. o1,0
INDUSTRY AND ENERGY DEPARTMENT WORKING PAPER
INDUSTRY SERIES PAPER No. 57
Building a Competitive Edge in
Sub-Saharan African Countries
The Catalytic Role of Foreign and Domestic
Enterprise Collaboration in Export Activities
April 1992
Teodaknsyn eyeamta
The~~ ~ ~ ~ Wol akInutyad nryDpatet S
INDUSTRY AND ENERGY DEPARTMENT WORKING PAPER
INDUSTRY SERIES PAPER NO. 57
BUILDING A COMPETITIVE EDGE IN
SUB-SAHARAN AFRICAN COUNTRIES
The Catalytic Role of Foreign and Domestic
Enterprise Collaboration in Export Activities
Appnl 1992
The World Bank Industry and Energy Deparment, OSP
BUILDING A COMPETITIVE EDGE IN
SUB-SAHARAN AFRICAN COUNTRIES
The Catalytic Role of Foreign and Domestic Enterprise
Collaboration in Export Activities
April 1992
Induty Development Division Office or Operation and New Itiatives
Industry and Energy Department Bureau for Affica
Operations and Sectoral Policy The United States Agency for
The World Bank International Development
TABLE OF CONTETST
Pase so.
EXECUTIVE SUMMARY. . . . . i
I. INTODUCSION . . . . . . . . . . . . . . . . . . . . . . . . I
II. DEVELOPMENT STRATEGY AND FOREIGN AND DOMESTIC ENTERPRISE
COLLABORATION FOR EXPORT ACTIVITIES . . . . . . . . . . . . . 3
A. Outward-Orientation and Foreign/Domestic Enterprise
Collaboration . . . . . . . . . . . . . . . . . . . . . 3
B. Human Resource Development and Foreign/Domestic
Enterprise Collaboration . . . . . . . . . . . . . . . 7
C. Private Sector Development and Foreign/Domestic
Enterprise Collaboration . . . . . . . . . . . . . . . 8
III. MODES OF FOREIGN AND DOMESTIC ENTERPRISE AND PERSONNEL
COLLABORATION FOR EXPORT ACTIVITIES . . . . . . . . . . . . . 9
A. Foreign and Domeatic Collaboration for Export
Activities--Broadly Defined. 9
B. Foreign and Domestic Enterprise Collaboration for
Export Activities--Narrowly Defined . . . . . . . . . . 13
C. Risk-Taking by Foreign and Domestic Partners . . . . . 14
D. Medium-to-Long-Term Commitment by Foreign Partners . . 15
E. Gap Between Demand for and Supply of Various Modes of
Foreign Collaboration . . . . . . . . . . . . . . . . . 17
IV. INTERVIEWS WITH EXPORTERS IN SUB-SAHARAN AFRICAN COUNTRIES . 19
A. Interviews with FLrms . . . . . . . . . . . . . . . . . 19
B. Sample Selection ..19
C. Questionnaire Design . . . . . . . . . . . . . . . . . 20
D. Carrying Out Field Interviews . . . . . . . . . . . . . 23
E. Sample Characteristics . . . . . . . . . . . . . . . . 24
V. CONTRIBUTION TO SUB-SAHARAN AFRICAN DEVELOPMENT OF
FOREIGN/DOMESTIC EXPORT COLLABORATION . . . . . . . . . . . . 28
A. Contribution to Export Development . . . . . . . . . . 28
B. Contribution to Human Resource Development . . . . . . 35
C. Contribution to Private Sector Development . . . . . . 37
Page No.
VI. LEGACIES OF INWARD-ORIENTED FOREIGN COLLABORATORS vs.
NEW BREED OF OUTWARD-ORIENTED FOREIGN COLLABORATORS . . . . . 40
A. Distinction Between Outward-Oriented and
Inward-Oriented Foreign Collaberators . . . . . . . . . 40
B. Survey Results of Manufacturing Exporters . . . . . . . 41
C. Survey Results of Primary Resource-Based
(Non-Traditional) Exporters . . . . . . . . . . . . . . 47
VII. MAJOR FACTORS CONSTRAINING SUB-SAHARAN AFRICAN COUNTRIES'
EXPORT EXPANSION .... . . . . . ..... . . . . . . . . 51
A. Major Demand-Side Constraints . . . . . . . . . . . . . 53
B. Major Supply-Side Constraints . . . . . . . . . . . . . 53
VIII. SUB-SAHARAN AFRICAN FIRMS' DESIRE FOR NEW OR ADDITIONAL
FOREIGN COLLABORATION FOR EXPORT INITIATION OR EXPANSION . 55
A. Survey Results for Manufacturing Exporters . . . . . . 55
B. Survey Results for Primary Resource-Based
(Non-Traditional) Exporters . . . . . . . . . . . . . . 64
IX. IMPERFECT INFORMATION BETWEEN POTENTIAL FOREIGN AND
DOMESTIC COLLABORATORS . . . . . . . . . . . . . . . . . . . 71
A. Major Factors Constraining Foreign Collaborators'
Involvement in Sub-Saharan African Export Activities 71
B. Collaborators' Access to Information on Potential
Partners for Manufacturing Exports . . . . . . . . . . 73
C. Potential Foreign Collaborators' Access to
Risk Coverage . . . . . . . . . . . . . . ... . . . . . 82
D. Strategies to Narrow the Information Gap Between
Potential Foreign and Domestic Collaborators . . . . . 83
X. IMPLEMENTATION OF EXPORT POLICY INSTRUMENTS . . . . . . . . . 86
A. Free Trade Status . . . . . . . . . . . . . . . . . . . 86
B. Trade Finance . . . . . . . . . . . . . . . . . . . . . 95
C. Investment Finance . . . . . . . . . . . . . . . . . . 100
D. Investment and Regulatory Regimes for Foreign
Collaborators . . . . . . . . . . . . . . . . . . . . . 102
E. Exchange Rate . . . . . . . . . . . . . . . . . . . . 107
F. Primary Input Prices . . . . . . . . . . . . . . . . . 109
XI. PHYSICAL TRADE INFRASTRUCTURE . . . . . . . . . . . . . . . . 112
A. Survey Results .... . . . . . . . . . . . . . . . . 112
B. Strategies to Correct Poor Physical Trade
Infrastructure Service ................ 116
Page so.
XII. DIRECTION OF FUTURE WORK . . . . . . . . . . . . . . . . . 118
A. PrioritY in Building a Competitive Edge in
Most Sub-Saharan African Countries . . . . . . . . . . 118
B. Strategies to Narrow the External Gap Between High
Demand for, and Negligible Supply of, Foreign
Collaborators .... . . . . ...... . . . . . . . 119
C. Strategies to Narrow the Internal Gap Between
Private Enterprises' High Demand and Government
Agencies' Restrictive Policies for (Export-
Oriented) Foreign Collaboration . . . . . . . . . . . . 119
D. Strategies to Narrow the Information Gap Between
Potential Foreign and Domestic Collaborators .122
R2FERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
ANNiuES
Annex. I: Types of Foreign Collaboration and Export
Orientation of Sample Firms Interviewed in the
16 Sub-Saharan African Countries . . . . . . . . . . . 127
Annehx II: Sample Exporters' Comments on Duty (Indirect Tax,
and Restriction)-Free and Foreign Exchange Access
Administration for Raw Material/Intermediate Input
and Capital Goods for Export Production . . . . . . . 147
Annex III: Questionnaires for Foreign/Domestic Collaboration
Company for Industrial or Primary Resource-Based
(Non-Traditional) Export (or Potential Export)
(available on request)
Annex IV: Questionnaires for Company Without Foreign/Domestic
Collaboration for Industrial or Primary Resource-Based
(Non-Traditional) Export (or Potential Export)
(available on request)
TABLES
Table 3.1 Modes of Forei%n/Domestic Enterprise Collaboration for Industrial
and Non-Traditional Export Activities in Sub-Saharan African
Countries
Table 4.1 An Overview of Types of Foreign Collaboration Reported by Sample
Manufacturing Firms in 16 Sub-Saharan African Countries
Table 4.2 An Overview of Types of Foreign Collaboration Reported by Sample
Primary Resource-Based Firms in 16 Sub-Saharan African Countries
Table 4.3 Product Specialization of Sample Firms
Table 4.4 Size Distribution of Sample Firms
Table 5.1 Relationship Between Types of Foreign Collaboration and Degree of
Export Orientation in Manufacturing Export
Table 5.2 Relationship Between Types of Foreign Collaboration and Degree of
Export Orientation in Primary Resource-Based (Non-Traditional)
Export
Table 5.3 Private vs. Publlc Ownership of Sample Enterprises
Table 6.1 Use of Foreign Collaboration for Manufacturing Export: Inward-
Oriented vs. Outward-Oriented Enterprises
Table 6.2 Percentages of Sample Manufacturing Firms Belonging to Five
Different Market Orientation Categories
Table 6.3 Use of Foreign Collaboration for Primary Resource-Based (Non-
Traditional) Export: Inward-Oriented vs. Outward-Oriented
Enterprises
Table 6.4 Percentages of Sample Primary Resource-Based Firms Belonging to
Five Different Market Orientation Categories
Table 7.1 Sample Firms' Evaluation of Major Factors Constraining Sub-Saharan
African Countries' Export Growth
Table 8.1 Sample Manufacturing Export Enterprises' Intentions Regarding New
or Additional Foreign Collaboration
Table 8.2 Relationship Between Future roreign Collaboration Intentions and
Market Orientation/Current Collaboration Status of Sample
Manufactured Firms
Table 8.3 Difference Between Demand Weights Attached by Sample Manufactured
Firms and Current Weights on Modes of Narrowly Defined Foreign
Collaboration
Table 8.4 Difference Between Desired Weights Attached by Sample Primary
Resource-Based Firms and Current Weights on Modes oo .Narrowly
Defined Foreign Collaboration
Table 9.1 Past Supply Sources of Foreign Collaboration for Sample
M4anufacturing and Primary Resource-Based (Non-Traditional)
Exporters
m ECUTIVE SUARY
Qbgjgti..and Methodology
i. Although the most profound economic development lessons of the
last four decades derive from the superb performance of outward-oriented
development strategies, the intricacies of initiating an outward industrial
development process in low-income countries have yet to be explored and
articulated. Particularly for Sub-Saharan African countries, finding the
Uraceical means to initiate an outward-oriented development strategy is the
most challenging task for the 1990s. The World Bank-U.S.A.I.D joint research
project (Phase I) identifies key components of such a task based on firm-level
interviews of 121 manufacturing exporters (and potential exporters) and 56
primary resource-based (non-traditional) exporters (and potential exporters)
in 16 Sub-Saharan African countries (Botswana, Burundi, Cote d'Ivoire, Ghana,
Kenya, Madagascar, Malawi, Mozambique, Nigeria, Seoegal, Swaziland, Tanzania,
Togo, Uganda, Zambia, and Zimbabwe)
ii. The most critical components identified by the exporters are:
(i) foreign/domestic collaboration; (ii) export policy instruments; and
(iii) physical trade infrastructure. A cress country methodology based on
interview data was employed for the purpose of discovering comon issues
related to these components across the Sub-Saharan African uountries. The
ultimate objective was to suggest an imaginative approach for common strate-
siu.
Contribution to Sub-Saharan A�fican Develogment by Foreiln/Domestic Enter=rise
and Personnel Collaboration in Export Activities
iii. Foreign collaboration as a necessarv condition for manufactured
gnports. Virtually all sample manufacuing exorters (randomly selected with
respect to foreign collaboration status, size, etc.) cited at least one case
of (broadly defined) foreign/domestic enterprise or personnel collaboration.
one factor became clear, which was that almost all the manufacturing firms
that did not engage in any type of foreign collaboration were unable to export
their products (i.e., they might be poteatial exporters). This confirms that
some sort of foreign collaboration is a necessary condition for manufactured
exports.
iv. Capacity to export. Because African firms lack the full capacity
to export, foreign collaborators have to bring the following elements of that
capacity into African manufacturing industries:
(a) technical, marketing, and managerial kno-how, critical for
starting up manufactured exports;
(b) access to the established world market ntwor;
(c) ca2acitX to *2ackage' (i.e., put together) (a) and (b) with local
and external capital and with local labor and entrepreneurial
resources; and
(d) financial resources for investment and working capital.
- it -
v. Modes of foreign collaboration. Exporters of manufactured goods
in Sub-Saharan Africa have relied on 13 types of broadly-defined collaboration
between foreign and domestic enterprises (and personnel) to bring in the above
four elements, in part or combination, to their countries and enterprises:
(1) foreign direct investment (FDI); (2) joint ventures (JV); (3) technical/-
marketing/management agreements; (4) sub-contracting agreements; (5) foreign
trade agents' export sales intermediation; foreign trading companies' export
sales intermediation; (7) foreign companies' original establishment; (8)
foreign companies' loan guarantees; (9) localize.d foreigner's family legacy;
(10) brand-name licensing; (11) technical, marketing, or management consulting
(assistance); (12) foreign-educated or foreign-company-educated owners; and
(13) partial affiliation with foreign companies.
vi. In particular, (1), (2), (3), and (4) (so-called narrowx defined
foreign/domestic entorrise collaboration) were the core of foreign/domestic
collaboration because the foreign partner took responsibility for the entire
scope of (a) know-how and (b) world market access, and for the entire scope or
part of (c) the capacity to package (plus (d) capital, in the case of FDI and
JV).
vii. Foreign collaboration-for orimary resource-based (non-traditional)
exgort orimarily for market access and cagital. In the case of certain
primary resource-based (non-traditional) goods, even though foreign collabora-
tion was not necessarily an absolute essential for exporting (about 15% of the
sample firms export without any foreign collaboration), its role is signifi-
cant primarily in terms of providing access to the world market and supplying
capital. The five important types of foreign collaboration (including "no
collaboration") for primary resource-based (non-traditional) exports were
reported to be (in order of importance): (i) JV; (ii) FDI; (iii) 'no collab-
oration"; (iv) foreign trade agents/foreign trading companies; (v) a foreign
company's original establishment. The comparable types for manufactured
export were: (i) FDI; (ii) localized foreigners' family legacy; (iii) JV;
(iv) technical consulting/marketing consulting/management consulting; and (v)
sub-contracting, technical/marketing/management agreements, or foreign
company's original establishment.
viii. Human .rsource develonment, Virtually all workers in the sample
firms that engaged in collaboration with foreign companies were recruited from
the unskilled worker pool. Indigenous workers (including semi-skilled and
skilled workers, supervisors, and managers) acquired skills through on-the-job
trainirg and learning-by-doing on the factory floors, in export salesrooms,
and in the offices of managers, under the guidance of foreign supervisors or
managers (or local supervisors or managers who had acquired their skills under
foreign supervisors or managers). As a results of this skill formation, some
African companies' labor productivity increased from about 30-50S of the
European or South African level to about 60-70% of the foreign level in five
years, and their real wage rates were more than 50S higher than the minimu
wages or comparable wages of non-exporting companies or companies that did not
engage in foreign collaboration. These empirical data demonstrate the impres-
sive contribution of export-oriented foreign/domestic enterprise collaboration
to the human resource development of *any Sub-Saharan African countries.
- iii -
ix. Priy.ate sector develgRmnt. Manufacturing and primary resource-
based export businesses in most Sub-Saharan African countries are dominated, by
foreign and domestic private enterprises (less than one-tenth of the sample
firms were 100% public or partly public companies). Foreign/domestic private
enterprise collaboration for exporting plays a catalytic roie in the private
sector development of Sub-Saharan African countries by building a competitive
edge in the world market cnd improving local firms' capacity to export. One
disappointing aspect, however, is the lack of skill transfer across many local
firms. High unemployment does not allow for incentives for high labor mobili-
ty.
Inward-Oriented vs. Outward-Oriented Foreign Collaborators
x. Outward-orientation vs. inMard-orientation. Even if all foreign
collaborators made positive contributions to Africa's development by merely
being involved in some export activities, one needs to sort out the superior
from the not-so-effective (i.e., outward-oriented from inward-oriented)
foreign collaborators. By defining firms that export half or more of their
products as outward-oriented, and those that export less than half as inward-
oriented, the survey results reveal the following.
xi. Large-size (MNC) vs. small- and egdium-size manufacturing firms.
Although almost half the medium-size (between 200 and 999 workers) and small-
size firms (fewer than 199 workers) in the manufacturing sector are outward-
oriented, far less than one-fifth of the large firms (with more than 1,000
workers) are outward-oriented. About three-quarters of the largest manufac-
turing MNCs sell more than three-quarters of their products to the domestic
market. While the inward-orientation of these MNCs reflects their original,
and still curront intent, the inward orientation of small- and medium-size
firms appears to be due to their lack of capacity to export, the result of
insufficient foreign collaboration. On the other hand, a bright spot in
several Sub-Saharan African countries is the emergence - outward-minded
small- and medium-size local entrepreneurs who have managed to collaborate
with their counterpart foreign firms. Another encouraging aspect is that
these outward-oriented small- and medium-size firms are relatively young,
unlike the old inward-oriented large-size MNCs.
xii. PrimarX resource-based firms. The primary resource-based firms in
all size categories are consistently more outward-oriented than are the
manufacturing firms. In particular, the large-size primary resource-based
firms are highly outward-oriented (with products that have a comparative
advantage), unlike the manufacturing firms (with their goods that lack
comparative advantage).
aijor Factors CQostraaing. Sub-Saliaran African Countries' Export EIpansion
xiii. MaloX demand-side constraints. Despite Sub-Saharan Africa
exporters' tariff-free and non-quota advantage in the European and U.S.
markets, sample firms stated that the competitive edge held by other develop-
ing coUntries in the non-regional hard-currency world market is the most
notable demand-side constraint. In the regional market, firms cited the
i ^
- lv -
limited size of the market, its low purchasing power, import restrictions,
smuggling, and competition with South Africa as the most important
constraints.
xiv. Ma10r supplv-side constraints. The lack of capacity to export was
reported as the most important supply-side constraint. The most often-
mentioned elements lacking ars: access to the world market network, capacity
to *package," and technical, marketing, and managerial know-how. The second
most important constraint cited by the firms is their governments' failure to
implement export policy instruments effectively. The most often-mentioned
instruments are the various tools to ensure a free trade status, access to
trade and investment finance, and other regulatory regimes for foreign
collaboration. The third most important constraint indicated by the sample
firms is inadequate Fhysical trade infrastructure.
Sub-Saharan African Exporters' Desire for New or Additional Foreign Collabora-
tiIn
xv. Excegss demand for foreign collaboration. Recognizing their lack
of capacity to export a.; the most serious supply-side constraint, which can be
resolved only through stepped-up foreign collaboration, a majority of the
sample firms revealed their desire to engage in new or additional foreign
collaboration. In particular, the majority of small- and medium-size manufac-
turing firms were seeking new or additional collaboration. On the one hand,
inward-oriented small- and medium-size manufacturing firms were desperate to
become outward-oriented through new foreign collaboration, and already
outward-oriented small- and medium-size firms were seeking additional foreign
collaboration to deepen their presence in the world market. On the other
hand, only small fraction of large manufacturing firms expressed a desire for
additional foreign collaboration, primarily due to their preference to focus
Inward to domestic African markets.
xvi. For their part, primary resource-based firms (including large
firm) seek additional foreign collaboration even though they are already more
outward-oriented than are manufacturing firms. However, most of the small-
and medium-size manufacturing firms that expressed a strong desire for
additional or new foreign collaboration did not know the specific channels
through which to find potential export-oriented foreign collaborators. This
leaves a huge excess demand for export-oriented foreign collaborators,
unmatched by any serious attempt to locate potential supplies.
xvii. Demand vs. actual foreign collaboration. A mirror image of the
huge excess demand for outward-oriented foreign collaboration, particularly by
the new breed of outward-minded small- and medium-size manufacturing firms, is
the huge discrepancy between their preferences for, and actual supplies of,
particular Ines of foreign collaboration. The most notable discrepancy
involves the predominant wish for technical/marketing/management agreements.
These were matched in the past mostly with a substitute--technical consult-
ing/marketing consulting/management consulting. The strong demand for an
integrated 2ackaae of (i) access to the world market, (ii) capacity to
"package,' and (iii) know-how was met only by the supply of know-how without
the most critical other elements. This implies that in the past the strong
demand for export-oriented foreign gntargrLses was actually met by the supply
of foreign geso2m orly (consultants). In any event, the most dominant mode
of foreign collaboration, preferred by both manufacturing and primary re-
source-based firms, is technical/marketing/management agreements, which in the
past were only a small fraction of the supply of foreign collaboration. For
manufacturing firms, the second most desired mode is subcontracting agree-
ments, and for primary resource-based firms, the second preference is for
joint ventures.
External Ca Astwee n High Demand for. and Negligible Sugnly of. Yxgort-
Oriented ForeXgn Co11aborators
xviii. Because the source of export-oriented foreign collaborators
is external to the host African countries, the aferementioned huge excess
demand for outward-oriented fore'.gn collaborators is the result of an extenal
ggn between the high demand for, .and the negligible supply of, foreign
collaborators. However, some of the key factors determining potential foreign
collaborators' supply intentions are not purely external, because the follow-
ing key internal factors in most Sub-Saharan African countries also influence
their decision to become involved: (i) the information gao that exists
between potential foreigr. and domestic collaborators, which includes an
extremely negative image that foreigners have of Africa; (ii) the itra
poliy 8gag between local enterprises' high demand for, and government
agencies' restrictive policies on (export-oriented) foreign collaboration; and
(iii) Africa's poor physical trade infrastruct-ure. Compared to these very
negative internal factors, the only positive elements offered by some Sub-
Saharan African countries are: (i) tariti-free or quota-free access to the
European or U.S. market; and (ii) relatively low nominal wages. It seems that
the negatives have outweighed the small positive, however, in most Sub-Saharan
African countries.
Informatign Can Between Potential Eoreir-n and Domes-tic Collaborators
xix. Past gatterns of foreign enterprise involvqeent. The following
four types of foreign companies are involved in Sub-Saharan African manufac-
turing export activities:
* 2Fr:. inward-oriented large MNCs that have been involved in Sub-
Saharan African manufacturing since at least the 1960s. These
MNCs have started exporting marginally (mostly in the regional
market) only very recently. It does not appear that simLlar large
MNCs will be interested in new collaboration in most Sub-Saharan
African countries (whether for the domestic or export market) in
the near future because they have better alternative locations
around the world.
* Secon , some medium-size foreign collaborators that became in-
volved in Afriea as a result of mere accident (such as through
tourism).
_ vi -
* Third. a new breed of outward-oriented small- and medium-size
foreign companies that have had previous experience in African
manufacturing. These firms have begun to collaborate with the new
breed of outward-minded small- and medium-size local entrepreneurs
or localized foreigners.
* �aFourth, a new breed of outward-oriented small- and medium-size
foreign companies who have had previous experience exporting to
Africa, and have recently decided to b-tcome involved directly in
African exports.
Particularly notable are the third and fourth types of foreign collaborators;
the key factor that distinguishes them is their previous experience in or with
Africa. Their overwhelming presence suggests that because of the extremely
negative image about Africa held by most foreign enterprises, firms that have
not had experience with Africa tend not even to consider that continent a
viable export location.
xx. One of the bright spots in most of the Sub-Saharan African
countries is the emergence of such outward-minded small- and medium-size local
entrepreneurs who are eager to collaborate with the new breed of potential
foreign partners. There does not appear to be enough matching stock of this
type of foreign collaborator, however. Again, this relates to the negative
image of Africa and the information gap. Therefore, innovative mechanisms
designed to narrow the information gap need to be developed. To locate
potential foreign collaborators, even those with no previous African involve-
ment, and bring them to Africa would require an imaginative approach to
mechanisms designed to narrow the information gap.
xxi. Current match-makinif mechanisms. Many of the new breed of local
entreprenout expressed frustration in trying to find mechanisms to assist them
in locating outward-oriented small- and medium-size foreign enterprises with
whom they could collaborate. This is despite the activities of existing
international assistance schemes, national investment promotion centers,
national export promotion centers, and foreign private agents. Most of the
international assistance schemes for fostering enterprise partnership in the
Sub-Saharan African countries appear to have fallen back on supplying foreign
consultants' technical assistance. This is instead of full partnership with
outward-oriented private enterprises for an integrated package of know-how and
external market access. Natiotaal agencies have never had financial resouxe
or the skills and connections to match-make potential foreign collaborators
with local partners. Private foreign agents have worked mainly as buyers'
agents for sub-contracting arrangements. There appears to be no domestic
private agent that has played a match-making role in outward-oriented foreign
collaboration in Sub-Saharan Africa.
xxii. Access to risk coverage in exDort-oriented foreign collaboration.
There appears to be no easy access for small- and medium-size foreign firms to
cover risk-taking in export-oriented foreign collaboration.
- vii -
Internal Gan Between Private Enterprisen' Hguh Demand for. and Government
Aeencies' Restrictive Policies on (Export-Oriented) Foreign Collaboration
xxiii. Exort golicy in;ruments. ineffective implementation of export
policy instruments to ensure local expo:-ters equal footing wiLh foreign
competitors (who operate under free trade and free market mechanisms) reflects
officials' restrictive attitude (as opposed to private enterprises' high
demand) toward foreign collaboration. This has resulted in the current
internal gap that discourages the inflow of foreign collaborators to Africa.
Export policy instruments include: (i) various schemes for free trade status;
(ii) various institutions to ensure access to trade and investment finance;
(iii) investment and other regulatory regimes for foreign collaborators;
(iv) realistic real exchange rates; and (v) ensuring competitive primary input
prices.
xxiv. Free trade status. Many Sub-Saharan African countries have
recently introduced or reformed the following free trade instruments:
(i) export processing zones (EPZ); (ii) bonded manufacturing warehouses
(Bhis); (iii) duty-drawback systems; (iv) duty-exemption systems; (v) import
licensing and schemes to provide access to foreign exchange for exporters.
However, much work remains to be done to implement these instruments effec-
tively in most Sub-Saharan African countries (only Swaziland and Botswana
appear to have achieved free trade status, under the Southern African Customs
Union). Three major causes for the ineffective implementation of free trade
status are: (i) lack of commitment; (ii) lack of know-how and administrative
capability; and (iii) lack of inter-agency coordination. For example, lack of
expertise in handling imported input-output coefficients, common in most
African countries, may call in turn for a common strategy for many African
countries for estimating these coefficients. Further, to guarantee speedy
access to free trade status with a minimum of red tape for foreign and
domestic companies, a two-stage approach is proposed. (Stage 1 is composed of
EPZs and BMWs for 100%-export-oriented foreign and domestic companies and
includes a fixed-drawback scheme; Stage 2 introduces duty exemption and
individual drawback schemes as imported input-output coefficients are avail-
able.)
xxv. Trade and investment finance. Most Sub-Saharan African countries
have failed to provide equal footing with foreign competitors in ensuring
access to trade finance (based on trade transaction-based, self-liquidating
mechanisms) and investment finance without physical collateral even though
some of them have recently introduced trade finance rediscount schemes and
investment funds. Most countries are in an infant stage in trade and long-
term finance institution-building.
xxvi. Investment and other regulatorv reaimes for foreign collaborators.
The common practice in Africa of restricting expatriate workers' transfer of
know-how and of imposing licensing requirements for technical/marketing/mana-
gement agreements and for technical/marketing/management consulting are
equivalent to telling potential foreign collaborators that the country does
= want them, despite the high demand for them by private enterprises. To
close this obvious internal gap, all foreign collaboration activities generat-
- viii
ing export earnings should be allowed to operate under an almost-free regla-
tory regime similar to the EPZ regime (that is, not only under free trade but
almost free from foreign exchange restrLctLons, profit repatriation restric-
tions, expatriate work permlts, domestic labor regulations, etc.).
xxvii. exehanfze rates. Significant progress has been made in many Sub-
Saharan African countries in adjusting the nominal exchange rates to maintain
realistic real exchange rates. Two of the sample countries (Senegal and GOte
d'lvoire) have adopted a different approach, of compensating exchange rate
over-valuation through cash grants to exporters. But this approach has failed
to provide international competitiveness. Furthermore, recently the budget
mismanagement has forced the discontinuation of even the cash grant payments
for exporters.
Physical Trade Infrastructure
xxviii. Most Sub-Saharan African countries have failed to provide
their exporters with the physical trade infrastructure (such as good port and
transport facilities, roads, communLcations, and utilities) that would help
them to compete with foreign firms in the world market. More disappointing
than the poor physical situation is the lack of commitment as reflected in
high port charges, inefficient public services, and undisciplined private
monopolies in cargo handling, transport, utilities, etc.
Direction of Luture Work
xxix. To narrow the external gag. The biggest development challenge in
most Sub-Saharan African countries may be how to devise imaginative strategies
for narrowing the enormous external gap between the high demand for, and ,
negligible potential supply of, export-oriented foreign (enterprises) collabo-
rators. Such strategies must have three distinct components: (i) strategies
to narrow the internal gap between local private enterprises' and managers'
high demand for (export-oriented) foreign collaboration and government
agencies' restrictive policies; (li) strategies to narrow the lnformation gap
between potential foreign and domestic collaborators; and (iii) strategies to
Improve the physical trade infrastructure. The direction of future work is to
take a common approach to (i) and (ii), as summarized below.
xxX. Common strategies to arrow the internal gag. A common strategy
to narrow the internal gap would consist of three elements: (i) an awareness
can.dLin on the critical importance of foreign/domestic enterprise collabora-
tion for private sector and human resource development, as well as for
outward-oriented development; (ii) the absolute necessity of yovernsent
commitment (to implement export policy instruments effectively); and
(iII) tehInical know-how to implement these policies and instruments. As for
(iii), for example, successful implementation of a duty-free import adminis-
tration depends on the manner in which the imported input-output coefficients
are handled. If the ad hoc and piecemeal approach to these coefficients is
replaced by a systems approach supported by common resources that many Sub-
Saharan African countries may use separately, as well as by the pool of
ix -
requisite expertise, then maximum common efficiency can be gained with minimum
common resources.
xxxi. Common strategies to narrow the information gap. In considering
strategies to narrow the information gap, two institutions might play a
catalytic role: (i) private match-making mechanisms; and (11) export-oriented
foreign/domestic enterprise collaboration rlsk-coverage schemes. These
inastitutions would be exclusively for Sub-Saharan African export activities.
They would be desigr.ed to attract a new breed of outward-oriented small- and
medium-size foreign enterprise whose strong negative image on Africa has so
far led them to exclude Africa as a potential collaboration site. In design-
ing the detailed mechanisms for these two institutions, based on an imagina-
tive approach, the underlying premises would be the following. First, putting
national and international resources into building private match-making
mechanisms that would be self-supporting in the medium-term would be more
efficient than putting the same resources into public match-making mechanisms.
Second, since export-oriented foreign/domestic enterprise collaboration would
generate export earnings, (i) there would be an incentive for paying the full
costs of private match-making and export-oriented foreign collaborators' risk
coverage in the medium-term; and (ii) there would be an incentive for private
match-makers to emerge if there were enough potential volume in the medium-
term. But without a visionary initiative by national and international
authorities, such institution-building would rarely occur. There is an
urgency in bringing such new breeds of outward-oriented small- and medium-size
foreign enterprises for African manufacturing export, because time may be
running out quickly as the potential stock of such foreign enterprises seeking
relocation has been rapidly diminishing.
I. INTRODUCTION
1.01 This paper reports the Phase I findings of a World Bank-U.S. AID
joint research project on foreign export catalysts in Sub-Saharan African
countries.-
1.02 The objective of the research (Phase I) was two-fold: analytical
and operational. The analytical objective was to improve our understanding of
the critical factors needed for the initiation of an outward-oriented indus-
trial development strategy in the Sub-Saharan African countries. Our conclu-
sions are based on exporters' and potential exporters' direct views. The most
critical factor is collaboration between foreign and domestic enterprises in a
country's export activities. The next important factor is effective implemen-
tation of export policy instruments (including regulatory reforms related to
the inflow or know-how). And the third important factor is adequate physical
trade infrastructure.
1.03 Our operational objective was to suggest action-oriented pilot
research to demonstrate imaginative and innovative common means to (i)
identify export-oriented potential foreign collaborators and (ii) bring them
to the Sub-Saharan African countries. Another component of the future
research will be designed to find feasible common means for improving imple-
mentation of the export policy instruments in many Sub-Saharan African
countries. -
The research team was composed of Warren Weinstein (Research Coordinator:
Director, AFR/ONI, U.S.A.I.D), Yung Whee Rhee (Research Task Manager:
Principal Economist, World Bank), Katharine Katterbach (Consultant, World
Bank), Therese Belot (Consultant), and Christine Soulier (Consultant).
