2 billion) of loans against 32 least developed African countries, of which 27 countries have signed the memorandum. Recent grant aid projects in Africa include: • • • • •

Road construction in Madagascar (2001); Construction of the parliament building in Benin (2001); Construction of the Ministry of Foreign Affairs’ building in South Africa (2001); Rehabilitation of People’s Hall in Guinea (2000); and Irrigation project in Namibia (2000).

Foreign trade and investment policy is strongly linked to Taiwan’s diplomatic policy. In this context, ODA and business promotional activities in Africa are inevitably linked to one another. The priority of ODA’s program delivery first lies with the country that has diplomatic ties, second with the candidate country that will have ties in the near future, and finally with the country that is very important in economic relations, but has no diplomatic ties with Taiwan.

3.9

3.10 The ODA activities of Korea, China, and Taiwan are mainly motivated by their diplomatic strategies adopted under the Cold War regime, rather than by the context of business promotion. However, it could be said that the effectiveness of ODA as a diplomatic tool has given a new thrust in the context of trade and investment promotion to and with Africa. With regard to these three countries, it would not be appropriate to simply categorize them as being in the ‘initial stage’ of trade/investment development compared to other countries. Instead, they seem to be effectively utilizing policy instruments used at the initial stage even after they have entered into a more mature stage of their trade and investment relationship.

3-5

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4 ASIAN COUNTRIES’ AND FIRMS’ POLICIES TO PROMOTE TRADE AND INVESTMENT IN AFRICAN COUNTRIES A. Government Policies and Strategies 4.1 Each of the selected Asian countries has implemented policy measures that have provided support in areas such as financial incentives, information, and special programs to promote trades and investments according to their interests and objectives. Among the policies introduced in this section, the Chinese Trade and Investment Development Centers and Focus Africa program in India directly target African countries. 4.2 Japan. The Japanese government has recently begun to place a strong emphasis on the promotion of foreign investment in Japan. Attracting foreign investment is considered a key strategy to stimulate domestic employment and revitalize the Japanese economy. 4.3 When the Japan External Trade Organization (JETRO) was established in 1958 as the nation’s principal organization for the comprehensive implementation of trade policy, it was expected to promote Japanese exports to meet the needs of the nation’s postwar economy. However, as Japan’s trade surplus continued to grow in the 1980s, the organization began promoting imports to Japan to help the nation achieve more balanced foreign trade. And today, it has integrated both functions to promote trade (mainly imports) and investment within the same organization, as it is difficult to promote trade effectively without considering global trends in foreign direct investment and national investment promotion activities. 4.4 Trade Promotion Policies. As noted above, Japan’s trade promotion policy places priority on import promotion. For this purpose, the following schemes have been initiated: 4.5 Tax Incentives. Manufacturers who have increased their imports of particular commodities such as machinery, metal products, and chemical products to more than five percent of the base year can gain a tax reduction on the value of the increased imports. 4.6 Guidance Policy Finance. An import loan with a preferential rate is provided by the Development Bank of Japan (DBJ), Japan Bank of International Cooperation (JBIC), Small Business Finance Corporation, and National Life Finance Corporation. JBIC also provides an export loan. Export/import related insurance is provided by Nippon Export and Investment Insurance (NEXI).

4-1

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.7 Foreign Access Zone (FAZ). Under the Import and Inward Investment Promotion Law, Foreign Access Zones (FAZ) have been established in and around harbors and airports to integrate import-related facilities, businesses, and activities to facilitate imports. In addition, various measures have been taken to support the development of import promotion infrastructure facilities by the private sector. 4.8 Support measures are also available for import distribution promotion projects, which are considered to contribute to import promotion, in areas designated as specific integration districts within FAZs to facilitate the integration of import-related enterprises, such as wholesalers, retailers, and distributors. 4.9 Import Promotion Activities by JETRO. Various activities for import promotion include: dispatching senior trade advisors to developed/developing countries; the Export to Japan Study Program (EJSP); the Trade Tie-up Promotion Program (TTPP); operating Business Support Centers, Import Squares, and JETRO FAZ Support Centers; accrediting Import Business Advisors; and accepting trade missions and exhibitions. 4.10 Import Promotion Activities by MIPRO. The Manufactured Imports Promotion Organization (MIPRO) was established in 1978 through cooperation between the government and industry as a new body to actively promote the import of manufactured products from countries all over the world. MIPRO’s activities include: exhibitions (permanent and periodic), information/consulting/advisory services, and operating import shopping centers. 4.11 Outward Investment Promotion Policies. JETRO provides information to Japanese companies interested in or wishing to investigate the possibility of making overseas investments. Services offered to Japanese companies are as follows: • • • •

• 4.12 • • • • 4.13

Investment consultations; Registration system for Japanese companies interested in overseas investments; Dispatch of overseas investment missions; JOIN scheme (JETRO Overseas Investment scheme). Of the direct investments projects carried out by smaller manufacturers targeting developing countries, JETRO selects those with high technology transfer abilities and little or no environmental externalities and offers wide-range support from finding partners to launching operations. Specifically, JETRO provides diverse advice and consultations, cooperation in local surveys, and provides information; and Support to Japanese companies operating overseas. JETRO also offers services to foreign governmental agencies as follows: Seminars to encourage investment; "Potential Investors from Japan" directory; Overseas investment promotion fairs; and Receiving missions aimed at inviting investment. As guidance policy finance schemes, JBIC provides Overseas Investment Loans 4-2

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

and Energy and Natural Resources Finance. Overseas Investment Insurance is provided by NEXI. 4.14 Bilateral Trade and Investment Agreement. Japan has signed trade agreements with various countries including 20 African countries (Benin, Cameroon, the Central African Rep., Chad, Rep. of Congo, Democratic Rep. of Congo, Cote d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Madagascar, Malawi, Mali, Morocco, Niger, Senegal, Togo, Tunisia, and Zambia) and investment protection agreements with 9 countries/regions including 1 African country (Egypt). 4.15 Under the “multi-layered approach” to external economic policy, Japan is changing its bilateral cooperation approach from dealing with individual cases of trade friction to enhance more broad-ranging ties. 4.16 Korea. Trade Promotion Policies. The Korean government provides various tax incentives and subsidies to promote trade. These include: • Duty drawback scheme; • Export credit financing; • Export financing loan; • Export credit insurance; and • Tax incentives. 4.17

The details of the above promotion measures are shown in the section below.

4.18 Duty Drawback on Non-Physically Incorporated Items and Excessive Loss Rates. Under the Korean Customs Act, Korean exporters may receive an excessive abatement, exemption, or refund of import duties payable on raw materials used in the production of exported goods. However, it has been found that the drawback on imported raw materials, when the raw materials are not physically incorporated into the exported item, sometimes results in excessive drawback duty. 4.19 If recoverable scrap is taken into account when working out the usage rate of inputs for manufacturing of one unit of output, it sometimes results in excessive drawbacks. The Korean government produces average raw material usage rates and these rates are periodically revised. This is done for all products under Korea's duty drawback scheme. Producers with stable technologies can use these rates. However, if a producer becomes appreciably more efficient than the average, that producer must use its own rate. If, upon inspection, a producer is found to be overcompensating in its duty drawback, it is liable for a penalty assessment. According to the Korean government, only physically incorporated raw materials are eligible for drawback and this rule applies to all merchandise exported from Korea. 4.20 Export Credit Financing from Export-Import Bank of Korea. In 1973, the Korean government established a fund called the National Investment Fund (NIF) through which funds were given to banks for the purpose of loans. These funds are used to finance development or to finance exports on a deferred payment basis. The Export-Import Bank of Korea (Exim) wholly administers deferred export financing 4-3

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

through NIF. The Exim Bank provides two types of export credit (i) a pre-delivery loan to cover the period of construction of the project and (ii) a deferred export credit in the form of a post-delivery loan for ten years including a two-year grace period. 4.21 Export Financing Loan. There are two types of trade financing programs, production financing and raw material financing. The Exim Bank provides production financing when a company needs funds for the production of export merchandise and raw material financing when a company needs funds for raw materials used in the production of exported merchandise. 4.22 Export Credit Insurance. Korea Export Insurance Corporation (KEIC) is Korea's official export credit insurance institution. KEIC is a specialized non-profit corporation under the authority of the Ministry of Commerce, Industry, and Energy and its operations have the sovereign guarantee of the government. KEIC helps to promote exports by providing export insurance. In 2000, it supported 17.9% of Korea's total exports. The Korean government provides annual contributions to the export insurance program. 4.23 Tax Incentives. The Korean government used to give several tax incentives to achieve specific national economic objectives under the Tax Exemption and Reduction Control Law (TERCL) through its various Articles and the Foreign Investment Promotion Act (FIPA). However, on 1 January 1999, it was replaced by the Special Tax Treatment Control Law (STTCL) and from May 1999, FIPA was included in STTCL. All tax incentives under STTCL have sunset rules whereby an incentive comes to an end after the expiry of a certain period, unless it is extended. 4.24 Outward Investment Promotion Policies. Export-Import Bank of Korea provides the following schemes for outward investment promotion. 4.25 Overseas Investment Credit. Overseas Investment Credit is provided to Korean companies that invest abroad in the form of capital subscription, acquisition of stocks, or long-term credit. This credit is extended when prospective projects are considered to be contributing to the sound development of the national economy and promoting economic cooperation with foreign countries concerned. 4.26 Eligible entities are Korean companies that make capital subscriptions to acquire shares of foreign companies and/or make long-term loans to foreign companies, or Korean companies that conduct investment projects outside Korea. The coverage ratio is up to 80% (90% for small- and medium-size companies) of the funds required for investment projects. The maximum repayment term is 10 years including a 3-year grace period. 4.27 Overseas Project Credit. Overseas Project Credit is provided to Korean companies engaged in business outside Korea. To be eligible for this credit, the companies must procure most of the materials required for installing, expanding, and operating the equipment or facilities abroad from Korea. Under this program, loans can also be extended to overseas subsidiaries of Korean companies conducting projects

4-4

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

abroad. The terms and conditions are basically the same as those applied to Overseas Investment Credit. 4.28 Major Resources Development Credit. Major Resources Development Credit is provided to Korean companies to explore natural resources and acquire mining rights abroad. This credit was initiated to contribute to stabilizing the domestic supply of natural resources as well as strengthening economic ties with the resource exporting countries. All projects eligible for the credit are required to follow the guidelines of the government's resource development plan from their initial stage. The coverage ratio is up to 70% of the required funds and the maximum repayment term is 20 years including a 3-year grace period. 4.29 Bilateral Trade and Investment Agreement. Korea places great importance on bilateral trade and investment agreements and has signed the following bilateral agreements with African countries (see Table 4-1). Table 4-1 Korean Bilateral Agreements by African Country

Country

Trade and investment agreement

Algeria

Investment guarantee agreement（Oct. 1999） Economic and technical cooperation agreement (Aug. 2000) Investment promotion and protection agreement (Sep. 2001) Double taxation avoidance agreement（Nov. 2001）

Angola

Double taxation avoidance agreement（Jul. 1995） Investment guarantee agreement (Jul. 1995)

Congo Republic

Double taxation avoidance agreement（Jul. 1995） Investment guarantee agreement (Jul. 1995)

Gabon

Agreement on economic, technical and cultural cooperation (Jul. 1975) Trade agreement（Jul. 1975）

Ghana

Technical cooperation and trade promotion agreement (Jul. 1997)

Liberia Nigeria South Africa

Technical cooperation and trade promotion agreement (Aug. 1986) Double taxation avoidance agreement (Oct. 1988) Investment guarantee agreement（Mar. 1998） Double taxation avoidance agreement（Jul. 1995） Investment guarantee agreement（Jul. 1995）

Trade and technical cooperation agreement (Dec. 1976) Double taxation avoidance agreement（Feb. 2001） Source: Ministry of Foreign Affairs and Trade, Korea Sudan

4-5

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.30 China. In China, the Ministry of Commerce has the responsibility to formulate and implement specific policies and reform plans for foreign trade, economic cooperation and foreign investment. The Ministry analyzes international economic and trade development and China's foreign trade situation, puts forward suggestions on items such as macro-control measures as balance of gross foreign trade volume and structural adjustments, determines import and export quotas, and issues licenses. To control foreign trade and investment, the Ministry has created qualification criteria for all kinds of Chinese enterprises to obtain foreign trade rights or engage in international forwarding business; approve Chinese companies organization of overseas establishments (excluding financial companies); supervise their operations; guide and supervise international economic and trade fairs, exhibitions, business, and investment promotion activities; and draft and execute administrative measures concerning the organization of such activities overseas. 4.31 Trade Promotion Policies. As the largest national foreign trade and investment promotion organization, China Council for the Promotion of International Trade (CCPIT), which is also known as China Chamber of International Commerce (CCOIC), has long been committed to the promotion of China's trade and economic relations with the rest of the world, through its functions of information consultation, exhibition, and legal assistance. Financial support schemes and other incentives to promote external trade in this context were not identified. 4.32 The Ministry of Commerce categorizes Chinese constructors’ overseas activities as Foreign Economic Cooperation (FEC), which covers the export of three major services, namely contract engineering, labor service cooperation, and design consultation.10 The government offers assistance in establishing the financing and insurance mechanisms to facilitate the FEC exports and offers support to FEC enterprises. The procedures include establishing insurance funds to specifically serve the needs of FEC projects and encouraging financial institutions and insurance companies to participate in the relatively new procurement processes such as build-operate-transfer (BOT) and private financial initiatives (PFI). 4.33 The government is focused on promoting the export of products and services where China has comparative advantages and continually cultivates the competitive force of the leading FEC enterprises. Measures taken by the government include organizing and providing market information services, facilitating technology transfer, and strengthening professional training through collaboration between Chinese and foreign educational organizations 4.34 Outward Investment Promotion Policies. The Chinese government encourages Chinese enterprises to set up processing factories in Africa, especially in the sectors in which Chinese industry has matured technology, such as machine and power generating equipment, spinning, construction, agriculture, and natural resource development. The aim is to utilize cheaper labor costs and use the comparative advantage of natural resources in Africa in the global economy. 10

“China’s Foreign Economic Cooperation Development: Exporting Chinese Construction Services”, Le Chen & S Mohamed , 2002.

4-6

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.35 The Chinese government has established Chinese Trade and Investment Development Centers in 11 African countries: Cameroon, Cote d’Ivoire, Egypt, Gabon, Guinea, Kenya, Mali, Mozambique, Nigeria, Tanzania, and Zambia. These centers provide various services for Chinese enterprises considering investment in Africa. 4.36 Bilateral Trade and Investment Agreement. China has signed taxation agreements with 68 countries/regions and investment protection agreements with 98 countries/regions in the world. In Africa, it has signed mutual investment promotion/protection agreement with 17 countries and an avoidance of double taxation agreement with 4 countries. 4.37 Taiwan. The Ministry of Economic Affairs is in charge of economic policy-making and controls and supervises the trade and investment activities of firms in Taiwan. Inside the Ministry, there are three main branches, namely the Industrial Development and Investment Center, Investment Commission, and Board of Foreign Trade. These provide Taiwanese firms with overseas market information and organize trade and investment missions, as well as policy-making, operational control, administration, approval, and licensing with regard to all the inward/outward trade and investment activities. In addition, the following incorporated associations are in charge of promoting trade and investment, especially the provision of relevant information for domestic and foreign enterprises, commissioned by the Ministry of Economic Affairs: • • •

China External Trade Development Council; Chinese International Economic Cooperation Association; and Bodies of persons, trade organizations, and professional associate in each industry segment.

4.38 The foreign trade and investment policy of Taiwan is strongly linked to Taiwanese politics. The Ministry of Foreign Affairs plays a key role when coordinating the above policy with relevant ministries and agencies. The International Cooperation and Development Fund, which is under the guardian authority of the Ministry of Foreign Affairs and was founded in 1996, is one of the pivotal executing agencies for overseas investment and economic and technical cooperation. 4.39 Trade Promotion Policies.11 Taiwan's Ninth Economic Development Plan from the mid-1980s endorsed policies of economic liberalization, globalization, and uniformity. Since then, all branches of the government have been working to implement measures for the realization of such policies. The main measures adopted by the government and the results achieved thus far are as follows: • •

Promoting Trade Liberalization, Reducing Tariffs, and Opening Markets; Actively Promoting Taiwan’s Participation in International Organizations and Activities;

11

Trade Policy/Trade Policies and Measures, Board of Foreign Trade, Ministry of Economic Affairs. http://www.trade.gov.tw/eng2002/content_show.asp?NO=1010&html_code=N&Rnd=0.6098749

4-7

Studies on Africa-Asia Trade and Investment Relations (B)

• • •

Chapter4. Promotion Policies

Strengthening Bilateral Economic and Trade Relations; Assisting Companies in Increasing their International Market Competitiveness; and Promoting Positive Mutual Relations Across the Taiwan Strait.

4.40 Investment Promotion Policies. The diplomatic policy of the Taiwanese government has greatly influenced the investment activities of Taiwanese private companies. This is clearly endorsed by the fact that the investment flow to African countries is concentrated in the countries or areas that have diplomatic relations with Taiwan. Also, there is a governmental legal framework that promotes investment to specific African countries friendly with Taiwan. 4.41 A decree made by the Ministry of Foreign Affairs and enacted in January 2000 is particularly notable. The purpose of this decree was to support part of the cost of investment projects approved by the Investment Commission. The maximum amount that can be supported is NT$150 million and only one of three items (i.e. local worker’s salary, loan interest, or leasing fee of factory equipment) can be financially supported. In addition, travel expenses are supplemented up to NT$35,000 when participating in an investment promotion mission organized by the Ministry of Foreign Affairs. Bilateral Trade and Investment Agreement. Basically, bilateral trade or investment agreements have been concluded with African countries that have diplomatic ties with Taiwan. The content of an agreement includes investment protection, technical cooperation on agriculture, and economic assistance (see Table 4-2).

4.42

4-8

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

Table 4-2 Taiwan’s Bilateral Agreements with African Countries

Angola

Diplomatic Ties No

Burkina Faso

Yes

Country

Chad

Yes

Gambia

Yes

Guinea

No

Liberia

Yes

Madagascar

No

Malawi

Yes

Nigeria

No

Senegal

Yes

Sao Tome and Principe

Yes

Swaziland

Yes

South Africa

No

Agreement Peculiar Agreement Investment Guarantee Agreement, Visa Agreement Medical Cooperation Agreement, Agreement on Financial Assistance to Prioritized Development Programs, Agreement on Financial Assistance for Technical Training in Machinery and Electronics, Agreement on Assistance for Road Construction, etc. Double Taxation Avoidance Agreement, Medical Cooperation Agreement, Agreement on Agriculture Technology Cooperation All the agreements expired after diplomatic break (Cooperation program with Taiwan: Rice Production Program, Rice and Vegetables Production Increase Program, etc.) Peculiar Agreement Investment Guarantee Agreement、Medical Cooperation Agreement Investment Promotion and Protection Agreement expired in 1972 Investment Guarantee Agreement, Agreement on Agriculture Technology Cooperation, Agreement on Economic and Technical Cooperation, Double Taxation Avoidance Agreement、Five-year Cooperation Agreement Medical Cooperation Agreement, Agreement on Agriculture Technology Cooperation, Postal Cooperation Agreement, etc. Investment Guarantee Agreement, Arts and Crafts Agreement, Agreement on Agriculture Technology Cooperation, Agreement on Avoidance of Double Taxation and Evasion Taxation agreement, 39 agreements which were concluded before diplomatic break

Source: Prepared by the Team based on the data from Ministry of Foreign Affairs, International Economic Cooperation Development Fund, Annual Report 2002 and Ministry of Economic Affairs.

4.43 Singapore. There has been much government agency restructuring in recent years. Previously, various agencies were involved in trade and investment promotion, such as the Trade Development Board (TDB), Economic Development Board (EDB), and Productivity and Standard Board (PSB). After restructuring, International Enterprise Singapore (IE Singapore), formerly known as TDB, took charge of trade and overseas investment promotion. Inward investment promotion such as attracting overseas companies’ investment in Singapore is now under EDB. 4.44 Trade Promotion Policies. IE Singapore provides various tax incentives and subsidies to promote trade. These include the Double Tax Deduction Scheme, Malaysia-Singapore Third Country Investment Feasibility Study (MSTC) Fund, International Exhibition City Program, Global Trader Program (GTP), Approved Cyber Trader Scheme (ACT), and the Approved International Shipping Enterprise Scheme. It 4-9

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

also facilitates trade between Singapore and abroad by dispatching and receiving trade missions, participating in overseas trade fairs, and assisting companies in reaching out to overseas customers using the IE Singapore’s overseas offices and others. IE Singapore also developed a business matching website called International Business Opportunities (IBO) to find potential business partners overseas. The following is a brief explanation of tax incentives and subsidies. 4.45 Double Tax Deduction (DTD) Scheme. The Double Tax Deduction Scheme for market development aims to encourage Singaporean companies to expand their overseas markets. It allows approved companies to deduct against their taxable income twice the eligible expenses incurred in the following activities, as covered by Section 14B of the Income Tax Act: • • • • • • •

Participation in overseas trade fairs/missions either as a group or on a individual basis; Participation in approved local trade exhibitions; Setting up of Overseas Marketing Offices; Master Licensing and Master Franchising; Advertising in Approved Local Trade Publications; Printing of Corporate Brochures/Catalogues for distribution in overseas markets; and Engaging in market development activities, i.e. Market Survey, Feasibility Study, Advertising Campaign, Promotional Campaign, Design of Packaging and Product/Services Certification.

4.46 Malaysia-Singapore Third Country Investment Feasibility Study (MSTC) Fund. The Malaysia - Singapore Third Country Investment Feasibility Study Fund (MSTC Fund) was co-founded and co-funded by the two countries. The Fund allows Singaporean and Malaysian companies to jointly undertake feasibility studies for joint investment or business projects in countries outside Singapore and Malaysia. The MSTC Fund aims to encourage Singaporean and Malaysian companies to expand their business operations in the global arena. 4.47 The MSTC Fund covers 50% of all eligible expenses for (i) Target Specific Due Diligence Studies for companies with a specific project in mind and is conducting a thorough investigation on the business viability of the project, the company can receive a maximum grant of RM200,000 and (ii) Pro-active Searches for a general search in a specific market for potential investments or business opportunities, a company can receive a maximum grant of RM100,000. The duration of study support cannot exceed 6 months and the companies must submit a report to IE Singapore and the Malaysian Industrial Development Authority (MIDA) within one month of completion of the study. The Fund is disbursed on a reimbursement basis, and claims should be submitted within 3 months of completion of the study. 4.48 International Exhibition City Program. This program was launched with the objective of developing Singapore into an International Exhibition City. It aims to: • Attract new international trade fairs and conferences staged in Singapore; 4-10

Studies on Africa-Asia Trade and Investment Relations (B)

• •

Chapter4. Promotion Policies

Nurture credible trade fairs and trade in Singapore to become regional or international events; and Raise the standards of trade fairs and conferences in Singapore. Incentives include endorsement and marketing assistance through tax incentives and grants offered by IE Singapore.

4.49 Global Trader Program (GTP). The aim of this program is to attract major international companies to use Singapore as a competitive trading hub. Companies with GTP status enjoy a concessionary tax rate of 10% on international trading activities in approved commodities and products. 4.50 Approved Cyber Trader Scheme (ACT). Companies conducting international business through the use of the Internet can qualify for the ACT incentive (10% concessionary tax). Companies under the ACT incentive are expected to: •

•

Conduct their principal E-Commerce activities in Singapore as well as handle a range of business activities and support functions, e.g.: - Server farms / Database management; - Web site content hosting, design and development; - General and administrative management; - Business development and investment planning; Financial control and treasury functions; - Logistics management and/or centralized distribution function - R & D of Internet applications and technology and Meet other commitments or criteria specified by the approving authority.

4.51 Approved International Shipping (AIS) Enterprise Scheme. The AIS scheme aims to provide shipping companies with an incentive to operate from Singapore. Approved companies can enjoy tax exemption for 10 years on income from qualifying shipping operations. 4.52 Outward Investment Promotion Policies. outward investment promotion.