Word processing support was provided by Wilson Peiris and Zai Fanai.
Editorial assistance was provided by Stephanie Gerard. An earlier draft
of the paper was discussed in a World Bank seminar on December 17, 1991.
The views presented in this draft are the researchers' and do not reflect
the views of the World Bank or USAID.
- 2 -
1.04 A cross-country methodology based on data from interviews with
firms in 16 Sub-Saharan African countries was employed. This was not so much
for cross-country comparison as for identifying the critical issues common to
many Sub-Saharan African countries. It was hoped that the research could
provide an analytical and empirical basis for a common strategy to deal with
the issues. For that matter, the paper does not focus on country-specific
issues.
1.05 Chapter II provides a perspective on a low-income country's
development strategy in terms of foreign/domestic enterprise collaboration in
industrial export activities. Chapter III defines the various modes of
foreign enterprise and personnel collaboration for export activities. Chapter
IV explains the sample selection and characteristics as well as field inter-
views. Chapter V summarizes the interview findings about the contribution
that foreign/domestic collaborative efforts have made to Sub-Saharan African
development. Chapter VI disaggregates the findings in Chapter V to distin-
guish inward-oriented from outward-oriented foreign collaborators. Chapter
VII summarizes the sample firms' views on major factors constraining Sub-
Saharan African countries' export expansion, and Chapter VIII analyzes the
sample firms' wants in terms of new or additional foreign collaboration for
export initiation or expansion. Chapter IX analyzes the imperfect information
gap between potential foreign and domestic collaborators. The purpose is to
suggest feasible strategies to deal with the gap between demand and supply of
foreign collaborators. Chapter X reviews the sample firms' comments on the
effectiveness of export policy implementation, and Chapter XI summarizes
sample firms' views on physical trade infrastructure in their countries.
Finally, Chapter XII suggests the direction of future work.
II. DEVELOPMENT STRATEGY AND FOREIGN AND DOMESTIC ENTERPRISE
COILABORATION FOR EXPORT ACTIVITIES
A. Outward-Orientation and Foreign/Domestic EnterRrise Collaboration
1. Development Lessons
2.01 The most profound economic development lessons of the last four
decades derive from the superb performance of outward-oriented development
strategies such as in East Asia. However, the intricacies of initiating the
industrial development process in an outward-direction in low-income develop-
ing countries have yet to be explored and articulated. Particularly for Sub-
Saharan African developing countries, finding the practical means to initiate
an outward-oriented development strategy is the most challenging task of the
1990s.
2.02 Such pioneers of development economics as Prebish I/ and
Nurkse,A/ who viewed exports for developing countries pessimistically after
World War II, never anticipated the development success of the East Asian
newly industrializing economies (NIEs) based on outward-oriented strategies.
The major reason for this might have been the economists' inability to
anticipate the micro-level dynamism and efficiency gains associated with
outward-oriented industrial development.
2.03 By the same token, contemporary development economists have yet to
learn enough from the development practitioners who have f'.rst-hand knowledge
of the depth of the NIEs' development process, which occurred on the factory
floor and in export sales rooms. They need to learn more if they want to
explore fully the more intricate lessons of the industrial development process
2/ Prebish (1952).
]/ Nurkse (1959).
inside the 'black-box". Even the existence of a "black-box" appears to have
been concealed by preconceived models and aggregated data. Somehow key
development actors have been lost in the development discussions.
2.04 Specifically, the intricacies of the East Asian development
lessons have yet to be learned fully in the following critical area: the East
Asians could not have had the capacity to export their industrial goods in the
early 1960s (when they initiated their outward-oriented strategies by imple-
menting egual- footing exRort policy instruments) without their cumulative
experience of acquiring such capacity on the factory floors of foreign firms
with whom they had been collaborating over several decades.Al
2. Capacity to Exnort
2.05 The lack of industrial export supply responses to export policy
reform in most low-income developing countries, including the Sub-Saharan
African countries, stems from these countries' basic lack of capacity to
export. The four key elements of such capacity are:
(a) technical, marketing, and managerial know-how, critical for
starting up manufactured exports;
(b) access to the established world market network;
(c) capacity to "package" (i.e., put together) the first two elements
with local and external capital and with local labor and entrepre-
neurial resources; and
i/ See Rhee, Ross-Larson, and Pursell (1984) and Rhee (1989a).
- 5 -
(d) financial resources for investment capital (needed to purchase
capital equipment and factory buildings) and working capital
(needed to pay for raw materials and intermediate inputs, wages,
rents, etc.).
2.06 In the short-run, (d) financial resources can be obtained through
internal or external borrowing, but (a) technical, marketing, and managerial
know-how, (b) access to the world market, and (c) the capacity to package can
come into a country only by means of collaboration between foreign and
domestic enterprises (as well as with individual experts). Furthermore,
(a) export know-how, (b) access to the world market, and (c) the capacity to
package can be acquired by firms in low-income countries only through on-the-
job training and learning-by-doing on factory floors. This must occur in
export sales rooms both inside and outside the low-income countries and also
in managers' offices, at least for the medium term.A'
2.07 Therefore, for low-income developir.g countries the primary element
of an outward-oriented development strategy is early collaboration between
their domestic enterprises and foreign firms in industrial export activities.
(The various modes of foreign/domestic enterprise and personnel collaboration
are discussed in Chapter III.)
3. Equal Footing Export Policies
2.08 Key constraints to potential foreign collaborators' interest in
low-income developing countries in Africa are:
,/ See Rhee (1990), Rhee and Belot (1990) and Rhee, Katterbach and White
(1990).
-6-
(a) policy and business environments that fail to ensure local firms
equal footing in the world market with foreign competitors who
operate under free trade and free market mechanisms;
(b) lack of information on potential collaborators--whether countries
or enterprises--as well as negative images about Africa;
(c) poor physical trade infrastructure that fails to provide equal
footing with foreign competitors in the world market; and
(d) lack of political and social stability, which means unfavorable
living conditions, among other things.
In particular, the failure by developing country governments to implement
equal-footing export policies not only discourages the inflow of foreign
collaborators for export activities but also prevents export activities from
being competitive in the world market.
2.09 Thus, the second most important element for an outward-oriented
development strategy is for governments to implement equal-footing export
policies. The key components of equal-footing export policies are:
(a) realistic exchange rates;
(b) free trade status;
(c) easy access to trade financing;
(d) automatic investment licensing, easy access to investment financ-
ing, and freedom from other restrictive regulatory regimes; and
(e) competitive primary input pricef.I
Chapter X discusses the detailed instruments for these policies.
B. Human Resource Development and Foreign/Domesti Enterrise ogllaboration
2.10 Recently the importance of human resource development in the
development strategies of low-income countries has been emphasized.Z' Howev-
er, priorities targeted as various instruments of human resource development
(such as on-the-job training, primary education, etc.) have yet to be defined
based on micro-level development experiences over the last several decades.
This lack of priority and definition is a crucial ,ap if one considers such
instruments as practical ani immediately necessary for the outward-oriented
industrial development process in low-income countries that lack financial
resources to support all the instruments at the same time.
2.11 It would seem that in low-income developing countries nothing
should receive higher priority than human resource development geared toward
acquiring the key elements of the capacity to export (listed in paragraph
2.05). For the immediate future the feasible and the most effective instru-
ment to do this is not training through formal school eduation, or in
training institutes or research centers, but on-the-job training and learning-
L/ See Rhee (1985), Rhee (1989a), Rhee (1991a).
2/ A World Bank report on Africa states that: "A central theme of the report
is that although sound macroeconomic policies and an efficient infrastruc-
ture are essential to provide an enabling environment for the productive
use of resources, they alone are not sufficient to transform the structure
of African economies. At the same time, major efforts are needed to build
African capacities to produce a better trained, more healthy population
and to greatly strengthen the institutional framework within which
development can take place. This is why the report strongly supports the
call for a human-centered development strategy made by the ECA and UNICEF"
(World Bank (1989), p. xii). See also World Development Report, 1991
(World Bank, 1991).
- 8 -
by-doing on factory floors and in the sales rooms of foreign factories that
produce and sell industrial export commodities.11
2.12 It should be noted that as much as outward-oriented development
has benefited from human resource developient occurring on-the-job and in
learning-by-doing on factory floors and in sales rooms, human resource
development itself has benefited from the outward-oriented development
process, which is characterized by international competition and exposure.
C. ~jPrivate Sector Development and Foreign/Domestic Enterpris Cgollaboration
2.13 In many low-income countries, transformation from inefficient
public sector-dominated industrial practices to private sector industrial
development guided by market mechanisms requires more than a mere privatiza-
tion effort. It requires efficient industrial develoDment strategies. For
example, East Asia's unprecedented private sector development has occurred as
the natural consequence of effective industrial development strategies, and
not so much as a result of particular strategies to develop the private
sector.
2.14 Since private foreign firms play a catalytic role in outward-
oriented industrial development of low-income developing countries, for-
eign/domestic enterprise collaboration in industrial export activities should
be one of the centerpieces of private sector development strategies in low-
income countries.
.j/ See Koike (1987), Koike and Inoki (1989), Rhee (1990), Rhee and Belot
(1990), and Rhee, Katterbach and White (1990). The emerging view on
multinational companies (MNCs) is to recognize their critical role in the
transfer of technical, marketing, and managerial know-how and skills to
developing countries--a role probably more important than the conventional
direct transfer of financial resources (UN Center on TNC, 1988).
- 9 -
III. MODES OF FOREIGN AND DOMESTIC ENTERPRISE AND PERSONNEL COLLABORATION
FOR EXPORT ACTIVITIES
A. Foreign and Domestic Collaboratign for Export Activities-_-Broadly
D2fined
3.01 Within two groups, there are 13 types of collaboration, broadly-
defined, between foreign and domestic enterprises and personnel (see Table
3.1) for export activities.9/ This study covers only those export activities
that involve mainly industrial and primary resource-based (non-traditional)
exports.
3.02 Capacity to export. No matter what the mode of collaboration (see
below), the foreign partner brings to the host country and enterprise the four
key elements of the capacity to export (see para. 2.05), briefly:
(a) technical, marketing, and managerial know-how;
(b) access to international markets;
(c) capacity to put the above together with local labor and entrepre-
neurial resources a- well as capital, and
(d) financial resources (in the form of equity). 1
3.03 At the outset, it must be stressed that the gualih y and depth of
these resources are what matters, not that the partner is a foreign company or
individual. Foreign collaboration's ultimate contribution to development,
i/ An increasing trend toward diversified foreign and domestic enterprise
collaboration has been recognized. See, for example, Oman (1989).
1.Q/ Hereafter, we use the abbreviated expression: (a) know-how; (b) access to
world market; (c) capacity to "package;" and (d) capital.
- 10 -
therefore, is judged by the quality and depth of the above elements and
whether these elements make an impact on the implementation of an outward-
oriented industrial development strategy. Note that (b) access to market and
(c) capacity to package all the elements can be provided only by foreign
companies that have built a reputation in the world market through long
experience and that enjoy name recognition, while part of (a) know-how or
(d) financial resources can be provided by individual foreigners.
Table 31: MODES OF FORE!GNIDOMESTIC BNTERPRISB COLLABORATION FOR INDUSRILAL
AND NON-TRADITIONAL EXORT ACTIVTIS iN
SU8-SAHARAN AFRICAN COUNTRIES
OROUP I ORUPI n
Foredgn collaboration with foreign partner's risk.taking in Foreign coolaboisatIon whknforeign artner's risk-taking in
imnnF of (a) equity, (byroyalies (fees or profits) tbat are orn of ta) equlty, (b) tieprofisa) that are
intermediation, or (d3 loan guarantee tion, or (d) loant guarantee
(i) Foren direct intent (FDI)
() Joint ventures (TV) if
(iii) T_ l~. tagreements
(rAQMIdt Ag) W
i,v) Sub-contctng agements (SC) A
(v) Fofe:w trd agents export sles ilnternedla-
tbon (PTA)
(vi) Forei tuding compan aport sales interme-
diatio (FM)
(vii) Foreign company original establishment (FO)
(viii) Foreig company's oan guwantee (L)
X) Localicd foreigners family Iegy (LF)
(O) Brand-name liensing (BL) W
(0i) Teacaa, o mtit consultIng
(aT ce '$Lor M )b
(Xii) Fogn-educated or foreoncowpsay. educated
owna (FE)
(xl) Panal asffliton with fore4ig compay (PFA)
g watny dened h/domestic entapepse coliabotation
an hod Fe wit bt king them to the Ami's par pertfoma attributable to particur ultg input or brand name.
3.04 We distinguish two groups of foreign/domestic collaboration modes,
Group I and Group II, as shown in Table 3.1. In Group I, the foreign partner
takes risks in terms of equity; royalties (fees) or profits proportional to
- 11 -
export volume; export sales ii.termediation; or loan guarantees. In Group II,
the foreign partner does not run these same risks.
Group I
3.05 FDI and ioint ventures. Foreign direct investment (FDI) can be
considered a special-case joint venture (OV) in that the foreign equity share
in FDI is 100% while that in a JV is leas than 100%. The foreign partner
brings in the entire package of export capacity elements.
3.06 Techniral/marketingEMageM= Agreements. In
technical/marketing/manageLent agreements (T/M/1t Ag), the foreign partner
also brings in the entire package of the capacity to export except for-
financial resources (equity). The foreign partner receives royalty payments
that are proportional to the export volume during the contract period. It is
also possible to have just a technical agreement (T Ag), marketing agreement
(H Ag), or management agreement (itt Ag). Even in this case--where the fareign
part-ter brings in only part of (a) know-how, and/or (b) access to world
market, and/or (c) capacity to package--royalty payments are in proportion to
the export volume during the contract period. Note that the entire package of
the various elements that make up the capacity to export cannot be easily
provided by foreign individuals--it has to come from a foreign company with
long experience in the exporting business in a particular sector.
3.07 Subcontracting agreements. The foreign partner in subcontracting
agreements (SC) brings its (b) access to the world market and some part of (a)
know-how. Normally the foreign partner provides imported raw materials and
intermediate inputs as well and pays the domestic partner export manufacturing
fees in proportion to export quantity. Therefore, the foreign partner's
profit is in proportie.s to export volume. (The domestic partner usually does
not even know the per unit profit margin of the foreign partner.)
- 12 -
3.08 Foreign trade agents and foreign trading comoanies. A foreign
trade agent (FTA) or a foreign trading company (FTC) brings access to the
world market. An PTA charges export sales intermediation fees in proportion
to a coloany's export sales volume without taking title to the goods being
exported by that company. In contrast, an FTC takes title to the goods by
purchasing them from the local partner. Its profit comes from export volume,
the profit margin being the difference between how much it pays for the goods
locally and the selling the selling price in the world market.
3.09 Foreign company's original establishment. While we focused on
current foreign/domestic enterprise and personnel collaboration at the time of
our interviews, the effects of collaboration in the distant past cannot be
ignored. To that end, it is necessary to identify the original creator of a
company and whether any foreign company contributed earlier to establishing
and starting up the company (FO). The foreign partner at an earlier time
would likely have brought in the four elements cited above. Even if the
original firm was producing strictly for the domestic market, the foreign
partner might still have brought in elements similar to (a), (b), (c), and (d)
but more closely related to the capacity to sell goods in the local market.
3.10 Loan guarantees. The foreign partner providing a loan guarantee
(LG) for the domestic partner brings capital only and only indirectly at that.
3.11 Localized foreiGner's family legacv. Foreign influence on the
capacity to export often comes from a family legacy with origins abroad, even
though the current owner of the company may be a local citizen. Such a family
legacy of know-how, access to the world market, capacity to package, and
capital may vary greatly, depending on specific cases, but should not be
overlooked.
- 13
QLO1 II
3.12 Arand-name licensing. To maintain the reputation of a brand name,
the foreign partner often provides partial know-how. Certainly, the foreign
partner in a brand-name licensing (BL) arrangement opens access to the world
market, although indirectly through implicit product quality. BL fees are
fixed, regardless of a firm's export performance attributable to a particular
brand name. In our survey we included other types of brand-name agreements
for which fees are paid in proportion to export volume in marketing agreements
(M Ag). A brand name represents the reputation and track record of a company,
and, therefore, only a company, not an individual, can provide BL.
3.13 2echnical. marketing. or management consulting. The foreign
partner in technical, marketing, or management consulting or assistance (TA,
MA,, or Kt A) arrangem,ents brings in partial know-how. However, unlike
technical, marketing, or management agreements, fees are fixed without being
linked to the firms' export performance attributable to a particular
consulting input. TA, MA, or Mt A usually is provided by foreign individuals,
not by foreign companies.
3.14 Foreign education and Rartial affiliation with foreign comnies.
The degree of influence of an owner's foreign education (FE) or partial
affiliation with a foreign company (PFA) in terms of the four elements cited
at the outset may be difficult to evaluate. We cannot completely ignore such
influences, which may be construed as modes of collaboration.
B. Foreign and Domestic Enterprise Collaboration for Export Activities---
Narrowly Defined
3.15 The criterion for narrowly defining foreign/domestic collaboration
is the foreign partner's responsibility for the entire scope of (a) know-how
and (b) world market access and for the entire scope or part of (c) the
- 14 -
capacity to package (para 3.02). Therefore, narrowly-defined foreign and
domestic collaboration that meets this criterion would include FDI, joint
ventures (JV), technical/marketing/management agreements (T/M/Mt Ag), and
subcontracting agreements (SC). The foreign partners in these types of
collaboration are usually foreign companies.
3.16 Narrowly-defined foreign and domestic enterprise collaboration in
terms of the role of a recipient firm would include JV, T/M/Mt Ag, and SC, but
would exclude FDI. In this paper, we use both a narrow and broad definition
of foreign and domestic collaboration, depending on the focus of the
discussion.
C. Risk-Taking bv Foreign and Domestic Partners
3.17 As indicated in para 3.04, the distinction between Group I and
Group II modes of collaboration mainly involves risk, or degree of risk. In
Group I the foreign partner takes risks, in Group II the risks are reduced or
non-existent.
3.18 In particular, a careful comparison of technical agreements (T
Ag), marketing agreements (M Ag), or management agreements (Mt Ag) with
technical consulting (TA), marketing consulting (MA), or management consulting
(Mt A) is important for understanding the relative risk-taking by the foreign
and domestic partners--and thus for designing a proper strategy for foreign
collaboration.
3.19 In T Ag, M Ag, or Mt Ag, the foreign partner takes risks in terms
of (i) relying on royalty payments that are proportional to export volume and
(ii) relying on the domestic partner's compliance with contract terms,
including contract duration; the domestic partner does not take risks as far
as royalty payments are concerned. On the other hand, in TA, MA, or Mt A, the
domestic partner takes risks in terms of having to pay fixed consulting fees
- 15 -
that may not be fully recovered through increased export sales; the foreign
partner takes no risks since its consulting fees are fixed. Note that the
foreign partner in T Ag, M Ag, or Mt Ag Is usually a foreign company, and the
foreign partner in TA, MA., or Mt A is usually a foreign individual
(consultant).
3.20 Within Group 1, the difference in the degree of risk-taking
between a foreign trade agent (FTA) and a foreign trading company (FTC) should
be noted as well. Since an FTC takes a greater risk than an FTA by taking
possession of the export commodities from the local partner, an FTC can be
much more aggressive about providing (a) know-how to the local partner and/or
(b) access to the world market than an PTA would be. By the same token, FTC-
type collaboration is much more difficult to arrange than PTA collaboration.
D. Medium-to Long-Term Commitment by Foreign Partners
3.21 Since the rewards for risk-taking are royalty payments, fees, or
profits proportional to export performance, there is a strong incentive on the
part of the foreign partner to commit itself to best performance. Such
commitment from the foreign partner is precisely what the domestic partner is
looking for in certain types of foreign/domestic collaborations. However, the
timeframe as well as the scope of risk-taking and the associated degree of
commitment by the foreign partner vary greatly among Group I collaboration
modes.
3.22 In a subcontracting agreement, the durability of the foreign
partner's commitment is generally untested because these agreements usually do
not last long. Unless there is a long-term contract or unless foreign
partners' demands for subcontracting arrangements within a country or with a
particular enterprise are extremely strong, a local partner would likely be
extremely nervous about the continuity of its subcontract. This is especially
- 16 -
true in low-income developing countries at the early stages of their export
development.
3.23 When foreign trading agents or foreign trading companies are
involved, their commitment to an agreement ends as each transaction is
completed; this suggests that there is no guarantee that the "access to
market" intermediated by such agents is going to repeat in the next series of
transactions. It is up to them to continue or discontinue their
intermediation services with particular local exporters.
3.24 Compared to subcontracting agreements or agreements with foreign
trading agents or trading companies, a technical/marketing/management
agreement (T/M/Mt Ag) guarantees a firmer commitment by foreign partners
during contract periods, which are necessarily medium term. Even though a
foreign partner's overall commitment in a T/M/Mt Ag might not be as strong as
in a joint venture--since there is a lack of equity--its commitment to export
performance would be almost identical. Because of this necFssary commitment,
as well as the associated risks that the foreign partner takes, a local firm's
obtaining a T/M/Mt Ag agreement is more difficult than obtaining a SC
arrangement or a transaction with an FTA or FTC.
3.25 Compared to T/M/Mt Ag (which is usually provided by a foreign
company), the degree of commitment associated with technical, marketing, or
management consulting (T/M/Mt A) (which is usually provided by a foreign
individual) is weak, precisely because the foreign partner does not gain any
extra fees nor does it take risks.
3.26 In short, once a foreign partner has decided on FDI, JV or T/M/Kt
Ag, it is difficult for it to pull out of the arrangement because of the high
costs entailed. Therefore, a foreign partner is more likely to be careful in
making a decision to collaborate under these modes than under other modes,
although local partners prefer them over all the others. Consequently, the
- 17 -
host country must have a well-coordinated strategy to attract and hold FDI, JV
or T/M/Mt Ag arrangements.
E. Gag Between Demand for. and SupplX of. Various Modes of Foreign
Collaboration
3.27 In a low-income developing country, an enterprise that lacks the
capacity to package as well as know-how and access to the world market would
demand FDI, joint venture (JV), or technical/marketing/management agreements
(T/M/Mt Ag) with reputable foreign companies. Sometimes technical agreements
(T Ag), marketing agreements (M Ag) or management agreements (Mt Ag) may
substitute for T/M/Mt Ag. In turn, a foreign enterprise willing to take an
equity investment risk would likely supply FDI or JV, while an enterprise
unwilling to take su,.h a risk would prefer T/M/Mt Ag. Although a foreign
enterprise that prefers not to work with a local partner might choose FDI, a
local partner is essential for T/M/Mt Ag. As indicated above, T/M/Mt Ag is not
risk-free, and therefore, supplying T/M/Mt Ag would depend on the potential
supplier's risk evaluation.
3.28 A local enterprise that has the capacity to package can choose a
mode of foreign collaboration that will meet its demand for the "unpackaged"
elements of the capacity to export as well.
* If the company lacks only know-how, it might want T Ag, Mt Ag, TA, MA,
or Mt A.
* If it lacks only access to the world market, it might want M Ag, SC,
FTA, FTC, or BL.
3.29 As indicated above, and other things being equal, an enterprise in
a low-income developing country would prefer T Ag, M Ag, and Mt Ag to TA, MA
and Mt A, because royalty payments for the former are what bind the foreign
- 18 -
partner. In fact, a foreign partner's commitment to export performance is
much stronger in T Ag, M Ag, or Mt Ag arrangements. Royalty payments are
self-liquidating as well. This is in the sense that the export performance
(to be) generated by the service agreements would in turn pay for the service,
in contrast to a firm's payments for TA, MA, or Mt A, which are unrelated to
the (uncertain) export performance.
3.30 Another important element is that T Ag, M Ag, or Mt Ag agreements
are usually provided by a foreign company with reputable experience and track
records, but TA, MA, or Mt A can be provided by a foreign individual. This
person may know a certain field well but might lack the kind of integrated
expertise and experience that can be offered only by a company.
3.31 On the other hand, firms from developed countries usually prefer
to supply TA, MA, and Mt A because the rewards are guaranteed no matter what
the export performance of the company the consultant services. In contrast, a
foreign company's rewards from supplying T Ag, N Ag, or Mt Ag are uncertain,
to the extent that export performance is uncertain and the domestic partner's
compliance with the contract terms is uncertain as well. Resolving these
discrepancies between low-income developing country enterprises' demand
preferences for specific modes of foreign collaboration, and developed country
enterprises' supply preferences is the biggest challenge for designing an
effective strategy for foreign collaboration.
- 19 -
IV. INTERVIEWS WITH EXPORTERS IN SUB-SAHARAN AFRICAN COUNTRIES
A. Interviews With Firms
4.01 Rational&. As indicated in Chapter II, for four decades the most
important development lesson has been that the dynamic externality occurring
on factory floors and in firms' export sales rooms is the most important
factor contributing to the superiority of an outward-oriented development
strategy over an inward-oriented strategy. Therefore, quantitative and
qualitative firm-level data are essential for studying the role of foreign and
domestic enterprise and personal collaboration in the outward-oriented
strategies of Sub-Saharan African countries.
4.02 Confidentiality. In our survey we were able to collect reasonably
unbiased information (including firms' views on the difficulties they face
with export policy implementation) through our promise of absolute confiden-
tiality. Therefore, in this paper we have no choice but to maintain the
anonymity of individual companies in our discussions of the survey results.
It is also necessary to keep the individual countries unidentified whenever
the discussion relates to a particular firm.
B. Sample Selection
4.03 Country selection. Sample countries were chosen on the basis of
whether they have manufacturing activities (i.e., predominantly agrarian
countries were excluded) and whether the political situation allowed the
interviewers to travel freely. The 16 countries selected were: Botswana,
Burundi, C6te d'Ivoire, Ghana, Kenya, Madagascar, Malawi, Mozambique, Nigeria,
Senegal, Swaziland, Tanzania, Togo, Uganda, Zambia, and Zimbabwe.
4.04 Random selection of sag=le firms. The sample firms were selected
randomly with respect to type of foreign/domestic collaboration (and included
- 20 -
firms that do not collaborate at all), the specific product coverage, firm
size, export- or domestic-market orientation, and geographic/market destina-
tion. An attempt was made to include both current and likely exporters of
manufactured and primary resource-based (non-traditional) products.
4.05 Sample firm composition. Tables 4.1 and 4.2 show the number of
sample manufacturing and primary resource-based firms selected in the 16
countries, respectively. About two-thirds (121) of the sample firms are
manufacturers (including two trading companies and one maintenance company).
Approximately one-third (56) of the firms are producers of non-traditional,
primary resource-based goods (such as processed agriculture, processed fish,
canned fruit, etc.). While more than one-tenth of the sample manufactured
firms are potential exporters (i.e., those firms whose current export share in
total production is zero), less than one-twentieth of the sample primary
resource-based firms are potential exporters. About one-third of the total
sample firms are major exporters (defined as firms that export more than half
their total production to hard-currency markets). Less than two-thirds of the
total firms export some of their output to regional or other soft-currency
markets.
C. Ouestionnaire DesiMn
4.06 The firm-level questionnaire used in the study was carefully
designed, and earlier versions were tested in two previous studies, on the
impact of foreign collaboration on export capacity-building in the Dominican
Republic and in Mauritius during 1990.
Table 4.1 AN OVERVIEW OF TYPES OF FOREIGN COLLABORATION REPORTED BY SAMPLE MANUFACTURINJ FIRMS IN 16 SU8-SMIARAN
AFRICAN COUNTRIES
Number of Sample Firms Exporting Manuactured Produ under Given Type of Foreign CoDlaboration /
Country FDI T/M/Mt Ag SC FrA/ FO LG LF DL TA/MA/MtA FE PFA NONE Total Total
No.of No. of
Coflabo- SUampl
rationa Finn
A 1 = 2 2
B 3 4 1+1' 4 1 1 7+2' 1 4 I 26+40 14+3
C 1+1 t 1 1 1 1 1 6+1' 4+2
- - - - - --- - -= = -= --
D 1I I
E 1 1 3 3 1 9 6
F S 3 1 4 1+1* 1 2 1 1' 17+1* 11+2
G 3 1 _ 4 4+1*
H 2 2 1 3 1 1 10 5
I 7+1 __ 2 1+2_ 9+1' 10+3'*
_ 4 _1 = 5
K I 1 1 1 4 4
L 8 1 3 _ 14 12
M I 1 1
N 3 _ 2 1 3 9 5
O 8 3+1' 1 2 7 1 2 24+1B 18+10
P 1 1 1 S 2+1' 10+1 6+1'
Total 39+1' 24+2' 9+1* 10 3 10 1 26+3* 3 21+10 5+1 1 1+5* 153+9' 108+13'
(24%) (16%) (6%) (6%) (2%) (6%) (1%) (18%) (2%) (13%) (4%) (1%) (4%) 154+14 _
# ~~~~ - -= -j - (0)
Notnelude trdh g agetts or compnies end mainftnance sauice companies.
NOte: Frms Wit asteisk represet potenti alepotice (i.e, curren mpr adate=0)
A AN OVBRtV1WOF1V OF FICON COLLAORAftRBPORW! BY SAL PRMAARY Re2OURCB4SD FDtS tN I6SAMANAAFRICAPCOUNntW
N.mbff(S..pbFIrm Em*gPa*yOaad4nd NuaTmdblal Froaus amw Gb.,l~pa ~om(p Cla0GRANDGR ONRARAD
ca, m Nv TOO As SC FrAAmc P ro w LI DL TAiAMAiA Fe WPA NONE TcA Tod 0i Ibiud
PAM at "at NM. at A d
l. . .c
! P ~~~~~~~~~~~~~~~~~~~~~~~~~~~~adoe Fkm Sdom Fao(lldaXIUZ>
A I 1 1 2 3 4 S
a 1 2 1 1 5 3 X14# 57+30
- _ - - - - - -= - - - - - = = = - -t
C 2 2 7 4 U12.1 842'
D _ 3 1 4 2 5
G 212 _ _ _ = = 2 = 1 = = a-
a -- - - - -- _ - --- - - - -
P S 1+2' 1+1' 12 8.2 .1'1 262 2+6.
o 0 0 4 4.2'2 4
1M I 3m 3 t7St
N 2 1 3 5 46 1
-N I 2 _' 3 3 23 8
a __ - _- --- -- _ - - ab z
3 1 2 2 70+ 7
a - a - -a- - - - - - - -6---
TOW 16 20+0 3 2 4 3+r O 3 O 3 8 2 O +I r7+P 54#2 2bU 1U*
L )(S (2) 0+3 S
f5 =*ft a - --
- 23 -
4.07 Both quantitative and qualitative information was collected
through personal interviews based on the questionnaire. Eleven thematic
sections comprehensively covered topics such as the contribution made by a
foreign collaboration to a company's export development; human resource
development; private sector development; firms' views on, and experience with,
a country's export policy implementatio"; firms' desire for future foreign
collaboration; and their views on the demand and supply-side constraints
limiting export growth, etc.
4.08 The questionnaire was further designed to capture dynamic process-
es. For instance, one section contained questions on the origin and evolution
of a company's foreign/domestic collaboration, to assess whether any learning
occurred within the company during the time of collaboration. Similarly,
along with the collection of qualitative data, micro-level time series data
were obtained as well. For instance, questions about a firm's total annual
labor productivity focused on both the first year of a company's operation as
well as on its current level of labor productivity.
D. Carrying Out Field Interyiews
4.09 Four interviewers conducted the field interviews in the sample
countries during July, August and September (1991) based on the question-
naires.I' Due to limited resources for the field interviews, each inter-
viewer spent about a week or 10 days in each assigned country.
J Therese Belot interviewed the firms in Burundi, Madagascar, Malawi,
Mozambique, and Tanzania. Katharina Katterbach interviewed the firms in
Malawi, Swaziland, Uganda, Zambia, and Zimbabwe. Yung Whee Rhee interviewed
the firms in Kenya. Christine Soulier interviewed the firms in Cote
d'Ivore, Ghana, Nigeria, Senegal, and Togo.
- 24 -
E. Sapl=e Characteristics
1. Product Snecialization
4.10 Table 4.3 is a breakdown of firms' product categories. The
Garments and Textiles sub-sectors together represent almost 30% of the total
sample and 43% of the manufacturing sub-sample. Footwear and Leather goods is
the second category in importance in manufacturing, accounting for 12% of the
sample. The other manufactured goods are Household Consumer Goods, Metal
Products, Packaging Materials, Machinery, etc. In the Primary Resource-Based
category, Agroprocessing is the most important activity in the sample (24% of
the sub-sample), followed by Fish Processing and Horticulture (8% each). The
other primary resource-based (non-traditional) goods are Furniture, Fish
Processing, Leather, etc.
2. Size distribution
4.11 Sample firms' size in terms of the number of employees is distrib-
uted as in Table 4.4. In both the Manufacturing and the Primary Resource-
Based categories, the smaller firms (1-99 and 100-199 workers) are the most
represented, with 50% and 53% (combined brackets), respectively. However,
about one-fifth of the manufacturing firms are very large, with their employ-
ment size ranging from 1,000 to 4,400 workers. And about one-tenth of the
primary resource-based firms are very large, with their employment size
ranging from 1,000 to 6,000 workers. The rest of the firms are medium sized,
with their employment size ranging from 200 to 1,000 verkers. Therefore, the
sample is well-balanced in its composition in terms of firm size.
-25-
Tabe 43: PRODUCT SPECIALIZATION OF SAMPLE FiRMS
Mamflnaetn,wt e~onh E(afd iradiny and mnitenanee _________________
14.
Fond imeusin@ _ 3 4
Footer and 1 pather flod t4 * (tj)
14nmktl (inmr God! ________
Maehinerv S. 4
Metal Pnductt * -
Partmoing Mmmigiac
Rubhnr and Plaat.c Gooeda S 4
nther Manunfachring 7
M^.aintenaneo ti
Tntal Manufacturnng 1..21. 6R%
Primmy rea n nn,radl iontmrn d al - -
Agfunlte _6
Agm-Pmees nf 13 .24.
itLh Pne R 1nn it
Wkheit.y, ____i
Fatbar 47.
Othe otPriman, Resourcebaed_tnmductn 5 * _
Tot'al nrmrnv tureesann,-aed nrodueta _ ~ nen%.
Grand Toal| 177 _____
3. Foreign/domestic collaboration status
4.12 The types of foreign and domestic collaboration engaged in, as
reported by the sample enterprises, are summarized in Annex I. Again, Tables
4.1 and 4.2 provide an overview of the types of foreign and domestic collabo-
ration (including "no collaboration") for the 177 enterprises.
- 26 -
TabM:le sm D=STunTON OF SAML FRUMS
Employment wat to of m (9r
100040 18 (18%
00- 999 is 01)
200- 499 18 (18%)
10O 199 2 1 %
1-99 29 )
TOWal 101 (100%)
Pmy ReouraA ____ _
1000-400 S IM
SOO- 99 6 (14%)
200- 49 9 1*)
1'i00- 49 _1_ (29s,
1 99 1 _
__ _ _ __ _ _ _ __ _ _ _ 22 (51%)
| TOWal 43 100%*
SE_ no_ a_ _l _ 33
LG=nd toW ~~~~~177
4.13 Our firms reported 218 cases of various types of collaboration,
suggesting on average 1.2 foreign collaboration arrangements per sample firm
(see Total in Table 4.2). Among the manufacturing firms, 121 reported a total
of 162 cases of foreign collaboration, indicating 1.3 on average per sample
firm. In turn, 56 exporters of primary resource-based (non-traditional)
products reported 57 examples of foreign collaboration, showing 1 on average
for each firm.
4.14 The five most important types of foreign collaboration for
manufactured exports (including for potential export) were reported (in order
of importance) to be: (i) FDI; (ii) "localized" foreigners' family legacy
(LF); (iii) joint venture (JV); (iv) technical consulting/marketing consult-
ing/management consulting (TA/NA/Mt A); (v) sub-contracting (SC), technical/-
- 27 -
marketing/management agreements (T/I/Mt Ag), or a foreign company's orlginal
establishment (FO). In comparlson, the five most lmportant types of foreign
collaboratlon for primary resource-based (non-traditional) export (including
po ential export) activities were reported, in order of importance, as: (i)
joint ventures (JV); (ii) FDI; (iii) "no collaboration"; (iv) foreign trade
agents/foreign trading companies (FTA/FTC); (v) a foreign company"s original
establishment (PO).
4. Origin of Foreign/Domestic Collaboration
4.15 As Table 9.1 in Chapter IX shows, France and the U.K.--the former
major colonial countries in West Africa and in East and Southern Africa,
respectively--are the most important source countries for the different modes
of collaboration in Sub-Saharan Africa. For instance, France accounts for 250
of the total FDI and JV, and the U.K. for 20%. For all modes of collabo-
ration, France provides 20% and the U.K. 15%. The other important source
countries are, first, India, then Lebanon. For these two, the most important
collaboration mode is that of "localized foreigner" (defined in Chapter III).
The U.S., Japan, and Germany account for a total of only 10% of all for-
eign/domestic collaboration in Sub-Saharan Africa. Three Esst Asian coun-
tries, namely, Hong Kong, Taiwan and Korea, together account for a share
of 4a.
- 28 -
V. CONTRIBUTION OF FOREIGN/DOMESTIC EXPORT COLLABORATION
TO SUB-SAHARAN AFRICAN DEVELOPMENT
A. Contribution to Export Development
1. Foreign Cgollaboration as Necessayl Condition
5.01 Manufactuaed egtorts. All 108 of our sample export manufacturers
(except for one) reported at least one engagement in foreign collaboration, as
shown in Table 4.1. This confirms that even some sort of broadly-defined
foreign collaboration is a necessary condition for manufactured-export
activity in Sub-Saharan African countries. Furthermore, five of the six
manufacturing firms that did not engage in any foreign collaboration were
unable to export their products, again as seen from Table 4.1, thus rein-
forcing the above inference. (However, foreign collaboration alone is not a
sufficient condition for successful manufactured-exports activity, as evident
in the fact that eight of the sample manufacturing firms were unable to export
their products even when they were partners in some type of foreign collabo-
ration.)
5.02 Primary resource-based (non-traditional) exports. The case for
these exporters is somewhat different from that of the manufacturing export-
ers. Eight firms out of 54 (i.e., about 15%) were able to export without
needing any foreign collaboration, while the other 46 exported under some type
of broadly-defined foreign collaboration (Table 4.2). This suggests that even
though foreign collaboration is not necessarily an absolute essential for
certain primary resource-based (non-traditional) export activities or enter-
prises, its role is significant in these activities nonetheless.
- 29
2. Fims Exort Performance and Foreign Collaboration
5.03 To infer a rough relationship between foreign collaboration and
export performance, we employ a four-way classification of manufacturing and
primary resource-based firms in Table 5.1 and Table 5.2, respectively. The
classifications are:
(a) firms exporting 50% or more of their products
* (i) established before 1985
* (ii) established in or after 1985;
(b) firms exporting less than 50% of their products
* (i) established before 1985
* (ii) established in or after 1985.
(a) Aerage Number of Broadly-Defined Foreign Collaboration Cases
5.04 Potential extorters. On the one hand, the number of broadly-
defined foreign collaboration cases per non-exnorting firm (i.e., potential
exporters) is nearly zero for both manufactured and primary resource-based
(non-traditional) export industries (the exceptions are one manufacturing firm
and one primary resource-based firm). See bracketed figures with single
asterisks in Table 5.1 and Table 5.2.
5.05 Aial *xDorters. On the other hand, the number of broadly-
defined foreign collaboration cases per exDorting sample firm is much higher
than one, is one, or is very close to one, whatever percentage of their
products the firms export.
Tdb * RELAIiON ElWIVBT 1OFUFOREIPO COtUBOION AND D1OU OP WCORT4)ROEIAION IN tNACIUrlt EXPORT
FDI JY WA SC FTAIIC PO I4 LI 1IL TAMV fE PP A N01ON Td Ta d AdIN A$
Egm soW Wm or am ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Et N.d Wa ..d m
- " 4 2 - 2 , - -t - -
MOsmbZ E i sh1INS 4 t 7 t 2 4 1 32 2S U Ll
(") (29 (") On ()(2") (.") (PO) (23") (139 019
W ~ - - - - - - -_
i buim" bdaU 1 7 a2 3 I I 2 13 8 2 0 i 4 LI
.___________________ ._____ _ (1r) ( ) (t) (2) _ _ ) ( ) e) (V) (IV) (0P) 0.3)
(0) Bam k b oraer S M 2 3 3 4 7 2 3 1 #4 17 L S
._________________ (F) _F) (F) (10') (t2) O
Toed 14g 23 . t 2 S t 22 3 19 4 3 * U44 206s Ui t7_
Todn N.br n_t bi t d _ _d to65 a Ii
"am aw0do4 asudbdob. r* W1amkdmmWOimIas..uiqatb
Nr ib.mdiadqs _qnmabab Ill ha-_d_ is 16am _a bpel * amba m cpe madw
l [ X S- *--3 - -
iI A.|w - Z 3- -' a
IiSI 9- _~ __ __ _ ifg
t~~ w _-" !
in_ __i ___}l
et _ _ - -
i _ __ _il
; _ _3 35 _______
I - - - 4
- 32 -
5.06 Manufacturing vs. Primar= resource-based sxnorts. While the
average number of broadly-defined foreign collaboration arrangements for
manufacturing export industries is 1.3 (Table 5.1), for primary resource-based
(non-traditional) export industries the average number is 1.0 (Table 5.2).
(b) Average Number of Narrowlv-Defined Foreign Collaboration Cases
5.07 Exporting (manufacturing) more than 50% vs. less than 50%. Under
the concept of narrowly-defined foreign collaboration, the impact of foreign
collaboration on export performance appears more notable for manufactured
exports. While the number of such collaboration cases per sample manufactur-
ing firm exporting 50% or more of its products is close to one, the number per
firm exporting less than 50% of its products is just 0.5 (Table 5.1). The
main reason for not finding a similar t.ifference for primary resource-based
firms (Table 5.2) appears to be that jost of them export 100% of their
products.
5.08 ExDorting 100% vs. less than 100%. Furthermore, the number of
narrowly-defined collaboration arrangements per sample firm that exports 100%
of its products (whether manufacturing or primary resource-based) is consis-
tently higher than the number for firms that export less than 100% of their
products, as shown in Table 5.1 and Table 5.2. (see bracketed figures with
double asterisks.)
5.09 Manufacturing vs. _rimarv resource-based. Note.that the average
number of cases of narrowly-defined foreign collaboration for export manufac-
turing industries (0.7 in Table 5.1) is identical to that for primary re-
source-based industries (Table 5.2), in contrast to the respective numbers for
broadly-defined foreign collaboration (see para 5.06).
5.10 In fact, the differences between the manufacturing and primary
resource-based export industries--in the gap between the average number of
- 33 -
broadly-defined collaborations and the average number of narrowly-defined
collaborations (Table 5.1 and 5.2)--merely confirm that manufacturing firms
unable to participate in narrowly-defined foreign collaboration have depended
on the other types of foreign collaboration more extensively than have primary
resource-based firms.
5.11 Although only 44% of our sample manufacturing firms exported more
than half of their products, 84% of the primary resource-based firms did so.
In fact, most of these primary resource-based firms are 100%-exporters, while
less than a third of the manufacturing firms that export 50% or more of their
output are 100%-exporters. This confirms the stronger export orientation of
the primary resource-based industries.
5.12 Only 35% of the sample manufacturing firms that were established
before 1985 exported 50% or more of their products, but 60% of those set up
since 1985 did so. For primary resource-based firms established before 1985,
83% exported at least half their output, and 93% of those established in or
after 1985 exported at least half their products. This underscores that firms
established post-1985 are more export oriented than the older firms.
5.13 The impact of a firm's age appears to be concealed by the broad
aggregation employed for discerning the relationship between foreign collabo-
ration and export performance. However, for manufacturers established from
1985 onwards and exporting less than 50% of their products, the average number
of broadly-defined foreign collaboration arrangements is higher than the
number for firms established before 1985. This suggests that younger firms
tend to promote more broadly-defined collaboration. Furthermore, for 100%-
export-oriented manufacturing firms set up since 1985, the average number of
both broadly-defined and narrowly-defined collaborative arrangements is
considerably higher than for firms established before 1985. Again this
suggests that the younger firms are more eager to exploit the potential gains
from both narrowly- and broadly-defined foreign collaboration.
34- -
3. A Few Illustrations
5.14 Country J. Six out of the seven sample firms (which are FDI or
joint-venture firms established in the latter half of the 1980s) have pio-
neered exports of their respective products by bringing into Country J all the
elements of the capacity to export (para. 4.02). A welding electrode manufac-
turer, a medium-sized family enterprise, for instance, had 40 years of
experience in South Africa before starting operations in Country J. Most of
the other sample firms had similarly solid track records in their other
production locations and brought this experience to country J.
5.15 The following example illustrates the catalytic role of foreign
collaborators in Country J. The former production manager of a pioneering
furniture exporter recently established a new furniture-for-export manufac-
turing unit in a very depressed rural area. This company is now providing
employment for 180 workers who would otherwise have been unemployed. The firm
uses timber from an adjacent sawmill and is thus an example of successful
vertical integration and foreign-exchange generation based on local resources.
The value-added of exporting furniture rather than timber is 100% per cubic
meter in this case. Foreign managers remarked that in the mid-1980s Country
J's entrepreneurial initiative and experience in manufacturing and non-
traditional exporting virtually did not exist. Thus, the most important
elements that the foreign investors brought to their new operation in the
country were, first, the capacity to package managerial, technical and
marketing know-how with local factors of production, and, second, access to
the external market network. Financial resources were perceived as of
secondary importance in building this capacity to export.
5.16 Country G. Another example can be found in Country G. Only three
companies (established in the late 1970s or in the 1980s through FDI) out of
the five firms interviewed in Country G were able to export 80-90% of their
manufactured products from the country. Their exports of garments, plastics,
- 35 -
and pump parts could never have been initiated without the whole package of
elements for the capacity to export (para. 4.02), which is wbat the three
parent companies brought into the country.
B. Contribution to Human Resource Develogment
1. On-the-job training and learning-by-doing
5.17 Virtually all workers we interviewed in export manufacturing firms
were recruited by their companies from the unskilled worker pools. All the
sample firms invested in on-the-job training for their indigenous workers; and
after on-the-job training, workers acquire further skills through learning-by-
doing. For example, a tool manufacturer in Country J apprentices welders for
one year; welders then spend up to two years in learning-by-doing before they
move to the next skill level.
5.18 The average on-the-job training period in export sanufacturing
companies was three months; the average minimum learning-by-doing period (to
become a semi-skilled worker) was six months for such skills as tack welding
or cutting, stitching, and making of shoes. Of course, learning-by-doing
continues after workers become semi-skilled, if only to enable them to become
skilled workers and then supervisors. Supervisors (indigenous staff) in the
sample firms had an average of four to seven years of experience with their
firms. Four of the seven sample firms in Country J reported that they send
workers at the supervisory level abroad for training: e.g., four-week machine
training at a German factory that manufactures for the European market; three-
week training with an affiliated shoe manufacturer in Zimbabwe and in the main
plant in South Africa for employees to learn complementary production process-
es and quality control at each site, respectively.
- 36 -
2. Labor Productivity and Real Wage Changes
5.19 Exporters interviewed in Country J stated that during the five
years (on average) since start-up, their labor productivity had increased from
a base of 50% of the average level of productivity in comparable South African
export enterprises to the current level of 70%. This confirms the impressive
aggregate impact of human resource development on industrial efficiency
through on-the-job training and learning-by-doing in foreign collaborator-
operated factories. Another indication of human resource development on the
factory floors of firms engaged in foreign collaboration is the superior level
of their wages. In the sample firms in Country J, wages are about 60% higher
than the minimum wage.
5.20 The two exporters (operating with FDI) interviewed in Country G
were also able to compare the level of labor productivity in their companies
favorably with that in industrialized countries. In each case, productivity
had increased quite significantly through on-the-job training and learning-by-
doing. While initially labor productivity was between 30-40% of that in
Europe, it was now estimated to be between 60-70%. This showed that the labor
productivity improvements during the five years of learning-by-doing and on-
the-job training with the foreign-collaboration companies in Country J, as
noted above, were not isolated cases.
5.21 One 100%-export-oriented garment manufacturing firm in Country B
(with FDI from Sri Lanka) reported that the impact on labor productivity of
the well organized on-the-job training and learning-by-doing, under the
guidance of the Sri Lankan textile manager and engineer, had been more than
impressive. The labor productivity level of this factory had even surpassed
that of the best performing garment export manufacturing factory in Sri Lanka
after just one year of operation. (Sri Lanka has built a reputation as one of
the major competitors in the world market.) This is evidence of the untapped
- 37 -
potential of Africa's export manufacturing, a potential that can be plumbed
only by collaborative efforts with first-rate foreign companies.
C. Contribution to Private Sector Development
1. Private vs. Public Ownersgh ogf Eport Businesses
5.22, Table 5.3 shows that the ownership of less than one-tenth of the
165 surveyed enterprises (those that reported the ownership status of their
domestic partners) is 100% public or partly public (i.e., public corporations
have joint-venture agreements with foreign private companies). This suggests
that in 1991 the manufacturing and primary resource-based export businesses in
most Sub-Saharan African countries are dominated by foreign and domestic
private enterprises. (In several countries that have pursued state enter-
prise-dominated industrial strategies, efforts are underway to restructure
public export enterprises as part of the countries' privatization programs,
which are supported by the World Bank.)
2. Comnetitive Edge: Key for Private Sector Develogment
5.23 As discussed above, Sub-Saharan African countries would not have
been able to build even their meager capacity to compete in the world market
without their local companies' collaboration with foreign private companies
and personnel--even though foreign collaboration alone has not been a suffi-
cient condition for achieving a competitive edge in some African countries (as
further elaborated in Chapter VI).
Tse S3 PRIVATE v& PUBLIC OWNERSHIP OF SAMPLE ENTERPRISES
(Number of fim)
COUnuty 100% domestic Joiolt maehip between 10 feiCO 3oint ownership betwee 100% domestc Ownenbip stat Tottd
pdiwae domestc pdvate sad pdvaft owanhip fxoeip prate and public of domestn pner
oNXWershp forei prte (mW) (PDI) dometi puwb (V) Owneip no known _
A 0 0 0 0 3 2# S
a0 1 4 4 2 0 0
C 6 0 4 0 0 0 10
o S 0 0 0 0 0 5
E 6 1 1 0 0 0 8
F 3 10 2 0 1 23
O 2 0 3 0 0 0 S
H 3 2 4 1 0 0 10
1 6 1 1 0 0 9 17 c
3 0 2 S 0 0 0 1 .
IK S 2 0 0 0 0 7
L 3 2 9 0 1 0 iS
M 1 1 3 0 0 0 S
N 1 0 4 1 2 0 8
7 5 9 3 0 0 2l
P 6 1 0 0 0 0 7
TOel 70 24 S6 9 6 12 177
(42%) (15%) (34%) (5%) (4%) 163 (100%)
o Joint ownerhp Wi forein prae pte 0)
- 39 -
5.24 By the same token, any effort to develop the private sector in the
Sub-Saharan African countries would not be effective without continuing the
change toward outward-oriented development strategies. To that end, the agent
for a country's outward-oriented strategy is an individual firm that is
acquiring the capacity to compete in the world market. Therefore, foreign/-
domestic enterprise collaboration in export activities plays a catalytic role
in the private sector development of Sub-Saharan African countries.
3. Labor Mobility and Inter-Firm SkiLl Transer,
5.25 Skill transfer among firms in an industry occurs if the inward and
outward mobility of workers who have acquired skills in companies with foreign
collaboration is extensive. One company in Country J reported that two of its
most skilled workers--who had worked under the guidance of expatriate manag-
ers--left the company and started a successful fence-making operation for the
local market.
5.26 However, most sample firms reported very little outward mobility
of skilled workers from their factories (the labor turnover rate is extremely
low, not more than 2-5% a year). With very high unemployment, workers may not
want to leave their current jobs unless forced to do so. Such limited
mobility appears to limit inter-firm skill transfer in the industrial activi-
ties of the Sub-Saharan African countries.
- 40 -
VI. THE LEGACY FROM INWARD-ORIENTED FOREIGN COLLABORATORS vs. THE NEW
BREED OF OUTWARD-ORIENTED FOREIGN COLLABORATORS
6.01 Chapter V examined the contribution of foreign and domestic
enterprise collaboration to Sub-Saharan African development in general,
without distinguishing among the different types and qualities of foreign
collaborators. Even if all foreign collaborators made positive contributions
by merely being involved in some export activities, the contributions here not
of uniform quality. Especially in designing an effective strategy for future
foreign collaboration, one must be able to sort out the superior foreign
collaborators from the less effective ones. Therefore, this chapter attempts
to draw lessons from past experience with various types of foreign collabora-
tors.
A. Distinction Between Outward-Oriented and Inward-Oriented Foreign
Collaborators
6.02 Access to the world market. At the outset (para. 3.03) we
stressed that the ultimate contribution of foreign collaboration to develop-
ment should be judged by the quality and depth of elements (know-how, access
to the world market, capacity to package, and capital) that a foreign partner
brings in to a country. We should also judge these elements' impact on the
implementation of an outward-oriented industrial development strategy. The
most critical element here is access to the world market, without which a
foreign partner barely contributes at all to outward-oriented development.
6.03 Access to the domestic market. Although a foreign partner brings
know-how and capital to the collaboration, if it is primarily interested in
having access to the domestic market in a targeted country, it will neglect to
bring in the other critical elements. Consequently, its contribution to the
country's outward-oriented development strategy will be insignificant. (This
does not imply that efficient import substitution is not as important as
- 41 -
efficient exporting. Instead, the development lesson of the last four decades
suggests that outward-orientation is the way to make import substitution
efficient.)
6.04 ELrm s.I1. In distinguishing between outward-oriented and inward-
oriented foreign collaborators, based on their market-orientation, the size of
a firm cannot be overlooked. Therefore, we classified sample firms in both
the manufactured and primary resource-based (non-traditional) export indus-
tries into five sizes, according to their number of employees:
(i) large (employ more than 1,000);
(ii) medium size II (employ between 500 and 999);
(iii) medium size I (employ between 200 and 499);
(iv) small size II (employ between 100 and 199);
(v) small size I (employ fewer than 100).
B. Survey Results of Manufacturing Exoorters
6.05 Table 6.1. The share of exports (in the total production of each
firm) in two separate external markets (non-regional hard-currency market and
regional or non-hard-currency market) is shown for manufacturing enterprises
in the five categories. Table 6.1 also shows the external market destination,
share of exports (in total production), and types of foreign collaboration.
6.06 TabLe 6.2. The export-share data in Table 6.1 are aggregated in
this table to classify the market orientation of the sample manufacturing
firms in the five categories:
TW4 SBOUFOS8NONUA3OA11OFO MAMIAcIIiRINFO W%1
~M4SILW .saiagd4 inkqdmp
N cpNo ed Prm Ma t I el Pm0 u aC s" t"-Ct I Ci( I M wdFtsapNo n- ul Ne*6d lmw Nod ft(S)
N&_ _ _
he mica hanp cob. hao eoagbo, ha eagle. leep eoglo, lea gge,o ha rode,w ha- melon -p- Cobe* QC
l U S I IN I# _ 4I. I 2__86 3 _ FDI 0 0 0 1 IN _ SIN a (US)
440 1U 1__ TA A11 _
IMiA IL? FTAk
2F0
. o) __ _-) 1*) _ _-o) ____ _ ___ ~~~~~~~~~~~~~~(C) =1 __
(M) (US) M1%) (W*) (0) (0_ ) () ) -
b Medkm du 588499 2 LIV) a I TOM 0 0 3 IfDI 2 I POL 3 1JlI 0 3 SlY; Is (*45)
11)1 I? I SV) 21mg 118 11V6 Fo
AS I1.% ISC. isc AS; IL?
I1'- IIU 2 TA; I 2L?
T"K _ U _ 4 s _ _ _ _ _ _ _ _ "4 {}~~~~~~~~~~~~~~~~~irsAP
(US) o(wS) (0) _ ) _ % (S __ ) _ 0) ) _ )
# ~ - - -- _ d _ _ _____ - -
a Mom= du 0049 0 1 IL? I 1Pm 0 7 SF60; 1 2PFM 0 4 2 DL. s 291 19 CM8)
I TA; It# STA-
211
______ (0~ ~ ~~~~) (IS) M55 O)(1)_ _(%) (0))(21) (20)(25
A Sinelef go a 23 3 2 I 1Mm 0 0 8 410% I I FIX I 2911 3 1906 S I Fat 21 (M%)
IL? 1SC~~~~~~~~~~~~~~~~~~~~~ 1 ITA; AS
I TA, IpFA 134
(255) aIs)() (0*) (US)_0(5) (M0) (155) (1)(0
.6SIiNaO 249I S I I Fs 2 1106 0 s 3160 4 SUF 4 1FV6 1 1Pm S IPDm 3 (US)
Mere IF INV I M. IM.
IFOL IS4 tA-
- (175) - ~~~~(15 ()() (US5) on5) (1to) - (5 1% 1
(III) ~~~(OS) (4)(% 1% %) ) (0 (,)(2)(0)
'l. .im~et nu0gdfi.mtmudebn11.%7bwftva*ommmtntdskIe C eOqtm
- 43 -
(i) super outward-oriented firms (export more than 75% of their
products to the non-regional hard currency markets);
(ii) highly outward-oriented firms (export more than 75% of their
products);
(iii) outward-oriented firms (export more than 50% of their products);
(iv) inward-oriented firms (export less than 50% of their products);
and
(v) highly inward-oriented firms (sell more than 75% of their products
to the domestic market).
The average number of "narrowly-defined" foreign collaborations and the
average year of establishment for firms in these categories firms are present-
ed in Table 6.2 as well.
T" PSMrBWAMOSUOt'AWZMA1ACIIJRIO l'RhSKOIG 1703 FWDMrMAIIFRWWA1NCA1EGOU
l.9ff &u~delgd HIbb.~ Omi.wd.dieci &W .ow bd bms I w
Phaik Safftwomfff %d e 6 * d Av_ __ A_ _ %o Aw.pn Awig %ctmaI.
am *a 5 d "chtfW &M d=ma* Per flu dwra* cti lt4oman
prod to ac4ei Oc tbn dd*Wtr. at*sb ddeWd Orm a_bU- 75% dp*od
1bad annaA. 755 c9 etishb- mRut m4 cdwao
(t) LUg sze 0% _3% 0.7 1962 84% LO 1u
(b) Mdiio asi U 20% 53% 53% 13 1971 47% 67 196 40*
(c) Mdi.eLi am I 7 42% 42% Lo0 TM6 so% Os5 197 1%
(|) sow do a 30* 3D% 45 . 8" % 7 4%
(.) sd gIb I 10% 30% 43% Lo0 196 57% @3193 3
6.07 In the sample, although almost half the medium- and small-size
manufacturing enterprises are outward-oriented, far less than one-fifth of the
large-size enterprises are outward-oriented, again as shown in Table 6.2.
Furthermore, there is no single large-size firm in our sample that can be
classified as "super" or "highly outward-oriented", even though, on average,
e44-
about one-fourth or one-third of the small- or medium-size manufacturing firms
are classified as "super" or "highly outward-oriented", as shown in Table 6.2.
1. High Inward-Orientation of Large Manufacturing Enterprises with
Foreign Collaboration
6.08 In our sample, about three-quarters of the largest manufacturing
firms are highly inward-oriented (Table 6.2). However, more notable than the
relatively higher share of such firms compared to small- or medium-size firms
is the heavier involvement of foreign collaborators in the larger firms than
in the small- or medium-size firms. The average number of "narrowly-defined"
foreign collaboration arrangements for the large firms classified as inward-
oriented is one, whereas the corresponding figure for small- and medium-size
firms is 0.5.
6.09 It is apparent that the inward-orientation of part of the small-
and medium-size manufacturing firms may be due to their lack of capacity to
export, as reflected by their insufficient foreign collaboration status.
However, the majority of the sample's large-size manufacturing firms are
highly inward-oriented as well, despite their extensive foreign collaboration.
Thus, the inward-orientation of the large firms is not due to lack of foreign
collaboration but results from their intention to stay mainly in the domestic
market.
6.10 The year of establishment for each of the large manufacturing
firms was generally in the early 1960s. This suggests a need to examine the
historical background of foreign companies' involvement with manufacturing
industries in Sub-Saharan African countries. This would help us understand
the characteristics of the highly inward-oriented large-size manufacturing
enterprises that nonetheless engage in extensive foreign collaboration.
- 45 -
6.11 For example, in Country F, Company No. 20 (established originally
in 1929) has 2,000 workers; and in Country B, Company No. 7 has 1,500 workers.
Both companies were set up by European MNCs as JVs with state companies. They
have produced detergents, cosmetics, and processed food items (such as cereals
and cooking oils) primarily for the local market. Currently they are export-
ing a small fraction of their production to the regional market. These
countriss do not appear to have a comparative advantage in the hard-currency
world market in these products, even though their MNC partners are leading
producers of those consumer items.
6.12 Another example of inward-oriented MNCs is Company No. 20 in
Country B (set up by a leading MNC in 1946 through FDI) with 1,900 workers
producing shoes strictly for the local market. The company has no incentive
to export even to the regional market, because the MNC has factories in many
African countries and around the world.
6.13 One more example of the legacy of inward-oriented MNCs is Company
No. 2 in Country F (established as a French firm's JV with the state company
in 1922), with 1,000 workers producing textiles for the domestic market. Only
recently has the company exported a small fraction of its product, starting
with the regional market. Many FDI and JV companies from the former colonial
powers and from other European countries (see Table 9.1) belong in this
category. The lesson they impart is that future African development strate-
gies cannot rely on inward-oriented MNCs' initiatives. In fact, it does not
appear that large size MNCs will be newly interested in most African manufac-
turing activities (whether export-oriented or domestic market-oriented) in a
near future, because they may have the better alternative locations around the
world. In turn, no one can deny that the high inward-orientation of the large
size manufacturing MNCs has contributed to African policy makers' negative
perception on them. However, such negative perception on the inward-oriented
MNCs should never lead to wrong inference that most Sub-Saharan African
countries can and should build their capacity to export without foreign
- 46 -
collaboration. Rather, the perception reinforces the need to bring a new
breed of outward-oriented foreign collaborators.
2. Significant Outward-Orientation of the New Breed of Small-I and
Medium-Size Manufacturing Enterprises with Foreign Collaboration
6.14 It is remarkable that about half the small- and medium-size
manufacturing firms surveyed are outward-oriented (see Table 6.2). It is
clear that this significant outward-orientation could not be possible without
extensive foreign collaboration; this is indicated by the average number of
"narrowly-defined" foreign collaboration arrangements, which is larger than
one. This inference is reinforced by the fact that the average number of
"narrowly-defined" foreign collaboration cases for inward-oriented small- and
medium-size manufacturing firms is 0.5--just half that for similar-size but
outward-oriented firms.
6.15 It also should be noted that the average year of establishment of
the outward-oriented small- and medium-size manufacturing firms is consistent-
ly more recent (1970s-early 1980s) than for their inward-oriented counter-
parts. This suggests that the recentness of their establishment is a factor
that contributes to these firms' outlook--important information that will be
critical in designing an effective strategy to promote the inflow of new
foreign collaborators.
6.16 For example, Company No. 11 in Country L, established in 1990
under FDI from Hong Kong, and now with 100 workers producing garments,
reported that it will soon be 10OS-exporting to the U.S. market. Similarly,
the three 100%-export-oriented garment firms in Country B were established
around 1989-90 with FDI from Sri Lanka or with technical consulting from Sri
Lanka and sub-contracting agreements with U.S. buyers. Their number of
workers ranges from 220 to 350. This new breed of small- and medium-size
firm that collaborates and is "super export-oriented" should be the model on
- 47
which to base a future strategy to foster foreign collaboration for export
development in Africa.
C. Survey -Results. of PriMary Regource-EAaeg1 (Ngj3-TrAditiona1)
C. _L*XA
9;SRortIrI
6.17 Table 6.. The share of exports (in the total production of each
firm) in two separate external markets (non-regional hard-currency market and
regional or non-hard-currency market) is shown for primary resource-based
enterprises in the five firm-size categories. The table also shows the
external market destination, share of exports (in total production), and types
of foreign collaboration.
Ltal 4* SRCBNAOESOPSAMUPBRIMAAY RUOURCS.SAS5WFIMS TBOEIO�O FMV DIFFERET MARXff ROBjlAI1OCNCA1GOMSI
Saer 9umd4demd HVaaL. O _=u. _Aftdaged DM HW&*-
&a wd-aeSme SDM * i mapodum WM. t 30* dl eit
nheu %c at&uqS4POM *at&= %at Awrpam Av*W SO AN.pua Ame_ *ot&=ad.
mom tdu 79 at cmfu &M ctmawl yiot am etmt yea dlag mm ds
_uan toaoe.paa more she. datas flar inFl ddm0d61F hr. ua*b 5* dpe_m
I__ . _ , _ ae _ .