There are two main policies for

4.53 Developing Singapore-style Industrial Parks Overseas. Singapore began encouraging overseas investment in the early 1990s. Due to its scare land, it was inevitable that Singapore had to expand its strategy of investments to stay competitive. The first such strategy was the “Growth Triangle”, a triangle that connects Riau province of Indonesia, Johor state of Malaysia and Singapore. One of the key concepts of the growth triangle concept was to establish Singapore-style industrial parks in neighboring countries using Singapore’s knowledge. Singapore Technology Group, a government linked company, developed a Singapore-style industrial park in Batam island in Indonesia, which is located 40 minutes ferry ride from Singapore.12 Many multi-national companies and Singaporean companies relocated or set up new operations in Batam in the early 1990s. With the success of Batam, Singapore government linked companies also established industrial parks in China, India, and Vietnam. 12

Due to the restructuring of GLC, Singapore Technology Group merged with other GLC, and now called SembCorp. Now, the overseas industrial parks are handled by SembCorp Parks, a subsidiary of SembCorp.

4-11

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.54 Tax Incentives and Grants. The Singaporean government also provides tax incentives and grants for overseas investment. These were initially administered by Economic Development Board (EDB), and recently handed over to IE Singapore when it took on the responsibility of facilitating overseas business expansion. The schemes are as follows. 4.55 Overseas Enterprise Incentive. This allows tax exemption on qualifying income from an overseas projects and investments for a period of 10 years. The applicant must be a Singapore-incorporated company and be at least 50% owned by local investors. 4.56 Overseas Investment Incentives. This allows tax exemption on the amount lost at the time of liquidation or sale of shares of the overseas investment. The applicant must be a Singapore-incorporated company and be at least 50% owned by local investors. 4.57 Double Deduction for Overseas Investment Development Expenditure. This allows double deduction of the cost of approved feasibility studies or the maintenance of the overseas project office from taxable income 4.58 Regionalization Finance Scheme. This scheme offers low-cost fixed-rate loans for the acquisition of productive fixed assets for overseas operations that complement the Singapore operations and generate economic spin-offs for Singapore. The loans are available for Singapore companies in the manufacturing and services sectors with at least 51% local equity ownership. 4.59 There is also assistance for human resource development for overseas operations such as the Regional Training Scheme (training grants for workers in the overseas operation) and INTECH Regionalization Scheme (training grants for managers for overseas operations). 4.60 Bilateral Trade and Investment Agreement. Singapore places the highest priority on the multilateral trading system embodied by the World Trade Organization (WTO). It also strongly promotes regional and bilateral trade agreements. Singapore has so far concluded Free Trade Agreements (FTA) with the 5 trading partners (New Zealand, Japan, European Free Trade Association (EFTA), Australia, and the United States), and is in on-going discussion with 6 trading partners (Association of South East Asian Nations (ASEAN), Canada, People’s Republic of China, India, Jordan, Mexico, and South Korea). 4.61 Malaysia. External Trade Development Corporation (MATRADE), established on 1 March 1993 as the external trade promotion arm of Malaysia's Ministry of International Trade and Industry (MITI), functions as the focal point for Malaysian exporters and foreign importers to source trade related information. By providing market research information and relevant advice, MATRADE assists Malaysian exporters to better position their products and services in the highly competitive global markets. 4.62

Trade Promotion Policies.

Trade promotion schemes of MATRADE are

4-12

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

composed of (i) trade information (Malaysia Exporters Database, online trade statistics, and market information.); (ii) trade fairs and trade missions; (iii) trade matching; and (iv) export development (Market Development Grants for small and medium size enterprises, seminars and workshops, and Export Excellence Awards). 4.63 For exporters, an incentive of double deduction for the promotion of export, duties, and sales tax exemptions is provided. The Export Credit Refinancing (ECR) Scheme is provided by the Exim Bank to promote the exports of Malaysian manufactured products, agricultural products, and primary commodities by offering a competitive interest rate to Malaysian exporters via commercial banks participating in the scheme. The companies that can enjoy ECR financing are those involved in manufacturing activities, agricultural products producers, and trading companies. 4.64 Outward Investment Promotion Policies. The Exim Bank of Malaysia provides the following financial facilities for overseas investment. 4.65 The Overseas Project Financing Facility. This facility is available to Malaysian companies or Malaysian controlled joint venture companies incorporated overseas for the purchase of Malaysian goods. Loan disbursements are generally made directly to the Malaysian exporters / contractors. The facility supports Malaysian investors undertaking projects overseas such as manufacturing, infrastructure, and other developmental projects. A maximum of 85% of the project cost or contract value is financed, with a maximum of 10 years including a grace period not exceeding 2 years to pay back the loan. 4.66 Bilateral Trade and Investment Agreement. Malaysia has signed many bilateral agreements, such as trade agreements, investment guarantee agreements, avoidance of double taxation agreements, bilateral payment agreements, and air service agreements with various countries in the world. Bilateral trade-investment-related agreements with 28 African countries are as follows.

4-13

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

Table 4-3 Malaysian Bilateral Agreements by African Country

Source: Ministry of International Trade and Industry, Malaysia

4.67 India. An important thrust of the new policy measures undertaken from 1991 was to integrate the Indian economy with the global economy with greater emphasis on India’s external trade. A series of policy measures aimed at liberalizing the economy included a reduction in the level of tariffs, removal of product-specific export incentives, coupled with a two-stage devaluation of the Rupee, simplification of export-import policies and procedures, and removal of quantitative restrictions on imports to remove an anti-export bias. 4.68 Trade Promotion Policies. The Department of Commerce in the Ministry of Commerce and Industry is responsible for the country’s external trade and all matters connected with it, such as commercial relations with other countries, state trading, export promotional measures, and the development and regulation of certain export oriented industries and commodities. The Department of Commerce formulates policies in the sphere of foreign trade, in particular, the import and export policy of the country. There are export promotional measures as follows:

4-14

Studies on Africa-Asia Trade and Investment Relations (B)

• • • • • • • • • • •

•

Chapter4. Promotion Policies

Free trade in all areas not regulated by specific policy provisions; Financial assistance to the Export Promotion Councils (see details of EPCs below); Financial assistance to industry organizations; Marketing studies on country/product focus, for example Focus Africa; Setting up of consolidated showrooms and warehousing facilities in important locations as identified by marketing studies; Participation in sales promotion campaigns through international department stores; Publicity campaigns for launching identified products in selected markets; Participation in international trade fairs, seminars, and buyers/sellers meetings; Promotion of select brands; Transport subsidies for select agriculture products; Reimbursement of charges for product registration abroad for pharmaceuticals, bio-technology, and agro chemicals and testing charges for engineering products; Setting up of business centers in Indian missions abroad for visiting Indian exporters and businessmen.

4.69 The Ministry of Commerce and Industry launched the Focus Africa program in 2002-03 to increase interactions between the two regions by identifying areas of bilateral trade and investment, and to significantly enhance India’s trade with sub-Saharan Africa. The focus is on 7 major trading partners: Ethiopia, Ghana, Kenya, Mauritius, Nigeria, South Africa, and Tanzania. The product focus considers the following for export promotion cotton, yarn, fabrics and other textile items; drug and pharmaceuticals; machinery and instruments; transport equipment; and telecom and information technology. 4.70 An action plan was formed involving Joint Trade Committees, Joint Business Councils, and the co-operation of Export Promotion Councils and apex chambers of commerce. There are various trade promotional activities such as Joint Business Councils between business organizations, trade missions, specialized and commodity specific fairs and exhibitions, including Made in India exhibitions. Grant and credit facilities provided by the Export Credit Guarantee Corporation (ECGC) and the Export-Import Bank of India (Exim Bank) are expanded under this program. 4.71 Outward Investment Promotion Policies. While outward direct investment is primarily dealt with by the Reserve Bank of India (RBI), the Exim Bank is actively involved in the promotion of overseas investment by Indian companies through facilitation and financing of overseas investment. Exim Bank's financing includes rupee term loans to finance Indian promoters equity investment in overseas ventures or promoter loans to overseas ventures. The Exim Bank can also issue guarantees on behalf of Indian ventures abroad to enable them to raise working capital or other finances locally.

4-15

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.72 The Exim Bank has recently been authorized by the Government of India to take direct equity participation in the ventures of Indian companies overseas. Exim Bank's equity contribution can be up to 25% the equity capital of the overseas venture in the case of joint ventures and 50% in the case of wholly owned subsidiaries, subject to a maximum of US$5 million per venture. Under this program, Exim Bank has approved equity investments aggregating US$5.3 million in two overseas ventures in Europe and Africa. Thus, Exim Bank is in a position to provide comprehensive financing package comprising equity, loans and guarantees to support Indian direct investment abroad. 4.73 Cumulatively Exim Bank has supported 77 Indian companies for equity investments in 90 ventures in 34 countries. These ventures cover manufacturing, marketing, and trading activities and are spread over Africa, Asia, Europe, and the US. Exim Bank also finances the acquisition of overseas companies by Indian corporations. 4.74 Bilateral Trade and Investment Agreement. India has signed trade agreements with Bangladesh, Bhutan, Egypt, Maldives, and Nepal. India and Sri-Lanka signed a FTA in December 1999. 4.75 The Indian government has also participated in negotiations to create Bilateral Investment Promotion and Protection Agreements (BIPPA) and Double Taxation Avoidance Agreements (DTAA), which are held with respect to a number of countries. 4.76 A Preferential Trade Agreement (PTA) and DTAA with Egypt are currently being negotiated. India is also negotiating a preferential trade agreement with the South African Customs Union, which includes Botswana, Lesotho, Namibia, South Africa, and Swaziland. There is hope that in the future this could lead to a FTA between the two regions.

B. Trade and Investment Facilitation and Support Mechanism 4.77 For facilitating trade and investment targeting African countries, central governments play a significant role in most of the selected Asian countries. In Japan and Korea, however, general trading companies (GTC) and industry associations respectively are prominent. 4.78 Japan. In East Asia, which is the main arena for Japanese direct investment, small-and medium-sized transnational corporations (TNCs) represent a significant part of Japanese FDI. They enter developing countries in this region through joint ventures and other collaborative arrangements with local firms. The reasons for this include the labor-intensive nature of production in small enterprises, their extensive use of locally available raw materials, and their geographical dispersion.13

13

Japanese Foreign Direct Investment in Africa, United Nations Joint ECA/UNCTAD Unit, UN, Geneva, 1997.

4-16

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.79 On the other hand, the greater portion of Japanese FDI in Africa has been made by global trading companies (GTC), known as Sogo Shosha, and recognized as among the world’s largest and most internationally diversified corporations.14 Although Sogo Shosha deal with domestic and international trade, they differ from traditional trading companies in many respects because of their (a) large scale capital, (b) exceptional fund-raising ability, and (c) efficient global information network. In addition, they cover a wide range of economic activities including the development of natural resources, the processing of raw materials, the production of intermediate and finished goods, construction, and services such as banking, insurance, and transportation. Japanese TNCs investing directly in Sub-Saharan countries consist mainly of large industrial conglomerates. 4.80 Korea. There are two industry associations that facilitate foreign trade and overseas investment of Korean private companies. Korea International Trade Association (KITA), a private association representing over 85,000 member companies, aims at expanding trade relations and facilitating international trade between member companies. Korea Trade Investment Promotion Agency (KOTRA), a non-profit governmental organization, is committed to playing a key role in the implementation of government policy such as encouraging exports and inducing foreign investment. 4.81 Korea International Trade Association (KITA). KITA is Korea's largest economic organization and was founded in 1946 with 105 members. Since then KITA has grown and now represents more than 85,000 companies involved in international trade. KITA's programs and activities include supporting overseas marketing, international trade cooperation, trade information and research services, educating international trade specialists, membership services, and various advisory and consulting services. KITA is often called upon to make policy recommendations to the Korean government as well as international bodies. 4.82 KITA regards Africa as being an emerging market and a strategic source for natural resources. In 2002, it dispatched market survey teams to Ghana and Senegal in collaboration with the United Nations Industrial Development Organization (UNIDO). In March 2003, investment promotion officials from both countries came to Korea and KITA organized a meeting for providing information on trade and the investment environment of both countries. Concluding a Memorandum of Understanding (MOU) on mutual cooperation with Ghana’s Chamber of Commerce and Senegal’s Investment Agency, KITA sent seven member companies to Ghana and Senegal in May 2003. 4.83 According to Mr. Bae, Deputy Team Leader of International Cooperation Division, the next countries they are focusing on are Egypt, Ethiopia, Nigeria, and South Africa. KITA sent a survey team to these countries last year. 4.84 Korea Trade Investment Promotion Agency (KOTRA). KOTRA, established in 1962, is a non-profit government agency. It promotes trade between Korean and foreign companies by providing overseas market information, on-site assistance for trade 14

Ibid.

4-17

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

negotiation, market research services, and business matchmaking. KOTRA also organizes trade shows in Korea and assists Korean companies in foreign trade show participation. 4.85 In August 1995, KOTRA added cross-border investment promotion and support for technological and industrial cooperation projects to its mandate, assuming its present name of Korea Trade-Investment Promotion Agency. The Korea Investment Service Center (KISC) was established within KOTRA in 1998 as the country's sole authorized investment promotion organization, vested with the function of providing foreign investors with one-stop service intended to cover everything from investment plan consultation to settlement support. 4.86 KOTRA has 103 overseas branch offices and they serve as focal points for cooperation between Korea and its trade partners and for investors. In Africa, there are three branches, one each in Nairobi, Lagos, and Johannesburg. The main functions of these branches are to provide (i) market research services for Korean private companies that seek to expand into the African market, (ii) business matchmaking, and (iii) vicarious agent services on behalf of Korean companies, which moved into these countries but cannot maintain branch offices. 4.87 According to Mr. Hong Hee, Deputy Manager of Overseas Market Research Team, KOTRA is not enthusiastic about promoting trade and investment with Africa and no specific activities have been undertaken recently. 4.88 China. Investment in Africa tends to be combined with trade, construction service (FEC), and ODA as the government strategy. The Chinese government has provided economic and technical support to Africa for 40 years. Recently, the government has begun to revive old official aid projects with participation from private corporations, providing credit depending on the situation. This mechanism is typically observed in the special fund scheme for joint ventures. It is also noteworthy that participation in international organizations’ development projects in construction, environmental protection, irrigation, and water management in Africa often promotes investment by Chinese companies. 4.89 Taiwan. It is said that the top executives of Taiwanese private companies directly conduct negotiations with local governments or local business people when expanding their business overseas. However, with regard to moving into the African market, the Taiwanese government plays a key role as noted in the previous section. Taiwanese companies tend to first participate in a trade and investment mission organized by governmental bodies in order to obtain basic information and then follow up with their own actions for business negotiations. 4.90 For example, the Chinese International Economic Cooperation Association (CIECA) dispatched a trade mission to Egypt, Morocco, and Nigeria for two weeks in December 2002, commissioned by the International Trade Bureau, Ministry of Economic Affairs. The main objective of this mission was to expand the opportunities for trade between Taiwanese private companies and those three countries. Twenty-nine companies

4-18

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

participated in the mission, comprised of executive officers and marketing/promotion directors. According to CIECA, participant companies have achieved some positive results. 4.91 Singapore. The Singaporean government takes the lead in facilitating the overseas investments by Singaporean local companies. Such facilitation includes establishment of overseas industrial parks, investment and trade missions, and assistance by the Government statutory board’s overseas offices. Unlike Japan, there is no large trading company that facilitates trade and investment. There are a few industry associations which assist its members expand overseas. One example is the Singapore Precision Engineering and Tooling Association (SPETA), which organizes missions overseas with the help of IE Singapore and other government agencies. However, generally speaking, there are not many industry associations in Singapore. 4.92 Usually, local Singaporean companies use government assistance or their personal contacts when they venture abroad. Singaporean companies may opt to venture independently into Africa and not seek assistance from IE Singapore or other government agencies. 4.93 Malaysia. The Prime Minister, Dato’ Seri Mahathir Mohamed promoted greater cooperation amongst South countries through the South-South cooperation initiative with the formation of the Malaysian South-South Association in 1991. This promoted and enhanced trade and investment joint ventures between Malaysia and Southern countries, which included countries in South America, Africa, and Asia. 4.94 The Prime Minister and the Minister of International Trade And Industry, Dato’ Seri Rafidah Aziz, had led a number of trade and investment missions to various countries prior to the 97-98 economic crisis. The countries visited were mostly Malaysia’s traditional markets such as the US, Japan, and European countries. A number of African countries were also included such as Ghana and Guinea in 1996, Malawi and Botswana in 1997, and Sudan and Mozambique in 1998. Whilst there are no trade and investment promotion activities specifically targeted at African countries, MATRADE and MIDA have organized a number of trade and investment promotion missions to African countries. 4.95 In 1999, the Asia-Africa Investment Technology Promotion Center (AAITPC) was launched in Kuala Lumpur as a TICAD initiative. The program is funded by the Government of Japan and implemented through UNIDO Headquarters in Vienna. As a direct result of the efforts of AAITPC the following projects have been initiated or achieved:15 • •

A Malaysian Business Center in Uganda (2001); A Zimbabwe Asia Expo Center in Kuala Lumpur to promote African products in Asia and Asian products in Africa;

15

“The TICAD Agenda and African Challenge”, Dato’ J. Jegathesan, Senior Investment Technology Advisor, AAITPC, presented at the Tokyo International Conference on Investment to Africa on February 26, 2003.

4-19

Studies on Africa-Asia Trade and Investment Relations (B)

• • • •

• • •

•

Chapter4. Promotion Policies

A Malaysian company has secured a deal to sell steel production machinery in Senegal (US$ 850,000); A joint venture option has been proposed with 30% equity from Malaysia, but this has not proceeded further; An agreement for a TV / DVD assembly plant has been signed in Zimbabwe. The Malaysian side is fully committed and awaiting a response; An IT College, a joint venture between a Malaysian private college and the University of Zimbabwe, will begin initially with 200 – 300 students. It commenced operations in Zimbabwe in early 2003; MOUs have also been signed with Malaysian companies for an egg production facility and a personal computer assembly plant in Zimbabwe; A Zimbabwe Bank has applied for a license to start a representative office / Merchant Bank in Malaysia; Recognizing the reluctance of medium sized companies to go into unknown territory in Malaysia, a group of Malaysian companies have been motivated by AAITPC to form a holding company that will spearhead Malaysian business interests in Africa. The company is called UTAS Asia (United Trans Africa Services Asia Ltd). It has formed a joint venture with Zimbabweans (70% /30%) and is operating the Zimbabwe Asia Expo Centre. UTAS, with AAITPC support, has organized two business missions to Zimbabwe and is a minority partner in the proposed TV/DVD project and the IT college; and AAITPC is encouraging the creation of a Senegal Asia Expo Center in Malaysia and a Senegalese businessman has been identified as a potential partner. AAITPC has also proposed to the Ghana High Commission in Malaysia for a similar Ghana Asia Expo Center.

4.96 In addition to the above effort by AAITPC, the promotion of trade and inward investment in African countries is mostly undertaken by diplomatic missions of the individual African countries in Malaysia. Regular visits by dignitaries from various African countries, which are occasionally accompanied by a business delegation, are also hosted by the Malaysian government. Trade and investment promotion policies and incentives are usually disseminated by the individual diplomatic representatives through seminars and briefings, usually with the assistance of the various industry and chamber organizations in Malaysia. The Federation of Malaysian Manufacturers (FMM) regularly organizes programs in collaboration or with the assistance of African diplomatic representatives to promote bilateral trade and investment. 4.97 India. As previously noted, the Indian government has been taking a positive role in trade and investment promotion, closely collaborating with private sectors. A typical support mechanism with government leadership could be observed in the strategic partnership with South Africa, as well as the newly launched Focus: Africa program. 4.98 The strategic partnership that officially exists between India and South Africa was announced by Nelson Mandela, then President of South Africa, as the Red Fort Declaration in New Delhi in 1997.

4-20

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.99 The areas in which the two nations intend to intensify cooperation, as agreed by the fifth meeting of the Joint Ministerial Commission, were political, defense, trade, economic relations, technical cooperation, science and technology, culture and education, and energy. 4.100 At the same meeting it was announced that a $10 million funding agreement between the Exim Bank of India and South Africa’s Absa Bank had been established to facilitate the trade of capital goods and equipment between the two countries. 4.101 In June 2003, a high level government and business delegation from India visited South Africa. It was led by the Indian Minister of State for Commerce and Industry, and accompanied by a trade delegation involving various apex organizations such as Chemical and Allied Products Export Promotion Council (CAPEXCIL), Engineering Export Promotion Council (EEPC), Shellac Export Promotion Council (SEPC). Businessmen from engineering, chemical, and pharmaceutical sectors were also among the members of the delegation. During this time, business meetings were held with South African counterparts at the Consulate General of India in Johannesburg. 4.102 The Confederation of Indian Industries (CII) counts several South African organizations as its institutional partners, including: • • • •

The South Africa Foundation; The South African Chamber of Business (SACOB); The Afrikaanse Handels Instituut (AHI); and The National African Federated Chamber of Commerce and Industry.

C. Historical Relationship with African Countries 4.103 The selected Asian countries built their relationship with African countries in various ways. They developed the relationship through ODA, longtime trades, or immigration as introduced in this section. 4.104 Japan. While there were some Japanese who were active in Africa before World War II, the main relationship between Japan and Africa was developed through diplomatic relations, and in particular, through Japanese ODA in the 1970s and 19080s. According to Mr. Yasukuni Enoki, then the Director-General of Middle Eastern and African Affairs Bureau, Ministry of Foreign Affairs of Japan, diplomatic relations can be divided into three phases.16 4.105 The first phase was from 1978 to 1987, when the volume of Japanese ODA to Africa increased significantly. Bilateral ODA to Africa in 1980 amounted to $223 million, about five times the $46 million of 1974. It has continually increased in line with increases in total ODA volume, and reached $884 million in 1988. At that time, Japan was the largest donor to Africa. 16

Based on his speech at Hokkaigakuen University, titled “Problems faced by Africa and Japan’s policy toward Africa”, June 30, 2000.

4-21

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.106 The second phase started in 1988, when Japanese aid to conflict resolution areas was initiated. After Prime Minister Takeshita’s speech on Japan’s international contribution scheme in London, election monitors were dispatched to Namibia in 1989. Since then, they have been sent to Angola and Liberia. In addition to this, a Japanese Self-Defense Force was sent to Mozambique and Rwanda to cooperate with UN Operation. Besides those contributions in human resources, financial and intellectual support was also expanded. 4.107 The third phase was inaugurated by TICAD II in 1998. While the TICAD process started in 1993, TICAD II marked a beginning by expressing the principles in African development and adopting an Action Plan with Japan’s initiative. In this phase, there were also noteworthy events in that two incumbent Prime Ministers, Mr. Mori and Mr. Koizumi, visited Africa for the first time. 4.108 Korea. Regarding foreign relations with African countries, the first contact was the deployment of South African troops to the Korean War in 1950. After Korea divided into two countries, political ideology became the key element for South Korea in developing foreign relations with African countries. By the early 1980s, South Korea established diplomatic ties with almost all the African countries. In the post-Cold War era, Mali, Burkina Faso, Ethiopia, Zambia, Zimbabwe, Tanzania, and Togo, which had all adhered to policies that were friendly to North Korea during the Cold War, began turning to policies that supported the South Korean position in the international arena.17 While achieving progress in democratization and aiming at economic development, African countries became interested in having practical cooperative relations with South Korea, especially after the Seoul Olympic Games were held in 1988. They now seek investment, economic cooperation, and instruction in Korea’s economic development experience. 4.109 Looking at the relationship with individual African countries, the following seven countries can be highlighted. 4.110 Ghana. Following the establishment of diplomatic relations with Korea in November 1977, Ghana carried out a foreign policy of equidistance with North and South Korea in the international society. However, Ghana hoped for an increase in Korean grants and economic cooperation. Since 1990, Korean Exim Bank has provided US$60 million EDCF loans for three projects, (i) petroleum product storage depots project in 1990, (ii) liquefied petroleum gas (LPG) cylinder plant project in 1994, and (iii) a petroleum products pipeline project in 2003. 4.111 Gabon. After establishing diplomatic relations with Korea in October 1962, Gabon firmly maintained a position of support for South Korea until establishing relations with North Korea in 1974 and began promoting diplomatic relations of equidistance. However, through the 1982 visit by President Chun Doo-hwan to Gabon and three visits by President Bongo to Korea, the friendly and cooperative relationship between the two countries has further developed. This change is visible in the mutual 17

Ministry of Foreign Affairs and Trade, http://www.mofat.go.kr/en/rel/e_rel_view.mof?seq_no=185&b_code=~middle.

4-22

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

support shown by the two countries in the international arena. 4.112 Nigeria. South Korea-Nigeria relations worsened after the Korean government agreed to the adoption of the Nigeria Human Rights Resolution at the December 1995 session of the UN General Assembly. After Nigeria’s democratic hand-over, President Obasanjo visited South Korea, and the relations of the two countries are now rapidly improving. On the other hand, Nigeria is becoming estranged from North Korea. 4.113 South Africa. A friendly and cooperative relationship between Korea and the Republic of South Africa has been developing rapidly since the establishment of diplomatic relations in 1992. This relationship is strengthening through advances such as President Mandela’s 1995 visit to Korea, the 1998 visit to Korea by Vice President Mbeki, who had strong prospects of becoming the next president, and former president Mandela’s visit to Korea in 2001. 4.114 Libya. Since establishing diplomatic relations on 29 December 1980, Libya has maintained a close relationship with South Korea. In the economic arena, for example, Korean companies such as Dong Ah Construction have received orders for construction projects equivalent to a total of US$22.4 billion. 4.115 Algeria. Since establishing relations with Korea on 15 January 1990, Algeria has set up a permanent mission in the country. Trade between the two countries has steadily increased. In 1999 exports from South Korea to Algeria reached approximately US$250 million, and major companies such as Yookaekong, Daewoo, and Samsung are participating in oil development. 4.116 Cote d’Ivoire. Since the establishment of relations in July 1961, Cote d’Ivoire has been pursuing balanced diplomatic relations with North and South Korea. Recently, however, Cote d’Ivoire and South Korea have been maintaining a close relationship as evidenced by the support that Cote d’Ivoire expresses for South Korea on the international stage. For example, Cote d’Ivoire supported South Korea’s reunification policy and promotion of North-South talks. It also backed Korea’s non-permanent membership in the UN Security Council and the bid for the position of secretary-general of WTO. However, interchange between the two countries became inactive after the coup de tat in Cote d’Ivoire in December 1999. 4.117 China. China and Africa have a long trade relationship, which traces as far back as the 9th Century. It is well known that, in the 15th Century, Zheng He brought his fleet to the east coast of Africa three times, which served as an important impetus to marine trade between two continents. In the 19th Century, significant migration from mainland China and other areas to some African countries such as South Africa, Mauritius, and Madagascar took place. 4.118 Since the establishment of the People’s Republic of China, successive Chairmen have attached importance on trade with Africa. During the 1950s to the 1970s, China established diplomatic relations with a number of newly independent African countries mainly for political reasons. In the 1980’s, with the dramatic increase in China’s

4-23

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

economic power brought about from its reform and opening up policy, trade and economic relations between China and Africa greatly developed. President Jiang Zemin’s visit to six African countries in 1996 is considered to have inaugurated a new era in relations between the two continents. In his speech at the Organization of African Unity (OAU), the President stated that China wished to establish a continuous and stable relationship with African countries, based on its Five Principles of Peaceful Coexistence. 4.119 Taiwan. The first immigration from China to Africa took place almost two hundred years ago. Most of the immigrants of those days were not from Taiwan but from mainland China. Today, Chinese/Taiwanese living in Africa are predominantly located in South Africa, Mauritius, and Madagascar. 4.120 In the late 1990s, there were growing personal contacts between Taiwan and Africa, especially with South Africa and Lesotho. First-generation overseas Taiwanese living in South Africa mostly operated grocery stores, restaurants, and laundries, whereas the second and later generations, after receiving higher education, entered professions such as medicine, accountancy, and architecture. The immigrant population in Lesotho remains a key player in the foreign business community and has made significant contributions to Lesotho’s economy. The firms and factories managed by overseas Taiwanese are largely those of electronics, automobile parts, and building materials. 4.121 The Western African region is geographically far from Taiwan, but diplomatically important for the Taiwanese government because of the considerable number of countries that have diplomatic ties with Taiwan. Trade and investment missions to Africa these days are also concentrated in this area. 4.122 Presently, Taiwan has diplomatic relation with eight African countries: Burkina Faso, Chad, Gambia, Liberia, Malawi, Senegal, Sao Tome and Principe, and Swaziland. Taiwan also has a liaison office in South Africa and is stationing a trade mission in Nigeria. 4.123 Singapore. Since independence, Singapore maintains cordial and friendly relations with African countries. In 1993, with the establishment of the Singapore Cooperation Program, there were increased interactions in terms of inter-country visits. In 1997, the Singapore government established an S$100m fund to facilitate private investments in southern Africa.18 At the same time, various countries in Africa began to see Singapore as a place where they could learn useful lessons. As of today, there are fifteen foreign missions from Africa in Singapore, of which three are resident embassies and the remainder are consular posts. 4.124 Looking at the relationship with individual African countries, the following two countries can be highlighted.

18

www.angola.org. News October 1997. According to this news, Temasek Holdings, which is a Singapore government’s investment arm, contributed S$50 million. The balance came from the private sector. When checks were made with Temasek Holdings regarding the status of this fund, they stated that the fund is not a significant investor in Africa and is currently being wound down..

4-24

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.125 Nigeria. A number of Singaporean companies have been doing business in Nigeria over 50 years, though relations between Nigeria and Singapore were formally established on 26 February 1985. Prior to the establishment of formal diplomatic relations, President Obasanjo maintained close personal relations with the founder of modern Singapore, Lee Kuan Yew. 4.126 This close relationship insured a continued exchange of visits by officials of the two countries since the 1970s when President Obasanjo was Nigeria’s military Head of State. The latest visit, however, was the first by a Nigerian Head of State and it was significant in that it provided ample opportunity for the two leaders to further consolidate relations between their countries. In a bid to broaden bilateral relations, Nigeria opened a diplomatic mission in Singapore in 1999. Although Singapore is yet to reciprocate this gesture, Philip Eng, a roving High Commissioner based in Singapore, is overseeing its interests in the country. 4.127 South Africa. Relations between Singapore and South Africa are more established compared to other Africa countries. Singapore perceives South Africa as the gateway to Africa. Trade between the countries has been growing and was at its highest in the year 2000, soon after the 1997 crisis, when the economies of the world recovered. The value of trade with South Africa reached about S$1 billion in imports and exports. 4.128 A bilateral air travel agreement with South Africa was established in 1992, diplomatic relations in 1995, and a double taxation agreement in 1996. Singaporeans can now travel to Africa with no visas for up to thirty days. 4.129 India. During the British colonial period, from the 19th century to the beginning of 20th century, Indian communities settled in East and South Africa, where they had important economic positions. The Indian population in East Africa swelled from approximately 34,000 in 1915 to 105,000 by 1939. Some Indians actively participated in East Africa's nationalist organizations and defended African interests when, as members of colonial legislatures, they represented Africans in the years before that group won direct representation. 4.130 After World War II, while there was a series of official and unofficial discriminatory policies against Indian residents throughout East Africa and political and economic hardship was enforced by racial segregation in South Africa, Africa still occupied a special place in Indian diplomatic interactions because of its large presence at the United Nations. 4.131 However, in post-apartheid South Africa, as in East Africa, the economic success of Indians has caused tension. Polls in 1994 showed that the majority of Indian voters leaned toward the National Party. This conservative shift has been attributed to an Indian fear of losing economic power to the growing black business class. Other analysis indicates that it might take some time to overcome the legacy of apartheid — a system that not only distinguished groups by race, but fostered conflict between them.

4-25

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

D. Entrepreneurs Network and Business Communities 4.132 Among the selected Asian countries, India has the largest number of residents in Africa. This is an effect of the inheritance of historic ties with the East and South Africa developed under the British colonial regime, and still functions to maintain a large Indian population in some countries. China and Taiwan have the second largest number of residents in Africa. 4.133 The perception of Africa as a target for trade and investment differs among the selected countries. Korea, China, and Taiwan appear positive as they see Africa as a potential market and advantageous due to preferential treatments from the US and some countries in EU. On the other hand, Japanese and Singaporean business societies find some difficulties in entering the African markets. 4.134 Japan. In 2002, there were 116 Japanese subsidiaries and 5,770 Japanese residents in Africa (see Table 4-4 and Table 4-5). The sectoral breakdown of the subsidiaries was reported as trade (35%), manufacturing (24%), transportation services (19%), construction (3%), and others (13%). The geographical distribution of subsidies and residents do not necessarily correspond except for South Africa, which has the largest accumulation of both subsidies and residents. Table 4-4 Number of Japanese Subsidiaries in Africa and Japanese Companies Invested Country Morocco Algeria Tunisia Egypt Senegal Liberia Cote d’Ivoire Ghana Togo Mali Burkina Faso Nigeria Niger Cameroon D.R. of Congo Angola Ethiopia Kenya Tanzania Mozambique Madagascar Mauritius Reunion Zimbabwe

No. of Japanese subsidiaries* 2 1 3 9 1 19 2 1 1 1 1 14 1 2 1 1 2 2 4 1 2 1 1 1

4-26

As of the end of 2002 No. of Japanese companies invested 2 1 3 14 1 11 2 1 1 1 1 14 1 2 1 1 3 2 5 1 2 1 1 1

Studies on Africa-Asia Trade and Investment Relations (B)

Country South Africa Zambia Swaziland Total Africa

Chapter4. Promotion Policies

No. of Japanese subsidiaries* 39 2 1 116

No. of Japanese companies invested 34 2 1 －

Note: * Subsidiaries with less than 10 percent of Japanese equities are not included. Source: Kaigai Kigyou Shinsyutsu Souran (Directory of Overseas Japanese Subsidiaries), Toyo Keizai, 2003.

Table 4-5 Number of Japanese Residents in Africa Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Chad Comoros Cote d'Ivoire Democratic Republic of the Congo Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Republic of Congo

Total 102 20 11 44 68 0 35 16 9 0 163 26 19 862 1 4 120 26 8 203 28 0 702 3 4 58 87 102 12 8 41 252 93 12 76 148 1

4-27

Long-term residents Permanent residents 89 13 20 0 11 0 39 5 68 0 0 0 34 1 16 0 9 0 0 0 163 0 21 19 700 1 4 120 25 8 194 28 0 702 3 4 46 83 102 12 8 13 252 93 7 76 113 1

5 0 162 0 0 0 1 0 9 0 0 0 0 0 12 4 0 0 0 28 0 0 5 0 35 0

Studies on Africa-Asia Trade and Investment Relations (B)

Total Reunion 17 Rwanda 4 Sao Tome and Principe 0 Senegal 175 Seychelles 2 Sierra Leone 5 Somalia 1 South Africa 1,179 Sudan 27 Swaziland 13 Tanzania 291 The Central African Republic 29 Togo 2 Tunisia 172 Uganda 99 Western Sahara 0 Zambia 253 Zimbabwe 137 Total Africa 5,770 Note: As of October 2002 Source: Ministry of Foreign Affairs, Japan

Chapter4. Promotion Policies

Long-term residents Permanent residents 0 17 4 0 0 0 175 0 2 0 5 0 1 0 1,008 171 17 10 10 3 289 2 25 4 2 0 172 0 96 3 0 0 253 0 137 0 5,280 490

4.135 As previously noted, Sogo Shosha, or GTCs, play a key role in promoting investment in Africa by Japanese trade and the industrial society. Although the network function among those Japanese subsidiaries and residents in Africa is not explicitly recognized, a large array of GTCs’ subsidiary companies is considered to be functioning as a catalyst for investment activity by coordinating a world-wide supply of goods and services, as well as information. 4.136 There are several Japanese business communities or organizations that promote interchange between Africa and Japan, or among Japanese entities. Keidanren (Japan Business Federation) has three committees on Africa: Regional Committee on Sub-Sahara, Regional Committee on the Middle East and North Africa, and Japan-Algeria Economic Committee. Each committee has held various business meetings and forums. The Africa Society of Japan, established in 1960 as an incorporated body under the jurisdiction of the Ministry of Foreign Affairs, has a long history of personnel interchange, seminars/exhibitions, publishing, and other related activities to promote Japanese understanding on Africa. 4.137 General Perception of Africa as a Target for Trade and Investment. According to Mr. Satoru Anzaki, Chairman of Committee on Sub-Sahara, Keidanren, the Japanese business society has less interest in Africa than other areas of the world, due to a large geographical distance between the two regions and the lack of information on Africa. However, to balance against an overheated investment movement toward China, investment to Africa should be more promoted.19 19

Based on his speech at the Tokyo International Conference on Investment to Africa on February 26,

4-28

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.138 The obstacles to promoting economic activities in Africa are recognized as low economic growth rate, small market, lack of skilled labor, delay of privatization, spread of HIV, and deteriorating security. Having said this, the critical factors that need to be improved for Japanese entrepreneurs to invest in Africa are as follows: • • • •

Stabilization of political situation and security improvement; Development of social infrastructure, including basic living infrastructure, laws and institutions; Improvement in quality of labor, which is achieved through elementary and secondary education to inculcate diligence and entrepreneurship; and Expansion of market size, for which the present effort of market integration is welcome.

4.139 Positive aspects of Africa are rich mineral resources, cheap energy, vast spread of land, and good access to the world market. In addition to these, a high potential for tourism is probable. To make use of these advantages and to make the whole of Africa become an attractive market for foreign investors, African countries are advised to strengthen their solidarity and develop their self-help efforts, breaking away from a foreign aid dependent constitution. 4.140 Korea. According to the Overseas Korean Foundation, 5.6 million Korean people live abroad, but that only 5,280 of them are long-term residents of Africa (see Table 4-6). There is no public data collected on the Korean business community in Africa. Table 4-6 Number of Korean Residents in Africa Unit: Person Country of residence South Africa Ghana Nigeria Gabon Liberia Morocco Sudan Algeria Angola Congo Republic Total in Africa Total in the world

1992

1995

1997

1999

2001

377 337 248 209 24 628 124 88 0 57 2,693

3,316 0 492 283 28 499 140 113 32 63 3,316

658 589 114 134 6 288 131 7 23 68 3,410

1,061 488 115 175 15 337 130 11 35 82 4,215

1,356 586 456 117 26 418 91 43 29 69 5,280

4,943,590

5,228,573

5,544,229

5,644,558

5,653,809

Source: Overseas Korean Foundation, 2003

2003.

4-29

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.141 General Perception of Africa as a Target for Trade and Investment. Since the 1990s, Korean-African relationships have grown stronger. Many African countries became interested in the similarity of its history (colonization by imperialism, civil war, and ethnic conflicts) and now pay attention to Korean economic development known as the East Asian Miracle. At the same time, the South Korean government regards the African market as being an important untapped market and a strategic source of energy resources, such as natural gas. The Ministry of Foreign Affairs and Trade indicated “Africa’s importance permanently exists as it gains force as an enormous natural resource, as an emerging market and investment region with 700 million people, and as the target of multilateral diplomatic efforts such as the UN.” 20 It seems that the government will maintain and strengthen friendly and cooperative relations with African nations by playing a role that fits South Korea’s international status. 4.142 China. By the end of 2001, 549 Chinese invested enterprises have been established in Africa, with a contractual value of US$1.1 billion, of which China invested US$756 million. As Chinese labor is continuously mobilized to projects in Africa, 46,800 Chinese labors were stationed in Africa at the end of 2001. 4.143 General Perception of Africa as a Target for Trade and Investment. According to the Chinese Ministry of Commerce, it is an urgent task for China to identify and utilize the potential of Africa through economic cooperation, because most African countries enjoy the merits of quota and preferential trade schemes provided by the US and EU, which China can utilize to boost its export under the WTO. 4.144 At the same time, entailing risks are also recognized. Market sizes for each commodity are rather small, as well as having received significant western capital over many years. This might cause harsh market competition. There are also risks in currency, production facilities, and labor relations. Therefore, it is suggested that development of the African market needs to be conducted without pursuing short-term profit, gradually expanding market share, and avoiding various risks by one’s own effort. 4.145 Taiwan. The following table shows the distribution of overseas Chinese/Taiwanese and Taiwanese private companies in Africa. The business activities of Taiwanese companies seem to be relatively dynamic in South Africa and Swaziland. In some countries such as Egypt, trade volume with Taiwan is relatively high but investment from Taiwan is very low.

20

Ministry of Foreign Affairs and Trade, www.mofat.go.kr/en/rel/e_rel_view.mof?seq_no=185&b_code=~middle.

4-30

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

Table 4-7 Taiwanese Private Companies and Residents in Africa

Main associations of Overseas Chinese/Taiwanese

Approx. 100

Taiwanese Chamber of Commerce of Cote d’Ivoire

Approx. 2,000

N.A.

Country Cote d’Ivoire

N.A.

Egypt

4

Ghana

N.A.

N.A.

Approx. 50

Gambia Liberia

N.A. N.A.

Motorbike, Garment Retailing

N.A. N.A.

Lesotho

N.A.

N.A.

Approx. 700

Madagascar

N.A.

Main business areas of Taiwanese firms

Population of overseas Chinese /Taiwanese

No. of firms

Shoe making, Trade, General merchandise, Apparel Restaurant and catering, Trade, Apparel

General merchandise, Hotel, Trade, Restaurant and catering, Food processing, Electronics, Minerals processing Fishery, Pottery manufacturing, Apparel, Distributive trade, Consumer electronics retailing Apparel, Construction, Architecture, Cooking oil making, Livestock feed production, Plastic production

Mauritius

N.A.

Malawi

8

Nigeria

N.A.

Trade

Senegal

1

Swaziland

About 60

Restaurant and catering General merchandise, Trade, Apparel, Restaurant and catering, Serrurerie, Hotel, Video rental

4-31

Taiwanese Chamber of Commerce of Ghana N.A. N.A. Taiwanese Chamber of Commerce of Lesotho, Lesotho Chinese School

Approx. 20,000

N.A.

Approx. 30,000

Mauritius Chinese Secondary School, Taiwanese Association, Chinese Association

Approx. 100

Taiwanese Chamber of Commerce of Malawi

Approx. 300 N.A. Approx. 400

N.A. N.A. Taiwanese Chamber of Commerce of Swaziland, Taiwanese Apparel Export Association of Swaziland, Swaziland Chinese School

Studies on Africa-Asia Trade and Investment Relations (B)

Country

South Africa

No. of firms

Main business areas of Taiwanese firms

620

Spinning, Plastic, Electronics, Electronic equipment, Shoe making, Log processing, Metal manufacturing, Jewel cutting, Ornament processing, Minerals processing, Rubber, Leather manufacture, Food processing, Chemicals

Chapter4. Promotion Policies

Population of overseas Chinese /Taiwanese

Main associations of Overseas Chinese/Taiwanese

Approx. 45,000

Taiwanese Chamber of Commerce of South Africa, Taiwanese Association of Africa, Taiwanese Association of Southern Africa, Taiwanese Women’s Federation of South Africa, Buddha's Light International Association, Tzu Chi foundation, Overseas Chinese Service Center, etc.

Note: As of 2002 Source: Prepared by the Team based on the data from Ministry of Foreign Affairs, International Economic Cooperation Development Fund, Annual Report 2002 and Ministry of Economic Affairs.

4.146 General Perception of Africa as a Target for Trade and Investment. The main body of Taiwanese private companies that have achieved major results on the international stage is comprised of small- and medium-sized firms, with the business area dominated by the international trade and service sectors. However, in Africa, the main business areas of Taiwanese firms are the apparel and textile industries, which are labor-intensive. Because of AGOA and its preferential treatment, these firms are mainly exporting their products to the US and EU. 4.147 According to the results of a questionnaire survey aimed at 50 Taiwanese firms in the African region, which was conducted by the Overseas Chinese Affairs Commission in the year 2001, most firms arrived and expanded their business into Africa after the 1980s. They indicated that the strong incentives to locate in Africa, in addition to preferential treatment were attractiveness as a growing market, low-cost labor, and requests by overseas customers. 4.148 The general perceptions of the African market by Taiwanese firms in Africa are as follows (i) poor quality labor force; (ii) fluctuation risks in the local currency; (iii) poor security; and (iv) frequent labor strikes. 4.149 Given the above, Taiwanese firms in Africa have requested the following support from the Government of Taiwan: • • •

•

Financial support, for example branches of Taiwanese banks in Africa; Provision of investment related information, especially local information on investment activities and legal requirements; Guarantees and protection of investor’s interest through bilateral taxation and investment agreements, which have been undertaken with a very limited number of African countries (see Chapter 3A.); and Deregulation and simplification of procedures on overseas investment.

4-32

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

4.150 Singapore. There is no public data collected on companies and businesses investing in African countries, or on the number of expatriates sent to Africa, or the Singapore business community in Africa. Nor is there any public data on the number of Singaporeans living in Africa. There seems to be no Economic & Cultural Exchange Association between Singapore and Africa. 4.151 Based on information gathered from interviews with companies and government officials, first, trade in consumer electronics and edible oil concentrate the interest from Singaporean companies; second, significant Singapore business in Africa are in textile and garment manufacturing, where several companies have shifted manufacturing facilities to take advantage of cheap labour costs, duty incentives, quotas and other incentives. 4.152 Malaysia. There is no public or available data collected on this subject. Nor is there public data collected on the number of Malaysians living in Africa. But based on interviews and research, this consultancy team found that: 4.153 • • • •

The assistance suggested or sought by the respondents was mainly on: Availability of market information on specific industries; Trade leads, access to importers for their products; Participation in trade missions; and Assistance from Malaysian trade promotion organizations.

4.154 In terms of projected value of business dealings / investments which the respondents intend to make with Africa, eight companies indicated that they expect to establish up to RM10 million (US$2.6 million) while two indicated between RM11 million to RM50 million (US$3 million to US$13 million) worth of export business individually with Africa. 4.155 India. The most evolved Indian business community can be found in South Africa, as it has the largest Indian population in Africa with 1.2 million people (see Table 4-8). Although no formal network exists to promote interaction between members of the Indian business community, the most prominent Indian businessmen in South Africa have cooperated on a number of political issues. Non-Resident Indian (NRI) Associations as can be found in the US and UK do not seem to have been established in Africa. Such events, which were organized by CII (Confederation of Chambers of Indian Industry) and FICCI (Federation of Indian Chambers of Commerce and Industry), would benefit from the involvement of such associations. Encouraging such associations and their interaction with Indian Chambers of Commerce is considered to be a useful way of promoting trade with Africa in the future. 4.156

4-33

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter4. Promotion Policies

Table 4-8 Indian Population in Selected African Countries

NRI - Indian citizens not residing in India PIO - Persons of Indian Origin who have acquired the citizenship of some other country Source: High Level Committee on the Indian Diaspora 2002

4-34

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

5 CASES OF DIRECT INVESTMENT IN AFRICA: STRATEGIES AND LINKAGES A.

Backward and Forward Linkages

5.1 Linkages and Spillovers. One of the primary motivations for governments to attract FDI to their economies is the potential for productivity spillovers that can take place through contacts between foreign affiliates and their local suppliers in upstream sectors. These spillovers can take place between either domestic-market-oriented companies or export-oriented foreign ones. The impact of foreign affiliates on the activities of domestic firms can be direct, through the establishment of backward linkages with local firms by foreign affiliates, or they can be indirect, through new technologies and know-how that the foreign affiliates bring to domestic firms. Economic policy measures that encourage and deepen those linkages can therefore strengthen the capabilities and competitiveness of domestic firms, which can subsequently positively impact the overall welfare of countries. Open economies, for example, are more likely to induce foreign affiliates to invest in upgrading the technological capabilities of domestic suppliers. The investment of an international consortium of the Steel Plant “Mozal” in Mozambique by BHP Billiton, Mitsubishi Corporation of Japan, the Industrial Development Corporation of South Africa and the Government of Mozambique is one of the recent stories of success in the last years (Box 5-1). The presence of a Japanese conglomerate as a member of a joint venture is considered a case study of an investment in Africa with better chances of success by reducing risks through coordination. 5.2 Foreign affiliates can generate local spillovers. Foreign companies based in host economies can generate multiplier effects in local development through production linkages and spillovers. Companies can decide to outsource from imports or produce inputs in house, the former does not generate local linkages and the effects of in-house production on linkages is limited depending on the degree of using of local resources (Figure 1). However, experience demonstrated that producing and outsourcing from domestic producers led to trickle-down effects via training local workers, leads to competition between local suppliers, technology transfer of quality, packaging, and distribution by demonstration effects Backward linkages between foreign affiliates of transnationals and domestic suppliers can create productivity spillovers and improve the competitiveness of those suppliers, but policies to promote those linkages need to promote FDI flows in such a way as to ensure economy-wide gains for host countries. Informal evidence based primarily on the successful use of FDI promotion policies by Southeast Asian countries as part of their industrialization program suggests that the African countries can benefit from backward linkages with local firms by foreign affiliates, and the transfer of new

5.3

5-1

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

technologies and know-how that the foreign affiliates bring to domestic firms. FDI flows directed at narrowly defined sectors with few opportunities for backward linkages are unlikely to benefit the African region. Government policies that deepen linkages with foreign affiliates of transnationals are most successful when a combination of measures are adopted that target the promotion of linkage information for those foreign affiliates and domestic suppliers, as well as the regulatory and macroeconomic policy environment of the country. Figure 5-1 Linkages and Spillovers in Perspective F o re ig n F irm in H o s t C o u n try

Im p o rts o r lo c a l s o u rc in g fro m fo re ig n a ffilia te s

In -h o u s e p ro d u c tio n w ith lo c a l s o u rc in g

L o c a l s o u rc in g fro m d o m e s tic p ro d u c e rs

L im ite d o r n o L in k a g e s

P ro d u c tio n L in k a g e s ’ S p illo v e rs T ra in in g

F o s te rin g o f lo c a l c o m p e titio n

D e m o n s tra tio n e ffe c ts

Local R & D tric k le -d o w n

Source: Prepared based on UNCTAD (2001)21

B.