F"" &C- -mm WW O -t& 'R - -W *b W p*
(a) Lrpe a an 80* I100* LO M. 9 0* * *
(b)me&= I0* 50 7 0 4* to _7 us
(p) Mosam ala 1 67* 6* 3 0. 194 11% Oa7 VsU 11
I(d) Sal alsI 0* 190 1X0 1.0 39 0* *
(.)Saialwl ~73 am* 91* V. 10 9 0.5 197 9*
= -�sd - r - - ms -1 ---. _ _ .
6.18 table 6.4. The export-share data in Table 6.3 are here aggregated
to classify the market orientation of the sample primary resource-based firms
in five categories, Just as was done in Table 6.2 for manufacturing firms.
Also, the average number of "narrowly-defined" foreign collaborations and the
average year of establishment for firms in the five categories are presented.
Tahik ss oSE OPFoREIG aOU ORAIiOI FOR PRMAaRY RPSOUtCS-MASED (NOt.hVIRAlOtAL) EXFOR.
nls 1 m f iward-od u a eaMOIpth
8Ron la's b Shm far m tpo amqdeo*ml hu x mdnaqutak I cin W ACD (I) Shutofe*m toi reslou or oaobvd a mq mutca m acidesu (%)
5ea ou pj y a Md " S(4) _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ __TOW
_ 1.2$ _6.so 51-75 76S0 -00.76 1 50-26 2_ .1
Ntoi FOaOP No,d a Fordgo Mooroi5 NMo t Forep oaot Fornp Hot ForIp N&o t F_od "oo pomp Not d Ftrclp No Fd (S)
camp* agebi* co"a eato ompmn *Wbo woom ci&gbo co .pam i cm ocoysa m0w oaw oot Comm 4d ocm
al*e ,XtO t 0 0 0 1 4 4 2 FDk 0 0 0 0 � (11%)
2 N
bMeiamadoeM s00W I lIW. I IN I I M_ 3 1 M 0 J 0 0 6 (U4)
I FO ~~~~~~~~~~~~~~~IMAP
- % (u) __ (17%) _ ) ) - ($_ ) (OS) (0a) , (0*) (OS) (100%)
oMoiua A I 2009 0 M FDI 0 0 1 N 6 I N; t I INOA 0 a 0 9 (1%)
3 MV;
2 FOM
2 M,A
IFF
_________ (0%) ____ 211$) I0sO (11%) (6OS) - (11%) %) %) (0%) (1) %
a Smadaf 100160mi 0 0 0 0 I 1 FDI 0 0 0 0 I (%
._____ (OS) ___ "(0) (/) (0%) (_00%) () (O (OS) ("M)
SWA AN1 t 10 I I NHim I I P OS 0 2 1 FM 16 4P01; 2 I PDN 0 22 (510)
102 4 M. I N
AS;
t TA
I PTA;
.LP.
mNw
______ (5%) (5%) - (0%) - (9%) - (71%) (9%) (0%0 ___ (0%) _0) _ 1%3 _
IUFAL 2 3 0 5 30 3 0 0 0 a (0%
______~ __ (5%) (7%) = % (12%) (0) (7%) (0%) = =(0%) _ s ....................) (l00t)
# ~~ - =* = = = -= -= -= = = = - - = * = - = -ade=
- 49 -
6.19 The primary resource-based firms in all size categories are
consistently more outward-oriented than are the manufacturing firms. In
particular, the large-size primary resource-based firms are "highly outward-
oriented". While African countries do not have much comparative advantage in
those manufactured products that the large-size highly inward-oriented foreign
collaboration firms specialize in, most of the primary resource-based products
show Africa's comparative advantage, no matter what the size of the firms.
6.20 Even though the average year of establishment for the large
primary resource-based firms (those with extensive foreign collaboration) was
in the 1960s, there does not appear to be a legacy of inward-orientation such
as is found among the large manufacturing firms. This again confirms the
comparative advantage of primary resource-based (non-traditional) exporr
items.
6.21 In general, "narrowly-defined" foreign collaboration appears to be
more common for the outward-oriented primary resource-based firms than for the
small segment of inward-oriented firms. Note also that the average year of
establishment for the outward-oriented firms is more recent than for the
inward-oriented firms. As with their manufacturing counterparts, the recent-
ness of their establishment probably contributes to these firms' outward
orientation. Again, this information will be critical in designing an
effective strategy to promote the inflow of foreign collaborators.
6.22 In any event, while the comparative advantages of primary re-
source-based non-traditional export items are being exploited, opportunities
for exploiting Africa's comparative advantages in manufactured goods based on
primary resources (such as leather garment exports rather than raw leather
exports) should not be lost. For the transformation from mere primary
processing to more value-added manufacturing for certain products, foreign
collaboration, is of course, critical. Furthermore, the critical elements
(for the capacity to export) that local partners in manufacturing industries
50 -
seek from foreign partners are: the whole package of know-how, access to the
world market, and capacity to package (along with financLal resources); those
that local partners in the primary resource-based industries seek from foreign
partners are primarily access to the world market and financial resources.
- 51 -
VII. MAJOR FACTORS CONSTRAINING SUB-SAHARAN AFRICAN
COUNTRIES' EXPORT EXPANSION
7.01 In the previous chapters, we reviewed the current status of
foreign and domestic collaboration in manufactured and primary resourc3-based
export industries in Sub-Saharan Africa. Based on the firm-level interview
results, our review provides an analytical and emnirical underpinning for an
effective future strategy for foreign collaboration in export activities.
7.02 To examine the overall issues related to future strategies for
export development in these countries, the interview questionnaires asked
about the major factors constraining export growth. Table 7.1 summarizes the
sample firms' evaluation of these factors.
Table 7.1: SAMPLE FIRMS' EVALUATION OF MAJOR FACTORS CONSTRAINING SUB-AHARAN
APRICAN COUNTRIS' EKPORT GROWTH
COUNTRY MAJOR SUPPLY SIDE CONSTRAINTS MAJOR DEMAND SIDE CONST-
I________ (in order of Importance) RAIS (in order of Imptance)
1. Botwn (i) Lack of marketing capacity (especally European market) on (i) DiMcuhy in apoxs to South Afri-
the part of edating apore (u) lack of capacity to packge all ca due to their compeioa () diic-
the elemets needed to enter the word market on the part of aity In aprt to Zimbabwe due to the
potential ;poras; (iu) Inadequate ac0C to trade and Iest- se foreigp ace sht
ment finance; (iv) worker inefUden, (v) high feight cosla
2 Burundl (i) Lack of ia re capacity; (ii) lack of ernal (i) Other LDC cmpetlo (II) fc-
market link; (Hi) inadequate trade Infastructure; (iv) diffcu- rading taiff and non4ariff baies
Ities in having access to finance; (v) ising wage coss witthi the PTA and COEL3 trade
3. Cote d'hoire (i) High poducon cost caued by higb energ, water, labor, (I) Lac of sb.eolaa n atbuti
intennediate inputs, harbor, and administrative cost, (ii) fal- (U) snuggog; (iU) compee edge Of
utre to compeate for curency overvalution, failure to ensurm other LDCa
froe trade status, failure to esure compeithv labor costs, and
faidlure to ensure acos to financing (IH) lack of maketing
capaciy; (v) inconsistnt policies and implementation Ailur
4. Ghana () Lak of capacty to aport; (i) non-eay access to financing; ompettive edge of other LDCa
(ili) lack of commitment to induce foreign coaborafin; (lv)-
lack of efective match-making medhanms (v) lack of equal
footing apon poiWs
S. Kea (i) LAck of capacty to apart; (Ii) no effectei match-making Competitive edge of other LDCa
mechaim to locate foreign collaborteto; (1i) Ineffecttiv
I_pnetatio of apart policies ( ulal =som rd
tape and delays); (Fv) lack of commlentbyoafidL
52 -
6. Madasar (i) LACk of te apacitr, (i) lack of information While garment exponers face few con.
about eamer markets; (Ui) not easy acess to trade and inves- straint, tetile exporters concemn Asian
meat finance; (iv) inadequate trade infrstmrtureu (v) laCk of competition. Some agroindustries fear
management capacity. Latin American competition in the Eu-
ropean market.
7. Maladi (i) Lack of techcicslfting capacity, (U) lack of market (i) Regonal tade bait witoin the
link; (ill) high trnsport costs; (iv) diMculty in having access to PTA ountries (such as Zimbabwe)
finance. (i Asisq competition in gar-
menVtatile exportI
Moambique (i) Unstable poltial enwironment; (U) lack of capacity to (i) CompUtive edge of other LDCs;
apout; (ill) difficulty in having somss to financing; (nv) failure (i) trade barrien witin PTA cu-
to bave timely supply of imported inputs; (v) over ation tries (such as Zimbabwe)
and bureaucratic red tapes; (vi) inadequate trade ifastructure
9. Nigeria Q) Lack of marketi capacity, (ii) btek of external market Competitive edge of other LDC.
links; (iii inability to collaborate ith foreig trading agents or
companies; (iv) inemective implementation of export poicy
irstaments (including failure to ensure access to free trade
status, foreign elchange, and inance); (v) inadequate trade
infmstructur
10. Senegal (i) igh production costs stemming fom high lat-, port, (i) Limited size of West Afria's mar-
transpot, energ, water, mw material, intermediate input, ket; (ii) Atica's imwap in term of
Inventory, tax and administrative delay cats; (ii) overvlued product qualit; (iH) import restric-
echange rate and failure to compensate; (ii) tack of commit- tions in subregional market (depite
ment by authorities for competitivene; (iv) lack of marketing CEAO); (iv) competitive edge of other
capacdty (v) difficulty in havig access to finance LDCO
11. Swaziland (i) Not easy acCess to investment and trade finance; (i) inadeq- (i) Competition from South A&ica;
uate trade infrastructure; (iii) obstacles in getting expariates' (B) competition from Zimbabwe.
rese and werk pni (iv) inflatioa imponed from South
22. Tanzania O) Lack of capacty to export stemming from lack of expei- Competve edge of other LDCL
cnce; (ii) inefeti ve implenrentation of exon policies due to
red tape and bureaucracies; (iii) not casy access to trade and
imedment finance; (iv) inadequate trade inframrocturc
13. Togo 0) Lack of capacity to export; (U) dfficulty in hvig access to Competitive edge of other LDCL
trade financ; (ii) lack of effective match-making mechnisms
14. Uanda (i) Lack of capaciy to expU; (it) dimiultie in having a*ess Other LDCs' competitive edge
to free trade status (iii) difficulties in havin access to trade
and invemt financing; (iv) inadequate trade Infrastructum
IS. Zambia (i) Difty in having accs to free trade status; (ii) diffculty (i) Otber DCs competitive edge;
in having aces to foreign exange; (iii) lack of teCh&ncaV- (ii) declining regional demand for
marketing capacity; (iv) inadequate trade infrastructure; Zambia's export
(v) inadequate access to trade and investment financ
16. Zimbabwe (i) Lack of i capac (it) difficulty of hiring (i) Competition frm South Africa;
expatdate; (iin) outdated capital equipment; (iv) poor infra- (ii) Zimbabwes trade surplus witb
stucwe and high transport coats; (v) delays and complexity of PTA counties
customs and dutyfrme import procedures.
- 53 -
A. Major Demand-Side Constraints
7.03 Firms consider the competitive edge held bv other developing
countries in the non-regional hard-currency world market the most notable
demand-side constraint. Despite Sub-Saharan African exporters' non-quota and
tariff-free advantage in the European and U.S. markets, they are strongly
aware of their lack of competitive edge in these markets. This lack is mainly
due to the supply-side constraint3 summarized below.
7.04 In the regional market, the sample firms cite the limited size of
the market and its low purchasing power; import restrictions; smuggling; and
competition with South Africa as the most important constraints.
B. Major SupDly-Side Constraints
7.05 The sample firms in the 16 Sub-Saharan countries consistently
stressed their lack of capacity to egort as the most important supply-side
constraint. The most often mentioned elements they lack are: access to the
world market network, capacity to "package', and technical, marketing, and
managerial know-how. As we have stressed throughout the paper, a stepped-up
effort to induce foreign collaboration is the only way to resolve this lack of
capacity to export; and a necessary strategy for it is discussed in Chapters
VIII and IX.
7.06 The second most important constraint cited by the firms is their
governments' failure to im2lement export policy instruments effectively. The
most often-mentioned instruments are the various tools to ensure free-trade
status, access to trade finance, and other regulatory regimes for foreign
collaboration. The most disastrous aspect of the ineffective implementation
of export policy instruments is the difficulty in bringing in foreign collabo-
rators, the very element so critical to resolving the lack of capacity to
export. This aspect is even more damaging than the lack of a competitive
54 -
edge, which hampers current exporters with existing foreign collaboration.
More detailed comments by the sample firms on the ineffectiveness of export
policy instruments are reviewed in Chapter X.
7.07 The third most important constraint indicated by the sample firms
is inadequate physical trade infrastructgte, which leads to very high trans-
portation, communication, and utility costs as well as inventory costs and
delay costs. This subject is further discussed in Chapter XI.
- 55 -
VIII. SUB-SAHARAN AFRICAN FIRNS' DESIRE FOR NEW OR ADDITIONAL OREIGN
COLLABORATION FOR EXPORT INITIATION OR EXPANSION
8.01 As reviewed in Chapter VII, African exporters and potential
exporters strongly recognize their lack of capacity to export as the most
serious constraint to export expansion. Also, they realize that the only way
to acquire a capacity to export is to bring in foreign collaborators. This
chapter analyzes sample firms' desires for additional or nLew foreign
collaboration.
A. Survey Results for Manufacturing Exporters
1. Firms' Desire for New or Additional Foreign Collaboration.
8.02 Summary. Our field interview included the question: "Is your
company seeking (or interested in) new or additional foreign collaboration?'
The sample firms' responses are reported in Annex I. The following and Figure
1 are a summary of the responses:
Mi) Yes: 60 firms (56%)
(ii) No: 48 firms (44%)
Total response: 108 firms (100%)
(iii) No answer: 13 firms
Total sample: 121 firms
Even though on average each firm had 1.3 cases of foreign collaboration, as
shown in Table 1.2, almost three-fifths of the firms expressed a desire for
additional or new foreign collaboration. However, most of the new breed of
outward-oriented small- and medium-size firms did not know of any specific
channels through which to search for potential (see Chapter IX for more on
this) nor did they knew of any potential foreign collaborators seeking local
- 56 -
partners. There is huge excess demand for foreign collaboration for
manufactured export activities.
8.03 Tble 8.1. The Yes or No responses to the above question are
presented, together with an enumeration of firms' current foreign
collaboration modes.
8.04 Table-8.2. Sample firms' intentions regarding new or additional
foreign collaboration are aggregated (based on the inward vs. outward-
orientation classification defined in (iii) and (v) of para 6.06). The
average number of narrowly-defined foreign collaboration cases is presented as
well, to facilitate our understanding of the relationship between firms'
future intentions and their current market orientation/foreign collaboration
status.
8.05 Sample firms not seeking new or additional foreign collaboration
show an average number of narrowly-defined foreign collaborations consistently
larger than, or equal to, one. This suggests that they are satisfied with the
current status of their foreign collaboration, whatever their market
orientation.
8.06 All the inward-looking manufacturing firms that seek new or
additional foreign collaboration show an average number of narrowly-defined
foreign collaborations consistently lower than one or at zero. This suggests
that their inward-orientation is due to their lack of capacity to export, not
to their desire to remain in the local market. They want to switch from
inward to outward-orientation by building their capacity to export with
foreign collaboration.
FIGURE t
Manufacturing Firms' Desire
for New or Additional Collaboration
Yes 56%
No4l
No 44%
f
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Tabke: RHAT1ONtSHIP BETWEEN FUTURE FOREIGN COLLABORATION INENTIONS AND MARKEr ORMENTATZONI
CURRENT COLLABORATION STAIUS OF SAMPLE MANUFACrURED FIRMS
I Outwar-oret GM Iuwaoafkated finms
Seeking new or (aport 50% or more of products) (expon lss thn SO% of prodcts)
Finn size addltboal foreign No. of firms
collab B"tkxw foreip aOt Of arms Avg. no, of narrowly Av no. of narrowly
No. o finrs defined forign No. of fins (%) defined foeip
collaboration collaboration
(a) Lt Ade No 11(73%) 2(18%) 1.0 9 (2%) 1.0
Yes 4(27%) 1(25%) 0 3(75%) 0
(b) Medium size 11 NO 4(33%) 2 (50%) 1.0 2(50%) 0
Yes 8(67%) 5(63%) 1.6 3(37%) 0.7
(c) Medum sae I No 6(35%) 3(S0%) 1.0 3 (50%) 1.0
Yes 11 (6%) 4 (36%) 1.3 7 (64%) 03
(d) Small Wi 11 No 6(32%) 4 (67%) 1.3 2(33%) 1.0
Yes 13 (68%) 4 (30%) 13 9 (70%) 0
(e) Small siso I No 13(46%) 9 (69%) 1.0 4(31%) 1.0
yes 1S(54%) 4(27%) 0.8 11 (73%) 0.1
TOW No 40 (44%) 20 (50%) 1.1 20 (50%) 1.0
Yes Si (56%) 19(37%) 1.0 32(63%) 0.2
- 60 -
8.07 Another significant finding is that more than one-third of the
firms that desire future foreign collaboration are already outward-oriented
and show an average number of narrowly-defined foreign cpllaborations larger
than, or equal to, one. This suggests that to maintain their outward-
orientation and further penetrate the diversified world market with
diversified products, they are continuously searching for foreign
collaboration. This new breed of outward-oriented enterprise is entirely in
the small- or medium-size category.
8.08 At the same time, most of the large inward-oriented firms do not
appear to want additional foreign collaboration. This is mainly because they
started with an inward-orientation and intend to stay that way.
8.09 In short, the two factors--(i) current status of foreign
collaboration and (ii) firms' desire to switch from inward to outward-
orientation or to maintain/expand their outward-orientation--influence firms'
decisions to seek new or additional foreign collaboration. Therefore, it is
not surprising that although only about one-quarter of the inward-oriented
large manufacturing enterprises would seek foreign collaboration in the
future, there are more firms in the small- and medium-size export
manufacturing industries that seek foreign collaboration. These firms are
already more outward-oriented than are the large firms.
2. Firms' Desire for Particular Modes of Foreign
Collaboration
8.10 We asked the firms that expressed a desire for new or additional
foreign collaboration: "What types of foreign collaboration are your company
seeking (or interested in)?" The sample firms' responses are reported in
Annex I. The following is a summary of the responses from manufacturing
exporters:
- 61 -
(i) Technical/marketing/management agreement
(T/M/Mt Ag) or Tecinical agreement (TAg),
marketing agreement (MAg) or management
agreement (MtAg) (19 firms (29%)
(ii) Sub-contracting agreement (SC) : 7 firms (11%)
(iii) Joint venture (JV) : 5 firms (8%)
(iv) Foreign trade agent/foreign trading
company (FTA/FTC) : 1 firm (28)
(v) Preference types not specified : 33 firms (50%)
TOTAL : 66 firms W (100%)
8.11 About half the firms failed to provide answers about the specific
types of foreign collaboration they would seek (or are interested in).
However, many indicated specifically that they seek foreign collaboration
primarily for acces6 to the international market network. This suggests that
many of the non-responsive firms would have chosen category (i) as well. In
any event, under the assumption that the preference of these firms would be
similar to the relative choices of the firms that responded or by simply
relying on the revealed preference, we infer the following:
(i) T/M/Mt Ag: 58%
(ii) SC: 22%
(iii) JV: 16%
(iv) FTA/FTC: 4%
TOTAL: 100%
8.12 The fact that the most preferred type of collaboration is techni-
cal/marketing/management agreement (T/M/Mt Ag) is consistent with our
discussion in Chapter III. This type of collaboration is preferred because:
(i) the foreign partner brings in know-how, access to the world market, and
the capacity to package, all of which the domestic partner lacks; (ii) the
2/ The total number of manufacturing firms that expressed a desire for future
foreign collaboration is 60, but some firms indicated more than one type
of foreign collaboration.
- 62 -
domestic partner does not take much risk; (iii) the domestic partner can count
on the foreign partner's strong commitment; (iv) the domestic partner has
equity and does not want the uncertainty that can stem from disputes
associated with shared ownership with a foreign partner.
8.12 The firms' next preferred mode is sub-contracting (SC). Even
though SC does not provide the entire package--know-how, access to the world
market, and the capacity to package--it takes care of access to the world
market, and it is easier to have an SC agreement than to arrange T/M/Mt Ag,
because the foreign partner takes much less risk under SC.
8.13 The fact that a joint venture (JV) is only the third choice in the
sample may be because existing firms have capital facilities that have to be
used fully. Also, this choice reflects their uncertainty about harmonious
relationships with foreign shareholders.
3. Relative Weights Attached to Modes of Foreign Collaboration.
Current and Future
8.14 For the sample manufacturing firms, the following relative weights
for current modes of narrowly-defined foreign collaboration are derived from
Table 4.1:
Joint ventures (JV) : 39%
Technical/marketing/management consulting
(TA/MA/Mt A): 31%
Technical/marketing/management agreement
(T/M/Kt Ag) : 15%
Subcontracting agreements (SC) : :5%
TOTAL : 100%
- 63 -
8.15 We exclude FDI in the weighting because we wish to compare the
weighting attached to the current modes with what the sample firms would
prefer in future collaboration. For our sample firms, FDI is not an
alternative mode of foreign collaboration. In turn, we have included
technical/marketing/management consulting (TA/NA/Nt A) even though it is not a
narrowly-defined foreign collaboration mode, because many sample firms
indicated that they use TA/HAMNt A in the absence of T/M/Mt Ag, even though
they prefer the latter.
8.16 For current purposes, we leave out the foreign trade agent/foreign
trading company mode (FTA/FTC) (para 8.11), because it is not a narrowly-
defined foreign collaboration mode. Thus Table 8.3 and Figure 2 show the
differences between the weights for desired and current collaboration modes
for manufacturing enterprises.
Table 83 DIFFERENCE BETWEEN DESIRED WEIGHTS AfTACHED BY SAMPLE
MANUFACIURED FIRMS AND CURRENT WEIGS ON MODES OF NARROWLY
DINED FOREIGN COLLABORATION
Modes of narrowly ddeind foreign collaboratimo Desired weight Cimt weight
| (i) Te _nlmting~nanaunet agrelaent (T/M/Mt Ag) 60% 15%
(U) Subontract agement (SC) 23% 15%
Q (q Joint venture (j) 17% 39%
(tv) Technica consulting (TAMA/A) 0 % 31%
|Total Il| * 100% 100%
8.17 The differences in the weights must be understood carefully. For
example, the results do not imply that JV or TA/NA/Kt A would be less
important in the future. Rather, the results suggest that the sample
manufacturing firms are extremely eager to have more T/M/Mt Ag and SC (rather
than JV or TA/NA/Mt A) and that an effective national and lnternational
strategy is needed to support this effort (see next chapter). Also, since the
results are based on the preferences of existing firms seeking foreign
- 64 -
collaboration, they exclude the importance of FDI and may underestimate
foreign collaborators' role in providing investment capital for new
enterprises.
B. Survey Results for Primary Resource-Based (on-Traditional) Exporters
1. Firms' Desire for New or Additional Foreign Collaboration
8.18 Summary. Responses from primary resource-based (non-traditional)
exporters' to the question on their intentions about new or additional foreign
collaboration are as follows (see also Figure 3):
(i) Yes: 31 firms (60%)
(ii) No: 21 firms (40%)
Total response: 52 firms (100%)
(iii) No answer: 4 firms
Total sample: 56 firms
As with manufacturing exporters, about three-fifths of the firms expressed a
desire to engage in additional or new collaboration with foreign enterprises,
confirming that there is similar excess demand for foreign collaboration in
primary resource-based export industries.
8.19 Note that the primary resource-based firms are generally more
outward-oriented than are manufacturing firms. Again, results suggest that
the more outward-oriented the firm, the more--not less--it must seek foreign
collaboration to maintain its competitive edge in the world market.
2. Firms' Desired Modes of Foreign Collaboration
8.20 In our sample, primary resource-based exporters' expressed their
preferences for particular types of foreign collaboration as follows:
FIGURE 2
Current vs. Desired Modes
of Foreign/Domestic Collaboration
Percent
70
60-
30
20*
10
0
T/M/Mt Agreement Joint Venture Subcontract TA/MA/Mt Consulting
Collaboration Mode
Desired Mode Actual Mode
Manufacturing Firms
J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
FIGURE 3 -
Primary- Resource Based Firms' Desire
for New or Additional Collaboration
Y 6
_
Yes 60%
w ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1'
I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
- 67 -
(i) Technical/marketing/management agreements
(T/M/14t Ag) : 11 firms (31%)
(ii) Joint venture (JV) : 3 firms (9%)
(iii) Subcontracting (SC) : 2 firms (6%)
(iv) Foreign trade agent/foreign trade
company (FTA/FTC) : 1 firm (3%)
(v) Preference types not specified : 18 firms (51%)
TOTAL 35 firmsW (100%)
8.21 Under the assumption that the choices of firms that did not
specify a preference for a particular type of foreign collaboration would be
similar to the relative preferences of the other firms or by simply relying on
the revealed preference, we may infer the following:
(i) T,M/Mt Ag 63%
(ii) JV 19%
(iii) SC . 12%
(iv) FTA/FTC : 6%
TOTAL : 100%
8.22 The results for primary resource-based firms are similar to those
for manufacturing firms in that the most preferred type of future foreign
collaboration is the technical/marketing/management agreement (T/M/Mt Ag).
J/ The total number of primary resource-based firms that expressed their
desire for future collaboration are 31, bu_ some firms indicated more than
one desired types of foreign collaboration.
- 68 -
8.23 Firms' next preferred mode is Joint venture (JV), whereas the
second choice of manufacturing firms is the subcontracting agreement.
3. Relative Weights Attached to Modes of Foreign Collaboration.
Current and Future
8.24 For sample primary resource-based firms the relative weights for
current modes of narrowly-defined foreign collaboration are obtained from
Table 4.2:
Joint ventures (JV) 71%
Technical/marketing/management
agreements (T/M/Mt Ag) 11t
Technical/marketing/management
consulting (TA/MA/Mt A) : 11%
Subcontracting agreements (SC) : 7%
TOTAL 100%
8.25 Table 8.4 and Figure 4 show the differences between the weights,
for current and desired, narrowly-defined foreign collaboration modes.
Table 8.: DIFFERENCE BETWEEN DESIRED WBIGQS ATTACHED BY SAWLE
PRIMARY RESOURCE-BASED FIWMS AND CURRENT WEIGHIS ON MODES OF
NARROWLY DEFINED FOREIGN COLLABORATION
Mode of nrw defind faoeign coiaboation Deired wdeht Cmment we4gtl
( ) Telmlg t agt (TlM/Mt Ag) 67% 11%
(ii) Joint venture (JV) 20% 71%
Qii) Subcontract agremnt (SC) 13% 7%
| (F) Teftka _ taWWkn~t citl (TA/MAlMt A) 0% 11%
TOa 100% 100%
fIGURE 4
Current vs. Desired Modes
of Foreign/Domestic Collaborat,on
Percent
80
60
40 -
20 -
0
T/M/Mt Agreement Joint Venture Subcontract TA/MA/Mt Consulting
Collaboration Mode
Desired Mode Actual Mode
Primary-Resource Based Firms
*70 -
8.26 The results shown in Table 8.4 are similar to those in Table 8.3:
the primary resource-based firms are as eager as manufacturing firms to expand
T/M/Mt Ag and to have more SC in the future. However, in light of African
countries' proven comparative advantage in certain primary resource-based
(non-traditional) export items, attracting foreign collaboration into these
areas would be relatively less difficult than for manufactured export items in
which African countries have yet to demonstrate convincingly a competitive
edge. Furthermore, while access to the world market (and financial resources)
may be primarily what local partners in the primary resource-based industries
are looking for the whole package of know-how, access to the world market, and
capacity to package (and financial resources) is what most local partners in
the manufacturing industries are looking for from foreign collaborators.
- 71 -
IX. IMPERFECT INFORMATION BETWEEN POTENTIAL
FOREIGN AND DOMESTIC COLLABORATORS
A. Malor Factors Constraining Foreign Collaborators' Involvement in Sub-
Saharan African Export Activities
9.01 This chapter discusses issues related to the imperfect information
ga between foreign and domestic collaborators, particularly in manufacturing
for export, as well as issues related to negative images about Africa.
9.02 As reviewed in Chapter VII, the exporters in our sample stated
that the three major supply-side factors constraining export expansion in Sub-
Saharan Africa are: (a) lack of capacity to export; (b) governments' ineffec-
tive implementation of export policies; and (c) the region's inadequate trade
infrastructure. And as indicated in Chapter VIII, exporters expressed a
desire for additional or new foreign collaboration in order to acquire,
improve, or expand their capacity to export. Furthermore, as seen in Chapter
VII.,, there is also a large gap between the types of foreign collaboration
demanded by African firms and the types that foreign suppliers are willing to
provide. Most of these demands by African exporters (or potential exporters)
for foreign collaboration in general and for particular types have not been
met by firms in the OECD countries or from the NIEs. This lack of response
has resulted in the huge excess demand for foreign collaboration overall and
for particular types.
9.03 The interview questionnaires also asked about the major factors
constraining foreign involvement in Africa's manufactured-export activities
particularly. Our sample firms cited the same major factors as constrain the
African countries' export expansion:
(a) ineffective implementation of export policies (and the consequent-
ly unfavorable business environment); and
- 72 -
(b) inadequate trade infrastructure
In addition:
(c) extremely negative image of Africa;
(d) potential collaborators' imperfect information on potential
partner countries and enterprises;
(e) lack of political and social stability in Africa.
Only elements that may appeal to some potential foreign collaborators for Sub-
Saharan export activities appear to be the tariff-free or quota-free access to
the European or U.S. market and relatively low nominal wages in certain
countries. However, because the above constraints normally far outweighed
these small advantages, potential foreign collaborators were reluctant to
involve in most of the Sub-Saharan African export activities.
9.04 Chapters X and XI review export policy implementation (including
policies that influence the business environment) and trade infrastructure
issues, respectively. Chapter X defines the internal gM between the high
demand by the new breed of local entrepreneurs and the restricted government
desire (i.e., policies) for (export-oriented) foreign and domestic enterprise
collaboration (as clearly seen from the restrictive expatriate-worker and
other policies).
9.05 In Africa the issue of imperfect information (i.e., information
gS) appears to be more serious than the issue of export policy implementation
(i.e., internal gap) and the issues of physical trade infrastructure, in the
sense that even if export policy implementation and physical trade infrastruc-
ture improved significantly, most potential foreign collaborators would not
change their extremely negative perception about Africa. They would still
need to know African countries and enterprises better. Therefore, mechanisms
through which (i) foreign collaborators can learn about African policies,
physical trade infrastructure and individual firms more intimately, for the
consideration of potential collaboration with them, and (ii) local partners
- 73 -
can search for potential foreign collaborators in the OECD countries or NIEs
seem critical.141 Also, mechanisms that would reduce potential foreign
collaborators uncertainty about export-related collaboration in general, and
about particular types of collaboration, are equally necessary. The extraor-
dinary circumstances of the Sub-Saharan African countries necessitate narrow-
ing the enormous external gap between the high demand for, ar.d negligible
potential supply of, manufactured export-related foreign collaboration. This
would appear to be one of the biggest development policy challenges in the
1990s. Although narrowing the external gap (supply and demand) requires
narrowing both the internal (policy) gap and the information gap (as well as
improving physical trade infrastructure), negligible attention has been given
efforts to reduce the information gap in particular, compared to ongoing
efforts to reduce the internal gap (i.e., the policy constraints) to create an
"enabling environment."
B. Collaborators' Access to Information on Potential Partners for ManufAc-
tured Exports
9.06 Table 9.1 lists the sources of supply in the past for foreign
collaboration in exporting. Several patterns for obtaining information on
potential foreign collaborators and potential partners (which led to African
involvement) were identified through our field interviews and are summarized
below.
4/ 1Lt has been argued that a root cause of underdevelopment in low-income
developing countries has been the ineffectiveness of micro agents in
dealing with imperfect, and therefore costly, information (Arrow, 1974;
Stiglitz, 1989). Further, it has been suggested that a focus of the
microeconomic of development in low-income countries should be on
effective ways to accelerate the learning process (Stiglitz, 1989).