Firm Policies and Strategies in Africa

B.1 Japan 5.4 General Perception of Africa and Investment Activities by firms. According to the Japanese Federation of Economic Group (Keidanren), the Japanese business society has demonstrated less interest in Africa than other areas of the world, due to a large geographical distance and lack of information on Africa in various aspects.22 However, to balance against an overheated investment movement toward China, investment to other areas including Africa is considered to be important for further promotion.23 5.5 Attractiveness in the African market has been expressed because the continent has a wealth of mineral and natural resources, low-cost in energy, vast quantities of land, and access to the world and neighboring markets. In addition to these, a high potential for tourism has been identified. To maximize these advantages and make the whole of Africa become an attractive market for foreign investors, they suggested that African countries 21

UNCTAD (2001). World Investment Report: Promoting Linkages”. Mr. Satoru Anzaki, Chairman of Committee on Sub-Sahara, Keidanren 23 Based on his speech at the Tokyo International Conference on Investment to Africa on February 26, 2003. 22

5-2

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

strengthen their solidarity and develop their own regional self-help efforts, breaking away from a foreign aid dependency. 5.6 Four success cases of Japanese private investment in Africa are introduced as follows: Kenya Nut Established in 1974 in Kenya by one Japanese entrepreneur to collect and process macadamia nuts produced in Kenya. Initially, all the products were exported to Japanese market, the firm eventually expanded its market to include Europe and US, along with diversifying its products into cashew nuts and coffee. The firm now employs 4,000 workers, and contracts with 160,000 nut and coffee farmers. Matsushita Electric (East Africa) Established in 1966 in Tanzania by Matsushita Battery Industrial and other Matsushita group companies. Matsushita Electric has produced dry batteries and torch lights mainly for the Tanzanian domestic market and neighboring country markets, competing with illegally imported cheap products. Having survived severe competition, with the support of Tanzanian government and Matsushita Battery, although limited, it has increased its production capacity to expand to markets throughout the East-and-South Africa. Maruha Taiyo Fishery, then renamed as Maruha, established joint enterprises for shrimp fishing and culture in Madagascar in 1963, and Mozambique in 1973, with equity participation of the respective governments. The company employs 1,900 workers in both countries, and exports 5,600 tons of shrimp to Japan and Europe. These exports account for 3% of Madagascar’s trade balances and 6% in Mozambique. Mitsubishi Corporation Mitsubishi Corp. has participated in the world’s biggest aluminum refining project called MOZAL, together with Billiton (UK), Industrial Development of South Africa (IDC), and the Government of Mozambique since 1998. The project imports major material (alumina) from Australia, utilizes inexpensive electricity provided by South Africa (ESCOM), and exports all the product (primary aluminum) to the EU and Japan. Mitsubishi indicated that the major factors for participating in the project was (i) a steady supply of inexpensive electricity with a long-term contract with ESCOM, (ii) finanical assistance for the project from various Multilateral/Bilateral Development Banks and financial institutions, (iii) reliable business partners (Billiton and IDC), and (iv) a strong commitment by the Mozambique government. 5.7 These four cases indicate some variations on business strategies on product, market and government involvement. Kenya Nut and Maruha had both utilized indigenous primary products to sell mainly to Japanese market, with expansion to the EU market. In both cases, which are different from mining and energy resource extractive businesses, local labor was an important factor of production, presupposing technology or knowledge transfer by the investors. On the contrary, the MOZAL project, while targeting the Japanese and EU markets, did not depend on the indigenous resources in Mozambique, but relied on the inexpensive energy provided by South Africa. The project has been realized by the huge amount of capital investment ($520 million), introduction

5-3

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

of the latest refining technologies, and related infrastructure development. Thus the project has needed international alliances, financial support from various international financial institutions, and a strong commitment by the host government. The first two cases could be categorized as traditional natural resource-based investment projects and the fourth case can be considered as a model for a large-scale energy resource project. Box 5-1 MOZAL in Mozambique

MOZAL, one of the largest aluminum smelters in the world is located near Maputo, the capital of Mozambique. MOZAL was constructed in two phases with approximately US$2 billion in funding and US$1.1 billion in non-recourse project funding from international enterprises. Shareholders are BHP Billiton (47% and the smelter operator), Mitsubishi Corporation of Japan (25%), the Industrial Development Corporation of South Africa (IDC, 24%) and the Government of Mozambique (4%). Phase 1, was the first major project to be implemented in Mozambique in the past 50 years and took 31 months to complete after approval in May 1998. MOZAL 1 began production in June 2000 and reached its full output rate in 2001.The investment of US$1.34 billion in MOZAL 1 boosted the economy of Mozambique and also boosted the economies of Mozambique’s major trading partners, South Africa, Swaziland, and Australia. Phase 2, an expansion project, took 26 months to complete and was finished in August 2003. In August 2003, first metal was produced six months ahead of schedule and at a final cost of US$665 million, some US$195 million under the original budget. The expansion has doubled the smelters capacity to produce 506,000 tons of primary aluminum per annum. This will have significant economic benefit for Mozambique. The foreign investments in MOZAL have led to improved economic and social benefits in Mozambique, due to linkages with various resources and environments. MOZAL’s factors that led to its success include a competitive and inexpensive power supply, efficient labor, good raw materials supply, and investment incentives. The project fit well within the economic transition in Mozambique, which started in the early 90’s. Economic Effect: MOZAL doubled Mozambique’s exports, providing for in excess of US$400 million in foreign exchange earnings per annum and adding more than 7% to the gross domestic product. Creating Jobs: One of MOZAL’s visions is to recruit staff directly from the local community. Direct manual labor on the project will peak late in 2002 at approximately 4,500 people - with total personnel involved, including contractors and management staff, expected to peak at 6,000 people. More than 65% of the labor force will be Mozambican.

5-4

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

Capacity building: In an effort to empower the local Mozambican people and companies, an empowerment program has been undertaken. A training facility has been commissioned to train local labor, allowing semi-skilled workers who worked on MOZAL 1 to upgrade their skills and thus work in more highly skilled positions, whereas new labor is trained for entry-level positions. Health, Safety, and the Environment: Another important activity is the company's role in health, safety, environment, and the community. Disease awareness campaigns (malaria and HIV/AIDS) and safety awareness campaigns are developed and run continuously. Public awareness meetings are also held every six months at the plant to inform interested and affected parties of the plant's environment management plans and progress. Supporting the Community: The MOZAL Smelter project supports the community surrounding the site. MOZAL works on waste collection, fire training, and mosquito fumigation at the local market (built by MOZAL). MOZAL also donates packing timber and scrap paper generated from the project to local schools. They also provide medicine to clinics. 5.8 The case of Matsushita Electric presents a different business strategy, which produces simple manufactured goods for the domestic market. In this type of business, investors were usually protected by the high tariffs under the import substitution policies by the governments, therefore, recent tendency of import liberalization and regional economic integration have placed such investment in an uncompetitive position against imported products. This situation has actually forced many foreign investors to withdraw from the African market, including Matsushita Electric in Cote d’Ivoire and Sanyo Electric in Kenya. Matsushita in Tanzania shows a successful case of surviving such situation with the effort to strengthen competitiveness and utilizing regional economic integration to expand its market. B.2 South Korea 5.9 Facilitated by positive information disseminated throughout governmental agencies, Korean businesses began to consider Africa as a prospective destination for trade and investment. In 2001, the Korea-Africa Association (KOAFA) and UNDP jointly organized local preparatory workshops for the second Asia Africa Business Forum (AABF), aimed at facilitating Korean direct investment in Africa.24 Dr. Jung Hae-jung, director general of KOAFA and President of M.K. International, Inc. said, “At the workshop, Korean business executives interested in the African market were able to have an opportunity to build up their network with marketing specialists and governmental officers.” In fact, some of companies that attended the workshops were invited to the second AABF held in South Africa in order to make on-the-spot arrangements with African companies. 24

AABF is targeting countries which include China, India, Malaysia, Pakistan, South Korea, and Thailand in Asia and Botswana, Cameroon, Cote d'lvoire, Ghana, Kenya, Mauritius, Mozambique, Namibia, Nigeria, Senegal, South Africa, Tanzania, Uganda and Zambia in Africa.

5-5

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

5.10 During the 1980’s, large Korean enterprise groups, especially Daewoo, undertook very aggressive investment activities. This is no longer common today due to changes in the political and economic environment in Korea. Some of those projects that were invested in during the 1980s or 90s were either sold or operations ceased. Among large enterprise groups, Samsung Group is still maintaining its positive stance in overseas investment. They have four offices in Sub-Saharan Africa – Angola, Ghana, Nigeria, and South Africa. The group’s interest in Africa is in oil, telecommunications, electronics, mobile phones, and construction sectors. Angola is being considered as especially promising given its oil-related resources and businesses. 5.11 Another interesting case that made an aggressive approach in Africa is MK International, which is a medium size engineering and trading firm. MKI has six local subsidiary companies in Africa in Senegal, Ghana, Nigeria, Malawi, Namibia, and Madagascar. They deal in medium and small-scale trade and investment activities. Its strength lies in investing in various manufacturing that targets the daily needs of the domestic market. The president of MKI has unique philosophy in approaching the African market with a wide circle of acquaintances in African diplomatic circles due to his activity in KOAFA. 5.12 Details on the above two cases are introduced in the next section. These cases show the two types of business strategies or approaches toward Africa. One type is, as demonstrated by the Samsung case, natural resource (oil) focused, undertaken by a large company and supported by government of the investors’ countries due to possible energy security. Another strategy is investment by medium size companies, targeting Africa’s domestic market for manufactured goods for Africans’ daily needs. MKI case suggests the importance and effectiveness of human network in Africa, rather than government support or involvement for this scale of business. B.3 China 5.13 The perception of business in Africa by China’s private sector can be perceived as consistent with its government. According to the Chinese Ministry of Commerce, it is an urgent task for China to find and utilize the potential of Africa through economic cooperation, because Africa has abundant natural resources, business opportunities with the potential for high rates of return, and most importantly, most African countries enjoy the merits of quotas and preferential trade schemes provided by the US and EU, which China can utilize to boost its exports under the WTO regime. 5.14 Under the support of ODA programs and other promotion schemes mentioned in the previous section, Chinese direct investment has been in areas of manufacturing, resource development, construction, and other service sectors. In manufacturing, electric appliances, spinning, and apparel are the main products of Chinese investments and are sold throughout Africa’s domestic market. Investment in the textile industry targets the US market under the AGOA program. Recent Chinese investment in Cote d’Ivoire, Mauritius, Rwanda, and Swaziland are recognized as major AGOA-related investments.

5-6

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

25

Investments in natural resource development are government-lead projects and include oil development and mining in Cote d’Ivoire and Sudan and fisheries in Gabon, Ghana, and Morocco. B.4 Taiwan 5.15 The main business areas of Taiwanese firms in Africa are the apparel and textile industries, which are labor-intensive. Because of the preferential treatment from the US and the EU due to AGOA, these firms are mainly exporting their products to the US and EU while importing raw materials from Taiwan or a third country, instead of undertaking local procurement. 5.16 In 2001, the Overseas Chinese Affairs Commission According undertook a survey that questioned 50 Taiwanese firms with investments in Africa. The majority of these firms arrived and significantly expanded their business in Africa in the 1990s. Reasons for entering the African market were (1) preferential treatment, mentioned above; (2) perceived attraction of a growing market; (3) low-cost labor; and (4) requests from overseas customers. 5.17 Although the AGOA program has had a strong influence on the business strategy of these apparel and textile firms, Taiwanese manufacturers that have been doing business in Africa appear to have been taking root in African economies, as shown in the case of Tex-Ray Industrial described further in Box 5-3. 5.18 With regard to the non-manufacturing sector, the main focus of Taiwanese firms in Africa is retail trade and tourism. Due to hyperinflation and currency turmoil as a result of the immaturity and limited functional capacity of the financial sector in Africa, most private companies are managed by their own capital, rather than forming joint-stock or limited partnership companies. B.5 Singapore 5.19 Trade in consumer electronics and edible oils forms the majority of business interests from Singapore-based companies.26 The other significant Singapore venture in Africa is in textile and garment manufacturing, where several local companies have shifted manufacturing facilities to Africa to take advantage of inexpensive labor costs, duty exempt incentives, quota concessions, due to AGOA, and other incentives. 5.20 There seems to be more business interaction between Singapore and South Africa and Nigeria compared to other countries in Africa. For example, in March 2003, the Trade, Tourism and Investment Seminar was jointly organized by the South Africa High Commission, Omega International Research in Cape Town, and the South Africa-Singapore Business Association (SASBA) in Singapore. However, Singaporean

25

USTR, 2003 Comprehensive Report on U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act. 26 Based on the analysis obtained from interview survey conducted by subcontractors in Singapore, ATTISE Research & Consulting Service and Converging Knowledge specially conducted for this study.

5-7

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

business leaders do not appear to focus on Africa, preferring geographically closer Asian countries because of their similarities in working culture and language. They also consider it to be a “hardship” to enter African markets. 5.21 Some cases of Singaporean companies’ businesses in Africa could be outlined as follows:27 “A” Textiles Industries is a Singapore-based company with textile manufacturing capabilities in South Africa, Lesotho, and Cambodia. Its manufacturing facilities in Africa are purely export-driven, targeting the United States and Europe markets. “A” Textiles first moved its manufacturing capabilities to South Africa in 1997. The reasons were relatively lower labor costs, duty exemptions, and a pre-existing factory. “A” Textiles selected South Africa over the other African regions due to its comparatively better infrastructure, similarity in legal system as a former Commonwealth country, and English language fluency. However, due to rising problems presented by strong unions in South Africa and attractive incentives offered by Lesotho, the company opened its second factory in Lesotho a year later. As an incentive, the Lesotho government secured funding from the World Bank to build the factory in exchange for Singapore technology and skills in manufacturing. “B” Tires, a Singapore public-listed company, retails and distributes tires for passenger, commercial, industrial, and agricultural vehicles. The company also provides tire-retreading services and trades wheels, batteries, industrial rubber products, and automotive equipment. “B” Tyres first ventured into South Africa in the mid-1990s. Initially they started with a branch office although this has been downscaled to a liaison office. Some reasons for downscaling included under-estimation of market demand, working culture, and product knowledge. However, the company has plans to extend business relations with Zimbabwe, Ethiopia, and Congo. Factors determining potential markets are its buying power, demographics, and competition. “C” Corporation is a Singapore-based investment holding company whose group of companies has been doing business in Africa for almost 30 years. Principal activities include trading (paper, sundry items, electronics, and other consumer goods) and manufacturing (chemicals, textiles, and noodles). At present they have key business interests in eight African countries such as Nigeria, Ghana, Congo, Kenya, South Africa, Mozambique, and Zimbabwe. They also have manufacturing facilities in Nigeria and South Africa that cater to the local domestic market. They plan to further increase their presence in the West African countries. The company is confident of Africa’s potential and believes that Singaporean companies need to have a more involved approach to doing business in Africa. That is, they should not only depend on local partners, but should also set up local offices to do business.

27

Individual company names are not disclosed

5-8

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

“D” Corporation provides engineering services in the petrochemical industry. It has established subsidiary companies in Nigeria to implement a UOP/Hydro methanol-to-olefins (MTO) process unit. According to a director of the firm, Nigeria has ingredients for a successful investment that is specific to “D” Corporation’s nature of business. First, it has abundant resources of oil and natural gas at highly competitive prices. Second, Nigeria’s sizeable population also presents a substantial market for orders in petrochemicals. Third, the industry is still relatively undeveloped, thus investing in Nigeria is equivalent to investing in an emerging market. B.6 Malaysia 5.22 According to a survey conducted by the Federation of Malaysian Manufacturers (FMM), which currently represents around 2,000 manufacturing companies in Malaysia covering all industries, approximately 21% of the respondents had business dealings with 43 African countries. Of the 21 total respondents to the survey, 12 indicated that they were currently exporting to the African market, of which four had their own distribution network, while eight supplied distributors or middlemen in Africa. One respondent indicated that it was directly sourcing supplies from African markets using its own network. The other seven respondents did not have any dealings in the African market, but were exploring Africa as a future market for their products. 5.23 In the above survey, responses received highlighted the following aspects of Malaysian manufacturing companies: • • • •

Growth or increasing their market share in African countries; Viewed Africa as potential market; Using African countries as a “gateway” to other markets or customers; and Being contacted by buyers from Africa.

Key problems faced by the respondents in doing business in African countries were generally • • • • •

Weak financial systems; Lack of legislation and infrastructure; Lack of security; High logistics costs; and Difficulty in identifying potential buyers

5.24 Regarding Malaysian companies’ businesses in Africa, two types of approaches were observed. One is conducted by mainly large, state owned or private conglomerate companies that enter into resource development, privatization of African state owned telecommunication companies, and resort development. A typical example is the case of Petroliam Nasional Berhad (Petronas), the Malaysian national oil company. Petronas acquired 30% equity of Engen, a major oil refining company in South Africa in 1996, and wholly subsidized it by acquiring the remaining equity in 1998. Through this acquisition, Petronas has obtained all the facilities of Engen throughout South Africa, including oil 5-9

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

refineries with the production capacity of 5,250 kt/year and 1,300 service centers, as well as its offices in 25 African countries including Namibia, Botswana, Swaziland, Lesotho, and Kenya. It has also acquired Engen’s subsidiary, Energy Africa, which mines and refines oil and natural gas throughout Africa. 5.25 Although Petronas is not involved in Malaysia’s government-lead South-South cooperation scheme (MASSCORP/MASSA), it is obvious that Petronas’s business development in Africa is fully supported by the Malaysian government. A similar approach could be observed in Telecom Malaysia’s participation in the privatizations of telecommunications in South Africa, Ghana, Guinea, and Malawi. 5.26 Another approach is the consortium method, in which several companies organize a consortium to share risk, information, and knowledge in making investments. MASSCORP is placed as a nationwide model. UTAS Asia is a much smaller scale consortium, organized under the initiative of AAITPC and is a joint contribution of about 20 companies and investors in Malaysia. It has been involved in such projects as the establishment of an information technology college with Zimbabwe University, the assembly of TVs and DVDs, and the establishment of a cotton ginning factory in Zimbabwe. Its aim is to promote transfer of Asian technology to Africa and function as a ‘one stop center’ for Asia-Africa business. B.7 India 5.27 According to the Indian Ministry of Commerce, an opportunity for enhancing trade with Sub-Saharan African region exists because of: • •

• •

The liberalized and growing economy; India’s exports to Sub-Saharan Africa constitute a mere 4% of total exports in the region. Similarly, imports from Sub-Saharan African region constitute about 3% of India’s total imports during 2000-2001; Direct shipping lines to South Africa, which were not available previously; and Language problems can be overcome with the help of software available for quick translations of business correspondences between English and prominent African languages.

5.28 Many representatives of India and African countries assert that mutual goodwill exists between India and Africa due to similarities in their colonial struggles, ethnic diversity, geo-political situation, and India’s firm opposition to the apartheid regime in South Africa. In July 2002, the Confederation of Indian Industry (CII), jointly with the High Commission of India in South Africa, organized a “Made in India” show in Johannesburg. Over 70 Indian companies participated in the show. The CII also organized an “Enterprise India” exhibition of Indian small and medium enterprises, products, and services in Durban. 5.29 Indian companies’ direct investment activity in Africa varies by country, industry, and company size, although it does include private companies and state owned companies. Here, cases in South Africa and Nigeria are highlighted. Although it is difficult to find 5-10

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

strategic patterns, the following cases indicate that Indian businesses have broadly permeated the African domestic market. 5.30

Indian FDI in South Africa. UB Group of India, the largest Indian investor in South Africa initially invested US$20 million in a local-owned brewery (National Sorghum Breweries) and has invested US$6 million in a tourism project (Mabula Game Lodge). They have since expanded their operations and investments in South Africa. TATA Group’s operations in South Africa include three companies. The first one - TATA Africa Holdings is responsible for bringing investments to South Africa in viable areas. They are exploring various investment projects in South Africa, particularly in mining. The second company TATA Automobiles imports, assembles, distributes, and sells TATA trucks and buses. For marketing of TATA trucks, the group entered into a joint venture agreement with ERF Ltd., a subsidiary of DORBYL of South Africa. The third company, Concilience Technologies, is an IT joint venture between the TATA Consultancy and J&J Group of South Africa established in February 2001. TATA International – the international business gateway of the TATA Group – has subsidiaries in Ghana, Mozambique, Namibia, Tanzania, Uganda, Zambia, and Zimbabwe. Ranbaxy, India’s largest pharmaceutical company, has had wholly owned domestic subsidiaries in South Africa since 1993. It also has had wholly owned domestic subsidiaries in Nigeria since 1987 and Egypt since 1996, and has distributional agreements with domestic pharmaceutical suppliers in Mauritius, Zimbabwe, and Zambia. Other Indian pharmaceutical companies such as Cipla, Millennium Pharma, Eicher International, NIIT, Aptech, and Allied Chemicals also have operations in South Africa.

5.31 Public sector enterprises based in South Africa include State Bank of India, Export Import Bank, Bank of Baroda, National Small Scale Industries Corporation, and the Government of India Tourist Office. 5.32 Indian FDI in Nigeria. India has assisted Nigeria in the transfer of technology, machinery, and expertise in the form of joint ventures and consultancy services. The Metallurgical and Engineering Consultants India (MECON), in association with Panafrican Consultancy Services, has been undertaking project management and consultancy services for Ajaokuta Steel Company (Kogi State) since 1981. MECON were also consultants to Delta Steel Plant in Warri (Delta State) and were involved in commissioning a plant, as well as training engineers in India. 5.33 A joint venture company between India and Nigeria, The Best and Crompton Engineering (Nigeria) Ltd. built the 132 KVA DC transmission line between Benin and Vaghelli in 1963. It is now manufacturing carbon brushes for automobile and industrial sectors. Other joint ventures like the Nigerian Engineering Works, Indo-Nigerian Merchant Bank (INMB), and Prestige Assurance Company (Nigeria) Ltd. have been

5-11

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

extensively involved in light engineering goods, merchant banking, and insurance services. •

RITES (Rail India Technical and Economic Services) was given a 3-year (1980-82) management contract by the Nigerian Railway Corporation to manage and repair the rolling stock. A 3-member RITES delegation visited Nigeria in September 1999 to renew contacts with the present civilian administration.

•

Petroleum India International (PII) has been involved in the maintenance of Port Harcourt and Warri oil refineries through the provision of technical manpower and training of Nigerian engineers.

•

TCIL (Telecommunications Consultants India Ltd.) has executed a US$ 12 million World Bank project in the telecom sector. A TCIL/C-DOT delegation visited Nigeria in October 1999 to promote C-DOT technology in the country. Computer software companies like NIIT, Aptech, and Magic India Ltd have signed agreements with local companies to set up training institutes in the country.