- 74 -
a W- I
=:~~ 3 I If
-# - - - - T-
i 83 X�~~~~~~~ - IIfl
lt~~~~~~ - - - a - I
III --��� F A XRJ1
X _ __ _ ___ _+-_ _ __ __ __ _ ___
ii 21 : -- - . ,1
El~~ if -- .if +__w___
LI~~~~~~ - - - - - - - - -
- 75 -
1. Large MNCs8 Initiatives (for Inward-Oriented Foreign Collabora-
tign) in Manfacturing Industries
9.07 In the 1960s and even before, most large multinational companies
(MNCs) in manufacturing industries invested (through FDI or JVs) in Sub-
Saharan African countries based on their careful plans to monopolize Africa's
domestic markets. In such cases there was no such element as "imperfect
information" that might limit the foreign collaborators' involvement. As
indicated (see paras. 6.08-6.10), about three-quarters of our sample large-
size manufacturing firms, those with extensive foreign collaboration and with
employment size ranging from 1,000 to 4,400 workers, have always been highly
inward-oriented. They have collaborated with local firms for monopoly of the
protected domestic market, not for entry into the world market. Only recently
have these large inward-oriented MNCs begun exporting a fraction of their
products, mainly to regional markets and, marginally, to non-regional hard-
currency markets.
9.08 For example, Company No. 20 in Country F, with 2,000 workers
(established originally in 1929), and Company No. 7 in Country B, with 1,500
workers (established in 1963), were set up by European MNCs as JVs with state
companies for local sale of household consumer items (paragraph 6.11). They
were nor restricted by imperfect information because they had resources to
prepare careful plans based on relevant information. Similarly, Company No.
20 in Country B, producing shoes (with 1,900 workers) for the local market
(paragraph 6.12), and Company No. 2 in Country F, producing textiles (with
1,000 workers) for the local market (paragraph 6.13), were established in 1946
and 1922, respectively, by European MNCs. The MNCs' had careful strategies
and therefore were not impeded by imperfect information. By the same token,
if large MNCs are genuinely interested in becoming involved in African export
activities, the imperfect information issue would not exist because these
companies have enough resources to collect relevant information. The fact is,
- 76 -
large MNCs may not be interested in Africa's export activities because they
have better alternatives in other parts of the world.
2. Unolanned Access to Information
9.09 According to the results of our survey, key information on a
potential target country or enterprise that led to a foreign collaborator's
decision to invest in Africa often came as a result of mere accident. Several
of our sample companies gained information this way. However, relying on
serendipity as a viable means to foster foreign collaboration for Africa's
exporting would be folly, because of the urgency of African development.
9.10 For example, in 1973 a medium-size German garment manufacturer
decided to establish a company (Company No. 5) through FDI in Country M. This
was for domestic market-oriented garment production. The decision to set up
the company came after two years' of exporting to Country M--but that business
had been initiated as a result of the German executives' safari trip to the
country several years previously. After the domestic market in Country M
collapsed in the early 1980s, the company exploited a niche in the regional
market first, and recently the company has been exporting to the European
market as well (1,000 workers in 1991).
3. Experience-Based Access to Information on African Industry by New
Breed of Small-and Medium-Size Foreign and Domestic Collaborators.
for Outward-Oriented Manufacturing
(a) Previous Experience in Sub-Saharan African Manufacturing
9.11 One of the bright spots in Africa's development is the emergence
of a new breed of local entrepreneurs including localized foreigners (LF), who
are determined to pursue outward-orientation with foreign collaboration. For
example, Companies No. 1 and No. 2 in Country B are "super outward-oriented"
77 -
small- and medium-size manufacturing exporters who had previous experience in
Africa. In turn, the new breed of foreign collaborators with previous
experience in African manufacturing has matched up well with the new breed of
local entrepreneurs or managers. For example, Company No. 11 (producing
garments for 100% export to the U.S. market, with 100 workers) in Country L
was taken over by a Hong Kong investor (FDI) in 1990. This Hong Kong busi-
nessman had long business experience in another Sub-Saharan African country
before deciding to be involved in Country L.
(b) Previous Experience in Home Country Exporting to the Sub-
Saharan African Market
9.12 It is fortunate that new small- and medium-size foreign collabora-
tors emerged in the 1980s as catalysts for Africa's outward-orientation, based
on their previous experience in African manufacturing and trade. Several of
the sample companies in Table 18 belong to this category. For example,
Companies No. 5 and No. 6 in Country 0 (small-size regional exporters of human
hair) had obtained the information needed to decide on their collaboration (JV
and FDI, respectively) in 1983 while exporting to Country 0 from Korea.
9.13 However, how much further milage will Sub-Saharan African coun-
tries be able to get from their outward-orientation based purely on foreign
companies with previous experience in Africa? Table 9.1 shows that for the
sample companies, only 8 out of a total of 122 cases of narrowly-defined
foreign collaboration came from five East Asian countries, primarily based on
their previous experience in African manufacturing and trade. A new effective
strategy is called for to bring in more outward-oriented foreign collabora-
tors, the ones that have had no previous experience in African manufacturing
or trade, by resolving the severe imperfect information issues.
- 78 -
4. Information Intermediaries for Foreign/Domestic Enterprise Collab-
oration in Industrial Export Production and Sales
(a) International Assistance Schemes
9.14 Several of the sample firms reported that they received investment
financing, equity, or other financial support from various international
schemes, including those of IFC and USAID. However, only one primary re-
source-based (non-traditional) export enterprise, out of total of 177 sample
firms, cited an international scheme's intermediary role in locating a foreign
enterprise collaborator (i.e., for narrowly-defined collaboration). In
Country D, Company No. 5 (established in 1989) reported that it entered into a
technical/marketing agreement (T/M Ag) with a leading U.S. spice manufacturer,
for 100%-export-oriented vanilla bean processing, after intermediation by the
African Project Development Facility (APDF) of IFC.
9.15 Our sample firms indicated that most of the international assis-
tance schemes designed to foster partnership between African and European
enterprises (such as the Industrial Partnership Program of the Center for
Development of Industry (CDI) created under the Lome Convention) focused on
financial assistance for feasibility and diagnostic studies and on technical
assistance (TA). This was instead of intermediating foreign and domestic
enterprise collaboration (such as FDI, JV, T/M/Mt Ag) in industrial export
areas. Partly because of European firms' interest in other locations than
Africa for narrowly-defined enterprise collaboration, these assistance schemes
appear to have fallen back on finding foreign consultants for African firms.
Most of these consultants' experience is not necessarily industrial export-
oriented, however. It is unclear whether the match-making mechanisms of the
external assistance schemes include searching deliberately for potential
European enterprise partners from among small- and medium-size firms that
might not be part of a regular network. In any case, the survey results
reveal that the types of foreign collaboration supported by the international
- 79 -
assistance schemes are not necessarily the types of export-oriented for-
eign/domestic enterprise collaboration that African exporters are looking for.
(b) National Agencies
9.16 None of the sample firms cited any specific intermediary role by
African public agencies for locating particular foreign or domestic partners
for export production and sale. However, many African governments have
established investment promotion centers with the objective of promoting FDI
or JV. The centers' role in publicizing FDI or JV incentive policies,
responding to active potential investors' requests for information on the
legal framework and on potential collaborators, issuing investment permits,
and organizing foreign missions to lobby foreign investors has been important.
The centers have never played, nor will they ever play, a role in the search
for specific foreign export partners, however. This is simply because the
centers have neither financial resources nor skills and connections to do so,
according to our sample firms.
9.17 Many African governments also have export promotion agencies to
facilitate their exporters' access to foreign technical, marketing, and
managerial know-how, as well as access to the established international export
market network. However, it does not appear that the agencies have been
effective beyond organizing overseas fairs and foreign missions, negotiating
trade agreements, or collecting aggregate or government-level data. Again,
these public agencies have neither financial resources nor skills and connec-
tions to intermediate foreign collaboration or provide direct assistance
(TA/NA/Mt A), according to our sample firms' opinions. Rather, their efforts
can be more effective if they focus on eliminating legal and information
barriers that prevent private agents from being intermediaries for foreign
collaboration (such as T/M/Kt Ag, JV or FDI).
- 80 -
(c) Private Agents
(i) Foreign Private Agents
9.18 A 100%-export-oriented garment firm in Co-intry B reported its
experience with a foreign private agent who was intermediating to obtain a
subcontract agreement (SC) with the firm on behalf of a foreign buyer. In
1989, a Hong Kong buying agent's office in Bangladesh introduced this company
to a Hong Kong agent who intermediated an agreement with a U.S. buyer and
brought in a technical consultant (TA) from Sri Lanka.
9.19 The extremely unstable nature of this type of SC as a means for
foreign collaboration at an early stage of a country's export development was
clearly demonstrated when the above company in Country B had to stop its
factory operation from March to September 1991. This was because the U.S.
buyer and the Hong Kong agent did not renew the SC, and the company was unable
to find another foreign agent to broker an SC with another foreign buyer.
9.20 In our interview with the company, its managers indicated their
desperation for a technical/marketing/management agreement (T/H/Mt Ag) with a
small- or medium-size foreign company that has a good track record in the
international market. The company had been unable to locate any foreign
private agent that could arrange T/M/Mt Ag. By the same token, it does not
appea. that there are foreign or international private agents who act for
potential T/M/Nt Ag suppliers in finding potential partners in Africa.
9.21 During our interview, another 100%-export-oriented garment company
in Country B described the following. A private foreign agent proposed
intermediating a technical consulting contract (TA) for the company (and other
garment factories in Country B) to upgrade its product quality for the export
market. The agent apparently indicated that once product quality had im-
proved, based on the TA he proposed to intermediate, he would be willing to
- 81 -
intermediate SC with foreign suppliers. However, there is no guarantee that
he will in fact do so or will succeed. Because of the uncertainty of the
potential pay-offs that might be linked directly to the proposed TA, the
company was not willing to commit money for the TA fees without parallel
support from an aid agency. Here again, the company expressed its preference
for T/M/Mt Ag (rather than TA) because of the former's built-in guarantee of
royalty payment recovery (through likely increased export sales). However,
the company does not know where to find a private intermediary who can carry
its case for a T/M/Mt Ag to potential suppliers. If an external aid agency
financed the proposed TA, the company would receive it as a free service.
However, in light of the company's preference for T/M/Mt Ag, the more effec-
tive way of using the aid resources would be to support intermediation for
T/M/Mt Ag.
9.22 The interview results from the above two companies confirm our
overall findings on the differences between the desired and curren preferenc-
es for narrowly-defined foreign collaboration modes for manufacturing enter-
prises, as summarized in Table 8.3 of Chapter VIII.
(ii) Domestic Agents
9.23 The aforementioned experience of being unable to locate foreign
agents to broker T/M/Ht Ag or SC applies equally to domestic agents. In the
case of domestic agents, the issue is not how to locate them; the problem is
that there is no domestic agent in our sample Sub-Saharan African countries
that can play the kind of intermediary role called for above. Usually,
domestic trading companies with extensive international contacts would be an
ideal starting point in building a local intermediary. However, it does not
appear that there are such trading companies in the sample countries.
9.24 Even the role of foreign or international trading companies in
exporting manufactured or primary resource-based (non-traditional) products
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from the sample countries is negligible. This inference derives from the fact
that there were only three cases of foreign trade agent/foreign trading
company (FTA/FTC) collaboration pertaining to our sample manufactured exports,
and four cases of FTA/FTC pertaining to the primary resource-based (non-
traditional) exports, as shown in Table 4.1 and 4.2.
C. Potential Foreign Collaborators' Access to Collaboration Risk Coverafe
9.25 Our interviews with export-oriented foreign collaborators did not
reveal any instance in which export-oriented foreign collaborators' risk-
taking in African FDI, joint ventures, or technical/marketing/management
agreements was directly covered by risk coverage schemes. Nor did the sample
exporters cite any export credit insurance/guarantee coverage for their
activities. This apparent lack of access to coverage for risk-taking in
export-oriented foreign collaborative agreements or in export activities must
be seen as an important negative factor that has limited the involvement of
export-oriented foreign collaborators in Africa.
9.26 In contrast to the lack of such mechanisms in Africa, industrial
country suppliers of machinery and plants to Sub-Saharan African countries
have easy access to risk coverage for their exports through their countries'
P-cn export credit schemes. In 1970-88, the share of private export credits
that was officially insured or guaranteed in relation to total private export
credits to Sub-Saharan Africa was significantly higher than the corresponding
share relative to other developing countries.AI/
1j/ See Demirguc-Kunt and Erzan (1991).
- 83 -
D. Stratelies to Narrow the Information Gap Between Potential Foreign and
Domestic Collaborators
9.27 The survey results confirmed that there is a huge external gAu
between African firms' extremely high level of demand for foreign collabora-
tion and the negligible level of potential collaborator supply for Africa's
export activities. Also, the argument in Chapter III that resolving the
external discrepancies between developing country enterprises' demand prefer-
ences for specific modes of foreign collaboration (such as T/M/Mt Ag) and
developed country enterprises' supply preferences (such as TA, MhA, Mt A) may
be one of the biggest challenge in designing an effective strategy for foreign
collaboration was confirmed empirically in Chapter VIII.
9.28 However, as this chapter points out, existing public, private, and
international intermediation mechanisms are virtually incapable of narrowing
the information gag. The information gap and the internal (goligYX SaU
between private enterprises' high demand and government agencies' restrictive
policies for (export oriented) foreign collaboration (discussed in Chapter X)
are the two critical factors for the huge external gap between high demand and
negligible potential supply. Also, the existing foreign collaboration risk-
coverage schemes for African export activities do not appear to support any
attempt to attract export-oriented foreign collaborators by reducing their
uncertainty about Africa.
9.29 As indicated (para 9.11) the bright spot in this disappointing
situation appears to be the emergence of a new breed of outward-minded small-
and medium-size African entrepreneur. However, their momentum may be lost
unless matched soon by a stepped-up inflow of their counterpart enterprises
collaborators from the OECD countries or NIEs. Time may be running out
quickly for many of the Sub-Saharan African countries to capture outward-
oriented foreign collaboration because the potential stock of new breeds of
outward-oriented small- and medium-size foreign enterprises seeking relocation
- 84 -
from the OECD countries or NIEs has been rapidly diminishing. This is because
they have already been rapidly moving to other locations around the world
where the information gap is smaller and the internal gap is narrowing (Asia,
Caribbean, Latin America, or Eastern Europe). It appears that by the mid-
l990s there will be no substantial stock of such foreign firms left. There-
fore, locating and bringing these new foreign collaborators into Africa's
export activities (i.e., by resolving information and policy gaps) to match
them up with the new breed of local entrepreneur, is one of the biggest
development challenges for the first half of the 1990s.
9.30 In meeting this challenge by narrowing the information gap, the
following two new institutional mechanisms can play a catalytic role: (i)
private match-making mechanisms; and (ii) foreign collaboration risk-coverage
schemes. These mechanisms and schemes would be exclusively for Sub-Saharan
African export activities. These would be designed to attract the new breed
of small- and medium-size foreign enterprises whose strong negative image of
Africa has so far led them to exclude Africa as a potential collaboration
site. Imaginative and innovative approaches would be key for the success of
such mechanisms and schemes.
9.31 The basic premises that underlie these two institutional consider-
ation are the following:
(a) Putting public or international resources into developing private
match-making mechanisms is far more effective than putting
resources into public mechanisms which have been not very
effective;
(b) Even though both the local and foreign firms know that collabora-
tion can benefit them through increased export earnings, they
cannot bring about collaboration because: (i) no one is willin.g
to locate potential partners for match-making; and (i) no scheme
- 85 -
is available to cover the export-oriented foreign partners' risk-
taking.
(c) If local and foreign partners were willing to pay private match-
making fees and risk-coverage premiums as part of their export
earnings, private match-makers and a risk coverage scheme might
emerge to the extent that there are enough transactions that will
more than break even.
(d) However, (c) will not happen naturally; thus, public and interna-
tional initiatives are called for to lead the way to make it
happen.
- 86
X. IMiPLNMTATION OF EXPORT POLICY INSTRUMEUNI
A. Free Trade Status
10.01 Free trade is achieved by completely liberating goods markets from
government policy restrictions (i.e., QRs and foreign exchange restrictions)
and tariffs (and indirect taxes) throughout the whole economy. But most low-
income developing countries cannot achieve free trade in the short run,
because of their balance of payments, among other reasons, and therefore they
attempt to provide such status for their export activities first, before
extending the regime to non-export activities.
1. Instruments for Frea Trade Status
(a) Duty (and Indirect Tax)-Free Import Schemes
10.02 For developing countries that lack a free-trade regime, the
following duty-free (and indirect tax-free) import schemes are alternatives:
(i) export processing zone (EPZ);
(ii) bonded manufacturing warehouse (BMW or in-bond factory) with
around-the-clock customs monitoring;
(iii) BMW with customs spot-checks;
(iv) common BMW;
(v) duty exemption system;
(vi) individual drawback system; and
(vii) fixed drawback system.
10.03 E. An EPZ is: (i) an industrial estate (surrounded by fences)
with factory buildings for rent; (ii) that offers free trade (and other
liberalized regulatory regimes) for 100%-export manufacturing; (iii) that
relies on the simplest "physical checking mechanisms' of material inflows and
- 87 -
goods outflows; and (iv) that primarily aims to draw in FDI and stimulate the
creation of joint ventures with local firms.
10.04 BMW with around-the-clock customs monitoring. This type of BMW,
for 100%-export-oriented manufacturing firms with the required warehouse
facilities, relies on the physical checking of goods to and from the BMW, just
as in an EPZ.
10.05 BMW with customs sRot-checks. This type of BMW, for 100%-export-
oriented manufacturing firms with the required warehouse facilities, relies on
documentation requirements and frequent customs spot checks of inventories.
This type is a hybrid of the conventional BMW and the duty-exemption systems.
10.06 Common BMW. A licensed common BMW serves as a private or semi-
public agent for small- and medium-scale exporters who lack direct access to
individual BMWs.
10.07 Duty-exemgtion system. This system exempts firms from paying
duties (and indirect taxes) on imports (and capital goods) used for (direct
and indirect) export production. The exemption is determined based on
expected direct and indirect export activities and associated actual import
activities. The main documentary requirements for the duty exemption system
are: an approved standard imported input-output coefficient; documents
showing expected direct and indirect export quantity; and a payment guarantee
of duty liability associated with an approved import quantity.
10.08 Individual-drawback system. This system refunds the duties
actually paid by direct and indirect exporters, as determined and based on
completed export and associated import activity. The main documentary
requirements for the individual drawback system are: an approved standard
imported input-output coefficient; documents showing completed direct and
- 88 -
indirect export quantity and value; and documents showing completed import
quantity and value of inputs with actual duty payments.
10.09 Fixed-drawback system. This system estimates the duties in the
overall cost if producing export commodities and refunds them to the final-use
exporters according to a predetermined schedule. The main documentary
requirements for the fixed-drawback system are a standard fixed drawback rate
set by the government for a given export item, and documents showing final
export vtlue.
(b) Import Licenses and Foreign Exchange
10.10 To operate under free trade status, exporters must be guaranteed
speedy and automatic access to import licenses and foreign exchange. These
are necessary for importing the raw materials needed for export production.
(c) Firance
10.11 Even if the various duty-free import schemes are in place and
access to import licenses and foreign exchange is ensured, exporters still
might not enjoy speedy access to imported inputs. This might be because
access to finance is limited, due to physical collateral requirements or
credit ceilings imposed on commercial bank loans. Therefore, failure to
provide easy access to trade finance can indirectly limit exporters' free
trade status. (Interview results on access to finance and its implications
for providing free trade status are discussed below.)
2. Interview Results: Firms Evaluate Free-Trade Status
10.12 Our sample exporters' comments on implementation of the various
instruments of free trade in the 16 Sub-Saharan African countries are summa-
rized in Annex II.
- 89 -
(a) Availability of Instruments
10.13 Free trade. Two of the sample countries, Swaziland and Botswana,
depend on free trade under the Southern African Customs Union (SACU) for most
of their imports for export production.
10.14 M. Senegal has operated an EPZ (Dakar EPZ) since 1975. Kenya,
Togo, and Madagascar have enacted EPZ laws recently. Only the private EPZ in
Kenya was in operation at the time of our survey. Togo and Madagascar allow
the ZPZ regime for individual factory sites. In this report, such individual
EPZs are grouped with BMYs.
10.15 BHW. Several countries operate iaostly the conventional BMWs (with
around-the-clock customs monitoring), but apparently only a limited number of
large-scale exporters can have access to this scheme. (For example, only two
firms in Zimbabwe and only large state companies in Zambia and Tanzania appear
to have BMW licenses.) Kenya introduced its BMW system in 1989, an, Malawi
operates pilot BMWs. In turn, the so-called individual EPZ systems '" Togo
and Madagascar, introduced recently, can be considered BMW systems. Proposals
for BMW systems are under review in several of our sample countries (such as
Nigeria and Mozambique), while several others (such as Uganda and Ghana) have
not yet reached even a review stage. All the BMW systems in operation are
individual BMWs, and there is no single common BMW system (similar to the one
being operated in the Philippines) in place in the African countries.
10.16 Duty-exemption system. This appears to be new in many of the Sub-
Saharan African countries, as evident in Kenya, which introduced the duty
exemption system only this year. Many of the sample countries are reviewing
proposals to institute duty-exemption systems.
10.17 Duty-drawback system. This is the most common system allowed by
the customs regulations in most African countries. A few countries appear to
- 90 -
rely on some variants of a fixed-drawback system. For example, Kenya's Export
Compensation scheme is a fixed-drawback system with a flat 20% drawback rate
applied on all the listed products and companies.
10.18 Access to imnort licenses and foreign exgh&Me. In several of the
sample countries (such as Swaziland, Botswana, Nalawi, etc.), access to import
licenses and foreign exchange is not a problem. Also, considerable progress
has been made in many countries through import liberalization and foreign
exchange auctioning for both exporters and non-exporters. Free trade and full
convertibility of local currency are the ultimate goas of all developing
countries, and general import liberalization and foreign exchange auctioning
would move them closer to those goals, even though the goals may be long-term.
Several sample countries rely also on an export-earning retention scheme for
granting export incentives and for helping exporters access loreign exchange
to import goods for export production. However, it does not appear that
built-in mechanisms to guarantee exporters' access to import licenses and
foreign exchange (even during foreign exchange shortages and for new export-
ers) have been instituted in any of the sample countries.
(b) Implementation by Governments as Seen by Firms
10.19 Evaluation criteria. The following are basic to the effective
design and implementation of the various instruments summarized above. W
(i) speedy processing;
(ii) guaranteed free trade status;
(iii) compliance with the GATT rules on export subsidies;
(iv) transparency;
(v) automaticity;
(vi) prevention of misuse of duty-free imports;
IV Rhee (1991b).
- 91 -
(vii) equal treatment for all activities that generate export value-
added; and
(viii) minimum red tape.
10.20 Soeedv urocesslng of nroced aes. The first two are the most
critical factors for firms that wish to compete in the world market because
exporters otherwise fail to meet export orders on time, incur huge inventory
costs, or suffer costly production disruption. Without guaranteed free trade,
exporters cannot compete in the world market on an equal footing with foreign
competitors who operate under free trade, with full convertibility of local
currency and easy access to finance. However, our sample firms" eomments
reveal that in most Sub-Saharan African countries (except for Swaziland and
Botswana, which enjoy partial free trade with neighboring countries) these two
criteria are not effectively met; thus many firms do not bother to use the
available duty-drawback schemes because the costs from delays and paperwork
outweigh the reductions in duty.
10.21 gATZ.rules. Compliance with the GATT rules on export subsidies
that mandate no excess exemptions or rebates does not appear to be a problem
because most exporters in the Sub-Saharan African countries are not even
operating under free trade status--mainly due to the ineffective implementa-
tion of the duty-exemption and drawback systems.
10.22 Transpareny and automaticity. Without transparency and automa-
ticity it is difficult. to maintain the other elements. Furthermore, without
transparency and automaticity, a system cannot guarantee equal treatment for
all export value-added activities or prevent misuse of duty-free imports,
because discretionary elements would result in special favors and corruption.
It appears that much work and effort are needed for most Sub-Saharan African
countries to have a transparent and automatic free trade administration.
* 92 -
10.23 Minimum red-taRe. The major reason for governments' failure to
guarantee speedy processing is the red tape involved in administrative
procedures in most African countries. If red tape were the minimum necessary
evil to achieve-transparency and automaticity, at least one could appreciate
the effort; instead, red tape has ruined the whole objective of free trade
status system. In fact, in most African countries, administrative procedures
fail unless they are very simple. Therefore, simple mechanisms and speedy
access are absolute requirements, even though strict insistence on them may
compromise the other elements of free trade status somewhat. This is because
there is no system that could satisfy all the above criteria, especially in
the African context.
(c) Major Causee for Ineffective Imilementation
10.24 Three major causes for the ineffective implementation of the
instruments for free trade are: (i) lack of commitment; (ii) lack of know-how
and administrative capability; and (iii) lack of inter-agency coordination.
10.25 Commitment. Senegal's EPZ policy regime and Kenya's BMW system
are just two examples where ineffective implementation suggests a lack of
commitment to guarantee true free-trade status for 100 export-oriented foreign
and domestic companies. The EPZ companies in Dakar pay a COSEC tax at the
seaport (0.3% of total export value), and Kenya's BMW companies must put up
expensive and separate bonds for ports, container shipments, and factories.
This means high bonding fees, high port charges, and customs officials'
overtime fees, etc. These bonding requirements for BMWs stem from the
government's mistrust of both exporters and the customs officials who super-
vise the BMWs around-the-clock. Such mistrust again originates from a lack of
official commitment to manufactured exports.
10.26 Mistrust of exporters is even more notable in the administration
of the economy-wide duty-free import schemes (duty exemption and drawback
- 93 -
systems) because these schemes, mainly used by less than 100l-export-oriented
firms, are administered through documentation. Officials assume that export-
ers cheat to gain excessive exemptions or refunds (above what is allowed under
free trade status). Such mistrust leads to even more red tape and bureau-
cratic discretion, resulting in more corruption.
10.27 Know-how. Even government commitment does not translate into
concrete action to improve free trade status because government bureaucracies
lack the technical nuts-and-bolts knowledge to improve the various instru-
merts, nor do they have administrative capability to implement the nuts and
bolts. For example, effective implementation of duty-exemption and duty-
drawback systems depends critically on the manner in which the imported input-
output coefficients are handled.171 In most developing countries, the
process of approving the coefficient starts only after the (direct or
indirect) exporter makes an application for the drawback or exemption and
submits estimates of the input-output coefficients. This ad hoe approach
results in time-conswuaing approval procedures and arbitrary decisions.
10.28 The most efficient way to satisfy all the basic principles,
including free trade status, GATT rules, and equal treatment, is to let
exporters rely on the standard input-output coefficients as pre-tabulated and
published by the government. The administrative costs of publishing the
input-output coefficients would be much smaller than the time and resources
currently wasted by both firms and the government. However, lack of expertise
in adminiatering input-output coefficients in Sub-Saharan Africa has prevented
the move from the ad hgc approach to a more systematic approach. A common
V/ Imported input-output coefficients ensure that duty-free imports: (i)
provide free trade status for direct and indirect export activities; (ii)
prevent misuse of the systems; and (iii) meet the GATT rules on export
subsidies. Annex to Article 9 of the Subsidy Code of the GATT, "Illustra-
tive List of Export Subsidies" includes: "The remission or drawback of
import charges in excess of those levied on imported goods that are
nhysically incorDorated (making normal allowance for waste) in the export
product" as one element of export subsidies. See GATT, The Texts of the
Tokvo Round Agreements. Geneva, August 1986, p. 79.
- 94 -
strategy for most of the Sub-Saharan African countries on input-output
coefficient estimates may have to be considered (see chapter XII).
10.29 Coordination. Particularly in the Sub-Saharan developing coun-
tries that have suffered chronic foreign exchange shortages, free trade status
cannot be guaranteed by customs services alone. Without the consent of the
foreign exchange authorities for automatic access to foreign exchange--giving
the highest priori to exporters' import needs- -free trade status for
exporters cannot oe assured. Exporters in several countries (such as Tanzania
and Zambia) cited this problem 'Similar barriers to free trade were experi-
enced by sample firms in relation to import licensing or trade finance (see
below on trade finance).
3. Future StrateAies
10.30 As indicated above, no single system can meet all the aforemen-
tioned principles. Given the urgency of providing free trade status for both
foreign and local exporters, and with a minimum of red tape, despite the
current lack of administrative capability, the following two-stage approach
may be a feasible strategy.
10.31 Stage 1. The physical-checking mechanisms of EPZs and BMWs might
be the only instruments to offer to 100%-export-oriented foreign companies
(and domestic companies). This is because the lack of administrative capabil-
ity hampers the document-checking mechanisms of the duty-exemption and
drawback systems in the short term, On the other hand, a well-managed fixed-
drawback system can be applied quickly for local exporters who are not neces-
sarily 100%-export-oriented. Even this simpler scheme may fail unless
governments show their commitment in terms of: (i) a guaranteed annual budget
allocation for full refunds of the duties collected from exporters; (ii)
targeted periods for drawbick payments (say two weeks); (iii) drawback
payments based on shipping documents rather than on foreign exchange receipts;
- 95 -
(iv) estimation of realistic fixed-drawback schedules that reflect products'
different duty and indirect tax-contents. In turn, without the built-in
mechanisms that guarantee exporters access to import licenses and foreign
exchange, the above systems may not be able to ensure free trade status.
10.32 Stag2 2. The preparatory work to deal with 'mported input-output
coefficients may have to start immediately, in Stage 1. Also, the legal
framework for the duty-exemption and Individual-drawback schemes (and the
common BMW system) should be instituted as soon as possible in Stage 1. But
the full implementation of these economy-wide systems may not be possible
until Stage 2 when the necessary standard imported input-output coefficients
for major export items are available. Sub-Saharan African countries might
have to aim at offering all the alternative duty-free import systems so as to
let foreign and domestic enterprises choose among them based on their compara-
tive advantages. Each system offers different trade-offs in terms of the
principles listed in para 10.19. For example, Kenya may have to offer an
individual drawback system so that exporters who do not qualify for the
current duty-exemption, BMW, EPZ, or fixed drawback systems can be given a
feasible instrument to get refunds for duties paid after export completion.
An additional system would not place more administrative burdens on the
government, because once standard imported input-output coefficients are
available for the duty-exemption system, they can be used directly for the
individual duty-drawback system as well.
B. Trade Finance
1. Instruments for Trade Finance
10.33 Trade finance markets. Unlike the provision of free trade status,
easy access to trade finance for all export value-added activities cannot be
assured by simply liberalizing the trade financing market. Such a market does
not exist in most low-income developing countries. Trade finance market
- 96 .
itnstruments and mechanisms have to be developed through deliberate government
efforts. While the development of full-blown trade finance mechanisms would
have to be a long-term objective, interim measures have to be implerented
immediately to ensure access to trade finance for export activities. In fact,
these interim measures become the first step toward developing trade finance
market mechanisms 1/
10.34 Modern trade finance systems. The modern trade finance system was
most innovatively designed and successfully implemented in the East Asian
NIEs. It consists of:
(i) bank credit instruments, such as letter of credit (L/C), domestic
L/C, and bankers' acceptance (BA);
(ii) export and associated import and domestic purchase transaction-
base self-liquidating trade loan disbursement/liquidation
mechanisms (designed by the central bank and handled by commercial
banks);
(iii) lender-of-last-resort rediscount facilities in the central
bankilt;
(iv) institutions that deal with the risk of exporters' non-performance
(i.e., pre-shipment export finance guarantee schemas); and
(v) institutions that deal with the risk of overseas buyers' non-
payment (i.e., export credit insurance/guarantee schemes).
10.35 In developing countries, banks lack the capacity to internalize
risk-taking. Developing countries must start with "loan-based" trade financ-
ing rather than "credit-based" trade financing that reflects trade finance
18/ Rhee (1989b).
12/ Developing (i), (ii), and (iii) in the East Asian NIEs in the early 1960s
was not so different from the British government's efforts in the
nineteenth century (in establishing bill of exchange rediscounting by the
Bank of England and enacting the Bill of Exchange Act of 1882) and the BA
rediscounting of the U.S. Federal Reserve System in early 1900s.
- 97 -
market mechanisms.W However, also due to the lack of capacity to
internalize the risks from loan-based export financing based on (i) and (iii),
physical collateral substitutes created internally, based on (ii) and supple-
mented by a pre-shipment export finance guarantee scheme (iv) and an export
credit insurance/guarantee system (v), are needed. Based on these instru-
ments, the East Asian NIEs' export financing systems have ensured speedy and
undisrupted access to pre-shipment and post-shipment export loans for all
direct and indirect exporters with confirmed export L/Cs and other export
orders.
10.36 Foreign currency loan schemes. The East Asian NIEs have used
foreign currency loan schemes most effectively to ensure access to foreign
exchange and trade finance for importing inputs related to export production.
This is a typical integrated approach to dealing with the rational import,
foreign exchange, and finance regimes for exporters. In developing countries
in Africa the domestic financial market is segmented, and the foreign exchange
rate does not always reflect opportunity costs; furthermore, external borrow-
ing plays a large role in financing development. An effective way to ensure
efficient management of foreign exchange in a low-income developing country
would be to denominate all loans (including import loans for exporters) tied
to the use of exchange reserves and foreign borrowing in foreign currency and
to charge an international-market interest rate.
2Q/ When a bank provides a "loan," it lends actual money. When it creates a
BA- -its unconditional promise to pay a certair. sum of money at a definite
date to the bearer--it lends "credit." The BA discount market which is
part of the money market is the trade finance market.
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2. Interview Results
(a) Availability of Instruments
10.37 Overdraft facilities. Many Sub-Saharan African countries do not
have modern trade finance systems. Overdraft facilities in commercial banks
and self-financing are the two major instruments for exporters even in such
countries as Botswana, which appears to have implemented the other export
policy instruments effectively. For example, Mozambique has only one commer-
cial bank, and Malawi has ouly two commercial banks, suggesting the limited
availability of overdraft facilities.
10.38 Rediscount facilities. A few of our sample countries (such as
Uganda and Nigeria) have recently introduced pre-shipment and short-term post-
shipment rediscount facilities for non-traditional exporters. However, we
were unable to collect detailed aggregate data on the use of these facilities.
10.39 Pre-shipment exgort finance guarans ees (PEFG) and export credit
insurance/guarantees (ECI/G). A few sample countries (Uganda and Nigeria)
have recently introduced the PEFG (which deals with exporters' non-performance
risk) and ECI/G (that deals with foreign buyers' non-payment risk) schemes.
Usually, building these types of institution takes a long time.
10.40 Foreign currenc loan schemes. A few sample countries (Uganda
and Nigeria) have operated foreign currency working capital loan schemes.
However, we were unable to collect data on the extent of the schemes' use.
(b) Major Issue
10.41 Assess Difficulties. Exporters in all the sample countries
stressed that their difficulties with trade finance are one of the major
factors limiting their export expansion, as reviewed in Chapter 7 (Table 7.1).
99 -
Such difficulties also were noted In sample countries that otherwise indicated
no major problems generally in their free trade status or in accessing foreign
exchange. But in those countries, difficulties with trade finance indirectly
contributed to the failure to ensure a true free trade status, because
exporters who had difficulty getting finance could not import inputs for
timely export production.
10.42 Collateral requirement. Difficulties in accessing trade finance
stem from the general practice of relying on collateral-based overdraft
facilities (no matter whether a goverrment-supported trade finance rediscount
scheme is available) rather than L/C-based trade finance facilities. For
example, one exporter indicated that the collateral requirements sometimes
reached 200-300% of the loan amount. Large-size foreign companies might not
be affected by these requirements as much, but the new breed of small- and
medium-size local firms that collaborate with foreign partners might have
greater difficulties. In fact, a few 100%-export-oriented garment firms in
Country B indicated that a major reason they rely on SC-based importing and
exporting--even though they prefer L/C-based activity--is that it is too
difficult to qualify for trade finance to import inputs based on L/Cs.
10.43 Trade transaction-based. self-liquidating mechanisms. It does not
appear that even countries that have introduced trade finance rediscount
schemes and/or PEFG and ECI/G schemes have instituted the trade transaction-
based, self-liquidating trade loan disbursement/liquidation mechanisms ((ii)
in para 10.32) that would substantially reduce commercial banks' risk-taking
and, therefore, the collateral burden imposed on borrowers. Such mechanisms
are also critical in making PEFG and ECI/G schemes workable. Sub-Saharan
African countries should give a high priority to developing such mechanisms.
10.44 Credit ceilinMs. The availability of collateral for individual
exporters determines their specific credit ceilings. Also, the credit
ceilings imposed on individual commercial banks by the monetary authorities
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frequently limit export loans available to exporters--that is if export loans
are included under such ceilings. For example, Kenya's export finance
rediscount facility, reactivated in 1990, has not been used by exporters. One
of the major reasons is that the central bank has a policy to include trade
finance granted by commercial banks in the credit ceilings imposed on export-
ers.U/
C. Investment Finance
10.45 Adequate access to investment financing for exporters at market
interest rates is also important in providing equal footing with foreign
competitors. In many of the sample countries, however, access to long term
financing is problematic. Reasons for this include underdeveloped domestic
capital markets where long term financing does not exist, risk aversions of
commercial banks which imposes collateral requirements few firms can meet and
reluctance to borrow on the part of exporters due to uncertainty about
government fiscal and monetary policies. Foreign firms often are faced with
ceilings for domestic borrowing; they are expected to complement financing
requirements with funds from abroad. Some of the countries that were visited
during our study have instituted schemes designed to provide access to
investment financing for exporters. The schemes' effectiveness as judged by
exporters in the sample are summarized in the following.
10.46 In Ghana, as a result of financial sector restructuring efforts
banks have become more liquid and have restored sound portfolios. However,
the banking sector has also become overly risk-averse; credit has become
scarce and interest rates have skyrocketed, to the detriment of manufacturers
with short- and long-term borrowing needs. Industrialists increasingly have
to turn to bi- and multi-lateral sources of funding or to foreign equity
2I1/ The real bills doctrine has implied historically the different treatments
of trade finance based on bills of exchange from other finance in
controlling liquidity.
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participation. In a situation where new and small exporters are faced with
bankers' general attitude of distrust, large collateral is required that few
new/small exporters can meet. In Botswana, acceptable collateral is Immovable
property such as land, or real estata. However, land is a communal resource
in Botswana, and communal ownership often prevents land as being useable
collateral. Smaller and less well established firms thus have to rely mostly
on self financing.
10.47 In addition to excessive risk aversions on the part of lending
institutions, crowding out is a characteristic that applies to many of the
countries visited as part of this study. For instance, in Tanzania, the
banking sector is faced with excessive borrowing requirements from agricultur-
al and other parastatals, effectively crowding out other borrowers. In
Mozambique, where crowding out by the public sector is a problem as well,
firms' self-financing of investment needs is almost the rule. This lack of
financing in the economy was Considered to seriously threaten the firms'
operation by a majority of those interviewed in Mozambique.
10.48 Lack of competition in the banking sector is a reason which was
often given by exporters to explain the shortage of long-term loans. In
Burundi, the sample exporters commented that the two largest commercial banks
were well established and were not interested in accommodating exporters'
investment financing needs. In contrast, a new comer in the banking sector in
Burundi, together with Meridian Bank is setting up an investment banking arm
that will provide equity investment as well as leasing. In Madagascar, where
exporters face similar problems as were mentioned above, credit lines provided
by multilateral and bilateral agentcies provide additional financing sources.
However, a number of firms complained about the ciifficulty and considerable
red tape (required by commercial banks) that exporters encounter in attempting
to get access to investment financing. Several firms remarked that investment
funds seem to be allocated to a few large and well connected firms. A few
financial institutions have recently appeared on the lending scene to provide
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venture capital, but their capacity falls far short of Madagascar's private
sector start-up and expansion capital needs.
10.49 Firms with foreign equity participation above a certain percentage
and fully-foreign owned firms often encounter ceilings in their access to the
borrowing facilities of the host country. In Swaziland, for instance,
foreign-controlled firms (in Swaziland defined as firms with more than 25
percent foreign equity participation), are expected to raise a substantial
amount of their long-term investment needs abroad. In Uganda, uncertainty on
the part of manufacturers about the future course of macroeconomic policy
seems to prevent firms to seek long-term financing which is theoretically
available from different development banks. Those manufacturers interviewed
sated repeatedly their own reluctance to take the hard-currency risk involved
in foreign currency investment loans from these institutions.
D. Investment and Regulatory Regimes for Foreign Collaborators
10.50 This section summarizes interview results on the investment and
regulatory regimes for foreign collaborators.
1. Sgecial EPZ Regime for Foreign Investors
10.51 In Chapter X (paras 10.02 to 10.04), an EPZ and BMW were defined
as instruments for ensuring free trade status for 100%-export-oriented foreign
(and domestic) investors. "EPZ policy regimes" is defined more broadly than
as a free trade status instrument: the EPZ policy regime allows not only free
trade but also the most liberal investment and other regulatory policy regime
(FDI or JV) for 100%-export-oriented foreign investors. The EPZ policy regime
extends to the 100 export-oriented foreign investors who have EPZ licenses.
In certain countries, EPZ license holders do not have to be located in EPZ--
they can rely on BMWs for their free-trade status and other liberalized
regulatory regimes.
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10.52 As stated in para 10.13, Senegal has operated the Dakar EPZ since
1975. Kenya, Togo, and Madagascar have enacted their EPZ laws move recently.
(Only one private EPZ in Kenya was in operation at the time of our inter-
views.) Togo and Madagascar allow the EPZ regime to cover individual factory
sites with BMWs, while Senegal and Kenya allow the EPZ regime only inside
EPZs.
10.53 If the legal provisions are effectively implemented, the EPZ
regime is the most ideal policy regime for export-oriented foreign collabora-
tors. This is because it ensures very-close-to-fres regulatory regimes for
repatriation of profits, foreign exchange, investment licensing, expatriate
worker permits, local worker employment, etc., as well as customs procedures,
duties, indirect taxes (and reduced or exempted income taxes). This is all
under a special law that allows an exemption from the normal regulatory
regimes applied to local and foreign firms that do not have EPZ licenses.
10.54 As indicated above, effective implementation of the EPZ
regime may not be achieved automatically (even if the legal framework has been
enacted) without continuous and concerted efforts by the government agencies
in charge of the various policy jurisdictions. For example, it does not
appear ttl.t the "one-step service" characteristics of the Dakar EPZ adminis-
tration have been effectively implemented. Sample firms stated that they had
to visit separate government agencies (far away from the EPZ site) for certaia
paperwork. In the case of Madagascar's EPZ regime, it does not appear that
potential applicants have had a clear understanding of the various implementa-
tion provisions so far, according to some sample firms' comments.
2. Investment Codes
10.55 N4any of the countries in the sample have recently reformed or are
reforming their codes on foreign investment in a much more liberal direction.
For example, Tanzania enacted a National Investment Promotion and Protection
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Act that encourages export-orientation and allows 100% foreign ownership, etc.
in 1990. Malawi adopted a new Investment Policy Statement to streamline PDI
administration, abolish industrial licensing, etc. in 1990 under the guieance
of Foreign Investment Advisory Service (FIAS) of IFC/MIGA. In turn, the
investment codes in Zambia and Burundi are being revised to establish "one-
stop-service" for new investors, streamline the duty-drawback scheme, liberal-
ize profit remittances, and streamline FDI approval procedures, etc. While
significant progress has been riade, however, the following major issues still
remain. These have to be solved for the urgently needed rationalization of
the regulatory regimes for export-oriented foreign and domestic enterprise
collaboration.
(a) Restrictions on Know-How Inflow
10.56 Restrictions on royalty pauments. In several of the sample
countries, such foreign and domestic enterprise or personnel collaboration
agreements as technical/marketing/management agreements (T/M/Mt Ag), techni-
cal/marketing/management consulting (TA, MA, Mt A), and brand name licensing
(BL) are regulated tightly, mainly due to foreign exchange shortages. For
example, a sample firm in Kenya stated that both formal approval from the
Ministry of Science and Technology and foreign exchange allocation from the
Central Bank are required in order to make any collaboration agreements that
specify royalty payments to foreigners.
10.57 Restrictions on expatriate workers. The above-types of foreign
and domestic enterprise and personnel collaboration, plus FDI and JV, are
indirectly restricted in most of our sample countries through the rigid
control of expatriate work permits. For example, the sample firms suggested
that Nigeria implements a policy of promoting its indigenous workforce by
imposing an expatriate quota, even though Nigeria needs the expertise of
foreigners. The most critical constraints on export expansion are reportedly
the Nigerians' lack of capacity to export--lack of know-how--and barriers to
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the world market network. Only one sample comnany in Zimbabwe reported that
it had expatriate technicians from the mother .smpany at its factory. The
reason that no companies have expatriate staff is that expatriate work permits
are difficult to obtain, despite a severe shortage of local professional
skills. If a work permit can be obtained, it is for only a two-year period
and rarely renewable; firms considered this period too short for much skill
transfer.
10.58 In addition, it is difficult to attract expatriate staff because
they cannot be paid 'on expatriate terms,' meaning that foreign exchange
regulations prohibit remuneration in foreign currency. Our inference that the
major reason for the restrictive expatriate work perm-ts is not necessarily
foreign exchange shortages is based on the following examples. While the
trade and payments system is very liberal in Botswana, expatriate work permits
appear to be very difficult to obtain in practice, due to bureaucratic
slowness; despite the recognized shortage of skilled manpower at all levels.
Once obtained, a permit is difficult to renew for sufficient time. This
public policy stance in Africa (which might stem from Africans' fear of
foreigners' economic domination) is in direct contradiction with the high
demand by the private sector for foreign collaboration.
10.59 Restrictions on profit reoatriatijo. Considerable progress has
been made on reducing restrictions on profit repatriation by foreigners.
However, still more reforms are needed in many of the sample countries. For
example, a new investment code (1989) has replaced the earlier code in
Zimbabwe; the limitation on repatriation of capital and profits has been de-
creased but still exists. For export-oriented investments the new code
allows, in principle, 100% repatriation of profits, but the actual implementa-
tion of this principle appears to be on a case-by-case basis rather than
automatically.
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(b) Strategies to Narrow tho Internal G8a BeteenL Government Agencies'
Restrictive Behavior and Local Znterpriges' High Demand for
Foreign Collaboratio
10.60 Demand for Foreign Collaboratiio. Any attempt to meet the most
important development challenge in the first half of the 1990s by narrowing
the external gap between the local enterprises' demand for foreign collabo-
rators in African export activities and the actual supply will be futile if
the African countries fail to narrow, first, the internal gap between the
public agencies' restrictive desires (as reflected by their failu e to reform
the regulatory regimes for foreign collaboration and other export policy
implementation) and enterprises' greot demand for foreign collaboration. To
tiarrow the internal gap, a comprehensive approach (rather than the current
piecemeal approaches) to reform the regulatory regimes is called for. The
establishment of the EPZ regimes in a few sample countries is an important
beginning. However, this is just a beginning, because much potential foreign
collaboration in export activities can, and should be, achieved also for
domestic and foreign firms who do not have EPZ licenses. In principle, all
foreign collaboration activities generating export earnings should be allowed
to enjoy almost-free regulatory regimes similar to the EPZ regime. An
encouraging beginning has been made in this regard, under the guidance of FIAS
(para 10.49). For example, the on-going discussions on Kenya's Sessional
Paper on Investment Policy appear aimed at producing a comprehensive policy
statement extending such almost-free regulatory regimes (including "one-stop-
service') to all types of foreign/domestic collaboration in export activities.
10.61 To convince public agencies in most of the Sub-Saharan African
countries that it is critically important to speed acting on narrowing the
internal gap between the government agencies' restrictive behavior and local
enterprises' high demand for foreign collaboration, it is important to stress
the following two points. Pl=, one must be able to distinguish between the
two brands of foreign collaboration--the inward-oriented large-size foreign
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collaboration firms and the new broed of outward-oriented small- and medium-
size foreign collaborators. Under the right policies, the role of the former
will gradually diminish. Furthermore, a negative perception on the inward-
oriented MNCs should never lead to a wrong inference that most Sub-Saharan
African countries can and should build their capacity to export without
foreign collaboration. Seon, one must recognize the connection between the
slowness with which the internal gap narrows--if at all--and the speed with
which the external gap might widen. As potential foreign collaborators move
quickly to other regions of the world where there is less internal gap and
information gap, any hope of narrowing the external gap in most of the Sub-
Saharan African countries may quickly disappear.
3. Excbange Rste
10.62 Without a realistic real exchange rate, any attempt to adopt an
outward-oriented strategy wi'l hardly succeed. Until recently, exchange rates
in uan' of the sample countries were overvalued, thus undermining the competi-
tiveness of Africa's exports. Two separate approaches were adopted to deal
with the overvalued real exchange rate: (i) nominal exchange rate adjustment;
and (ii) compensation of overvaluation through cash grants. Based on the
sample firms' comments, the experiences from these two approtches are sketched
below.
1. Nominal Exchange Rata Adjuatment
10.63 In the context of structural adjustment programs supported by the
IMF and the World Bank, a significant number of the 16 sample countries have
devalued their currencies. Even though many-of these countries have a mixed
record in their commitment to maintaining realistic real exchange rates
through their continuing adjustment of the nominal exchange rates (shown below
by a few examples), there is no better alternative than to continuing adjust-
ment.
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10.64 Ghana appears to have maintained a realistic real exchange rate.
All exporters in the sample also acknowledged that the cedi had become
virtually convertible since access to foreign exchange was no longer problem-
atic. The auction system is still in place, but the differential between the
auction rate and the foreign exchange bureau rate has become negligible.
10.65 In Uganda, the new government engaged in a program of economic
reform, supported by the IMF and the World Bank, in mid-1987. A' the time the
reform program started, inflation was rampant and the exchange rate was
significantly overvalued. At present, the exchange rate for non-coffee
exports appears to reflect a realistic real exchange rate through the parallel
market. In Zimbabwe the national currency has been rapidly depreciating in
real terms since 1985 (18.4% between 1985 and 1988; 8% during 1989, and 12%
during 1990).
10.66 On the other hand, Zambia abandoned several attempts to reach a
realistic exchange rate. During the 1970s the country maintained a signifi-
cantly overvalued exchange rate. Throughout the 1980s attempts were made to
bring the exchange rate closer to a realistic level. In 1983, for instance,
the kwacha was devalued by 35%. In 1985 a foreign exchange auction was
introduced in a move to reflect market forces, but it was abandoned in 1987.
Most recently Zambia has embarked again on an Economic Recovery Program and is
targeted for exchange rate reform (a dual exchange system was implemented in
1990; it was unified recently).
2. ComDensation for Overvaluation
10.67 To compensate for the overvalued exchange rate stevming from the
fixed exchange rate system, C6te d'lvoire introduced its export premium scheme
(which also included a sort of fixed drawback) in 1986. Since the scheme was
implemented, roughly 40 billion FCFA were paid out. Our interview results
revealed, however, that even though all firms sampled were eligible for the
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premium and had filed the required paperwork, no payments had been made since
1988. Also, as indicated in Annex II, the export premium system lacked
transparency and automaticity. Most companies interviewed reported that their
firms' investment and pricing policies had taken into account the export
premium, and the scheme's failure had serious adverse effects on their
international competitiveness. However, surprisingly, exporters appear to
support the export premium system.
10.68 The Senegal's exchange rate compensation scheme--a flat 15% of
value-added--maintains at least some transparency. But the scheme exists only
on paper now because all payments have been interrupted since the summer of
1990, due to budget mismanagement. It is not surprising to see that most
exporters support the nominal exchange rate adjustment approach.
10.69 The experience of the two countries shows the inferiority of the
compensation approach, compared to the continuing adjustment approach, for
maintaining international competitiveness.
P. Primary Ingut Prices
10.70 Haintaining competitive primary input prices is one of the
elements of the export policies. In several instances, firms in the different
so-mple countries complained about distorted prices of primary inputs such as
labor or agricultural inputs for manufactured goods. This section provides a
few examples of non-competitive primary input prices that undermined African
exporters' competitiveness, based on the firm interviews.
10.71 In Cote d'Ivoire, manufacturers interviewed in the textile and
garment sectors were unanimous in their complaint that the price at which they
had to buy locally giown cotton was the main obstacle to their international
competitiveness. One garment manufacturer reported that , while on outside
markets domestic cotton could be bought at CFAF900/kg, on the Ivoirien market,
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its price would not go below CFAF1,800. Similarly, in Senegal, spun cotton is
sold in the local market at a price exceeding the world market price for spun
cotton by 17.5 percent. As tariffs imposed on this product average 30
percent, azd the duty-free import administration iF ineffective, exporters
still buy cotton locally. Anothor example is the price of sugar in Senegal.
A biscuit manufacturer reported that the firm could not compete in the
international market unless he could buy sugar at the international market
price, i.e., at CFAF120/kg. The administered price in the local market is
CFAF1350. In theory, the 'Caisse de Pe:tequation' compensates manufacturers
for the extra cost they incur, however, the scheme does not function properly.
There is also a quota set up, entitling manufacturers to buy sugar at a
discounted price. However, the quota is allocated on a discretionary basis,
and was not sufficient for the manufacturer interviewed. The ratio of world
market to local price for flour is similar to that for sugar.
10.72 The price of packaging materials is also higher in Cote d'Ivoire
than that which would prevail under competition. Empty metal boxes used in
canning are reported to be 20% to 40% higher than in France and Bangkok,
respectively. the price of polystyrene boxes used for the export of fish is
five times as high in cote d'Ivoire than in Tunisia. Note that the production
of metal packaging materials is a virtual monopoly in the country, shielded
behind high tariff barriers. In order to break this monopoly, some users of
packaging materials have contemplated setting up their own production unit.
10.73 If the labor market is not competitive, then the resulting wages
do not reflect the market prices undermining exporters' competitiveness.
Labor costs which do not reflect underlying conditions of supply and demand
but rather the strong position of labor unions in the country are causing a
serious problem for Senegal's exporters. In mid-July 1991, the monthly
minimum wage in Senegal was CFAF34,000. However, the actual monthly wage for
semi-skilled workers.was in the CFAF60,000-100,000 bracket. Labor costs in
Senegal compare unfavorably to those in neighboring countries. In Cote
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d'lvoire for instance, the average monthly rate for an unskilled worker is
similar as that in Senegal, but productivity is higher (about 208 in the
fishing industry for instance, according to industry managers in Senegal.
Similarly, in the plastics industry, one worker is responsible for four
machines in Cote d'Ivoire, while in Senegal, one worker per machine is
necessary).
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XI. PHYSICAL TRADE INFRASTRUCTURE
11.01 Adequate physical trade infrastructure is a critical component for
providing local firms equal-footing conditions with their foreign competitors.
In many developing countries, physical trade infrastructure, such as port and
transport facilities, roads, telecommunications, and utilities, are not
comparable to the infrastructure in more industrialized countries. Shortcom-
ings in physical trade infrastructure often add significantly to production
costs, for instance by causing additional inventory costs that in turn are
incurred because of inadequate access to transportation, or the high cost of
operating an electricity generator because the public electricity services are
unreliable. Inefficient operation of infrastructure services by public
agencies or private monopolies result in high costs. Such additional produc-
tion costs make exports from developing countries less competitive in world
markets.
A. Survey Results
11.02 As reviewed in Chapter VII, the sample firms indicated that poor
physical trade infrastructure is one of the major supply-side constraints on
Africa's export growth. Also the questionnaires included specific questions
related to physical trade infrastructure and sample firms' assessment of its
adequacy. In one such question, interviewees were asked for their overall
assessment of physical trade infrastructure. The remainder of this chapter
will summarize the responses garnered from this question. Examples from
sample countries will illustrate the trade infrastructure problems affecting
many of them.
1. Air Transport.
11.03 Timely access to air transport is of particular importauce to
manufacturers with orders specifying short delivery times or for perishable
- 113
goods such as horticultural exports. Air access is also particularly impor-
tant for island countries or countries that are landlocked. In Uganda,
horticultural exporters complained about the lack of cargo-handling capacity
and the high air cargo prices charged by the few carriers serving Entebbe
airport. In addition, complaints were voiced about the monopoly that the
national airline, Uganda Airlines, holds in cargo handling at Entebbe airport,
which has led to serious inefficiency. Lack of cold-storage facilities at the
airport were also cited as important barriers to exporting horticultural
commodities.
2. Port Facilities/Services.
11.04 Exporters' complaints about ports were associated with port
levies, freight handling, and frsight costs rather than with the actual
physical condition of port facilities. For instance, in C6te d'Ivoire,
interviewees criticized the excessive port tax. They also cited the Office
Ivoirien des Chargeurs (OIC) for allocating all freight to various transport-
ers, which creates bottlenecks, especially at peak times, and leads to high
freight costs. For instance, the freight cost for a 20-foot container from
Abidjan to Du:dkerque is more expensive than from Bangkok to Anvers, despite
the distance being four times shorter,
11.05 In Senegal, port charges rank first among exporters' infrastruc-
ture-related costs of production. In addition to high port taxes, compared to
international standards, handling and forwarding operations are in the hands
of highly unionized, oligopolistic powers. They set prices much higher than
the prices that would prevail in a competitive situation. For instance, the
cost of unloading a ton of fish costs FF100 in Dakar and FF60 in Abidjan.
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3. Road Transgort.
11.06 In several of the sample countries, civil wars have disrupted
transport links. In Uganda, for example, feeder roads needed by non-tradi-
tional agricultural exporters to move their produce, are in bad condition,
although trunk roads are being rehabilitated. Inadeauate road conditions were
cited by exporters in virtually all the sample countries. In C6te dl'voire
again, the cost of road transport is almost prohibitive for exporters because
transportation companies have managed to create an oligopolistic condition.
One garment manufacturer reported that shipping a container from Hong Kong to
Abidjan cost FCFA 780,000; the cost of transporting the container from the
Abidjan port to his factory a short distance away (in the Coumassy Road area)
cost FCFA 450,000.
4. Telecommunicati2ns.
11.07 Telecomunication services were judged inadequate by a majority of
exporters. In Nigeria, these services are a major bottleneck for exporters.
Internal as well as external communication by telephone, telefax or telex is
unreliable and time consuming. In Tanzania, the telephone system is so
unreliable that even making intra-city calls in the capital is extremely
difficult. One exporter remarked that firm employees frequently have to
commute long distances between two locations of the factory in order to
handle administrative problems face to face rather than on the telephone. In
fact, in Tanzania and Mozambique most exporters rely on telex or, more
generally, on radio for communication outside of the capital. In Madagascar,
international telecommunications--via satellite--were judged adequate;
however, many exporters complained that internal telecommunications were often
problematic. Also, difficulty in communicating with South Africa, a poten-
tially important trading partner, was noted by several exporters as a serious
disincentive to expanding trade with that country. Finally, in Swaziland
insufficient telecommunication capacity is considered the result of underes-
- 115 -
timated demand for such services and of the growth of industrial areas in the
country over the last few years.
5. EnerXy anA Water.
11.08 Unreliable energy services present a big problem for manufactur-
ers. In Nigeria manufacturers reported that power service is so irregular
that firms are forced to generate their own electricity, escalating their
investment and operating costs significantly. Concerning water, many firms
reported that they had to install their own wells and pay dwelling fees.
11.09 In C6te d Ivoire, three-quarters of the firms interviewed stated
that the high energy costs are the major factor causing them to remain
uncompetitive in world 2arkets. For instance, the price of a liter of fuel in
Abidjan is FCFA108, while the world market price is FCFA55. In addition, the
cost of water in the country is very high; the price of water is fixed at
FCFA400/m3, which affect particular textile manufacturers and fish processors.
In Senegal, the cost of electricity ranks second in exporters' estimates of
infrastructural costs. The average rate for electricity is FCFA69/kw/hr,
which is high compared to FCFA15 in Ghana and FCFAF16 in Tunisia. Note that
in addition to pricing policy-issues, additional costs arise from the poor
quality of the electricity services. As for water, its tariff stood at
FCFA344/m3 in mid-1991. This also compares unfavorably with most neighboring
countries.
11.10 Manufacturers in other sample countries reported similar problems.
In Swaziland, the electricity system has become overburdened because of
rapidly increased industrial demand; in Uganda, power outages are a common
occurrence. In Botswana, water charges are very high.
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B. Strateaies to Correct Poor Physical Trade Infrastructure Service
1. Reforms in Trade Infrastructurg Services
11.11 Port charges. Exporters in many sample countries stated that very
high variov1s port charges (other than duties) levied by the government
agencies undermine seriously their free trade status. Drastic reforms are
needed either to remove these charges or to reduce them drastically. Such
reforms would not be difficult if there is a strong commitment by the govern-
ment on export development.
11.12 Service monopoly. Again, drastic actions are needed to bring
competitive mechanisms in freight handling, transport, and public utility
services by breaking inefficient monopolies. Private firms' entry into the
trade infrastructure service needs to be liberalized. In particular, private
generation of electricity for commercial purpose or own use needs to be
allowed. For example, in Togo, the issue of firms' autonomous power supply is
still pending. Some exporters who were interviewed stated that they thought
they could lower the energy costs significantly by generating their own power.
2. Priority on Trade Infrastructure Building
11.13 Good physical trade infrastructure is a necessary condition for
trade development. The immediate and most negative impact of poor trade
infrastructure is the difficulty in bringing potential foreign enterprises for
export collaboration into the African countries. The next critical impact is
the difficulty in achieving competitiveness in the world market.
11.14 Because of the resources required for trade infrastructure
building, a comprehensive medium to long-term planning is essential. If a
developing country that lacks the basic trade infrastructure is planning to
build an EPZ, then it is critical that the EPZ construction plan has to be a
- 117 -
part of a comprehensive plan to build trade infrastructure. An EPZ is just an
industrial estate with factory buildings to rent, and the EPZ will not be
successful in inducing foreign and domestic companies if it is not close to
the preexisting good trade infrastructure.
- 118 -
XII. DIRECTION OF FUTURE WORK
A. Priority in Building a Competitive Edee in Most Sub-Saharan African
CourLe9
12.01 In setting a priority for building a competitive edge in most Sub-
Saharan African countries, an unambiguous criterion that can guide national
and international assistance policies has become apparent: the high demand by
African private enterprises for foreign entergrise collaboration (particularly
for specific types) for export activities.
12.02 Considering the increasing emphasis on private sector-initiated,
market-oriented industrial development in Sub-Saharan African countries, it is
gratifying to find high demand, as well as preferences for specific types of
foreign enterprise collaboration, by the new breed of outward-minded African
private entrepreneurs. There cannot be a better indicator than this on which
to base national and international assistance schemes for private sector
development.
12.03 Our paper has also revealed that the immediate priority in human
resource development in most Sub-Saharan African countries may have to be for
on-the-job training and learning-by-doing. This would take place on the
factory floors and in sales rooms of export-oriented foreign collaboration
enterprises. Thus, private firms' demand for foreign collaboration can be an
effective guide for human resource development schemes as well.
12.04 Therefore, for private-sector and human resource-development
objectives, meeting the demand for foreign collaboration should be an immedi-
ate practical goal. This would apply as well as to outward-oriented develop-
ment objective in most Sub-Saharan African countries.
- 119 -
B. Strategies to Narrow the External Gap Between High Demand
for. and Negligible Supply of (Exnort-Oriented) Foreign Collaborators
12.05 This paper articulates the view that the'biggest -development
challenge in most Sub-Saharan Africa countries may be how to devise imagina-
tive strategies for narrowing the enormous extenal gap between the high
demand for, and negligible potential supply of, export-oriented foreign
(enterprise) collaborators. Such strategies must have three distinct compo-
nents: (i) strategies to narrow the intrnal gaa between local private
enterprises' and managers' high demand for (export-oriented) foreign collabo-
ration, and the government agencies' restrictive policies; (ii) strategies to
narrow the information goa between potential foreign and domestic collabo-
rators; and (iii) strategies to improve physical trade infrastructure.
12.06 As stated at the outset, the purpose of this cross-country study
was to find a common approach to common problems. This chapter, therefore,
suggests the direction of future work for two of the components--designing
common strategies to narrow the internal policy gap and the information gap.
C. Strategies to Narrow the Internal Gap Between Private EnterRrises' High
Demand for. and Government Agencies' Restrictive Policies on (Export-
Qriented) Foreign Collaboration
12.07 Common strategies to narrow this internal gap would consist of
three elements: (i) an awareness cam=aian on the critical importance of for-
eign/domestic enterprise collaboration'for private sector and human resource
development, as well as for outward-oriented development; (ii) the absolute
necessity of goverrnent commitment (to implement export policy instruments
effectively); and (iii) technical know-how to implement these policies and
instruments.