Three Types of Asian Investment to Africa. As has been indicated by cases introduced in the previous chapters, there are three types of Asian investments in Africa. First, there are natural resource-led investment projects, such as mining products, energy resources, and agro-based products. Second, there are investments in labor-intensive industry products such as textiles and light industry products due to the AGOA initiative. Third, some Asian companies’ indicated that there are also investment opportunities for various kinds of consumer products in the domestic market, where individual market size is generally small and unattractive for mass production investment. The table below indicates the various types of investments and examples of companies that have invested in each type. 5.34

Table 5-1 Three Types of Asian Investment Projects Type-1: Natural Resource Type-2 Domestic Market Type-3 Global Supply

Investment Project (Country) Kenya Nuts (JP), Maruha (JP), MOZAL (JP), Samsung (KO), “D” Corp (SP), PETRONAS (MA) Matsushita (JP), MKI (KO), Non-manufacturing (TA), “B” Tires (SP), “C” Corporation (SP), Telecom Malaysia (MA), UB Group (IN), TATA (IN), Ranbazy (IN), Mecon (IN), RITES (IN), TCIL (IN) Textile projects in Cote d’Ivoire, Mauritius, Rwanda, Swaziland (CH), Tax-Ray Industrial (TA), “A” Textile Industries (SP)

5.35 Investment in Africa can be framed into three different types if categorized by the targeted market of the goods produced by the invested industries. The first type (Type-1) is investment targeted toward producing goods to be sold in investors’ own countries. Typical examples of such investment include natural resource extraction industries as well as food processing projects such as fish cannery plants. Investment in extractive 5-12

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

industries is large scale, based on initial governmental agreements followed by private sector engagement including some degree of technical transfer. Although unpredictable changes in local government policies along with macro-instability have often hampered the flow of investment of this kind to Africa, Asian firms still have interests in such projects.

5-13

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

Box 5-2 Types of Asian Investment to Africa – Case Studies

Type 1: Samsung Corporation (Korea) – A Case in Angola With economic reforms underway in Angola, foreign investors have found increasing business opportunities in the energy, mining, telecommunications, manufacturing, agriculture, and fishing industries. Angola is ranked third in the world for new oil discoveries and is Sub-Saharan Africa’s second largest oil producer, so new business ventures are expected to accelerate.28 Angola is now Korea's second largest trading partner in Africa and its 7th largest supplier of crude oil. In 2000, Korea imported US$654 million of oil from Angola and exported US$17 million in cars and auto parts.29 In 2000, Samsung won a US$4.4 billion contract in Angola to build an oil refinery and offshore exploration platforms. 30 The US$2.7 billion oil refinery will produce 200,000 barrels per day, mainly for export markets. Samsung has also contracted to build oil and gas production platforms and storage facilities worth US$1.7 billion. This contract was facilitated by a bilateral agreement between Multilateral Investment Guarantee Agency (MIGA) and the Korea Export Insurance Corporation (KEIC), where both agencies will cooperate in re-insuring and co-insuring projects in order to share risks and increase the availability of insurance for Korean investors.31 It should be noted that the above agreement originated from the desire of Samsung to seek coverage for its intended resource-based projects in Central and West Africa and specifically its oil projects in Angola. Moo-young Lee, Director, International Relations, KEIC said that one of the reasons for the agreement between MIGA and KEIC was the need for additional coverage and risk sharing in view of the large-scale project. Type 2: M.K. International Inc. (Korea) – Cases in Nigeria and Malawi M.K. International Inc. (MKI) is a medium size engineering and trading firm. It was established in 1983 as the parent company to the present M.K Group. The company diversified into industrial engineering for small- and medium-scale projects. New additions to its business were international trading for general import and export, manufacturing of industrial equipment and machinery, and consulting for various engineering projects domestically, as well as in developing countries.

28

Angola-trade and investment guide, Embassy of Angola in USA, 2001, www.angola.org/business/Angola_Trade_Brochure_00.pdf 29 COMTRADE, United Nations. 30 Source: www.angola.org/news/NewsDetail.cfm?NID=2690 31 “Spurring Korean Investment Overseas- MIGA’s Korean Connection”, Korea Trade and Investment, Vol.19, No.4, July-August 2001, pp17.

5-14

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

MKI has six local subsidiary companies in Sub-Sahara Africa located in Ghana, Madagascar, Malawi, Namibia, Nigeria, and Senegal. They focus on small and medium-scale trade and investment activities. Its main strength lies in investing in the manufacturing of a variety of daily product needs, which target the domestic market. For instance, in 1986, they established M.K. Nigeria Ltd., which was aimed at dealing with trading, engineering, and consulting. In Malawi, M.K. Malawi Ltd. was founded in 1994 to manufacturing tableware. According to Dr. Hae-Jung Jung, the President of MKI, around 40% of its annual sales is generated by the African market. The success of these businesses in Africa is partly the result of the president’s far-reaching connections to African diplomatic circles. Starting as the Representative of Korea-Nigeria Businessmen Association in 1988, he was successively appointed as the Chairman of Korea-Madagascar Business Association (1994), Director General of Korea-Africa Association (1995), Organizer of Asia-Africa Business Forum in Seoul (1999), and Honorary Consul of Sierra Leone (2001). Recently, he was also elected as Vice President of the Asia Africa Chamber of Commerce (AACC) during the U.N. High Level Meeting held in Morocco in April 2003. Type 3: Tex-Ray Industrial Co., Ltd. (Taiwan) – A Case in Swaziland Tex-Ray Industrial Co., Ltd. is a powerful apparel company in Taipei, founded in 1978 and was listed on the Taiwan Stock Exchange in December 1998. Recently, Tex-Ray has been focusing on research and development of cotton products. Its product, Ultra Mercerized Cotton Color Yarn, won the products competition held by the Taiwanese government. Sales subsidiaries have been established in Los Angeles and New York and the raw material procurement company was recently founded in China, in addition to a number of production factories abroad. Tex-Ray Industrial Co., Ltd. founded three factories in Swaziland. Proton Investment Swaziland, Ltd. and Tex-Ray Investment Swaziland, Ltd. were founded in 2001 and 2002 respectively. The products of this factory are exported to the US. The main reason for investing in Swaziland was to obtain benefits from AGOA. Taitex Investment Swaziland, Ltd. was established in March 2002. Since the local procurement of raw materials will become compulsory by AGOA after October 2004, Tex-Ray decided to set up a spinning factory in Swaziland as well. The products are sold domestically and will be sold to Tex-Ray’s factory in South Africa. About sixty Taiwanese companies that operating in Swaziland, mainly in the apparel industry, have organized a corporate union and the President of Tex-Ray was appointed as the Chairman. The union is able to negotiate with the Government of Swaziland on behalf of the textile industry of Swaziland. 5.36 The basic motivation for Type-1 investments is the desire to obtain locally available resources for consumption a home country. The resource must be processed in order to be shipped and marketed in the destination country. The potential investors are trading houses, resource suppliers, and groups of plant construction companies. Korean

5-15

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

investment in Angola is a typical case for oil resources that requires a substantial amount of investment for the processing plant. ODA loan and export credit are powerful policy instruments that support this investment cum trade project (see Box 5-2). Japanese investment in Mozambique with international partners is another example. Investment projects for processing food and agro-based products require a smaller amount of investment, compared to mining and energy resource projects, while the specification of the products can be carefully controlled to meet the market’s quality needs. Trading companies frequently become investors with their interest in expanding both export and import trade. Type-1 can be called import-lead investment where the investors are required to have significant domestic market in their home country. In this sense, the potential Asian countries would be: China, India, Japan, and Korea with Singapore as a regional hub. 5.37 The second type of investment, Type-2, is targeted towards Africa’s domestic markets. Examples include home electronic appliances and textile plants that were invested in by Japanese entrepreneurs in the 1980’s and were aimed at Africa’s local markets that were protected by the high tariffs under import substitution policies. However, regional economic integration and government import liberalization have placed such investments in uncompetitive positions against imported products. As such, accessing an even more competitive global market has been out of reach for those protected industries in most cases. In various ways, such investments have been bound by the constraints of low local demand and high transaction costs. 5.38 Although domestic market oriented investment appears to have fewer advantages under the current lower tariff regime, feasible investment for local production of industrial products is still needed domestically. Because of the small size of the domestic market, a mass production business model, common in industrialized countries, is not suitable. However, there are cases in which small- and medium-sized production is feasible, as exhibited by the Korean investment in Nigeria and Malawi. The investor in this case is a trade and industrial engineering firm which uses a human network from the respective African countries to minimize risk, rather than government support as seen in Type-1. Type-2 is export-lead investment in which exports of certain products turned out to be feasible because of the proven market size and production cost advantages. An investor for Type-2 is likely to be found in Asian countries where small- and medium-sized enterprises (SMEs) are active, such as Korea, Taiwan, and India. 5.39 Acquisition and privatization of existing businesses in Africa, such as the case of Malaysian national companies, are variations of this type, since they also targeted the African domestic or regional market. However, those businesses are in natural resource development, telecommunication, and/or transportation, are highly capital-intensive, and need government initiatives, thus the potential Asian investors are limited to large scale and government supported firms in countries such as China, Korea, Malaysia, and India. 5.40 The third type of investment, Type-3, is targeted to tertiary countries, especially countries in other industrialized regions, such as North America and the EU. Multinational corporations with a global supply chain often conduct investments of this type. Type-3 can be divided further according to other characteristics. First, there are

5-16

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

industries in the textile and apparel sectors or in service sectors, such as outsourced data services and telemarketing that are largely motivated by low labor costs in Africa as well as existing trade policies in the tertiary countries, where their products and services are destined. The size of an investment is limited, but these investments have effectively generated employment in local economies. Second, there is also a more forward-looking investment that is genuinely attracted to potential productivity increases within Africa. Major automobile companies have established plants in South Africa, which is growing rapidly and is the key economic hub in Africa, in order to seize future potential in the region. 5.41 Type-3 investments occur from manufacturing enterprises with marketing capabilities in the world market, particularly to the US and EU. Its purpose is to relocate production facilities to the Africa because of the comparatively advantageous conditions including labor, other production inputs, and tax incentives both at host and destination countries. The Taiwanese enterprise investment in Swaziland is one such case that has been successful. It occurred because of AGOA. This kind of supply chain type investment can be of interest to enterprises with strong export competitiveness in labor intensive manufacturing. Among Asian countries, China, Korea, Taiwan, and Malaysia can be potential sources of such investments.

C.

Accounts of Asian Private Companies in Africa

5.42 The following are selected anecdotal accounts of Asian private companies that have invested in Africa. These unique stories provide insight as to future expansion of trade and investment in Africa. C.1 SAMSUNG CORPORATION (KOREA) 5.43 Overview. Samsung Corporation is one of the Korea’s leading conglomerates in the field of overseas trading, engineering, construction, and housing development. Their annual sales of US$25 billion in FY 2001 exceeded the GDP of most countries in Sub-Saharan Africa, except South Africa and Nigeria.32 5.44 The company was established in 1938 and was designated by the Korean government as the country's first General Trading Company (GTC) in 1975. In 1996, just before the Asian financial crisis, the company merged with Samsung Engineering & Construction and now has three major business groups: trading, construction, and housing development. Trading is the backbone of the company’s business. Its main export items include semiconductors, plants, chemicals, and textiles while they import energy, chemicals, and machinery. In addition to international trade, the company also undertakes project organizing business and natural resources development and invests in privatization projects in developing countries. 5.45 Business in Africa. Among the four large conglomerates in Korea, Samsung Group is maintaining a positive position in overseas investment. Samsung Corporation 32

Corporate Brochure 2001, www.samsungcorp.com/investor/index.html

5-17

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

has four branches in Sub-Saharan Africa, which are in Angola, Ghana, Nigeria, and South Africa. According to Mr. Carlos Kim, Manager of Plant Division in the Trading Group, the company’s interest in Sub-Sahara Africa is focused on oil, electronics, telecommunication, mobile phones, and engineering and construction. In particular, for the oil sector, Mr. Kim said that Samsung perceives the countries around the Gulf of Guinea and Angola as being a promising area for its oil-related business. In fact, the company has made a sizable investment in Angola and details are elaborated in the next section. 5.46 Angola and Samsung. With economic reforms underway in Angola, foreign investors have found greater business opportunities in the energy, mining, telecommunications, manufacturing, agriculture, and fishing industries. The fact that Angola is ranked third in the world for new oil discoveries and is Sub-Saharan Africa’s second largest oil producer will accelerate new business ventures. 33 Angola is now Korea's second largest trading partner in Africa and its seventh largest supplier of crude oil. In 2000, Korea imported US$654 million of oil from Angola and exported US$17 million in cars and auto parts.34 5.47 As indicated before, Samsung won contract in Angola to build an oil refinery and offshore exploration platforms. 35 This was brought about by a bilateral agreement between Multilateral Investment Guarantee Agency (MIGA) and the Korea Export Insurance Corporation (KEIC) The US$2.7 billion oil refinery will produce 200,000 barrels per day, mainly for export markets. Samsung has also contracted to build oil and gas production platforms and storage facilities worth US$1.7 billion. According to a published article in Korea Trade and Investment, this contract was facilitated, where both agencies will cooperate in re-insuring and co-insuring projects in order to share risks and increase the availability of insurance for Korean investors.36 5.48 The article also indicated that the agreement originated from the desire of Samsung to seek coverage for its intended resource-based projects in Central and West Africa, mainly for oil projects in Angola. Moo-young Lee, Director, International Relations, KEIC said in the article, “MIGA approached KEIC about a Memorandum of Understanding (the agreement) earlier in 2001, but there was no pressing need to have such an arrangement between our organizations. However, in April Samsung approached both of our institutions about their projects in Sub-Saharan Africa, which resulted in an accelerated conclusion of the MOU.” Mr. Lee also added that one of the reasons for a conclusion of the MOU was the need for additional coverage and risk sharing in view of the large-scale project. 5.49 In terms of mitigation of political risks, Mr. Kee-jung Kim indicated in the article, “As capital investments of this sort are typically vulnerable to political risks, we must 33

Angola -trade and investment guide, Embassy of Angola in USA, 2001, www.angola.org/business/Angola_Trade_Brochure_00.pdf 34 COMTRADE, United Nations. 35 Source: www.angola.org/news/NewsDetail.cfm?NID=2690 36 “Spurring Korean Investment Overseas- MIGA’s Korean Connection”, Korea Trade and Investment, Vol.19, No.4, July-August 2001, pp17.

5-18

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

seek ways to mitigate them to the fullest possible extent, which of course, includes coverage by MIGA and KEIC.” In addition to the export insurance scheme in the above, the Korean ODA loan was historically used to promote investment in developing countries. The Economic Development Cooperation Fund (EDCF), under the management of the Ministry of Finance and Economy with Korean Export-Import Bank, provides soft loans to developing countries under the conditions of a 1-5% interest rate, 10-30 years maturity, and the Won denominated and tied to Korean firms for procurement. Although data is limited, it appears that Samsung Corporation has made a continued effort to utilize this loan, according to the following table.

5.50

Table 5-2 Samsung’s Project with EDCF (1987-1996) Project

Country

Year

Supply of Passenger Coaches Petroleum Product Storage Depots Telecom Expansion & Modernization Telecom Expansion & Modernization Syringe Plant Greater Khulna Power Distribution LPG Cylinder Plant Mindanano Power Transmission Container Depots Steel Mill Modernization Rural Telephone System Telephone Exchange System

Nigeria Ghana Philippines Poland Mongolia Bangladesh Ghana Philippines Myanmar Hungary Ecuador Sri Lanka

1987/91 1990 1990/94 1992/96 1992 1993 1994 1994 1994 1995 1995 1996

Amount (Million US$) 25 13 16 70 26 13 8 10 15 25 15 30

Source: merchant.samsungcorp.com/project/

Figure 5-1 shows the share of contract amount (US$ Million) of Samsung’s EDCF projects, compared to all EDCF projects pledged by Korean Export Import Bank. For details on Samsung’s recent project in Ghana, see Box 5-1.

5.51

Figure 5-2 Samsung’s Share in Korean EDCF Projects

5-19

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

US$ Million 450

405

397

400

Samsung's EDCF Project Total EDCF Project

350 300

194

250 200 127

130

130

1996

1997

150 39

100 50 0

21

1994

1995

Year

Source: merchant.samsungcorp.com/project/

Box 5-3 EDCF Projects in Ghana

The Korea Export Import (Exim) Bank recently signed a US$38.2 million EDCF loan agreement with the Ministry of Finance and Economic Planning of Ghana in relation to the Buipe-Bolgatanga Petroleum Products Pipeline Project. Along with the EDCF loan, the Exim Bank decided to issue a US$11.9 million advance payment guarantee and US$4.0 million performance guarantee in favor of the Ministry of Energy (MOE), the project-executing agency. The objective of the project is to provide a reliable transportation and distribution system of petroleum products from the south to the north by constructing a 265 km petroleum products pipeline from Buipe to Bolgatanga, which is expected to improve the socio-economic lives of the rural and agricultural population in these areas. Samsung Corporation received the order for the construction and will create the pipeline design, procure equipment and materials, install and commission the pipeline, supervise and inspect the development, and provide consulting services. The project should be completed in August 2005. Source: Korea Exim Bank website, June 2003, www.koreaexim.go.kr/web/eng/exim/M01/main.html

C.2 M.K. INTERNATIONAL INC. (KOREA) 5.52 Overview. M.K. International Inc. is a medium-sized engineering and trading firm. It was established in 1983 as the parent company of the present M.K Group. The company diversified into industrial engineering for small and medium scale projects. New additions to its business were undertaken including international import and export,

5-20

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

manufacturing of industrial equipment and machinery, and consulting services for various engineering projects domestically and in developing countries. Of these, the primary concern of M.K is the provision of engineering services including feasibility studies, manufacturing, commissioning, and maintenance.37 5.53 M.K expanded its business territory worldwide in the latter half of the 1980s. The expansion included Bolivia, Brazil, China, France, Ghana, Japan, Madagascar, Malaysia, Mongolia, Morocco, Nigeria, Russia, Singapore, South Africa, Taiwan, United Kingdom, and the US. 5.54 Business in Africa. Focusing on the business activities in Sub-Saharan Africa, M.K has six local subsidiary companies in Ghana, Madagascar, Malawi, Namibia, Nigeria, and Senegal that focus mainly on small- and medium-scale trade and investment activities (see Table 5-2 and Table 5-3). 5.55 The company’s main strength lies in the investments it made to manufacture a variety of daily product needs for domestic market. For example, in 1986 M.K. established M.K. Nigeria Ltd., which is focused on trading, engineering, and consulting. In Malawi, M.K. Malawi Ltd. was founded in 1994 for manufacturing tableware. According to Dr. Hae-Jung Jung, the President of M.K. International Inc., about 40% of the company’s annual sales are generated by the African market. 5.56 The success of company in Africa is partly the result of the president’s large circle of contacts in African diplomatic circles. Starting as Representative of Korea-Nigeria Businessmen Association in 1988, he was successively appointed as Chairman of Korea-Madagascar Business Association (1994), Director General of Korea-Africa Association (1995), Organizer of Asia-Africa Business Forum in Seoul (1999), and Honorary Consul of Sierra Leone (2001). Recently, he was also elected as the Vice President of the Asia Africa Chamber of Commerce (AACC) during the U.N. High Level Meeting held in Morocco in April 2003.38 5.57 Unique Philosophy for Marketing in Africa. The president of M.K has a unique philosophy in approaching the African market. His believes that there are two critical points to achieving success in Africa (i) maintain patience and (ii) never be too proud of your own status. He also believes that compromise is necessary on both sides with regards to business standards and practices and that an outsider should never try to impose his/her systems and/or technology on the domestic market, but instead they should respect the domestic market and understand its needs. He recommended the following procedure for success: (i) convert advanced technology into adaptable technology that will be suitable to the domestic market and (ii) prepare the investment plan according to the market size. 5.58 He also indicated that human networks support development of business relations by creating mutual trust and eliminating risks in malpractice and misunderstanding, which may present a disadvantage for Asian firms vis-à-vis European firms who have 37 38

Company brochure 2000, MK International, Inc. Source: http://news.empas.com/show.tsp/20030423n03987/

5-21

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

already established human networks through their long business histories. In terms of product quality, he indicated that Asian products are still believed to have lower quality as compared to European products and that there is a need to improve the image of products from Asia from low-cost and low-quality to high quality. European products still have advantages in their perception in the domestic market.

5.59

Table 5-3 MK’s Local Subsidiary Companies Branch located 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year established

Seoul, Korea (HQ) Nigeria Malawi Namibia United States Madagascar Bangladesh Sri Lanka Spain Ghana Malaysia Senegal Mongolia China United Kingdom

Source: At Your Service Worldwide, MK International Inc. 2000

5-22

1983 1986 1994 1994 1995 1996 1996 1996 1997 1998 1999 1999 1999 2000 2001

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

Table 5-4 MK’s Performance Record of Engineering Projects in Africa Building design and construction supervision Year

Project description

Country

2000

Accra Millennium Tower (AMT) Project

Ghana

Equipment and machinery Year

1994

1995 1996

1997 1998 1999 2000 2001 2002

Project description Plastic (PVC) Pipe Manufacturing Plant Blow Molding Plant for Jerry Can Injection Molding Plant Corn Flakes and Corn Chip Making Plant L.P.G Storage Tanks and Filling Plant Vegetable (Palm) Oil Refinery Plant Plastic Film and Shopping Bag Making Plant Textile Fabrics Manufacturing Plant Palm Oil Refinery Plant Melamine Tableware Making Plant Plastic Film and Shopping Bag Making Plant Plastic Bottle (PE/PVC/PET/PC) Manufacturing Plant Exercise and Note Book Making Plant Envelope (Document, Letter & Airmail) Making Plant Disposable Paper Cup/Dish Manufacturing Plant PVC Profile Extrusion and PVC Window Mfg Plant Recycled Plastic Container Manufacturing Plant Aluminum Window Manufacturing Plant Soybean Milk/Bean Curd/Source Manufacturing Plant Plastic Foam Sheet Mfg/Vacuum Foaming Plant Aluminum Cookware Manufacturing Plant Carton Box Manufacturing Plant Industrial Park Project for 16-Factories Roll Forming Roofing Sheet Forming Plant Vegetable Oil Extraction Plant Computer Assembly Plant Industrial Parks

Country Nigeria Nigeria Nigeria Nigeria Ghana Nigeria Malawi Nigeria Nigeria Madagascar Madagascar Nigeria Nigeria Ghana Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Mali Mali Mozambique South Africa Nigeria South Africa South Africa

Source: mkintl.co.kr

C.3 TEX-RAY INDUSTRIAL CO., LTD. (TAIWAN) 5.60 Company Profile. Tex-Ray Industrial Co., Ltd. is a powerful apparel company in Taipei. This company was founded in 1978 and was listed on the Taiwan Stock Exchange in December 1998. Recently, Tex-Ray has been focusing on research and development of cotton products. Its product, Ultra Mercerized Cotton Color Yarn, won the products competition held by the Taiwanese government. The capital stock of the company was

5-23

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

NT$ 1.3 billion (US$40, million) and there are 4,500 employees.39 The company’s annual sales were NT$ 5.1 billion (US$150 million). Sales subsidiaries have been established in Los Angeles and New York and the raw material procurement company was recently created in China, in addition to a number of production factories abroad. 5.61 Overview of Investment Activities in Swaziland. Tex-Ray Industrial Co., Ltd. founded three factories in Swaziland (see Table 5-4 and Table 5-5). Each is described below. 5.62 Garment Factory in Swaziland. Proton Investment Swaziland, Ltd. and Tex-Ray Investment Swaziland, Ltd. were founded in 2001 and 2002 respectively. Among the employees, there are six Taiwanese executive officers and fifty-six employees from China. The products of this factory are exported to the United States. The main reason for investing in Swaziland was to obtain benefits from AGOA. Table 5-5 Tex-Ray’s Garment Factory in Swaziland PROTON INVESTMENT SWAZILAND (PTY)., LTD. Established Facility Employees Main Items Maximum Capacity (Pcs/Month)

Oct. 2001 (Joint Venture) 5,000SM 800 T-Shirts, Polo Shirts, Turtleneck Shirts, Pants T-Shirts 600,000; Polo 400,000; Turtleneck 500,000

TEX-RAY INVESTMENT SWAZILAND (PTY)., LTD. Established Oct. 2002 Facility 11,000SM Employees 1,500 Main Items T-Shirts, Polo Shirts, Turtleneck Shirts, Pants Maximum Capacity (Pcs/Month) T-Shirts 1,200,000; Polo 700,000; Turtleneck 1,000,000

5.63 Spinning Factory in Swaziland. Taitex Investment Swaziland, Ltd. was established in March 2002. Since local procurement of raw materials is a requirement of AGOA (October 2004), Tex-Ray decided to open a spinning factory in Swaziland. There are three Taiwanese executive officers and nineteen from China. The products are sold domestically and will be sold to Tex-Ray’s factory in South Africa.

39

Taiwan New Dollar. NT$1 = US$0.03 as May 2004.