- 120 -
1. Awareness CamRaijn
12.08 For African policymakers who are uncertain about the impact of
extensive foreign collaboration, and who are influenced by their negative
images of inward-oriented large-size MNCs, the following two points need to be
emphasized. First, as most of the African countries adopt outward-oriented
policies, the influence of the MNCs will diminish, and the role of the new
breed of outward-oriented small- and medium-size foreign and domestic enter-
prises will increase. Furthermore, many large MNCs may not be interested in
any new manufacturing activity in Sub-Saharan African countries (whether
export-oriented or domestic market-oriented) in the near future because they
have better locations around the world. Second, the debate on the negatives
vs. the positives of foreign/domestic collaboration seems very much outdated
in this rapidly changing world, in which all developing and developed coun-
tries are pursuing outward-orientation through international enterprise
collaboration. Particularly by novi, it should be realized that bringing in
foreign collaboration is not a mere bilateral matter--most Sub-Saharan African
countries have to compete with all the other developing countries that are
attempting to collaborate with the limited number of potential foreign
collaborators. For most Sub-Saharan African countries, the time for collabo-
ration may be running out because the potential stock of new foreign collabo-
rators in the OECD countries and NIEs has been shrinking drastically. African
firms' potential partners have been relocating largely to other parts of the
world.
2. Commitment
12.09 Even small changes in customs procedures can hardly be implemented
effectively if front-line agencies fail to get a signal from the top level of
government for absolute commitment to implementation of regulatory and other
export policy reforms.
- 121 -
12.10 It may be useful to note the special institutional mechanisms used
by policymakers in the East Asian NIEs (such as Korea's Monthly Trade Promo-
tion Meetings). These send repeated signals to the entire country about the
unshakable commitment of the government to effective implementation of the
policy instruments for an outward-oriented strategy.
3. Know-How
12.11 EfZective implementation of some export policy instruments
requires a certain degree of technical expertise, which can only be provided
by those who actually have had long institutional experience designing and
implementing such schemes. Most Sub-Saharan African countries can barely
handle institution-building to achieve the effective implementation of these
schemes alone. This is an area where an integrated approach that would
include many of the Sub-Saharan African countries would pay off.
12.12 For example, successful implementation of duty-exemption and duty-
drawback systems depends on the manner in which the imported input-output
coefficients are handled. If the ad hoc and piecemeal approach to these
coefficients, which is currently the approach most African countries are using
(and is one of the root causes of ineffectiveness), is replaced by a systems
approach supported by a possible pool of resources that may be used by many
Sub-Saharan African countries separately, and supported by the requisite
expertise, then maximum common efficiency can be gained with minimum common
resources.
- 122 -
D. Stratesies to Narrow the Information Gap Between Potential Foreign and
Domestic Collaborators
1. Ineffectiveness of Cugrent Match-making Mechanisms
12.13 Our study confirmed the ineffectiveness of the existing public,
international, and private mechanisms for match-making between potential
small- and medium-size outward-oriented foreign collaborators in the OECD
countries or in the NIKs (who may have had no previous involvement in Africa)
and their counterpart entrepreneurs in Sub-Sahar&n Africa. This implies the
ineffectiveness of these mechanisms to narrow the information gap between
potential foreign and domestic collaborators who would likely be involved in
export-oriented industrial activities in Africa. The information gap is
further aggravated by foreigners' negative perceptions of Africa and the
current internal (policy) gap (discussed above). Also, the fact that no
effective mechanism has been used to cover the risks that potential export-
oriented small- and medium-size foreign collaborators encounter does not help
the already bad situation.
2. Preference for Foreign/Domestic Private "Enterprise Collaboration"
As Onnosed to Technical Consulting or Technical Assistance-Tyne
"Personnel Collaboration"
12.14 The study confirmed that the dominant preference of most Sub-
Saharan African private enterprises is for "foreign private enterprise and
domestic private enterprise collaboration." This would be in the form of
technical/marketing/management agreements, joint ventures, or subcontracts
that integrate know-how acquisition with access to the world market.
12.15 Past development objectives--in terms of African firms' need for
foreign enterprise collaboration for export activities--were met primarily by
alternatives. Such substitution was based on the premise that foreign firms'
- 123 -
reluctance to become involved in Africa was a private decision based on
international market mechanisms, and therefore only alternative modes (such as
technical consulting-type personnel collaboration rather than foreign private
enterprise collaboration) were available, particularly for African firms.
This approach seriously ignored the information gap and African firms'
desperate need for foreign private enterprise collaboration. It appears that
no serious consideration was given to the better alternative of putting the
resources associated with personnel collaboration into mechanisms and schemes
to reduce the information gap, thus to give a fair chance to foreign enter-
Drise collaboration.
12.16 The main reservation about "domestic enterprise-foreign personnel
collaboration (i.e., technical consulting or technical assistance)" from the
point of view of most Sub-Saharan African private firms is that because of the
infant stage of African industrial export development, there is no guarantee
that resources spent for technical consulting or assistance not directly
linked to external market access are going to result in proper returns. In
most cases, only foreign firms that are currently players in the established
world market network have the capability to link up with the external market.
Most small- and medium-size exporters and potential exporters indicated that
the most effective way to infiltrate the established external market network
is to rely on the existing market networks of established firms. Careful re-
evaluation of the current approach being taken by international assistance
schemes primarily relying on foreign personnel collaboration for export
development may be justified.
3. Imaginative Approaches
12.17 From the above evidence, it is obvious that it would require an
extraordinary vision of development to devise imaginative common strategies
for most Sub-Saharan African countries to overcome the information gap between
potential foreign and domestic enterprise collaborators for export activities.
- 124 -
12.18 As stated above, the immediate national and international develop-
ment assistance goal for the private sector and human resource development, as
well as for the export development of most Sub-Saharan African countries,
should be to meet private firms' high demand for export-oriented foreign
gntergrise collaboration. Along with efforts to narrow the internal policy
gap, new initiatives by the national and international assistance authorities
to narrow the information gap need a high priority as well.
12.19 In considering common strategies to narrow the information gap,
two institutions might play a catalytic role: (i) private match-making
mechanisms; and (ii) outward-oriented foreign/domestic enterprise collabora-
tion risk-coverage schemes. These mechanisms and schemes would be exclusively
for Sub-Saharan African export activities. They would be designed to attract
a new breed of small- and medium-size foreign enterprises whose strong
negative image of Africa prevented them for considering Africa as a viable
export-oriented foreign collaboration site.
12.20 As for the detailed work to design the above mechanisms and
schemes, that is the future task to be carried out, based on an imaginative
approach. But the premises underlying this effort would be the following.
Eirst, putting national and international resources into developing private
match-making meehanism that would be self-supporting in the medium-term, would
be more efficient than putting public and international resources into public
match-making mechanisms. Second, since export-oriented foreign and domestic
enterprise collaboration would generate export earnings (which will not be
possible without collaboration), (i) there would be enough incentive toward
paying the full cost of private match-making and providing export-oriented
foreign/domestic enterprise collaboration risk coverage, and (ii) there would
be enough incentive for private match-makers to emerge if there were enough
volume to serve, at least in the medium term. But without a visionary initia-
tive by national and international authorities, such institution-building
would rarely occur, just as it has not occurred so far.
- 125 -
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Export Credits in Sub-Saharan Africa's External Financing" PRE Working
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Koike, Kazuo (1987) "Skill Formation Systems: A Thai-Japan Comparison,"
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(1989b), Trade Finance in Develoging Countries: Policy and
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_____________ (1990), The Catalyst Model of Development: Lessons from
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Rhee, Yung Whee (1991a), "The Role of Export Initiation in Economic Develop
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(1991b), "A Framework for Analyzing Choice of Alternative
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Industry Development Division, The World Bank.
Stiglitz, Joseph (1989), "Markets, Market Failures, and Development" The
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a
- 127 -
ANNEX I
Types of foreign collaboration and
export orientation of sample firms
interviewed in the 16 Sub-Saharan
African countries
Ta I COUNTRY A
FIRM T'YPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXP. EXPORT SEEIUNG FOREtGN
FOREIGN PARThER FOREIGN IN 1991 OF EX- ESTAB- PRODUCr SHARE VALUE MARKE COLLABORA'lON?
COLLABO- PARtTNER (OR PATRtIATR LUSED (1990 OR (1990 AND TYPE OF
RAIlON FOREIGN IN 1991 OR 1991) OR COLILABORAfION
INFLUENCE) TAKEN 1991)
1. JV N/A Portugl 600 13 (ornay 1976 Tat*e 72% S7m Sub regi0% No
20) (knitted USSRo
. ~~~~~~~~~fbic) S
I No"e Sate CQ . N/A 0 1991 Prw, fith 100% S2m Eurup4 Yes
(M*~4 (former (onr Arc
set uip) co.) ) (ore
3. M Ag Slaw com South Afrks 650 (including 0 1981 citrus fruit 100% 50.6m South Yes
fwmia- - - Africa _ _ _ _ _
4. MA$ State Ca> USSR, Eatan 650 0 1973 Gannent 90% S5. USSR, Yes, :Nqpg N
Eu (fle (knitted pastn m for .rkic
Aggeolea) goods) Euntpep ao to Wesan
_ .-,_._ __ _ __._. ._...___ ___ _ae
S. JV NJA U.K. NWA 20 1986 Cotton, N/WA Eampe and No
tomato pse (cottop), Far Fat
. sit(d S1
_ ._ . _ i *i ,_5 0 .0 _____: .- _ ................... _ 2 1- - 1'' F
Iab acolNy a
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXO. EXPORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX- ESTAB- PRODUCr SHARE VALE MARKES COLLABORATION?
COLLABO- PARtTNER (OR PATRIA721S LISHBD 1990 OR (1I9 AND TYPE OF
RATION FOREIGN IN 1991 (OR 9"91) OR COtLABORATION
INFLUENCE) 1991)
, _ . . . . .~~~~~~~~~~ OVER) .
1. TA, SC, L Prate Sl Laka CrA) 220 4 169 Garmt 100% $15 U.S. Yas TM AS or SC
U.S.(S( (9)
I TA. SC, L2 Prvate Si lanka (TA) 350 (toty 2 1969 arment 100% U5.5m U1& Ym desperate for TM
US (SC) dosed dring (cho.t (90) Ag SC or N
bInda (LI) 3/914191 due to skrs
rIadton oft t)aket)
3. FDI, SC .S Lanka (PDI) 350 2 1990 Gament 100% N/A U& Yea, V for capac"
U.& (SC) (o e _no
4. SC Prvae US. 320 0 1989 Garmet 100% NIA U.S Yes more SC
r. JI Pte- UL (7%) 0 N/A 1969 Tents 20% NIA Sub regi_n, No
South
6. V Private UJL 6000 (lnduding N/A 1967 Cand 9S% NIA Etc No
(2%) _ 3000 in farm) -eMl - - - __
7. V Slawe Co. Eupe 1500 S 1963 Food 5% $5 SUb Nrgi WA
& LF Prvate India 25 0 1979 Hand tool Small $02n Zimbwe Y1a,desp ete for N
fiacon (196S- or TA A&
- - _. .________ (19B5-90) ___________ ___________________9
9. FO, ., LF Pivate German (O BL) WA 1 1965 Deal, 1S% N/A Sub regio NIA
Indi (LI) (ign oMaet"c
10. JV, PrA PIte d 280 34 1966 TutU 90% of WA UJL Id* Yea
13$.ft (1PA) (spinning garmen Sub region
11. , T Ag, State Cob. SwhAa IFC, 210 N/A 1966 Fished 80% $Sm Eume Yes, T Ag and PTA
FTA e kater Far
BtCr Ag.
12. FDI . Swlead 16(50 1 1991 Frak ri 100% Sit 7n No
rempormy) 0~~~~~~~~owem ew
(lca I I
13 TN A�. LF rivat Europe (T)M AS) 700 3 1968 SpoIn 40 $In Sub mom Yes, 1w amFd"
- - - -~~~~~~~~n~L - - -
i4. TA, LY PrIgat | ma NAA | O $. Sub MMl
15. FDI . UUK 600 NIA 1959 PAC" S16M Sub Utic NO
uL . | |Uing wftv. N
16. A& (tdiag
< ~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 I 1m TA4 Ag or N. f11- 1
FE 0 t 19S O Rube 0% N/A Subai deat Y _
_ I_ b oa) agmcj ) orders in
19.zt d iJV SS) 2 30 2 19 7 8 P oG bx e a 10 % 014 WY S u- N I A o
~_- -gA - - -
Fi v a anD i ( d eaCm " 1 9 _ 1 9 46 S u o b e 0 A4 m S u b t eYb e N o
19: FV, TA, I1~ v Swxit e (J) ; t231 w 0 q e am tw b --
wmw is Mc ftic "PoopvSOAm o
TabeS COUTRY C
I.~~~~ _ _ __ . *_ . ..- r
FIRM TYPE OF LOCAL ORIGIN OF EMPLOAYMENT NUMBER YEAR EXPORT E2K. EX. EXPORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF eX. 6STAB- PRODUCr SHARE VALUIE MARXETS COLLABORATION?
COLLABO- PARTNER (OR PATRIATES IJSHED (1990 OR (1990 AND TYPE OF
RATION FOREIGN IN 1991 O)R 1991) OR COLLABORATION
INFLUECE) 1991)
I . . , . _ ~~~~~~~~~~~OVER)
t. FO. TA. Priate Nomay (FO, TA) 400 4 1968 Farifure 959 WA En I Yes.
FTC, FrA ~Genman (FM cadnai
U.K _TA) _k - and It*
2. FO, TA, Private Nethrands (FO, 1200 NIA 1966 Tcxdte (wax 20% MIA Sub regio Yes, for mtatet aeem
FrA TA) priots, U~S.
_ _____ ._ U (FTA _ _.. - L, . __-
3. FDI. Gecman 50 2 1976 Woodea 70% N/A Yes
housld S
__.. .____ __ ithems - G
4. FDI . Koa 905 (sa: 750) 170 (sea: 150) 1978 Fisb 60% N/A Taa: No
to UAS C.
Res to
ff mmmltet
._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ as) _ _ _ _ _ _ _ _ _ _
S. Taiwan 91 N/A 1989 Steel 10% WA Sub mrca No
6. PDI , US. ((cy an 15 1 1980 EmbrodMt 0% 0 . Yes, to take oer the
sale) -toeyans
7. TA priae Sweden IA NIA 193 Canned juice 10%(40% NIA SubA kow Yes, for arket area
expctd Northern
when new Africa
8. LF Private Leb 200 NWA , NA Matre 30% NA Stb rba Yes
9. F____EL Private Fhnee 15 0 WA Garmt S% NA U.S. Yes, for market a
10. None P6vate . Ihe compa 0 1975 Gcarent 0% 0 Yes
,.~~~~~~~~~prtn 5.. yqaS _ _ A__ __
T ^k COUNTRY D
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAK EORT EXP. W. EXRT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX- ESTAB- PRODUCT SHARE VALVE MARKE COLLABORATION?
COLLABO- PARTNER (OR PATRIATRS LISHED (1990 OR (1990 AND TYPE OF
RATION FOREIGN IN 1991 (OR 1991) OR COLLABORATION
INFLUENCE) TAKEN 91)
1. TA Pdvaue J_ (_ ak_ 560 0 1965 GanCt 5% NIA OECD Yes, T Ag
PMA]6) (T41Nus)
(bum) _ ... ._
2. None Prate 2 0 1969 Hortculture 100% NIA Yce, TM Ag.
3. None Pritc a 5 0 1965 Hotctuure 100% MIA up Y, TM AM.
4. None Private . 2 0 1988 Horkullure 100% NIA em Yes, TJM Ag.
5. TM 4Ag Pointe U.S. S 0 1989 Vanil 100% SI515WO U.S NO
.,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-
Tae S: COUNTRY B
FIRM TYPE OF LOCAL ORIGIN OF EMPLOY- NUMBER YEAR EXPORT EXP. EXP. EXPORT SEEKING FOREIGN
FORE3ION PARTNER FOREIGN MbENT IN OF EX- ESTA3- PRODUCr SflARB VALUE MARK6 COIAAlORATION?
COLLA8O- PARTNER (OR 1991 PATRIAIeS LISHED (1990 OR (1990 AND TYPE OF
RATION FOREIGN IN 1991 (OR 1991) OR COLLABORATION
INFLUENCE) TOAVKERN 991)
1. LP Prvate India 2_ 0 1985 Footwea 10% S12O00O Sub regin. Yea, M Ag.
_ _ _ _ _ _ _ _ ,__ _ _ _ _ _ _ _ _ .,__ _ _ _ U .K.
2. None PAivate . 200 0 1974 Chilies, 80% $300,000 Sub reon. Yet, JV
dhalls Soutb
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~~~~~~~~~~~~~~~~~~~~~Africa
3. LF Private Ina 60 0 1970 Dbalb. 99% 5600,000 South Yes, M Ag or SC
$Marsy Africa.
_ ___ __ _______ ____.__ I., Asbi
4. TIM Ag Pdvate Ta (TM Ag, 60 6 19 Gannent 33% $700000 US. No
Mt A UC.(MI A) South
M Ag South Aia (M Afrika
AS)
S. FDI . U K. 130 N/A 1975 Fishiag 100% WA US, No
Flies Canada,
Australia,
_ * . ~~~~~ ~ ~ ~~ ~ ~~~~~~~~~~~~~Europe _
6. LF Private India 200 0 1972 Garments 1% 5500,000 South Yet, TIM Ag or SC
Afdca _
7. JV Private U.K. 4400 20 1967 Trike 25% S6m Europe No
8. LF Private Pakistan SO 0 NIA 1975 Garment 20% $2r. U.S. Yes, TIM Ag.
TIM Ag (up Taiwam
to rea:ntV Ipt eal).
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EORT EXt. ANNUAL EXPORT SEEKING FOREIGN
FOREIGN PARTHER FOREION IN 19 OF BX. SrAB- PRODUCT SARE - Esx. MARKS OOLLABORATION
COLLABO- PARThR (OR PATRIAM L1SHED (t9 VAUE AND TYPE OF
RATnON FOREIGN IN 1991 R OR VALMUO CA'OR
INFLUENCE) TA9R 1991) 1 OR
- . . . ___ OVER) _ - -
1. JV ates Famcea (0% 1100 1 (7 197 Tballe (Sc 35% N/A Eusp MThuc ltltc
COMPMY ttwsl, 23 4004~~~~~~oeb hacy (gzq (rW7 ind ist being,
at the dotEr); �1040); Sub i dnwtwt8.
beginning) 10% -qo
2. JV State Fracs 1000 N/A 1922 Teio(gm 30% - Sub ele se tw ti
_______ coany dloth, apetd S indus b being
3. PO NIA Fnce 200 2 N/A Texile 30% NIA Sub region Yes, for madkt ==L
4. FDI, TA Lebaum Frnch S60 3 1963 Ganna cr- 80% N/A Franc Yes, ekibn m SC.
SC .(EI TA); shbit, (reet (90%); Sub
Hmg K*(Sq_ pajamas) yeast) rcn
S. IDI PFOP Lebsx Frech 300 3 1976 Garment 90% NIA Euree NO
TA, BL (en)Sbrgn
-_Hona .eKmw, . __e_____ - - - 4s
6. Nome Pwate . 10 0 1972 Gaent 0% for
7. PFA Pr c Frne e S 0 NIA Fashon Imegua N/A Frace Yes, for mrke ac
8. FDI - P 35 2 _ _ 1970 Lge 35% NA Aidn No
9. FDI I" . rPe 1500 N1A 179 Canned tuna 100% N/A Face No
10. FDI . Fane 1000 NI/A 1962 Canri tuna 100% N/A France No
11. PDT F0e 0 2 NIA F,n 80% N/A Fkance No
.(_ -
- - - - -amcd
Table 6. COUNMY I (aUnL)
12. |P . 20 WA NIA Fislu 100% NIA E e
13. ,V a -___._ . ____ _ _.__A_ adivity Europe_Yes
13. tdnte Franch h2 NA WA 1989 Fob ting Stat NIA Fc .es
tanning Co.; 1S% tFrnce
_F.,ncb private aid
14. LF Lebanon 70 3 1983 Leather 25% NIA Sub rqpon Yes for mSaret
-_________________ ____.___.____.__._ shoes , _.___
S _FDI Lebanon. Taiwan 100 15 1986 Plastic shoes 20% N/A Sub region No
16. LF PJdvat Lebano s0 0 1980 Plastic shos 0% - . Yes, for markt s
MOand prodt desig,
17. FDI_ France 15 2 1965 Furniture 10% NIA Fane Ye, or market ac
18. FO Pfnvte Fraac 600 NWA 1986 �tlal onI 100% NIA France Yes for mant ac.
(farmers) ~~~~~~~(for medacat
use and
________ . _________ -spirits) ___
19. JV Pdvate Fanc(F) 600 NIA 1956 Hand mad 0% Cigar to a
FO swims F)cgars, a"por to
cigWarts Europe
banned
______________ ~now
20. iv Priate ue ( 2000 N/A 1982 COsetlans, 25% NIA Sub region No
FO Franc F) (origin- detegents,
palm oil,
_________ ~ ~ ~ ~~~~~~~~~~~~~~ ~ cotton, oIl
21. FE Pat Europe N/A N/A NIA Palm oil 30% N/A Eutope Yes. s bearcfor
- refining pailnei.
22. FDl,(istaer Swbs 2700 NIA 1959 Coffee, 65% NWA Europe No
companies) cocoa Sub raion
Food
roduct
___ _ _ _ _ _ .__ _ _ _ _ ___ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ milk) - - -
23 FD I _ U.s240 2 1966 Battedes 0% NIA S g No
FDI -
TIk7: COUNTRY (
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXt. WORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN I991 OF EX- ESTArw PROIDUCT sHARE VALUE MARIE COIABORATION7
COLLABO PARTNER (OR PATRtATES LrSE (1"9 OR AND TYE OF
RATION FOREIGN IN 1991 (OR 191) OR COLLABORAON
INFLUENCE3) TAKEN - 199)
1. FDI . UJC 290 6 1977 GU S N0% NMA Sub rgo No
2. DI Zm_ ia I 70 2 1979 Patks 85% NJ A Subye" Y.TJA.M
. None pdv.e 42 0 1982 Ganei 0. . Yea
4. TA Prdve APDF 89 2 1974 Ganoea 10% WA Sub regio MIA
5. FDI . utc 7 - 2 t , I�87 rp p 90% VA Subreo1n Noll ,.U .
S. ~~~rn - - ~~U.K. 7 2 1967 - p M 90% NMA Su k No
TableS: WomJnT H
~~~~_ _ . -~ = . .. - _ _
TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EX?. EX. EXPORT SEEDaNG FOREIGN
FOREIGN PARTNIR FOREIGN IN 1991 OF Ex- ESrAB- PRODUCr SHARE VALUJB MARXKI COLtABORAION?
CORABO- PARTHER (OR PATRIAS LSHED (199 OR 1990 AND TYPE OF
RATION FORMIGN IN 1991 (O191RO COUARORAT1OX
_ _ ~~~~~~~~~~~~~~~OVBR1
1. PF, SC, TA Prvae Fne (FE, SC 850 A few 1987 Garunt 100% $11 FRance yea, acmpdm to
UNIDO (TA) MAd km wsee oUS.
embroldeay -adm &ONO TN
- ~~~ -. _,._. .. _ m-at
2. FDI, SC, M Indan FraN 700 N/A 1991 Gamn 100% S15m USSRm Ye, atmpng to
Ag DFDu have Facc sto other
P>raSeISC. EC canuy n UMS
USSR (II A) -a...s rbrouh TiM
3. D F 900 NIA 1987 Co_dmnS, 100% $35%000 FDDCC N/A
4. JV Pvae France 3S (phu b1m) N/A 1/1991 Dwuk Uvr, 50 535,000 NI/A toIanR
(_dk coasen AM A widk Sol
- -_- - -
5. N Stoe CO PSn FA 2,500 10 195 2 Taow 60% $10m No
6. LF,rvate 1 U 5) 7 NIA 1987 H 1009 120,00 US. Yes, V(w j 9
7. FDI,SC n12D NIA 19S I 10D9I) rane Y rl cah M AS
& N_ Private Foca 200 ( ed .7 (apct| 1991 Man-|aae 100% MA NIA JV ha been acbieved
9. LF Prdvate 1 1989| Fhds, 100% s500,000 NIA N/A
io. FDt - Fracc 80O 2 1949 C1OM, 70% |Ssooo0o N/A NIA
| , i) (. _ 1, .u 1-_.,
9: COUNTRY I
fIRM ORIGIN OF EMPLOYAEBN` NUAMB YEAR RCRT EOR ANEXPOR PR EKNO FOREIGN
. . _ COE _ INO , ESTAB. SHLRE _ ._RKEf
!I8TER (O AiAm USE 19 RVLEAD TMOFMO
-~ ~ ~ ~ ~~~~~~~~I N99 1991 .O tVA WO O AT_ _
. IV NWA Suibgbm 2000 NA 1910 MIA N/ Eump No
2. iv NA lad aBrk"h 1ISO WA 9? lcadej 75% YAMn NA EU9o no
I iv WA B*Ms IND0 NIA 19ow Coat..apm 2WA Bmp. No0
- - - - -~~~~~d" -
4~ . . N1
S. NV WA HagIoog (0) 41 WA 1914%2% / Sub feogls No
(1954) sme~iUS.
4. Nioac Prvate too 097 Leather 10% NWA US. Yes
7. iv NWA LebinO (60%) ISO WA 1960 Leathr Smal 6 NWA itaIy/Pbad Yje for k.m Amm.
a. Name Privat 135 Y 19 ar Lken mm f
9. NV WA -dso NWA 199 Gament 100% WA US. No
~.L.. .Ii bZlM.. ~. �. ,in1~.O. ~ --e m
I1 N WA ladft 3000 NOA 1975 Al.m 5% N/A Sub raoa No
12. ame pivae 1200 I 1975 -Lah Srl % Yee, for Met am.
139. N WA Br eA 4000 (2000 I W A 1959 Sub o No
(40%) _1aa 16.uoia
14. N primate Frc (80%) O 1990 Ps0d N/A F.ac .ob
15. DIV Bts R" uW NIA s19 7 From 80N5% N A Euo No
16. FE Pvate UJL 0 N/A Traing W9A N/A US; NO
1t R A (t S WA 19S9 ~~~~~~~~get o ERope b
..- - l2_,..._)
17. FE Prite U U. 2 0 1990 Thdlt an WA N/A tA No
_ * = - _ == N
[.bb1'0: COUNT J
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXP. EXPORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX- ESTAB- PRODUCr SHARE VALVE MARWK COLLABORATION?
COLLABO- PARTNER (OR PAMIATES LISHED (1990 OR (1990 AND TYPE OF
RA`ION FOREIGN IN 1991 (OR 1991) OR COLLABORATION
INFLUENCE) TAKEN 1991)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ OVER )
7. N Pdate U.IC 27S 3 1987 Pine 100% N/A OBCD N
South Afica tikm (%)
. , . . _ ~~~~~~~~~~~~~~~Sulb regoe
2I FDI . South At8a to0 1 1989 Pi1e 100% NIA OECD No
_________ __ _____ _____ __ _________ __ _ __ _ ttum ultur __ _ _ _ _ _ __ _ _ _ _ _ _
3. FDI South Abica 464 3 1965 Sucakees 100% N/A South No
4. FDI South Atia 1S 3 1988 Wddin 90* NIA Sub regm No
S. FDI Caaaa IJUL 6 2 1985 Had- 90% NIA Sub rgin No
6. P01 SootAI U.S. 50 2 196 Sates 90% NA OEM_ No
7. JV Prate IS 2 1967 Waa PUMP 90%m WA Suab regbl No
I _ * . =.--
Tal Ii COUNTR K
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENTf NUMBER YEAR EXPORT EXP. EX?. EXPRT SEEKIN FOEIGMN
FOREIGN PAR1NER FOREIGN IN 199L OF EX- ESTABE PRODUCT SHARE VALUE MARKT COLLABORATION?
COLLABO- PARTNER (OR PATRIAT LISHED (1990 OR (19" AND TYPE OF
RATnos FOREIGN IN 199 OR 199) OR COLLABORATIoN
INFLUENCE) KEN 99t)
- OVER~ -., - -
1. T AS Priae TAWa 146 2 198? BatteIs 25% M32Meo Sub negon Yes, at to
2. TA pzivat Europe 25 N/A low Fra *mlta lam 5140,000 Framee atrcaetn to
ETA vegctabIcx. (Crab apn ales contact
bull veact- iaHVW Opotbo.tb
__________ _________ c~~~~~~~~~oncenta tes jbks 1) Aa.
3. FO private Belgim 147 0 1987 Househol 30% $3000 Sub mS$mo Ya.wat o este
Ft~~~~~~~A1 (6lnes Ibmegh i rS
- -O - 16? 0 1 - Hx X
4. LF Pivate lodi 3S 0 17 Gahvnlted Only I $5000 ZlSe Yes. TIM Ag.
steel dset a
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - contract _ __kw o
5. FE Pivate It6 62 0 1987 Gannents 30% S, BdxL N1A
6. N hime Begium, Germ 250 cdin 0 197S Qulnpina N/A S15000 A No
_____ ________ seasonal 2 rmerab ._____ - -
1. Prte Fran 2 (120 sason NIA 1990 Vc 90 $125,000 Eup Yes, M A o
. . . . ..= ,=,=
Tb I COUNTRY L
FIRM TYPE OF LOCAL ORIGIN OF EMPLOY NUMBER YEAR EXPORT EXORT ANNUAL XORT SEE G
FORE1GN PARTNER FOREIGN MENT IN OF EX. RSTAB. PRODUCI SHARE EBPORT MARKEIS FOREIGN
COLLAE0 PARTNER (OR 1991 PATRIATIS LISHED (1990 OR VAIUE COILABORA-
RATION FOREIGN IN 1991 (OR 991) (19" OR TION? & TYPE OF
INFm.UENCE) TAKN 199) COLLABORATION
1. FDI C.n 76 26 1o Garme jean., 100% $12. Ewa" NO
2. FDI Fbm 120 4 199 AembIy of 80-00 $2.7. Sub eion yet. ma._e_tg
.__ _ .__ _ _ .__ _ bre and __ .tenme ,L
I. NV PdIae Fane and 80 2 1990 Frn" dhimps 80% $Ism Franc YU
Gen=w (13 mW~~~~~~~~an sea food
0 a3 ktwdbom
4. FDI . =(SOW,US, 70 NIA 1991. Fte himp 100% S1.0m F"c No
1992 ad gee lood
S. FDI . Fsance 90 WA 1e90 80% S2.Om Suib No
6. FDtI. It*1taIl wke So 3 191 Shoe. 99% WA No NO
Ultt OthEp9 ("bX
h . . . _ ~~~~~~~~~~~~~~~~~Subr4 (3%) _ _
7. Jv pvate Ftenda (pool of - . 12 P*tr1 Sub reon No
_ _ _ _ _ bhw estosi _ _ _ _ ak ar a_ _ _ __ _ _ _ _
- - ._ __ .- ,X.w._,_
8. MA, TA, Prinle GMn 140 A 1992 Garment W(. 80_6 $1pe5 Sub No
LO . . _ __ . - (190i") -._. t(
9. MtA Sta eo. U.S 300 NIA 1985 Ste NIA WA Sub __in No
10. FDI Pm Leban - G o d a nt ( 100% Fraw, Sub No
.~~~~~~~~IW h dkb~al) regiOn
It. FDI . an$ too NVA 1990 amet oats 110% NWA US. No
___ ~~~~J d ___ _ _ _ ___ _ to _ _
12. FDI Face 100 3 19B Food podc 70% SU. Sub regin No
- __ __ ___
13 EDI . N_l 79 1 I? Plac Iem WA Subriok No
Demak . ___._ ( antubes ._.__.__-
14 Fe PPEvare Ewcur* 17 0 1974 wood 70% 501. Ua Yes
IS. LF Pe Leba 60 4 1987 Axlnumm 10% WA Sub iomn Yes
Ndo F 19 ar b9 e _eedieii A E er 10 s a pod ikvehor innWaERPZ
Table : COUNTRY M
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXP. EXPORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX- ESTAB- PRODUCT SHARE VALUE MARKETS COLLABORATION?