5-24

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

Table 5-6 Tex-Ray’s Spinning Factory in Swaziland TAITEX INVESTMENT SWAZILAND (PTY)., LTD. Established March 2002 Facility 25,000SM Employees 400 Main Items 100% Cotton Combed Yarn, 100% Cotton Carded Yarn, 100% Spun Polyester Yam, Top Dyeing Yarn, T/R Polyester / Rayon Blend Yarn, R/C Rayon / Cotton Blend Yarn, T/C Polyester / Cotton Blend Yarn, CVC Polyester / Cotton Blend Yarn Maximum Capacity (Pcs/Month) 1.0M LB/ Month

5.64 Networking with Taiwanese Entrepreneurs and Local Enterprises. As of 2002, there were sixty Taiwanese companies operating in Swaziland. Most of these companies are in the textile industry and hence, have organized a union, with the president of Tex-Ray as the chairman. The union can negotiate with the Government of Swaziland on behalf of the textile industry in Swaziland. 5.65 Current Problems. With an average monthly salary of US$120, labor unions are requesting annual wage increases for the labor. This may result in a loss of cost competitiveness. The local exchange rate is unstable, which has a serious impact on the export competitiveness of Swaziland’s products. For example, in 2002 an exchange rate appreciation occurred where US$1 was initially equivalent to 12.0 Lilangeni, but increased to 7.5 Lilangeni. Swaziland also experiences a severe lack of middle management and skilled labor. According to a Tex-Ray officer, three-months of training is necessary for new labor, which negatively impacts on the production efficiency and cost effectiveness of each factory. More importantly, there are few Tex-Ray factories in Swaziland that can produce raw materials. Therefore, the majority of raw materials must be imported from other countries and Tex-Ray’s local companies will no longer be favored by AGOA after 2004. 5.66 Desirable Institutional Improvements for Tex-Ray. Tex-Ray indicated that the government needs to increase its leadership with regards to the labor unions and that an intervention by the government may be necessary to bring things under control. They used the example of Mexico and its subsidizing scheme for labor training as a possibility for the government. 5.67 Future Prospects. The textile industry of Swaziland is strongly influenced by American preferential treatment. Tex-Ray’s factories in Swaziland must continue to undertake raw material production so that they can be favored by AGOA in the future. Tex-Ray established its own labor union in each factory and forced employees not to participate in national unions in order to avoid conflicts and time-consuming negotiations with employees.

5-25

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

C.4 INDIAN INVESTMENT IN SOUTH AFRICA 5.68 Bilateral Relations.40 A strategic partnership is the basis for India’s bilateral relations with South Africa. While there has been a steady increase in the volume of trade and commerce between the two countries, long-term cooperation in important areas such as defense, health, mining, and housing and public works have continued to the mutual benefit of both the countries. The South African Ministers of Public Works, Health, and Mines visited New Delhi in May, July, and November (2001) respectively. 5.69 There has been an ongoing dialogue between India and South Africa to establish projects focused on technology transfer and joint production, mostly aimed at long-term defense industrial production. There has also been consistency in the exchange of training programs between the countries’ defense forces. Major Indian pharmaceutical companies manufacturing anti-retroviral drugs to fight HIV/AIDS have registered their products in South Africa. This will enable these companies supply their formulas to other Sub-Saharan African countries. 5.70 The Confederation of Indian Industry (CII), jointly with the High Commission of India in South Africa, organized a Made in India Show in Johannesburg (18-21 July 2001). Over 70 Indian companies participated in the show. CII also organized an Enterprise India Exhibition of Indian small and medium sized enterprises, products, and services in Durban (19-21 September 2001). 5.71 Investment Cases. UB Group of India, the largest Indian investor in South Africa initially invested US$20 million in a local-owned brewery, National Sorghum Brewery, and has invested US$6 million in Mabula Game Lodge, a tourism project. They have since expanded their operations and investments in South Africa. 5.72 Tata’s operations in South Africa include three companies. First, Tata Africa Holdings is responsible for bringing FDI to South Africa for viable projects. They are exploring various investment projects in South Africa, particularly in mining. Second, Tata Automobile Imports assembles, distributes, and sells Tata trucks and buses. For marketing of Tata trucks, the group entered into a joint venture agreement with ERF Ltd., a subsidiary of DORBYL of South Africa. Third, Concilience Technologies was undertaken as a joint venture between Tata Consulting Services and J&J Group South Africa to provide IT services. Tata International, the international business gateway for the Tata Group, has subsidiaries in Ghana, Mozambique, Namibia, Tanzania, Uganda, Zambia, and Zimbabwe. 5.73 Ranbaxy, India’s largest pharmaceutical company, has operated a wholly owned domestic subsidiary in South Africa since 1993. It also has had a wholly owned domestic subsidiary in Nigeria since 1987 and in Egypt since 1996 and has distributional agreements with domestic pharmaceutical suppliers in Mauritius, Zambia, and Zimbabwe. Other Indian pharmaceutical companies such as Cipla, Millennium Pharma, Eicher International, NIIT, Aptech, and Allied Chemicals also have operations in South Africa. 40

Annual Report 2001-2002, Ministry of External Affairs, Government of India

5-26

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

5.74 Shriram Industrial Enterprises Ltd. has invested US$7 million in a car air-conditioner manufacturing unit near Durban. 5.75 Public sector enterprises based in South Africa include the State Bank of India, Exim Bank, Bank of Baroda, National Small Scale Industries Corporation, and the Government of India Tourist Office. C.5 SINGAPORE’S INVESTMENT IN AFRICA 5.76 Lekim Textiles Industries Pvt Ltd. Lekim Textiles is a Singapore-based company with textile manufacturing capabilities in South Africa and Lesotho. Its manufacturing facilities in Africa are purely export-driven and target the United States and European markets. 5.77 The company first moved its manufacturing capabilities to South Africa in 1997. The draw to Africa was inexpensive labor costs, duty exemptions, and a pre-existing factory. They selected South Africa over the other Africa regions because of its comparatively better infrastructure, similarity in the legal system, and the use of the English language. Attractive incentives offered by Lesotho trade officials encouraged the company to open a second factory in 1998. The Lesotho government secured funding from the World Bank to build the factory in exchange for technology transfer and manufacturing skills from Singapore. As of now, Lekim Textiles remains the only Singapore factory in Lesotho, although other garment and textile firms from Taiwan have opened factories there as well. 5.78 Tolaram Corporation Limited and Eurochem Technologies Corporate Pte. Ltd. Tolaram Corp is a Singapore-based investment holding company whose group of companies have been doing business in Africa for almost 30 years. Principal activities include trading in paper, sundry items, electronics, and other consumer goods and manufacturing products such as chemicals, textiles, and noodles. 5.79 At present they have key business interests in eight Africa countries – Congo, Ghana, Kenya, Mozambique, Nigeria, South Africa, and Zimbabwe. They also have manufacturing facilities in Nigeria and South Africa that cater to the domestic market. They plan to further expand their presence in West African countries. 5.80 The Managing Director of Tolaram Corp is confident of Africa’s potential and believes that Singaporean companies need to have a more hands-on approach to doing business in Africa. That is, they should not depend on finding local partners, but should set up local offices to do business. He indicated that Singaporean businessmen tend to associate hardship with entering Africa markets, which is a misleading perception. 5.81 Eurochem Technologies, a sister engineering services in the petrochemical companies in Nigeria, Lekki EPZ, Vivia implement UOP/Hydro methanol-to-olefins

company of Tolaram Corp, provides industries. It has established subsidiary Methanol, and Azinova Polyolefins, to (MTO) process units. According to the

5-27

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter5. Cases of Direct Investment

Director of Eurochem, Nigeria has the ingredients for a successful investment that is specific to Eurochem’s nature of business. First, it has abundant resources of oil and natural gas at highly competitive prices. Second, Nigeria’s sizeable population presents a substantial market for orders in petrochemicals. Third, the industry is still relatively undeveloped, thus investing in Nigeria is equivalent to investing in an emerging market.

5-28

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

6 RECOMMENDATIONS 6.1 Strategies Recommended. The target is to boost trade and investment activities through win-win collaboration between the countries in Africa and Asia. Three types of potential development for export-oriented and domestic market oriented investment to boost trade have been identified as potential paths to reach the goal. In line with one or more of these types of scenarios, strategies must be taken by African countries, Asian countries, and also by the international donor community, as summarized below (see Figure 6-1: Strategies and Goal). 6.2 Asian Market. For Asian countries as well as others, Africa is still an attractive origin of natural resources that are traded as a primary commodity. For a large-scale resource exploration project, government based financial cooperation is frequently mobilized, accompanied by private sector investment to provide processing facilities, technical assistance, and trading business. A Korean investment case in Angola is an example of an energy resource-led ODA and FDI mobilization. Agro-products such as agriculture and marine products, processed by drying or canning, are popularly traded items occasionally associated with direct investment for processing. On the other hand, labor-intensive products such as textiles and apparel are not likely to be competitive in the Asian market while there are still a number of competitors in China and South Asia. This is in contrast to the US and European markets. 6.3 US/European Market. The strategy taken by the US and the EU in granting non-tariff import status to African countries is showing success in several countries by inducing Asian direct investment. This is true in countries such as South Africa, Lesotho, Swaziland, Mauritius, and Malawi in textile and apparel industries funded by investments from Taiwan, India, and Singapore. Because of Africa’s historical background with major European countries that have had a long history of trade and human networks, European countries appear to have a comparative advantage in the business network within respective African countries. A reliable business network is often a lacking factor for Asian countries which are rather new to business in Africa, except for Indians, who have a lengthy history in some East African countries. Labor-intensive and export-oriented investments are relatively easy to organize, if the host country provides a bond-free export processing zone (EPZ), allowing the import of all necessary supplies free of tariff including second-hand machinery. With this, the host country benefits by employment generation and foreign exchange earnings. 6.4 Domestic Market. A conventional type of Japanese investment in electric home appliances and textile investments accompanied with technical transfer and employment generation, used to be feasible under the protected tariff regime. With the lowering of tariffs and a loss in price competitiveness, this type of investment seems to have lost its feasibility. Nevertheless, there seems to be abundant opportunities in small and medium

6-1

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

scale investments in consumer products, due to the fact that a large portion of industrial consumer goods relies on imports. The consumers’ general preference and image of imported goods favors European made products, while Asian products are unfamiliar and tend to be considered of low quality. Some cases of Asian direct investment, from Korean and India for example, are targeting the niche domestic market by locally producing daily necessities for local consumers. This was not possible by the large scale or mass production business model, which was the typical investment approach of industrialized countries like the US, EU, and Japan. 6.5 African Regional Market. The African domestic market size could become sufficiently large if regional integration is realized in the form of a common tariff zone or regional trade agreement (RTA). There are four notable economic zones being established in Africa: The Economic Community Of West African States (ECOWAS), Communauté Économique et Monétaire de l'Afrique Centrale (CEMAC), Common Market of Eastern and Southern Africa (COMESA), and Southern African Development Community (SADC). The population size for each exceeds 100 million, except for CEMAC, while COMESA is the largest with 356 million people. (Table 4-6) Several major automobile plants already operate in South Africa, including BMW, Mercedes, and Toyota, targeting neighboring markets in addition to South Africa. In 2002, two Japanese electrical appliance manufacturers, Toshiba and Sharp, established assembly factories in Egypt, as an entry point into the market of COMESA. While there are still remaining issues in the practical effectiveness of those economic zones, the global trend suggests the importance of regional integration. One of the strategies would be to develop a regional hub with sufficient infrastructure for accommodating FDI with concentration of services in trade, finance, transportation, communication, and other service infrastructure. South Africa plays the role of the hub for Southern Africa, as Egypt does in Northern Africa. The United States Agency for International Development (USAID) is assisting in its program, Trade for African Development and Enterprises (TRADE), to develop so-called Regional Hubs for Global Competitiveness in three regional missions of USAID: Acra (Ghana), Nairobi (Kenya) and Gaborone (Botswana). 6.6 As has been reviewed, there are varied and mixed potential directions for trade and investment development in Africa, not only in labor-intensive and/or export-oriented projects. The recommended approach is to provide a wide variety of potential strategies to be selected by each African country based on its resource endowment and other competitive factors for trade and investment. Further studies on African countries’ endowment are needed in order to formulate individual trade and investment development strategies for individual African countries. 6.7 Strategies for Trade and Investment Development. The target is to boost trade and investment activities through win-win collaboration between Africa and Asia. Three types of potential development for export-oriented and domestic market oriented investment to boost trade have been identified as prospective paths to reach the goal. In line with one or more of these types of scenario, strategies must be taken by African countries, Asian countries, and the international donor community, as summarized in the following (see Figure 6-1: Strategies and Goal).

6-2

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

6.8 African Countries. African economies, in general, have been protected by high levels of tariff and non-tariff barriers for foreign trade and investment. However, import tariff rates are gradually declining because of the acceptance of a free trade regime and privatization of state-owned enterprises, in coordination with international donor community. Consequently, an import substitution policy with a high rate of tariff protection became an ineffective policy for industrial development and employment generation. A key word of the trend is “open economy” in which the free flow of foreign business in various sectors and products are able to enjoy both export-oriented and domestic market-oriented trade and investment. The following are recommendations to be considered by African countries. •

Environment for Small- and Medium-Sized Business: An enabling environment for trade and investment that is able to accommodate small- and medium-scale investment and trade. There are a variety of small- and medium-scale business opportunities targeting the domestic market. The business infrastructure for trade, particularly licensing, customs, and transportation, needs to be developed so that foreign small- and medium-sized business would be better able to engage in business. It should be noted that compared to large-scale enterprises, SMEs are weaker in political influence with regards to their needs for a business environment and require reliability and predictability in their business environment. If successful, SMEs bring comparatively larger employment opportunities against invested capital.

•

Credit worthiness and reliable financial transaction system. Because of the lack of reliable financial transaction environments, Dubai is playing the trade service role. They provide line of credit mechanisms by banks, mixed commodity container shipping arrangements for the small-sized markets, and a meeting place for buyers and sellers at an off-Africa location. This kind of function should be able to be provided at hub locations in Africa with a government commitment to provide security and fair business transactions.

•

Natural resource oriented investments. Natural resource oriented investments, such as in oil and mineral resources are the primary attractive investment opportunity in African countries. Increases in value added are a serious issue because the world’s commodity prices are at a low level. Natural resource based businesses tend to be largely affected by domestic political and institutional conditions. A competitive environment needs to be expanded for efficiency and higher profitability.

•

Credit risk. There is a limitation in providing export credit and insurance by Asian country governments due to the poor credit rating of many of African countries. Private capital cannot be mobilized without government support in a high-risk environment. Efforts are needed by African countries to improve their credit ratings.

•

Economic Zones and Regional Trade Agreements. Economic Zones and Regional Trade Agreements (RTA) are being created within Africa. Efforts by 6-3

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

African countries are needed to make the RTAs effective to bring about trade and investment in the area. A strategic plan to establish regional hubs should be initiated through regional cooperation within Africa. 6.9 Asian Countries. Asian countries have an historical disadvantage compared to European countries. However, by expanding their own network and utilizing comparative advantages, particularly through small- and medium-size businesses, an elevated level of collaboration between these two regions can be achieved. The following are recommendations. •

For Asian firms there is a disadvantage in the human network compared to European firms, who have an established human network from their long history of conducting business in Africa. A human network supports developing business relations by creating mutual trust and eliminating risks from malpractice and misunderstanding. It is recommended that each Asian country should have a wide range of information exchanges, movement of people, technology transfer, and products exchange by utilizing government supported promotion facilities.

•

There is a need to improve the image of products from Asia, as they are viewed as low cost and low quality in many African countries. European products hold an advantage because they are viewed as high quality in some African countries. It is recommended that Asian countries improve their images of product and technology by enhancing communication and exchange.

•

Investment projects in manufacturing targeted toward domestic markets need to be adjusted for small- and medium-size markets with appropriate technology. Once these conditions are met, there domestic production capacity is possible because it is quite limited. This area can be a comparative advantage for Asian business, particularly from newly industrialized economies including Korea, Taiwan, Malaysia, and India.

•

As African sub-regional RTAs are in development, region-to-region cooperation, for example ASEAN, can be another aspect of promoting a renewed Asia-Africa alliance.

•

ODA loans can be used to attract donor country companies to work with the recipient country, particularly if the ODA loan or grant fund is associated with private sector investment and trade activities. Given that Asian countries are still unfamiliar with many African countries, stages of trade and investment relations need to be developed with government-assisted intervention. As the bilateral economic relations between Asian and African countries develop, more market-oriented programs to promote private sector trade and investment can be utilized by mixing government intervention against market mechanisms.

6.10

Donor Community. The following are recommendations for international donors.

6-4

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

•

In applying for export credit or export insurance by Asian countries, lowering the country risk is an issue beyond the capability of individual countries. The international donor community can play an important role to encourage improvements in credit ratings of African countries so that more African countries are eligible for bilateral trade and investment promotion schemes.

•

Both international and bilateral donors can provide technical assistance to improve human resources to create a sound business environment, enhance entrepreneurship, and establish institutional framework for market mechanism.

•

The framework, organization, and effectiveness of regional economic zones are currently being left to the member countries’ initiative. The international donor community can assist in RTA development by strengthening its function through technical assistance provided to those RTA secretariats.

•

By creating a multilateral trade system under the WTO, it is recommended that the donor communities discuss the application of the concept of special and differential treatment of developing countries announced in the Doha Declaration to adjust the system to a free trade regime. This is important for African countries, particularly the least developed countries (LDC), in opening their economy to world trade.

6-5

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

Table 6-1 Economic Zones in Africa

Name

Member Countries

Benin, Burkina Faso, Cote d’Ivoire, Gambia, ECOWAS (Economic Ghana, Guinea, Guinea Bissau, Liberia, Mali, Community of West Niger, Nigeria, Senegal, African States) Sierra Leone, Togo, Cape Verde (16 countries) Cameroon, Gabon, CEMAC (Central Africa Congo, Central Africa, Economic and Monetary Chad, Equatorial Guinea Community) (7) Eritrea, Djibouti, Ethiopia, Kenya, Uganda, Rwanda, Burundi, Mauritius, COMESA (Common Malawi, Zambia, Market for East and Zimbabwe, Swaziland, Southern African States) Namibia, Angola, Sudan, Seychelles, Comoro, Madagascar, Egypt, Congo DR (20)

Establis hed 1975.5

Total Populatio n* 239.7 million

Note ♦ ♦

To establish common tariff and market area among West African nations. Establishment of common currency unit was agreed in 2000.

1966.1

31.7 million

♦ ♦

Common currency unit, CFA, is in use Correspond to ECOWAS

1994.12

356.9 million

♦

Free Trade Agreement was signed among 9 countries of the members. Common tariff has been agreed to be set up by 2004 The goal is to liberalize all movement of goods, capital and labor, to form a common market.

♦ ♦

6-6

Studies on Africa-Asia Trade and Investment Relations (B)

Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, SADC (Southern Swaziland, Tanzania, African Development Zambia, Zimbabwe, Community) South Africa, Mauritius, Seychelles, Congo DR (14) Note: Population data from the World Bank Publication Source: JCIF Market Data Sheet “World Economic Zone” (February 2003)

Chapter 6. Recommendations

1992.8

168.2 million

♦ ♦ ♦

6-7

Formed by member countries of former SADCC The goal is to abolish all tariff and non-tariff barriers within the region To establish Southern African Free Trade Area by 2012

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

Figure 6-1 Strategies and Goals (Past & Current)

Policies by African countries - Import substitution - Export Promotion

(Goal)

Potential for Trade and Investment Development Among Asian and African Countries

Strategy

Business Environment for Trade and Investment in African countries -

Type-1: Export to Asian Market -

-

Natural resource Human resource Domestic market Human network Country risk

-

-

RTA as expanded regional market

Natural resource based goods Intermediate goods

Type-3: Export to Third Country Market and Supply Chain Linkage - US and Europe market - Labor Intensive model

Type-2: Domestic Market Strategy

Policies by Asian Countries

Strategy by African Countries - Business environment development - SME trade and investment - Higher value added for resources - Improve credit ratings

-

Needs for variety of consumer goods Regional market integration

Bilateral ODA Human Network

6-8

-

Strategy by Asian Countries Develop human network Improve image of products SME investment opportunity Make use of African RTA ODA as instrument to induce trade and investment

Studies on Africa-Asia Trade and Investment Relations (B)

Chapter 6. Recommendations

6-9

Studies on Africa-Asia Trade and Investment Relations (B)

References

REFERENCES Aryeetey, Ernest and Julios Court, Machito Nissanke, Beatrice Weder (2003). Asia and Africa in the Global Economy. United Nations University Press. Tokyo, Japan. Basu, Anupam and Krishna Srinivasan (2002). “Foreign Direct Investment in Africa Some Case Studies”. International Monetary Fund. Washington DC. Chen, Le and Sherif Mohamed (2002). “China’s Foreign Economic Cooperation Development: Exporting Chinese Construction Services”. W107-072. Griffith University, Queensland, Australia. Available at buildnet.csir.co.za/w107/Authors/Accepted%20Papers/072p%20-%20final.doc Cook, Lisa. “Mozambique: Optimism, Growth, and Investment” in Africa Competitiveness Report 2000/2001, World Economic Forum. Copson, R.W. (2000), “RS20329: African Development Bank and Fund”. Washington, DC: National Council for Science and the Environment. Foreign Affairs, Defense, and Trade Division. www.ncseonline.org/NLE/CRSreports/international/inter-14.cfm?&CFID=9727678&C FTOKEN=4826800. Department for International Development (2003), Africa Action Plan: UK Progress Report. United Kingdom: DFiD. www.dfid.gov.uk/Pubs/files/africa_action_plan.pdf Dupasquier, Chantal and Patrick Osakwe. Performance, Promotion and Prospects for Foreign Investment in Africa: National, Regional and International Responsibilities. Draft 15 February 2003. Prepared for the Tokyo International Conference on Investment to Africa. February 2003. Easterly, W., and D. Dollar (1999), “The Search for the Key: Aid, Investment, and Policies in Africa”. Working Papers on Governance, Corruption and Legal Reform. Working Paper No. 2070. The World Bank. Washington, DC. Embassy of Angola, USA (2001), Angola -trade and investment guide, Washington, DC: Embassy of Angola. Fosu, A. K. 2001. The Global Setting and African Economic Growth. Journal of African Economies 10, 282-310. GTZ (2003). Annual Report 2002. Eschborn, Germany: Technische Zusammenarbeit (GTZ) GmbH Hoekman, B., and M. Schiff (2003), Benefiting from Regional Integration. In Hoekman, B., A. Mattoo, and P. English, Development, Trade and the WTO: A Handbook. The World Bank. Washington, DC. R-1

Studies on Africa-Asia Trade and Investment Relations (B)

References

IMF (2002), “IMF-Supported Programs and the Poor: The Experiences of Low-Income Countries”. Pamphlet No. 52. International Monetary Fund. Washington, DC. JCIF Market Data Sheet “World Economic Zone” (February 2003), Japan Center for International Finance. Tokyo, Japan. JETRO (2000). Mozambiku no Toshi Kankyo Gaikan (An Overview of Investment Climate in Mozambique). Japan External Trade Organization. Unpublished document prepared by JETRO office in Johannesburg. March 2000. South Africa and Japan. JETRO (2000). Zai Afurika Shinshutsu Nikkei Kigyo Jittai Chosa (Survey on Current Conditions for Investment of Japanese Companies in Africa). Japan External Trade Organization. Unpublished document March 2000. Tokyo, Japan. Jegathesan, Dato’ J. (2003) “The TICAD Agenda and African Challenge”. Senior Investment Technology Advisor, AAITPC, presented at the Tokyo International Conference on Investment to Africa on February 26, 2003. Kaigai Kigyou Shinsyutsu Souran, KKSS (2003) (Directory of Overseas Japanese Subsidiaries), Toyo Keizai, 2003, Japan. Kimio, Takanaka (2000). Gaikoku Boeki to Keizai Hatten (Foreign Trade and Economic Development). Keiso Shobo: Tokyo, Japan. Kojima, Kiyoshi (2004). Ganko Keitai Keizai Tenron (The Flying-Geese Theory of Economic Development). 2 Volumes. Bunshodo. Tokyo, Japan. KOTRA (2001) “Spurring Korean Investment Overseas- MIGA’s Korean Connection”, Korea Trade and Investment, Vol.19, No.4, July-August 2001, pp17. Korea. METI (2002). “Japanese Policy to Strengthen Economic Partnership: Promotion of Economic Partnership, METI, December 2002. Available at www.meti.go.jp/english/information/downloadfiles/cFTA0212e.pdf MIGA (2003). Shedding New Light on Africa’s Investment Opportunities. Multilateral Investment Guarantee. The World Bank Group. Washington, DC and South Africa. Available at www.apparelafricaonline.com/1_africa.pdf MOFA (2002). ODA White Paper. Japan: Ministry of Foreign Affairs. OECD (2002). International Trade by Commodity Statistics. Organization for Economic Co-operation and Development. Paris,France OECD (1987). Structural Adjustment: Economic Performance. Organization for Economic Co-operation and Development. Paris,France

R-2

Studies on Africa-Asia Trade and Investment Relations (B)

References

Page, S., and A. Hewitt (2002), “The New European Trade Preferences: Does ‘Everything But Arms’ (EBA) Help the Poor?” Development Policy Review 20 (1): 91-102. Rodrik, Dani (1997). “Trade Policy and Economic Performance in Sub-Saharan Africa”. Harvard University. Cambridge, MA. Rood, Leslie (1975). “Foreign Investment in African Manufacturing”. The Journal of Modern African Studies, Vol. 14, No. 1 (Pages 19-34). Sala-i-Martin, Xavier and Elsa Artado (2003). “The Economic Tragedy of the XXth Century: Growth in Africa”. National Bureau of Economic Research, Working Paper 9865. Cambridge, MA. Sanford, J.E. (2002), “World Bank: IDA Loans or IDA Grants?”. Washington, DC: Bank Information Center (BIC). Schiff, M., and L. Alan Winters (2003), Regional Integration and Development. The World Bank. Washington, DC. Sikorski, Douglas and Thomas Menkhoff (2000). “Internationalization of Asian Business”. Singapore Management Review. Singapore. Singh, K. (2003), “When Elephants Dance: MIA Negotiations in the WTO”. Washington, DC: Heinrich Böll Foundation. Available www.boell.org/docs/Cancun_Singh.pdf Stevens, C. and J. Kennan (2001), “The Impact of the EU’s ‘Everything but Arms’ Proposal: A Report to Oxfam”. Institute of Development Studies. Study prepared for Oxfam. Final Report. Sussex, UK. Tata (2003). “Report for Investment Climate in Africa”. Unpublished Manuscript prepared as input for this current report. Tata Consultancy Services. New Dehli, India. Tybout, James (2000). “Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?”. Journal of Economic Literature, Vol. 38, No. 1 (Pages 11-44). UNCTAD (2002a), Participation of the African, Caribbean and Pacific Group of States in International Trade. UNCTAD/DITC/TNCD/Misc.27. Report by the UNCTAD secretariat to The Third Summit of ACP Heads of State and Government, 18-19 July 2002, Fiji. Prepared at the request of the General Secretariat of the ACP Group of States. UNCTAD (2002b), “Economic Development in Africa - From Adjustment to Poverty Reduction: What is New?”. UNCTAD/GDS/AFRICA/2. United Nations Conference on Trade and Development. Geneva. UNCTAD (2001), World Investment Report 2001: Promoting Linkages. United Nations Conference on Trade and Development. New York and Geneva.

R-3

Studies on Africa-Asia Trade and Investment Relations (B)

References

UNCTAD (1997), Japanese Foreign Direct Investment in Africa. Joint ECA/UNCTAD Unit. Geneva: United Nations Conference on Trade and Development. USAID (2003), Building Trade Capacity in the Developing World. Washington, DC: United States Agency for International Development. Publication number PD-ABX-241. United States Government (2003), ¨Trade Act of 2002¨. Available at www.agoa.gov/agoa_legislation/AGOII_summary.pdf WEF (2004). Africa Competitiveness Report 2004. World Economic Forum. Switzerland. WEF (2001). Africa Competitiveness Report 2000/2001. Switzerland.

World Economic Forum.

Wilson, John and Victor Obiola (2003). Standards and Global Trade: A Voice for Africa. Washington, DC. World Bank (2004). Strategic Framework for Assistance to Africa: IDA and the Emerging Partnership Model. The Africa Region. Washington, DC. World Bank (2002). Can Africa Claim the 21st Century. Washington, DC. Interviews. • • • • • • • •

Korean Institute for International Economic Policy (KIEP); Korea Trade-Investment Promotion Agency (KOTRA); The Export-Import Bank of Korea; UFJ Bank Soul Brach Office; Korean International Trade Association (KITA); Samsung Corporation; M. K. International Inc.; and United Nations Industrial Development Organization (UNIDO), Seoul Office.

Additional Statistics (reports and web sites) • • • • • • • • • •

African Growth and Opportunity Act (AGOA) IMF. Trade Statistics Yearbook. Korean Institute for International Economic Policy (KIEP) Korea Trade-Investment Promotion Agency (KOTRA) Korean International Trade Association (KITA) Japan External Trade Organization Japan Bank for International Cooperation Ministry of Commerce, China (PRC) Ministry of Economic Affairs, Taiwan Ministry of Foreign Affairs and Trade, Korea R-4

Studies on Africa-Asia Trade and Investment Relations (B)

• • • • • •

Ministry of Finance, Japan Ministry of International Trade and Industry, Malaysia Organization for Economic Cooperation and Development (OCDE) UN Comtrade World Bank. World Development Indicators World Trade Organizations

R-5

References

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix A

Appendix A Classification of Industries Industries

Agriculture, forestry, fishing

Mining

SITC 001 041 042 043 044 045 054 057 075 121 222 223 232 244 245 246 247 261 264 265 292 941 271 273 274 278 281 286 287 289 322 323 333

Commodities Live animals chiefly for food Wheat (including spelt) and meslin, unmilled Rice Barley, unmilled Maize (corn), unmilled Cereals, unmilled ( no wheat, rice, barley or maize) Vegetables, fresh, chilled, frozen/preserved; roots, tubers Fruit & nuts (not including oil nuts), fresh or dried Spices Tobacco, unmanufactured; tobacco refuse Oil seeds and oleaginous fruit, whole or broken Oils seeds and oleaginous fruit, whole or broken Natural rubber latex; natural rubber and sim.nat. gums Cork, natural, raw & waste (including in blocks/sheets) Fuel wood (excluding wood waste) and wood charcoal Pulpwood (including chips and wood waste) Other wood in the rough or roughly squared Silk Jute & other textile bast fibers, nes, raw/processed Vegetable textile fibers and waste of such fibers Crude vegetable materials, n.e.s. Animals, live, n.e.s., including zoo-animals Fertilizers, crude Stone, sand and gravel Sulphur and unroasted iron pyrites Other crude minerals Iron ore and concentrates Ores and concentrates of uranium and thorium Ores and concentrates of base metals, n.e.s. Ores & concentrates of precious metals; waste, scrap Coal, lignite and peat Briquettes; coke and semi-coke of coal, lignite/peat Petrol oils, crude, & crude oils obtained from bituminous minerals

Manufacturing Resource-intensive industries

011 012 022

Meat, edible meat offals, fresh, chilled or frozen Meat & edible offals, salted, in brine, dried/smoked Milk and cream

A-6-1

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix A

Manufacturing 024 025 034 035 036 037 046 047 048

Resource-intensive industries

056 058 061 062 071 072 073 074 081 091 098 111 112 122 211 212 248 251 263 291 333 334 335 341 411 423 431 611 612 613 633 634 635 641

Cheese and curd Eggs and yolks, fresh, dried or otherwise preserved Fish, fresh (live or dead), chilled or frozen Fish, dried, salted or in brine smoked fish Crustaceans and molluscs, fresh, chilled, frozen etc. Fish, crustaceans and molluscs, prepared or preserved Meal and flour of wheat and flour of meslin Other cereal meals and flours Cereal preparations & preparations of flour of fruits or vegetables Vegetables, roots & tubers, prepared/preserved, n.e.s. Fruit, preserved, and fruit preparations Sugar and honey Sugar confectionery and other sugar preparations Coffee and coffee substitutes Cocoa Chocolate & other food preptions containing cocoa Tea and mate Feed.stuff for animals (not including unmilled cereals) Margarine and shortening Edible products and preparations n.e.s. Non alcoholic beverages, n.e.s. Alcoholic beverages Tobacco manufactured Hides and skins (except furskins), raw Furskins, raw (including astrakhan, caracul, etc.) Wood, simply worked, and railway sleepers of wood Pulp and waste paper Cotton Crude animal materials, n.e.s. Petrol.oils, crude, & crude oils obtained from bituminous minerals Petroleum products, refined Residual petroleum products, nes.& related materials Gas, natural and manufactured Animal oils and fats Fixed vegetable oils, soft, crude, refined/purified Animal & vegetable oils and fats, processed & waxes Leather Manufactures of leather/of composition leather nes Furskins, tanned/dressed, pieces/cuttings of furskin Cork manufactures Veneers, plywood, improved or reconstituted wood Wood manufactures, n.e.s. Paper and paperboard

A-6-2

Studies on Africa-Asia Trade and Investment Relations (B)

Resource-intensive industries continued

Labor-intensive industries

661 662 663 681 682 683 684 685 686 687 689 268 277 278 288 651 652 653 654 655 656 657 658 659 667 691 692 693 694 696 763 764 812 821 831 842 843 844 845 846 847 848 851 894 895

Appendix A

Lime, cement, and fabricated construction materials Clay construct.materials & refractory constr.mater Mineral manufactures, n.e.s Silver, platinum & oth.metals of the platinum group Copper Nickel Aluminium Lead Zinc Tin Miscell.non-ferrous base metals employ.in metallgy Wool and other animal hair (excluding wool tops) Natural abrasives, n.e.s (including industrial diamonds) Other crude minerals Non-ferrous base metal waste and scrap, n.e.s. Textile yarn Cotton fabrics, woven Fabrics, woven, of man-made fibres Textile fabrics, woven, oth.than cotton/man-made fibr Knitted or crocheted fabrics Tulle, lace, embroidery, ribbons, & other small wares Special textile fabrics and related products Made-up articles, wholly/chiefly of text.materials Floor coverings, etc. Pearls, precious& semi-prec.stones, unwork./worked Structures & parts of struc.; iron, steel, aluminium Metal containers for storage and transport Wire products and fencing grills Nails, screws, nuts, bolts etc.of iron, steel, copper Cutlery Gramophones, dictating, sound recorders etc Telecommunications equipment and parts Sanitary, plumbing, heating, lighting fixtures Furniture and parts thereof Travel goods, handbags, brief-cases, purses, sheaths Outer garments, men's, of textile fabrics Outer garments, women's, of textile fabrics Under garments of textile fabrics Outer garments and other articles, knitted Under garments, knitted or crocheted Clothing accessories of textile fabrics Art of apparel & clothing accessories, no textile Footwear Baby carriages, toys, games and sporting goods Office and stationery supplies, n.e.s.

A-6-3

Studies on Africa-Asia Trade and Investment Relations (B)

Labor-intensive industries

Scale-intensive industries

896 897 899 951 232 266 267 269 282 511 512 513 514 515 516 522 523 524 553 554 562 572 582 583 584 585 621 625 628 642 664 665 666 671 672 673 674 675 676 677 678 679 773 781 782

Appendix A

Works of art, collectors pieces & antiques Jewelry, goldsmiths and other art. of precious m. Other miscellaneous manufactured articles Armored fighting vehicles, arms of war and ammo. Natural rubber latex; natural rubber and sim. nat. gums Synthetic fibers suitable for spinning Other man-made fibers suitable for spinning & waste Old clothing and other old textile articles; rags Waste and scrap metal of iron or steel Hydrocarbons nes, & their halogen and etc. derivatives Alcohols, phenols, phenol-alcohols, and their derivatives. Carboxylic acids, & their anhydrides, halides, etc. Nitrogen-function compounds Organic-inorganic and heterocyclic compounds Other organic chemicals Inorganic chemical elements, oxides & halogen salts Other inorganic chemicals Radio-active and associated materials Perfumery, cosmetics and toilet preparations Soap, cleansing and polishing preparations Fertilizers, manufactured Explosives and pyrotechnic products Condensation, polycondensation & polyaddition products Polymerization and copolymerization products Regenerated cellulose; cellulose nitrate, etc. Other artificial resins and plastic materials Materials of rubber (e.g., pastes, plates, sheets, etc) Rubber tires, tire cases, etc. for wheels Articles of rubber, n.e.s. Paper and paperboard, cut to size or shape Glass Glassware Pottery Pig iron, spiegeleisen, sponge iron, iron or steel Ingots and other primary forms, of iron or steel Iron and steel bars, rods, angles, shapes & sections Universals, plates and sheets, of iron or steel Hoop & strip, of iron/steel, hot-rolled/cold-rolled Rails and railway track construction material Iron/steel wire, wheth/not coated, but not insulated Tubes, pipes and fittings, of iron or steel Iron & steel castings, forgings & stampings; rough Equipment for distributing electricity Passenger motor cars, for transport of pass.& goods Motor vehicles for transport of goods/materials

A-6-4

Studies on Africa-Asia Trade and Investment Relations (B)

Scale-intensive industries

Differentiated goods

Science-based industries

Science-based industries

785 786 791 793 882 892 893 695 711 712 714 718 721 722 723 724 725 726 727 728 736 737 741 742 743 744 745 749 763 764 772 775 776 778 871 872 873 874 885 898 951 531 532 533 541 551 591 592

Appendix A

Motorcycles, motor scooters, invalid carriages Trailers & other vehicles, not motorized Railway vehicles & associated equipment Ships, boats and floating structures Photographic & cinematographic supplies Printed matter Articles of materials described in division 58 Tools for use in hand or in machines Steam & other vapor generating boilers & parts Steam & other vapor power units, steam engines Engines & motors, non-electric Other power generating machinery and parts Agricultural machinery and parts Tractors fitted or not with power take-offs, etc. Civil engineering & contractors plant and parts Textile and leather machinery and parts Paper and pulp mill mach., mach for manufacturing .of paper Printing & bookbinding machines and parts Food processing machines and parts Machine and equipment specialized for particular ind. Mach. tools for working metal or met. carb., parts Metal working machinery and parts Heating & cooling equipment and parts Pumps for liquids, liquid elevators and parts Pumps & compressors, fans & blowers, centrifuges Mechanical handling equip and parts Other non-electrical mach tools, apparatus & parts Non-electric parts and accessories of machines Gramophones, dictating, sound recorders etc Telecommunications equipment and parts Elect. app such as switches, relays, fuses, plugs etc. Household type, elect.& non-electrical equipment Thermionic, cold & photo-cathode valves, tubes, parts Electrical machinery and apparatus, n.e.s. Optical instruments and apparatus Medical instruments and appliances Meters and counters, n.e.s. Measuring, checking, analyzing instruments Watches and clocks Musical instruments, parts and accessories Armored fighting vehicles, arms of war & ammunit. Synthetic organic dyestuffs, etc. natural indigo & color lakes Dyeing & tanning extracts; synthetic tanning materials Pigments, paints, varnishes & related materials Medicinal and pharmaceutical products Essential oils, perfume and flavor materials Disinfectants, insecticides, fungicides, weed killers Starches, insulin & wheat gluten; albuminoidal subst.

A-6-5

Studies on Africa-Asia Trade and Investment Relations (B)

598 711 712 713 751 774 792 881 883 884

Appendix A

Miscellaneous chemical products, n.e.s. Steam & other vapor generating boilers & parts Steam & other vapor power units, steam engines Internal combustion piston engines & parts Office machines Electric apparatus for medical purposes, (radiolog) Aircraft & associated equipment and parts Photographic apparatus and equipment, n.e.s. Cinematograph film, exposed-developed, neg.or pos. Optical goods, n.e.s.

A-6-6

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix B

Appendix B Japanese Companies in Africa The following list of Japanese companies in Africa has been taken from Teikoku Databank “Kaigai Kigyou Shinsyutsu Souran, KKSS (2003) (Directory of Overseas Japanese Subsidiaries), Toyo Keizai, 2003, Japan. Algeria Name

Year Founded

Socitété Algéro Japonaise d'Engineering et de Construction

1998.12

Number of Employees 39

Sales 217million

Angola Name Toyota de Angola, SARL

Burkina Faso Name Saphyto

Year Founded

Number of Employees

Sales

1994.6

Year Founded

Number of Employees

ITOCHU Cameroon SARL Summit Motors (Cameroon) S.A. Cote d'lvoire Name Callivoire Toles Ivoire S.A.

1982.1 1983.8

Year Founded

Currency: Kz $1=78.833Kz Local Share

Currency: CFAF $1=520.05CFAF Sales Local share Sofitex 35%

Cameroon Year Founded

Sidem30%

Lonrho Int'l Ltd. Other 50%

1989

Name

Currency: AD $1=72.5346AD Local share

Number of Employees 7 85

Number of Employees

1986 1970.10

23

B-1

Currency: CFAF $1=520.05CFAF Sales Local Share

1.243billion

Currency: CFAF $1=520.05CFAF Sales Local share

965million

IPS.Group 53.37% local25.53%

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix B

Currency: £E $1=6.17£E

Egypt Name

Year Founded

Number of Employees

Sales

Local share

local 25%

Aricon Japan S.A.E. Egypt Otsuka Pharmaceutical Co. S.A.E. Fujitec Egypt Co., Ltd General Motors Egypt S.A.E.

2000.11 1995.4

319

50.48million

1998.9 1985.7

34 (1) 700

3.48million

Melco-Mec Egypt for Elevators & Escalators Misr Japan-Allied Co., for Rolling Stock Maintenance & Re NM Agro Egypt Ltd. ORIX Leasing Egypt S.A.E.

1999.6

368

1996.7

404

1998.2 1997.11

26

YKK Egypt S.A.E.

1996.7

97 (1)

Name

Year Founded

Sales

Ethio-Japanese Synthetic Textiles Share Co. Mitsubishi Ethiopia Trading Pte. Ltd., Co.

1966.9

Number of Employees 3,340

Number of Employees 100

Sales

local 49%, General Motors Corp. 31 MEC 60% 329million

National Bank of Egypt 24% Commercial Int'l Investment Co. 15

Currency: Birr $1=8.55Birr Local Share

Ethiopia

local 65%

1967.8

Currency: C $1=8.850C Local share

Ghana Name TOYOTA Ghana Co., Ltd.

Year Founded 1998.1

114.473billion

Kenya Name Sanyo Armco (Kenya) Ltd. YKK Kenya Epz Ltd.

IEDCO 25%

Year Founded 1973.1

Number of Employees 49

B-2

Sales

Currency: Ksh $1=76.2413Ksh Local Share P.sapani, other 57.34%

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix B

Currency: L$ $1=1L$

Liberia Name

Year Founded

Amber Ocean Corp. Amur Shipping Inc. Andromeda Ocean Corp. Aquarius Shipping Inc. Bamboo Shipping Corp. Beaufort Sea Inc. Bougainvillea Marine Corp. Bulkstar Enterprise Co., Ltd. Capricorn Transport Inc. Cassiopeia Maritime Ltd. Cobre Maritime, Inc. Cosmos Marine Crop. Dia Maritime Inc. Estisle Navigation Ltd. Four Seasons Maritime, Ltd. Gas Asia Shipping Inc. Gas Diana Transport Inc. Hercules Ocean Corp. KS Ocean Corp. Laurel Trankers Inc. Lavender Tankers Inc. Liberian Paramount Inc. Majuro Ship Finance Co. Modec Liberia, Inc. MoI-Nic Transport Ltd. Monc Liberia, Inc. Noisette Shipping Corp. Parana Ship Finance Co. Patrinia Corp. Pearl Ship Finance Co. Polestar Carriers Ltd. Puncak Shipping Corp. STB Ship Finance Ltd. Salt Marine Inc. Scorpa Pranedya Maritime, Inc.

1988.4

Scorpa Pranedya Tanker, Inc.

Scorpio Carries, Ltd. Seabreeze Maritime Corp. Silky Ocean Corp. Solar Ace Corp. Solar Global Maritime Corp. Solar Shipholding Corp.

Number of Employees

1986.6

Sales

Local share

327million

1991.5

1988.9 1989.9

106million 2.436billion 12million 815million 8.166billion 2.847billion 739million

1989.9 1976.9

1991.11 1974.5

243million 62million

1986.4 1989.6 1996.3 340million 10million

1990.11

1987.1 1978.11 1979.5

10million 2.30million

P.T.Scorpa Pranedya 25% Scorpa Shipping Holdings S.A.25

1979.5

2.66million

P.T.Scorpa Pranedya 25% Scorpa Shipping Holdings S.A.25

2000.8

795million 980million

1996.6 2002.2 1992.1

3.96million 7.33million 6.63million

B-3

Studies on Africa-Asia Trade and Investment Relations (B)

T.S. Cenatral Shipping Co., Ltd. Taurus Carriers Ltd. Vega Ocean Corp. YSH Shipping Co., Ltd

1978.5

2 (2)

Madagascar Daiho Corp.S.A. Société Malgache de Pécherie

Year Founded 1996.2 1966.9

Number of Employees 3 (2) 809 (23)

Mali Name Mali Protection Des Cultures SARL

Year Founded

Number of Employees

Automobile Investment (Mauritius) Ltd.

Currency: FMG $1= 5,700FMG Sales Local Share 2.274billion

local 30% local,other 30.93% Madagascar government 30.11

Currency: CFAF $1=520.05CFAF Sales Local share

1998.6

Mauritius Name

7.55million 4billion 1million

Madagascar Name

Appendix B

Year Founded

Number of Employees

1996.12

Currency: MauRs $1=26.2MauRs Sales Local Share 2.145billion

Morocco Name

Year Founded

Calimaroc S.A. Disco Hi-Tec Morocco SARL Hitachi Productions Maroc Electroniques Domestiques S.A.

1984.2 2003.5 1979.8

Number of Employees 1 32 (1)

Niger Name

Year Founded

La Compagnie Minière d'Akouta

1978.8

Number of Employees 1,046

B-4

Sales

Currency: DH $1=8.7822DH Local share

local 49%

Currency: CFAF $1=520.05CFAF Sales Local Share NFC company of France 34% local government 31 Spanish government 10

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix B

Nigeria Name

Year Founded

Chiyoda Nigeria Ltd. Honda Manufacturing (Nigeria) Ltd. ITOCHU Nigeria Ltd. JGC Nigeria Ltd. MBK Nigeria Ltd.

1983.6 1981.1

Marubeni Nigeria Ltd. Meisei Nigeria Ltd. Mitsubishi Shoji Kaisha,(Nigeria) Ltd. Nishizawa (Nigeria) Ltd. Nissho Iwai (Nigeria) Ltd. SEI Nigeria Ltd. Taisei (West Africa) Ltd.

Number of Employees 27 (1)

1978.10 1991.3 1969.5

11 (1) 13 8 (1)

1970.3

9 (1) 1 (1)

Sales

549million Chief E.A.O. Shonekan 5.4% 368million

1969.7 8 (3) 11 (2) 1 7

32.74million

1981.2

25

104million

Reunion (France) Name

Year Founded

Number of Employees

Betal Reunion S.A.

1995.8

West African Seasoning Co., Ltd. Yamaha Manufacturing (Nigeria) Ltd.

Currency: N $1=139.55N Local share

1969.4 1979.1 1978.5 1979.4

53.92million

local personal 50% local 3.3% local 60% Howas Services 35% Bells Holding 25

1991.5 local and other 40% John Holt PLC25

Currency: Eur $1=0.7987Eur 1Eur=6.5596F Sales Local Share

Currency: CFAF $1=520.05CFAF

Senegal Name S.P.I.A. South Africa Name Advalloy (Pty.) Ltd. Bridgestone South Africa Holdings Pty. Ltd. CSSA (Pty.) Ltd. Calsonic Kansei South Africa (Pty.) Ltd. Canon South Africa Pty. Ltd. Cataler South Africa (Pty.) Ltd. Cato Ridge Alloys (Pty.) Ltd. Daikin Airconditioning South Africa Pty. Ltd. FANUC SOUTH AFRICA (Pty.) Ltd.

Year Founded

Number of Employees

Sales

Local share

Sales

Currency: R $1=6.675R Local Share

252million

Samancor Ltd. 50%

1979.9

Year Founded 1996.6 1997.1

Number of Employees 88

1997.5 2003.1

SJM 49%

1999.9 2001.7 1998.4 1998.3

77 66 (2) 24 (1) 42

1983.9

B-5

163million 295million

Asman 50%

Studies on Africa-Asia Trade and Investment Relations (B)

Hitachi Construction Machinery Southern Africa Co., Ltd. ILITHA Holdings (Pty.) Ltd. ITOCHU Auto Africa (Pty.) Ltd. Kintetsu World Express South Africa (Pty.) Ltd. Komatsu Southern Africa (Pty.) Ltd Kyocera Mita South Africa (Pty.) Ltd. Marpless Communication Technologies (Pty.) Ltd. MayFord Holdings (Pty.) Ltd. MayFord Seeds (Pty.) Ltd. Melco Elevator (South Africa) Pty. Ltd. Mentholatum South Africa (Pty.) Ltd. Mitsui & Co. Southern Africa (Pty.) Ltd. Mitsui Minerals Development South Africa Pty. Ltd. NGK Ceramic South Africa (Pty.) Ltd. NST Ferrochrome (Pty.) Ltd. National Auto Glass Pty. Ltd. Nippon-SC Tree Farm S.A. (Pty.) Ltd. Nissan Diesel South Africa (Pty.) Ltd. Nissan Motor Co. South Africa (Pty.) Ltd. Nissan South Africa (Pty.) Ltd. Philagro South Africa (Pty.) Ltd. Pilot Pen South Africa (Pty.) Ltd. Riso Africa (Pty.) Ltd. Sony South Africa (Pty.) Ltd. South Africa Japan Vanadium Sumika-Merisol RSA Summit Auto Holding South Africa (pty.) Ltd. Sun Ace South Africa (Pty.) Ltd. Takasago International Corp. South Africa (Pty.) Ltd. Toyota South Africa Motors (Pty.) Ltd. Toyota South Africa Pty. Ltd Toyota Tsusho (Africa) Co., Ltd. Yokogawa South Africa (Pty.)

1998.8

Appendix B

239

1999.9

329million 137million

1997.4 1996.5

31 (2) 148

2.077billion

1997.1

592

17.93billion

1997.12

20

1993.7

38

1999.10 1999.10 1999.6

76 94 (2)

Hernic Ferrochrome Pty. Ltd.60% FTI Investment 25%

406million

Plessey (Pty.) Ltd. 49%

1988.7 2001.9

46 (8)

232million

1995.4

1

113million

2001.2

95 (3)

1993.10 1997.5

70 (1) 105

1996.6

162million

Samankor 50％ The Nominee & PG Group (Pty.)Ltd. 30%

18.47million

2002.7 1995.9

2,360

1963.12 1999.3

10

1995.2 1996.3 2002.3 2001.2 2002.2

382

87.16million

64.69million 6.74billion

1996.10 1995.8

Local 24.9% Highveld 50% Merisol 20％

Local 35%

1996.10

6,948

1961

Wesco 25.1%

2000.3 1997.12

57

B-6

6.80million

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix B

Ltd.

Number of Employees 281 (6)

Sales

Currency: E $1=6,675E Local Share

Number of Employees 50 186

Sales

Currency: TSh $1=1,057.54TSh Local Share

Swaziland Name

Year Founded

YKK Southern Africa (Pty.) Ltd.

1976.6

Tanzania Name Konoike Tanzania Ltd. Matsushita Electric Co. (East Africa) Ltd.

Year Founded 1995.8 1966.11

Togo Name Callitogo S.A.

Year Founded

Number of Employees

565million

Currency: CFAF $1=520.05CFAF Sales Local share

2000.2 Currency: TD $1=1.2139TD

Tunisia Name Charthage Power Company SARL ITOCHU Tunisia SARL YKK Trading Tunisia S.A.

Year Founded 1999.6

Number of Employees 30

1996.3 1997.11

8 (1) 13

Sales

Local share

129million

PSEG Global Inc. 60%

Zambia Name Marunouchi Motors Ltd. Toyota Zambia Ltd.

Year Founded 1974.5 1963

Number of Employees 130 (2)

Sales 1.42bilion

Lonrho Motors Zambia Ltd. 75%

Zimbabwe Name Motec Holdings (Pvt.) Ltd.

Year Founded 1989.1

Currency: ZK $1=4,550ZK Local Share

Number of Employees 8 (1)

B-7

Sales 2.347billion

Currency: Z$ $1=824Z$ Local Share Industrial Development Corp.75%

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix C

Appendix C Asia-Africa Trade Regimes The following table was compiled by the PADECO/UFJ team based on information from JETRO available in Japanese.

C-1

Studies on Africa-Asia Trade and Investment Relations (B)

Affiliation to the WTO and/or other Agreements

Appendix C

India

South Korea

Singapore

Taiwan

China

Malaysia

Japan

(1) WTO: Affiliation on January 1, 1995 (GATT: Affiliation on July 8, 1948) (2) South Asian Preferential Trade Agreement (SAPTA), South Asian Association for Regional Cooperation (SAARC): Signed in April of 1993 and effective in December of 1995

(1) WTO: Member since January 1, 1995 (GATT: Member since April 14, 1967) (2) Bangkok Agreement: Effect in 1975 (3) Japan-South Korea Investment Pact: Effective on January 1, 2003

(1) WTO, APEC, and ASEAN: Singapore has been member from the inauguration. (2) Singapore actively works for conclusion of bilateral Free Trade Agreement (FTA).

(1) WTO: Member since January 1, 2002 (2) APEC: Member since November 12, 1991 as Chinese-Taipei. (3) Working Group of the CSCAP: Participating as an observer

(1) WTO (2) APEC

(1) WTO, APEC, and ASEAN: Malaysia has been member from the inauguration. (2) Malaysia is member of two other agreements/counci ls.

(1) WTO (2) Japan-Singapore Free Trade Agreement

Ministry of Commerce and Industry

Korea Trade & Investment Promotion Agency, Ministry of Commerce, Industry, and Energy

International Enterprise Singapore (Competent Authorities are different for each item requiring import/export license.)

Bureau of Foreign Trade

(1) State Economic and Trade Commission (2) Ministry of Commerce (3) State Administration of Taxation (4) General Administration of Customs.

Ministry of Economy, Trade and Industry

Import item regulation consists of: (1) free import item, (2) prohibited import item, (3) limited import item, and (4) designated import trader item.

(1) There are import products restricted by the law of foreign trade. (2) There are safeguards for fabric and clothing.

(1) Prohibited Import Item: six items (chewing gum, handgun, lighter revolver, fire crackers, etc.) (2) Import Control Item: 53 items (require advanced registration or import license.)

Import control is based on a "negative list".

(1) Prohibited import item (2) Limited import item (divided into import quota permit and import permit) (3) Free import item (divided into automatic import permit and free import)

(1) Ministry of International Trade and Industry (2) Customs House (3) Administration Bureau on the Washington Convention (4) Competent Authorities on each item (5) Malaysian Industrial Development Authority (MIDA) (1) Prohibited import item: 14 items (2) License item: 40 fields (3) Preservation item: 15 fields (4) Conditioned item: 46 items

System for Trade Control Competent Authorities

Import Regulation

Item

C-2

(1) Control by the Foreign Exchange and Foreign Trade Control Law: Import quota item, Import approval item, and import affirmant item. (2) Control by the customs tariff law: prohibited import item

Studies on Africa-Asia Trade and Investment Relations (B)

India

South Korea

Appendix C

Singapore

Taiwan

China

Malaysia

(4) Governmental trade control item (5) Items of designated import trader

(3) Control by other domestic laws: prohibited, regulated, and test needed item.

Importing Country Regulation

Trade with Iraq is regulated by U.N. resolution

Although regulation on importing countries does not exist, but there are special measures based on the Foreign Trade Act.

Imports from Iraq are prohibited. Rough diamond from Sierra Leone and Liberia, and beef from 16 European countries including Japan are also prohibited.

(1) Importing prohibited area (2) Import control by areas (3) Import from China

(1) Pork and beef from Netherlands (2) Pork from Germany (3) Hoofed animals from Taiwan (4) Birds from Connecticut and Pennsylvania (5) Pork and wild boar from Spain (6) Hoofed animals from South Korea

(1) Prohibited area on prohibited imports: Indonesia, etc. (2) Prohibited area on license items: Israel etc.

Import-Related Law

The Ministry of Commerce and Industry announces the export and import policy for next fiscal year every March based on the Foreign Trade (Development and Regulation) Act.

(1) Foreign Trade Act, (2) Enforcement order for the Foreign Trade Act, (3) Administrative provision of foreign trade, (4) Advertisement for import/export, (5) customs law and others, etc.

(1) Customs Act, (2) Import/export regulation Act, and (3) Related law and regulation.

Foreign Trade Act, Enforcement Rules of the Foreign Trade Act, the Regulations Governing Import of Commodities, the Regulations Governing Export and Import of Strategic High-Tech Commodities, and the Regulations Governing Permission of Trade Between

Foreign Trade Act, administrative instructions for import control from foreign investors, etc

Customs act, customs regulation, and import control law.

C-3

Japan

(1) Import Quota Item (silk drapery, etc) (2) Import Approval Item (whale and products of whale from nonmember nations of the International Convention for the Regulation of Whaling, etc) (3) Import Affirmant Item (silk drapery from EU and United States, etc) Foreign Exchange and Foreign Trade Control Law, Export and Import Trading Law, Tariff Act, Customs Tariff Law, Temporary Tariff Measures Law, etc.

Studies on Africa-Asia Trade and Investment Relations (B)

India

South Korea

Appendix C

Singapore

Taiwan

China

Malaysia

Japan

Taiwan area and Mainland Area.

Import Control

Export Regulation

Item

Exporting Country Regulation

Importers are required to obtain the Importer-Exporter Code (IEC).

Importer should show a "Land of origin" document for products subject to the article 23 of the law of foreign trade.

Export system consists of the free export item, the prohibited export item, the limited export item, and the item of designated export trader

There are export products restricted by the law of foreign trade.

Trade with Iraq is regulated by the U.N. resolution

Although regulation on exporting country doesn't generally exist, special measures exist by such as the law of foreign trade

As for items subject to import/export control, advanced registration or export license are required by each competent authorities or government institution. (1) Prohibited Export Item: one item (born rhinoceros and its powder) (2) Export Control Item: 21 items (These require advanced registration or export license)

based on tests or medical inspection related regulation.

Import operation certification, import trader license, product test, medical inspection, antidumping duty and safeguard may be required.

refer to conditioned items on the detailed information of regulation by item

Exceptional Import

Export control is conducted by a negative list

Prohibited exports, limited exports

(1) prohibited imports: three items (2) license items: 45 items (3) conditioned items: 19 items

Export to Iraq is prohibited. Export of special items, mainly military aircraft, to Afghanistan, Angola, Liberia, Libya, Rwanda, Sierra Leone, and Somalia is

China, Iraq, and a part of high-tech product

No exporting area regulation

Prohibited area on license items: Israel

(1) Foreign Exchange and Foreign Trade Control Law (2) Control by the Export and Import Trading Law (3) Control by other domestic laws (4) Control by treaties and international agreements Exporting country regulation based on the U.N. resolution

C-4

Studies on Africa-Asia Trade and Investment Relations (B)

India

South Korea

Appendix C

Singapore

Taiwan

China

Malaysia

Japan

Foreign Trade Act, Enforcement Rules of the Foreign Trade Act, the Regulations Governing Export of Commodities, and the Regulations Governing Export and Import of Strategic High-Tech Commodities. Exports from Taiwan should be showed as "Made in China", "Made in Chinese Taipei", or "Made in Taiwan".

Foreign Trade Act, provisional law of export goods control, and export permit regulation.

Customs law, customs regulation, export control law, the Washington Convention, and the animal protection statute.

Foreign Exchange and Foreign Trade Control Law, Export and Import Trading Law, Tariff Act, Customs Tariff Law, Temporary Tariff Measures Law, etc.

Regulation of origin, export operation certification, and export trader license

Refer to conditioned items on the detailed information of regulation by item

Exceptional Export

Directorate General of Customs, Ministry of Finance

State Administration of Taxation, and General Administration of Customs.

Customs House, Ministry of Finance, Ministry of International Trade and Industry (MITI), and Malaysian Industrial Development Authority (MIDA).

Customs Bureau, Ministry of Finance

prohibited.

Export-Related Law

The Ministry of Commerce and Industry announces the export and import policy for next fiscal year in every March based on the Foreign Trade (Development and Regulation) Act.

Foreign Trade Act, enforcement order for the Foreign Trade Act, administrative provision of foreign trade, law for the designation of the free trade area, advertisement for import/ export, customs law, etc.

Customs Act, import/export regulation act, and related law and regulation.

Export Control

N/A

Tests before shipping by the law of foreign trade.

N/A

Ministry of Finance

National Tax Administration, Ministry of Finance and Economy

Customs and Excise Department, Ministry of Finance

Custom duty Policy Competent Authorities

C-5

Studies on Africa-Asia Trade and Investment Relations (B)

India

South Korea

Appendix C

Singapore

Taiwan

China

Malaysia

State Administration of Taxation, General Administration of Customs, and State Administration of Import and Export Commodity Inspection Dual Custom Tariff of a general custom Tariff and a most-favored-natio n treatment tariff, antidumping duty, special duty, low tariff articles, and high tariff articles.

Customs House and offices of the Malaysia External Trade Development Corporation.

Customs House

Dual Custom Duty System of a general tariff and AFTA Common Effective Preferential Tariff Scheme

There are fixed-rate custom duty (basic tariff, provision tariff, and preferential tariff) and conventional tariff.

Custom Inquiry

Tariff

Central Board of Excise & Customs, Ministry of Finance

Korea Customs Service

Customs and Excise Department, Ministry of Finance

Statistics Unit, Directorate General of Customs

Custom System

Duty

Custom duty system consists of the basic tariff, the additional tariff, and the special additional tariff, based on The Customs Act (1975).

There are fixed-rate custom duty (basic tariff, provision tariff, and elastic tariff) and international cooperation custom duty.

Dual tariff system (1) First Column: General countries and areas (2) Second Column: Reciprocal tariff (172 countries WTO members such as Japan and United States, and the other countries ratified reciprocal tariff.

by

Classification by items has followed the HS Classification since 1998 ad valorem duty as a general rule

HS classification

Dual Custom Duty System (1) General Duty: only four articles are imposed (Number of HS is nine digits). (2) Preferential Duty: There are ASEAN Common Effective Preferential Tariff Scheme, and Agreement on closer economic ties between Singapore and New Zealand. HS classification. This is shown with nine figures

HS classification

HS classification

SITC and HS classification

An ad valorem duty, an specific duty, and a multiple duty (The ad valorem duty comprise a large percentage.)

ad valorem duty, specific duty, and multiple duty

ad valorem duty, specific duty, and multiple duty

ad duty and specific duty (most part is as ad duty)

Classification Articles

Type Duty

of

Custom

An ad valorem duty and a specific duty (The ad valorem duty comprise a large percentage.)

C-6

Japan

An ad valorem duty and a specific duty (Items of an ad valorem duty are more than that of an specific duty. As for alcoholic beverage, an specific duty is applied.)

Studies on Africa-Asia Trade and Investment Relations (B)

India

Appendix C

South Korea

Singapore

Taiwan

(1) Ad valorem duty: This imposes on the sum of CIF price, handling charge of goods, and the other costs such as sales and shipment. (2) specific duty: This is based on the standard amount, prescribed for each product Due to the Japan-Singapore Free Trade Agreement.

China

Malaysia

CIF price

Import: CIF price Export: FOB price

Transaction Value

Mutual Benefit Tariff

Custom tariff for favorable countries is applied.

General custom tariff

Japan

Custom

Custom duty is imposed on an assessable value. The assessable value is a sum of CIF price and a landing charge of 1% of the CIF price.

CIF or quantity of import products (The article 15 of the law of foreign trade).

Applicable Custom Tariff on Import Products from Japan

The same custom tariff as the other affiliate countries to the WTO is applied

General custom tariff is applied. As for some products, lower custom tariff is applied.

Special Measures such as Preferential Tariff

Special measures are applied to specific import products from Mauritius, Tonga, and Seychelles. As for the rest, they apply to some products based on the Bangkok Agreement, SAARC Import/Export tariff by-law (SAPTA), and the Free Trade Agreement between India and Pakistan. (1) Customs Act in 1966 (2) Custom Tariff Act in 1975 (3) Custom Valuation Rules in

Special custom duty is applied to the products whose lands of origin are designated developing countries.

(1) AFTA Preferential Tariff Scheme (CEPT) (2) Singapore-New Zealand Closer Economic Partnership (3) ASEAN Industrial Cooperation (4) Japan Singapore Economic Partnership Agreement for a New Age Partnership.

N/A

Preferential tariff and special measures applied to a bilateral and multilateral FTA.

(1) AFTA Common Effective Preferential Tariff (CEPT) (2) ASEAN Industrial Cooperation (3) Partial import from British Commonwealth (processed fruit product and leather)

There are preference treatment tariff, tariff quota, simplified tariff rate, special tariff, seasonal duties, differential cost tariff, sliding duty, etc.

Customs act, enforcement orders for customs act, enforcement regulations for customs act, Act

Customs Act

(1) Customs Act (2) Enforcement Regulations for Customs Act

(1) Customs regulations (2) Import/Export tariff by-law (3) Import/Export tariff regulation

(1) Customs Act (2) Customs Tariff Act

(1) Tariff Act (2) Customs Tariff Law (3) Temporary Tariff Measures Law

Basis Duty

for

Relevant Law

C-7

CIF price

Studies on Africa-Asia Trade and Investment Relations (B)

India 1988 (4) Custom Tariff Rules in 1995 (5) Custom Tariff Rules in 1997

South Korea

Taxes Except Custom Duty

There are products on which an antidumping tax and a safeguard are imposed.

on Designation and Management of Customs Free Zones, law on promotion of foreigner's investment, etc. (1) Value Added Tax (2) Special Consumption Tax (3) Local Tax, etc.

Others

There is an institution, which imposes custom tariff on import of capital goods

Reduction and exemption, refund, and installment payment of custom duty.

Appendix C

Singapore

Taiwan

China

Malaysia

Japan

(1) Commodity Tax: 96 items such as alcoholic beverage, tobacco, cigar, gasoline, auto, and motorcycle. (2) Goods and Service Tax (GST) General Duty, Commodity Tax, and Goods and Service Tax are exempted with: (1) Storage in Free Trade Zone (FTZ) and border facility, (2) Re-export or reshipment, (3) Temporary import for fixing, and (4) Import of sample products

(1) Trade Developing Service Charge (2) Goods Tax (3) Business Tax

(1) Importing Additional Price Tax (2) Consumption Tax (3) Shipping Tax

Sales Tax

(1) Domestic Consumption Tax (2) Domestic Indirect Tax

N/A

There is an exemption of custom duty and an additional price tax.

There is an exemption of custom duty.

(1) Simple Declaration System (2) Comprehensive Preliminary Review System (3) Reduction System of Custom Duty

Central Bank does not exist. The Monetary Authority of Singapore (MAS), which had been in charge of broad monetary and financial policies, absorbed the roles of the Board of

Central Bank of China

(1) State Administration of Foreign Exchange (2) People's Bank of China (3) Bank of China.

Bank Negara Malaysia

(1) Bank of Japan (2) Ministry of Finance (3) Ministry of Economy, Trade and Industry

Regulations for Exchange Control Competent Authorities/Central Bank

Reserve Bank of India

(1) Korea Institute for International Economic Policy, Ministry of Finance and Economy (2) Bank of Korea

C-8

Studies on Africa-Asia Trade and Investment Relations (B)

India

South Korea

Appendix C

Singapore

Taiwan

China

Malaysia

Japan

(1) Foreign-currency Trading market between banks (2) Retail market between bank and customer (3) Open market operation, (4) Basic rate of exchange (1) Account for foreign currency clearance (2) Payment of foreign currency (3) Balance limitation of an account for foreign currency clearance

Fixed exchange rate system from September 2, 1998. (1 US$=3.8 Ringgit)

Floating Exchange Rate System

(1) Clearance by assurance and letter of credit (L/C) by a foreign exchange bank (2) Notification to customs is required depending on the account. Designated currencies are all except Ringgit and Shekel (Israel). There is no regulation except Israel and Yugoslavia (Serbia and Montenegro) But documents for exchange control are required in case of more than 100,000 Ringgit.

Economic restrictions to Libya, Iraq, and Iran.

Commissioners of Currency (BCCS) in October 1, 2002.

Exchange Control

Rate

Merchandise Trade

External transactions Excluding Trade

Floating Exchange Rate System

Floating Exchange Rate System

(1) Floating Exchange Rate System based on the Basket System (2) No internationalizatio n of Singapore Dollar

Making the shift to the Floating Exchange Rate System on December of 1978.

(1) Exchange dealing for current account is deregulated as a rule (2) US dollar is used for trade with Japan (3) As for trade with Nepal and Bhutan, Indian Rupee must be used As for acquisition of foreign currency of more than US$ 5,000 for the year due to overseas travel and more than US$ 25,000 for business engagement, a prior permission is necessary

Without Limit

Without Limit

(1) Merchandise Trade by artificial person is free. (2) As for individual, it is free as less than US$ 1 million for one time or US$ 5 million for the year.

Without Limit

Without Limit

(1) Payment for service transaction and acceptance of foreign currency by artificial person are free. (2) As for individual, it is free as less than US$ 1 million for one time or US$ 5 million for the year.

C-9

(1) Shipping charge (2) Insurance cost (3) Payment of foreign currency (4) Balance limitation of account for foreign exchange settlement

Without Limit

Studies on Africa-Asia Trade and Investment Relations (B)

Appendix C

India

South Korea

Singapore

Taiwan

China

Malaysia

Capital Transaction

Domestic share trading is permitted only to the registered Foreign Institutional Investors (FII). External Commercial Borrowing (ECB) is controlled by the ECB guideline of the Ministry of Finance.

There are notification and permitting items based on the Foreign Exchange Operation Act.

The usage of Singapore Dollar is under certain limitations due to the Singapore Dollar Non-internationali zation Policy.

Relevant Law

Foreign Exchange Management Act (FEMA) (1999)

Others

N/A

(1) Foreign Exchange Transaction Act (2) Enforcement order of the Foreign Exchange Transaction Act (3) Regulation. of the Foreign Exchange Transaction Act Notification to the commissioner of customs is necessary in case of: (1) residents or non-residents get in an instrument of payment of more than US$ 10,000, and (2) national residents carry out an instrument of payment of more than US$ 10,000.

There are an approval system and a declaration system. These depend on an amount of money and contents.

(1) Capital account (2) Exclusive account for borrowing of foreign currency (3) Exclusive account for refunding of foreign currency

As for economic sanction, certain direct equity investment, and partial foreign technology introduction, permission or notification are required.

(1) Banking Act (2) Notification from the Monetary Authority of Singapore (MAS).

Directions Governing Designated Dealers for Open Market Operations

N/A

Private citizen can exchange currency basically, non-resident have limits.

(1) Regulation for Foreign Currency Control, (2) Regulation for Foreign Exchange Settlement Control, and (3) Regulation for Foreign Currency Remittance Control. The other rules regarding foreign currency.

(1) Investment by no manufacturing business: permission of the Foreign Investment Committee is required. (2) Domestic borrowing: It is free as less than 50 million Ringgit. As for surplus, amount of three times of accounting capital is permitted with notification to the Bank Negara Malaysia. (1) Foreign Exchange Management Act (FEMA) (2) New FEMA

Government introduced a policy on September 1, 1998, which imposes a ban on the usage of Ringgit outside Malaysia.

Notification is required at foreign trade and foreign currency trading between residents.

C-10

Japan

Law of Foreign Exchange and Foreign Trade.

Studies on Africa-Asia Trade and Investment Relations (B)

India

South Korea

Appendix C

Singapore

Taiwan

China

Import/Export is deregulated, and license is not necessary. But specific number for foreign trade business received from the trade association is necessary.

Notification and enabling acknowledgment regarding import/export and reshipment, and payment procedures of custom duty and charge are automatically treated due to the Electronic Data Interchange (EDI) system called as "Trade Net".

Application to the Bureau of Foreign Trade.

Trade activities division, economic and trade committee of each ministry, and tax office.

Documents for an application of opening L/C, and entry papers.

Prior permission of import is required. And the followings are needed. (1) Custom release permission of goods (2) Invoice (3) Packing list, B/L, or AWB (4) Other documents required

Permit card is required.

Materials required for passing customs are set up by multiple legislation.

Malaysia

Export and Import Procedures License Application of Import/Export

Documents Required

(1) As for license acquisition of the Importer-Exporter Code and export restriction products, trader should apply to the Regional Licensing Authority under the Ministry of Commerce and Industry. (2) Companies in an export processing zone and a special economic zone need to apply to commissioner in the zone. Import/Export traders are required to obtain the Importer-Exporter Code (IEC). "The Handbook of Procedures" of Ministry of Commerce and Industry shows the details.

C-11

(1) Invoice in foreign currency (2) Packing list (3) Application form for customs.

Japan