COLLABO- PARTNER (OR PATRIATES LISHED (1990 OR (1990 AND TYPE OF
RATION FOREIGN IN 1991 (OR 1991) OR COLLABORATION
INFLUENCE) TAKEN 1991)
i________ -____ _ . OVER)
1. FDI U. K. 55 2 1978 Semi- 100% NIA Sub region No
2. JV Pratc NtA 65 3 1986 Semi- 100% MIA Europe No
leather
3. Non" Pmtue - o 1 1988 Cut flowet 1000 _ NlA Europe Yes, M Ag.
4. FDI . U.K. 300 3 1964 Beans 5% NA Europe No
5. FDI Germany 1000 9 1973 Garments 60% S2.4m Europe No
_ . ._ _ ,- . __ = - _).. _
Tabl 14: COUNTRY N
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXP. EXPORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX- ESTAB- PRODUCT SHARE VALUE MARKETS COUABORATION?
COLLABO- PARTNER (OR PATRIAThS LISHED (1990 OR (1990 AND TYPE OF
RATION FOREIGN IN 1991 (OR 1991) OR COLLABORATION
INFLUENCE) TKN1991)
l ~~~~ ~ ~~~~~~~~~~~~~~~OVE-R} _
1. FD, SC Ita (FD 240 N/A 1984 Garden 10% $17S,000 N/A Yea, MOM TIM Ag of
Sweden (SC) _ = furnitture , SC
2. Mt A State Co. Eurqe 1100 6(onlly 197 Coton 70% $3m N/A N/A
3. FDI, SC India (FDI) 350 3 (orinll 1960 Housebold 25% $17S,00 N/A N/A
__________ Swede (SC) _I _ 12 textile
4. FDI India 300 N/A 1984 Sisal twina 8s% $4m U.S. N/A
5. N Stte Co. U.K. NfA N/A 1985 Tea 80% S35m N/A N/A
6. None Private N/A NIA 1974 Gem stone 75% $220,000 N/A
cutdt Ango
7. TA Sate Co. Swlzedland 2000 0 198 Tetile 20% SIm Enwpc Y Img
claoainwith a
Komsn MNC
8. FFD1, TA, - I (FUX. TA) 130 3 1978 Automoie SO% $200000 Sub wkgpm, N/A
FrA U__ ___ _ rdlaomUJC.
Table I COUNTY 0
=~ ~ ~ ~~~~~. i _ _- ___ ..- _
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EXP. EXPORT SEEKING FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX- S1STAB- PRODUCr SHARE VALUE MARK� COLLABORATION?
COLLABO- PARTNER (OR PATRIATS LlSHED (1990 OR (1990 AN4O TYPE OF
RATION FOREIGN IN 1991 (OR 199) OR COLLABORATION
INFLUENCE) TAKEN 1991)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _O V ER ) _ _ _ _ _ _ _ _ __ _ _ _ _ _ _
1. JV Priate Tnolaa 60 0 1986 Sugar I'l0% NIA Sub re"o Yes
2. JV Private Spain (35%) 207 36 (ma on 1979 Froe and 100% NWA Hump. No
(65%) aNps) - ance, E
3. FDI U.S 68 2 (o*rI l 1983 phrmaen u 60% NrA Sub region No
_ ..~__ __ ._ _ _ _ _ _ ._._.__ cal nendds .__ _ ._ _.
4. 1A . &ukina Faso 130 0 N/A Rubber sir 60% NIA Sub regio Yu difficub
_1=A(rA)
S. JV riate KOa 70 5 _ 193 Afrkaen hair 60% N/A Sub egio Yes
__ FDI K KO 80 7 18 Afrkan hair 60% NIA Sub region Yes
7. LF PrvLebano so 50 2 1984 Pask 60% N/A Sub on Yet sign SC wthb
SC Frenc (signig sandals Prance
_ 5C ~~~~~~~SC)_..___Fae|t
8. FDI Frante 100 o 198 ChilU 100% WA Fta=cc Yes
.______ ..______. sandals _ >
9. JV Pdite Franc (5%) 820 8 19S5 Tetle 25% WA Sub region, Yea
(95%) (. US
____ .______ _______ Franca
10 LF Priate Lebano (I 250 2 1991 Textle 20% N/A Sub reo Yes
TA Prane (TrA FO) (odgin. (bazin-
FOaly fc)
11. LF Pdvatc Lebon (L 160 1 1985 Cotton 14% WA Sub region Yet
FL Fnce (D. FO) (oign thbreat
FO ally
12. NV Prvatc Ws BEC. 950N WA 199 Gament 0%. lbo "A Europe Yet
Frnkh (WCE) co. wn t)
bankaqt bfoe
sUer Ome
year of
13. LF Private Lebanon 100 N/A :1994 plastic items 40% WIA Sub region Y without foreign
14. LF Private Lebanon 60 W/A 1983 Plasic Items 20% W/A Sub reaion Yes
15. FDI Lebanese (Orom 300 NWA 1983 Plastic shoe 30% NWA Sub region Yes, M AS or SC to
Cote dlvoire) ctrMbe
. J I I I markm~~O
- 145 -
_ - _ _ - _m -!
__ -,- -] -_
-f - -i X, fi -f f
s} XJ a!1 -
~~~~ 1
- - - - - - - i
Tabk 16 COUNTRY P
_ - - _ _ . _ _ * _~._ ,_ __.
FIRM TYPE OF LOCAL ORIGIN OF EMPLOYMENT NUMBER YEAR EXPORT EXP. EX?. EXPORT SEENG FOREIGN
FOREIGN PARTNER FOREIGN IN 1991 OF EX. ESrAB- PRODUCr SHARE VALUW MARKE1 COLLABORAJON?
COLLABO- PARTNER (OR PATRLAIAS LISHED (1990 OR (199 AND TYPE OF
RA1ION FOREIGN IN t991 (OR 11) OR COLLABORAlON
INFLUENCE) TAK 1991)
l l . . ~~~~~~~~~~~~~OVER).
1. Prvte EC (TM Ag) ISO 1951 Pbagaett 10% t VA Sub vo
LF ____U.K (LF) ___cl
I TA Piate Japa (twa4-y 30 0 1984 sewin 0% Ye
I TA Prvate EC (fA) IVA NIA 1967 Footwer 25% NIA Eupe Y, TM Al.
LF UAL (LF empoienx
4. TA ?iato NIA CrA) 1000 1 1931 Packah0a S% NlA Sub reio Yes, TIV AC
- - - -U.K IJ71 iiii- I
S. LF Pte U.K. (f) 700 0 1941 Rolag 65% Sub reion NA
FO NA stock, stee
_ __ __ __ . nk ._ _
6. LF Privt U.IC 2100 0 1960 Gsn=U 5S% NtA South Yet, TM At,
(0%)
7. V Pate U. I 700 O 1953 Pa7g % (40% N/A Sub ngo NIA
LF m,esials labfnalm
- 147 -
Anng2;11
SAMPLE EXPORTERS' COMMENTS ON DUTY (INDIRECT TAX, AND
RESTRICTION)- FREE AND FOREIGN EXCHANGE ACCESS/
ADNINISTRATION FOR RAW MATERIAL/IXTEPJEDIATE INMUT/AND
CAPITAL GOODS FOR EXPORT PRODUCTION
1. Botkfia
A duty drawback system has been implemented. As 85% of Botswana's
imports arrive duty-free from South Africa (under the Southern African Customs
Union.11) and from Zimbabwe (under a bi-lateral trade agreement), the system
is not much used by exporters. It does not appear that the special incentive
program for 100%-export-oriented firms in Selebi-Phikwe includes a special
free-trade status, such as a BMW or EPZ, other than the drawback system. It
does not appear that exporters are encountering problems in access to foreign
exchange, due to the country's abundant foreign exchange reserves.
2. Burundi
An improved duty drawback scheme and a scheme for the reimburse-
ment of transaction taxes have been introduced recently. However, exporters
are not yet sufficiently familiar with the new duty drawback scheme, and some
are confused by the new pi 2 X,es. Also, since most of the firms interviewed
are only partial exporters, &..dy tend to be dissuaded from using the drawback
scheme because of the complicated procedures. The import licensing require-
ments (the license is granted for only six months and is required for each
product) have been a burden for some exporters. Exporters' access to foreign
1/ The Southern African Customs Union (SACU) includes South Africa, Namibia,
Lesotho, Swaziland, and Botswana. South Africa collects customs duties
for all members states' imports from outside the union and collects excise
on local production. As a result, member states have relied heavily on
imports from South Africa.
- 148 -
exchange appears to be problem free, primarily because foreign exchange
reserves are currently strong.
3. Cote d' Ivoire
An export premium was designed to compensate for the tariffs paid
on import duties as well as to compensate for the overvaluation of the FCFA.
From August 1986, when the scheme became effective, to February 1990, 79
enterprises have availed themselves of export premiums. Although all sampled
companies were eligible under this scheme, no payment has been made since
1988, due to lack of funds and mismanagement. Exporters indicated that access
to, as well as the amount of, the export premium scheme lacked transparency
and automaticity. In addition, the procedures are long and cumbersome. In
turn, a major share of exporters are relying on a BMW scheme (Admission
Temporaire) for their duty-free imports. But two of the firms interviewed
indicated that they deliberately refuse to use it because of the administra-
tive hassle it entails. Larger companies have customs officers posted on
their premises, but rarely is the relevant officer present at the right time.
Delays, transportation costs, and overtime rapidly add up. Some manufacturers
report they are unwittingly in default at all times because of these bureau-
cratic constraints: delays to renew the agreement, to obtain an approval, to
locate a customs officer, etc. There is no foreign exchange access problem,
even though difficulty in having access to financing (see below) may indirect-
ly limit access to the foreign exchange needed to import materials for export
production.
4. Ghana
Thirty percent of the sampled companies have applied the duty
drawback scheme, but to this day, none has received refunds. According to the
Ghana Export Promotion Council (GEPC), only three to four companies have
actually availed themselves of this scheme. GEPC, as well as exporters, has
- 149 -
advocated the adoption of a duty exemption system, but no decision has been
made. The bonded warehouse system is currently in operation, but its regula-
tory framework may need to be revised. It suits only the needs of large
companies that mainly import large consignments of the same goods. One
company visited had a bonded warehouse where they only stored their bulk
orders. Firms do not appear to have any problem in accessing foreign exchange
through the auction system, even though difficulties in getting financing may
indirectly limit access to the foreign exchange neec3d to import goods.
However, it does not appear that there is a built-in mechanism that guarantees
exporters' access to foreign exchange in the event of a foreign exchange
shortage.
5. KeDya
The only duty-free import scheme in operation until 1989 was the
Export Compensation scheme, which can be considered a fixed-drawback system
with a uniform drawback rate of 20% of export value for all listed export
products. This disregards actual duty payments as a proportion of associated
export value. The BMW system was introduced in 1989, and there were about a
dozen garment factories operating under BMW licenses at the time of our
interviews. In 1990 the EPZ law was enacted, and one factory was in operation
within a private EPZ that had 12 completed factory buildings at the time of
our interviews. Finally, the government introduced the duty exemption system,
which is for those exporters that are exporting the li3ted products but that
choose not to use the Export Compensation Scheme.
Effective implementation of the duty exemption system will take
time because the necessary implementation mechanisms, including estimates of
imported input coefficients, have yet to be in place. Most exporters current-
ly relying on the Export Compensation scheme indicated that they prefer the
fixed drawback system to the duty exemption system because of the reduced
paper work of the former. They expected delays in importing duty-free items
- 150 v
even though the current Export Compensation scheme has its own problems in
terms of payment delays, associated working capital needs and interest
charges, and only partial compensation of duties related to export commodities
heavily relying on imported inputs. However, to make the fixed drawback
system more rational in terms of providing close-to-free trade status, the
more realistic fixed drawback schedules, which are close to actual duty
payments for different products, have to be offered. Also, since the duty
exemption system is very inflexible under the current implementation rules,
only exporters with confirmed L/Cs are allowed to use it. Therefore, for
exporters that stockpile their products before receiving export orders, a new
individual drawback scheme has to be introduced if the government wants to
ensure equal access to free trade status for them.
In turn, exporters using the BMW scheme complained that although
customs officials monitor factory operation around the clock, as well as
accompany all container shipments from and to ports, the exporters have to put
up expensive separate bonds for ports, container shipments, and factories.
They also have to pay various high port charges and custom officials' overtime
fees. BMWs in most developing countries do not require such bonds, and
exporters do not pay such high charges and fees.
All garment exporters with the BMWs export under subcontracting
arrangements. They indicated that one of the major reasons the} cannot switch
from subcontracting to L/C-based exports and imports--even when they know that
L/C-based exports and imports would provide better profit margins--is their
extreme uncertainity about undisrupted and speedy access to import licenses
and foreign exchange to import the raw materials and intermediate inputs under
L/Cs. For L/C-based imports they must have import licenses for every transac-
tion in order to have access to foreign exchange, whereas for consignment-
based imports (needed for sub-contracting production) such licenses are not
required. These licensing requirements have been imposed mainly due to the
uncertainty about the availability of foreign exchange to back up the licens-
- 151 -
es. This is evidence that there is no built-in mechanism that guarantees
speedy access to foreign exchange for imported inputs for export production on
a priority basis.
6. Madagascar
The BMW scheme is hardly used, and the drawback system is not used
at all, since no reimbursement mechenism is in place. The most commonly used
scheme is the duty exemption system. However, several firms expressed concern
about administrative requirements and cumbersome procedures that allot
considerable discretionary power to customs. Even firms operating under the
EPZ regime, complain of administrative hassles. Several firms in the garment
industry remarked about the lack of experience, integrity, and commitment of
customs officers. Inflexible application of the regulations governing free
trade status causes problems also. For example, exporters of agro-products
complain that, according to regulations, inputs cannot be removed from the
factory; therefore agro producers have a serious difficulty convincing custom
officials about the ultimate use of seeds imported duty-free. Another example
is the problems of obtaining a tax waiver for the transport vehicles used for
carrying fresh vegetables for export. Another firm complained about the 10%
minimum import tax, in addition to customs duties, on machinery imported for
export production (for example, slaughterhouse equipment used for duck liver
production).
7. Malawi
Even though import duties are quite low (less than 10% on raw
materials and capital goods), a major difficulty for the exporters interviewed
is that duties are charged on the full landed cost of an item, which is
expensive because of the high transport costs for goods imported into Malawi.
In addition, all Malawi businesses with a turnover of NK10,000 must register
and pay a surtax. According to the 1988 Export Incentive Act and the Custom
- 152 -
and Excise Act, duty drawbacks on inputs and machinery, zero rating for
surtax, and BMW for exporters are allowed. Most of the textile/garment
manufacturers interviewed are using the pilot BMW scheme. Several firms have
shifted from the duty drawback system, which they found to be too slow. FIAS
has suggested that more transparent criteria for eligibility in the BMW
program would be necessary, including a negative list of ineligible products,
locating factories both inside and outside of industrial parks, and allowing
duty free entry not only for material but also for machinery. Introduction of
a duty exemption scheme has also been suggested.
8. Mozambigue
In principle, all investors are exempt from import duties on
inputs or materials used for export production with a value-added higher than
35% (or for products for the domestic market when value-added exceeds 45%).
All certified foreign investors are exempt from import duties on inputs and
raw materials used for export production. A duty drawback scheme may be used
although there is no formal drawback scheme as such. In addition, the vague
provisions do not cover certain inputs that are necessary for exports (such as
chemicals or Wax for fruit production and export). A BMW also may be used. A
textile exporter is trying to obtain BMW status for its factory. One of the
priorities of the newly-created Export Promotion Agency (IPEX, June 1991) is
to design an adequate duty drawback scheme; draft was in preparation at the
time of the survey.
Exporters also complain about the 7.5% import tax (as well as the
corporate income tax of 50%, customs fees on imports for export production,
and an export tax of 5-10%). All exports have to be licensed, and customs
clearance is very slow. The government, with the assistance of the UK
Overseas Development Administration, has prepared legislation for the estab-
liskment of an EPZ regime. An EPZ plan was submitted to the government by
Hong Kong developers who want a site for Hong Kong investors wishing to
- 153 -
relocate abread; no positive response has been given. In turn, exporters have
access to foreign exchange through the secondary foreign exchange market
(established recently) or through the exporters' foreign exchange retention
scheme. However, due to foreign exchange shortages, it is unclear whether
exporters' foreign excl;nge demands are automatically met.
9. Nigeria
Half the exporters interviewed had applied for the duty drawback
scheme. Ineffective implementation of the scheme is evident from the fact
that one exporter received the drawback some two years after applying, and
half the exporters interviewed had not applied at all, because they reckoned
that their export volume did not justify their application or because the
estimated cost, in terms of bureaucratic headaches, exceeded the expected
returns. Others were waiting to be granted the right to manufacture under a
BMW scheme. However, despite the efforts by the Nigerian Export Promotion
Council and exporters, a BMW scheme or duty exemption system has not been
instituted yet.
While the foreign exchange auction system (implemented recently)
and the foreign exchange retention scheme (25% of export proceeds) have eased
the foreign exchange access problem, access to foreign exchange for importing
raw materials and intermediate inputs for export production is not absolutely
guaranteed on a priority basis. Exporters reported that under the current
auction system, foreign exchange is allocated to the banking system which does
not have any incentive to ensure exporters' priority access to foreign
exchange. Exporters report that they frequently resort to a number of
"gimmicks" to meet their import needs: they open accounts in a dozen or more
banks and /or break down their invoices, and resort to purchasing foreign
exchange at a higher price on the "black market." But such a market does not
enable them to open L/Csl
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10. SeneeAl
The Dakar EPZ (Zone Franche Industrielle de Dakar, or ZFID) was
inaugurated in 1975. As of July 1991, eight industrial companies were
operating in the EPZ. All eight companies pointed out the ineffectiveness of
the zone administration. The following are some examples of their complaints.
An EPZ enterprise indicated that it experienced 280 power breakdowns in one
year. The firm complained about the government's failure to ensure true free
trade status, because firms are forced to pay the so-called COSEC tax at the
seaport (0.3% of total export value) and the ASECNA tax at the airport. Other
complaints targeted: the extra transportation costs that stem from the
failure of one-stop service at the zone; the EPZ's location which is 18 km
away from town; the high annual EPZ fee (CFAF 5.8 million for each company);
and the rents. Most exporters outside the EPZ rely on the duty exemption
system ("Admission Temporaire"). We were not able to evaluate the effective-
ness of the system in great detail.
11. Swaziland
There is no duty-free import scheme. Since Swaziland is a menber
of SACU and its economy is heavily integrated with the South African economy,
there is no need for such a scheme so long as imported inputs for export
production come from South Africa. However, there is no means of duty-free
access for imported inputs (for export production) that come from outside
SACU. Likewise, access to foreign exchange is automatic as long as the goods
to be imported are covered by an import permit issued by the Ministry of
Finance. The processing and obtaining of import permits are reportedly
adequate.
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12. Tanzania
A duty drawback scheme was recently introduced (1988/89) but has
not been used much. Exporters complain about long delays in reimbursement by
the Board of External Trade (up to nine months), thus tying up scarce capital.
Since not all exporters are eligible, this situtation encourages smuggling.
There is no compensation for capital equipment and spare parts, and the system
involves complex administrative procedures. Partial exporters are at a
greater disadvantage, because of difficulties estimating input-output coeffi-
cients. The Board of External Trade also charges a commission. For example,
one textile importer, that has to import various inputs (dyes for its textile
production), has renounced any claim to a drawback because of the many compli-
cations.
A bonded warehouse scheme apparently is used by a few large
textile producers. Exporters also complain about the sales-tax burden.
Although an Open General License System and a General Export Retention Scheme
with a uniform retention rate of 35% for non-traditional exports have eased
the foreign exchange access problem, it does not appear that exporters' access
to foreign exchange is guaranteed on a priority basis, due to the shortage of
foreign exchange. A number of exporters interviewed were uncertain about
their import licenses and associated foreign exchange availability and worried
about delays in honoring L/Cs.
13. Togo
Customs procedures are reported to be exceptionally smooth and
speedy. Beyond the rapidity of customs clearance--it takes a maximum of a
week to clear goods out of customs--the lack of "hassle" and uncertainty in
customs operation is noteworthy. (In neighboring Nigeria, it is reported that
production schedules are often disrupted by various problems encountered in
customs.) All exporters interviewed acknowledged the smoothness of export
- 156 -
procedures and the comprehension and flexibility of customs officers.
Exporters seem to have no major complaint about the "admission temporaire"
scheme. In turn, a decree instituting an EPZ was promulgated in September
1989. As of late August 1991, 17 companies had been granted the "accord
definitif" (final agreement), out of which 10 had already started operations
(and four were already in operation); 19 had been told "accord being re-
viewed."
14. Ugand
There is a drawback scheme for duties and sales taxes on imported
inputs for export. However, the scheme as presently implemented does not work
properly. The paperwork required to claim a drawback is, according to
exporters and the Export Policy Analysis and Development Unit (EPADU),
extremely bureaucratic and time-consuming. In effect, very few exporters have
been successful in claiming a drawback or have even bothered to do so.
Recently EPADU recommended that the government introduce a duty exemption
system. No BMW system or EPZ regime is in place. EPADU has also prepared for
the Minister of Planning and Economic Development a policy paper on an EPZ
regime. Meanwhile, exporters have access to foreign exchanges through an
Open General Licensing (OGL) scheme and non-traditional exporters' foreign
exchange retention accounts. However, it is uncertain whether exporters'
access to foreign exchange is guaranteed based on these schemes.
15. Zambia
One scheme that allows for duty-free access to imported inputs for
export is the duty drawback scheme. According to exporters, the mechanism for
claiming a drawback has been so time consuming that no exporter bothers any
longer. (Still it is a big cost factor, as import-duty-plus-sales-tax adds up
to at least 40% of the value of the imported inputs; indirect taxes (sales and
- 157 -
excise taxes) are refunded according to the amount of the taxes levied at the
final stages of production, but are not refunded for taxes levied on imports.
More effective implementation of the drawback scheme is an
objective of the current revision of the investment code (the drawback scheme
was already "streamlined' in 1986, without much success). There is a BMW
system as well. Two large firms in the garment sub-sector use this and have a
customs official stationed at their warehouses. It appears, however, that BMW
status is granted only rarely and somewhat arbitrarily to exporters with
"priority status". It is not clear how many exporters are operating under
this status. Firms complained that supplies cannot be imported readily due to
delays in foreign exchange allocations and slow customs procedures. Most
firms, therefore, are forced to tie up large amounts of working capital in
stock (one company reported that it has to stock inputs for a whole season in
order to fill export orders on time).
In principle, exporters have access to foreign exchange through
the OGL system or the foreign exchange retention scheme. In practice, foreign
exchange applications are often rejected on the grounds that the imported
goods are unnecessary because they are available in Zambia. Further, it is
reported by exporters that when foreign exchange applications are approved,
the Central Bank often finds it difficult to honor the allocations, due to
shortage of funds--it may take longer than a month for approved allocations to
become backed up with foreign exchange funds. One foreign company, which has
manufactured for the local market for 30 years, reported that for its recent-
ly-started export production, it had to resort to obtaining foreign exchange
from the mother company in the UK in order to import needed inputs. In the
future, the firms hopes to use foreign exchange from its retention account.
"Regular" exporters receive a 50% forex retention allowance while exporters
with "priority status" benefit from a 100% retention scheme. Commercial banks
are allowed to administer the export retention scheme.
- 158 -
16. Zimbabea
Over the next four years the government is phasing in an open
general import licensing system. Most firms interviewed use the duty-drawback
scheme but they complained about delays in drawback payments, which are tied
to actual foreign exchange receipts--not shipments. They also complained
about the non-refundable import surtax (20%).
Exporters in eligible industries also have the option of using the
duty exemption system. To register for the system, however, a company needs
approval from three ministries, and most pay a bond and an annual registration
fee. Excise duty may also be rebated on specified materials.
A BMW scheme has recently been introduced and was being used by
two firms at the time of our interview. As the government shifts from a
quota-based import protection system to a tariff-based system, effective
implementation of the duty-free import schemes should become more important.
The open general import licensing (OGIL) scheme has significantly
streamlined import procedures. However, an average of, at most, 30% of
exporters' needed imports are on OGIL at this time, and there is uncertainty
over upcoming release of further items through OGIL, making it difficult for
exporters to plan. Exporters complained that complementary inputs and spare
parts are not covered by OGIL yet.
Under the export revolving fund (ERF), it is difficult to get
approval for spare parts and replacement machinery. One company reported that
it had a 35% efficiency loss the previous month because the ERF allocation for
needed spare parts was not approved. Also, new exporters can hardly rely on
the ERF for access to foreign exchange to import inputs not on the OGIL, due
to collateral requirements of ERF-handling banks.
- 159 -
INDUSTRY SERIES PAPERS
No. 1 Japanese Direct Foreign Investment: Patterns and Implications for
Developing Countries, February 1989.
No. 2 Emerging Patterns of International Competition in Selected Industrial
Product Groups, February 1989.
No. 3 Changing Firm Boundaries: Analysis of Technology-Sharing Alliances,
February 1989.
No. 4 Technological Advance and Organizational Innovation in the
Engineering Industry, March 1989.
No. 5 Export Catalyst in Low-Income Countries, November 1989.
No. 6 Overview of Japanese Industrial Technology Development, March 1989.
No. 7 Reform of Ownership and Control Mechanisms in Hungary and China,
April 1989.
No. 8 The Computer Industry in Industrialized Economies: Lessons for the
'Newly Industrializing, February 1989.
No. 9 Institutions and Dynamic Comparative Advantage Electronics Industry
in South Korea and Taiwan, June 1989.
No. 10 New Environments for Intellectual Property, June 1989.
No. 11 Managing Entry Into International Markets: Lessons From the
East Asian Experience, June 1989.
No. 12 Impact of Technological Change on Industrial Prospects for the LDCs,
June 1989.
No. 13 The Protection of Intellectual Property Rights and Industrial
Technology Development in Brazil, September 1989.
No. 14 Regional Integration and Economic Development, November 1989.
No. 15 Specialization, Technical Change and Competitiveness in the Brazilian
Electronics Industry, November 1989.
No. 16 Small Trading Companies and a Successful Export Response: Lessons
From Hong Kong, December 1989.
No. 17 Flowers: Global Subsector Study, December 1989.
No. 18 The Shrimp Industry: Global Subsector Study, December 1989.
No. 19 Garments: Global Subsector Study, December 1989.
- 160 -
IMUSTRY SERIES PAPERS cont'd
No. 20 World Bank Lending for Small and Medium Enterprises: Fifteen Years
of Experience, December 1989.
No. 21 Reputation in Manufactured Goods Trade, December 1989.
No. 22 Foreign Direct Investment From the Newly Industrialized Economies,
December 1989.
No. 23 Buyer-Seller Links for Export Development, March 1990.
No. 24 Technology Strategy & Policy for Industrial Competitiveness: A
Case Study of Thailand, February 1990.
No. 25 Investment, Productivity and Comparative Advantage, April 1990.
No. 26 Cost Reduction, Product Development and the Real Exchange Rate,
April 1990.
No. 27 Overcoming Policy Endogeneity: Strategic Role for Domestic
Competition in Industrial Policy Reform, April 1990.
No. 28 Conditionality in Adjustment Lending FY8O-89: The ALCID Database,
May 1990.
No. 29 International Competitiveness: Determinants and Indicators,
March 1990.
No. 30 FY89 Sector Review Industry, Trade and Finance, November 1989.
No. 31 The Design of Adjustment Lending for Industry: Review of Current
Practice, June 1990.
No. 32 National Systems Supporting Technical Advance in Industry: The
Brazilian Experience, June 26, 1990.
No. 33 Ghana's Small Enterprise Sector: Survey of Adjustment Response and
Constraints, June 1990.
No. 34 Footwear: Global Subsector Study, June 1990.
No. 35 Tightening the Soft Budget Constraint in Reforming Socialist
Economies, May 1990.
No. 36 Free Trade Zones in Export Strategies, December 1990.
No. 37 Electronics Development Strategy: The Role of Government, June 1990
No. 38 Export Finance in the Philippines: Opportunities and Constraints
for Developing Country Suppliers, June 1990.
- '61 -
INDUSTRY SERIES PAPERS cont'd
No. 39 The U.S. Automotive Aftermarket: Opportunities and Constraints for
Developing Country Suppliers, June 1990
No. 40 Investment As A Determinant of Industrial Competitiveness and
Comparative Advantage: Evidence from Six Countries, August 1990 (not
yet publshed)
No. 41 Adjustment and Constrained Response: Malawi at the Threshold of
Sustained Growth, October 1990.
No. 42 Export Finance - Issues and Directions Case Study of the Philippines,
December 1990
No. 43 The Basics of Antitrust Policy: A Review of Ten Nations and the EEC,
February 1991.
No. 44 Technology Strategy in the Economy of Taiwan: Exploiting Foregin
Linkages and Investing in Local Capability, January 1991
No. 45 The Impact of Adjustment Lending on Industry in African Countries,
June 1991.
No. 46 Banking Automation and Productivity Change: The Brazilian
Experience, July 1991.
No. 47 Global Trends in Textile Technology and Trade, December 1991.
No. 48 Are There Dynamic Externalities from Direct Foreign Investment?
Evidence for Morocco, December 1991.
No. 49 Do Firms with Foreign Equity Recover Faster From Financial Distress?
The Case of Colombia, December 1991
No. 50 International Competition in the Bicycle Industry: Keeping Pace with
Technological Change, December 1991.
No. 51 International Competition in the Footwear Industry: Keeping Pace
with Technological Change, December 1991.
No. 52 International Trends in Steel Mini-Mills: Keeping Pace with
Technological Change, December 1991.
No. 53 International Competition in Printed Circuit Board Assembly: Keeping
Pace with Technological Change, December 1991.
No. 54 Efficiency, Corporate Indebtedness and Directed Credit in Colombia,
December 1991.
No. 55 Small Enterprises Under Adjustment in Senegal, Maarch 1992.
No. 56 Fundamental Issues and Policy Approaches in Industrial Restructuring,
April 1992
Note: For extra copies of these papers please contact Miss Wendy Young on
extension 33618, Room S-41G0;
162 -
World Bank Tndustry and Energy Dept.
ENERGY SERIES PAPERS
No. 1 Energy Issues in the Developing World, February 1988.
No. 2 Review of World Bank Lending for Electric Power, March 1988.
No. 3 Some Considerations in Collecting Data on Household Energy Consumption,
March 1988.
No. 4 Irnproving Power Svstem Efficiency in the Developing Countries through
Performance Contracting, May 1988.
No. 5 Impact of Lower Oil Prices on Renewable Energy Technologies, May 1988.
No. 6 A Comparison of Lamps for Domestic Lighting in Developing Countries, June
1988.
No. 7 Recent World Bank Activities in Energy (revised October 1989).
No. 8 A Visual Overview of the World Oil Markets, July 1988.
No. 9 Current Intemational Gas Trades and Prices, November 1988.
No. 10 Promoting Investrnent for Natural Gas Exploration and Production in
Developing Countries, January 1989.
No. 11 Technology Survey Report on Electric Power Systems, February 1989.
No. 12 Recent Developments in the U.S. Power Sector and Their Relevance for the
Developing Countries, February 1989.
No. 13 Dornestic Energy Pricing Policies, April 1989.
No. 14 Financing of the Energy Sector in Developing Countries, April 1989.
No. 15 The Future Role of Hydropower in Developing Countries, April 1989.
No. 16 Fuelwood Stumpage: Considerations for Developing Country Energy Planning,
June 1989.
No. 17 Incorporating Risk and Uncertainty in Power System Planning, June 1989.
No. 18 Review and Evaluation of Historic Electricity Forecasting Experience, (1960-
1985), June 1989.
No. 19 Woodfuel Supply and Environmental Management, July 1989.
No. 20 The Malawi Charcoal Project - Experience and Lessons, January 1990.
No. 21 Capital Expenditures for Electric Power in the Developing Countries in the
1990s, February 1990.
- 163 -
No. 22 A Review of Regulation of the Power Sectors in Developing Countries,
February 1990.
No. 23 Summary Data Sheets of 1987 Power and Commercial Energy Statistics for 100
Developing Countries, March 1990.
No. 24 A Review of the Treatment of Environmental Aspects of Bank Energy Projects,
March 1990.
No. 25 The Status of Liquified Natural Gas Worldwide, March 1990.
No. 26 Population Growth, Wood Fuels, and Resource Problems in Sub-Saharan
Africa, March 1990.
No. 27 The Status of Nuclear Power Technology - An Update, April 1990.
No. 28 Decommissioning of Nuclear Power Facilities, April 1990.
No. 29 Interfuel Substitution and Changes in the Way Households Use Energy: The
Case of Cooking and Lighting Behavior in Urban Java, October 1990.
No. 30 Regulation, Deregulation, or Reregulation-What is Needed in LDCs Power
Sector? July 1990.
No. 31 Understanding the Costs and Schedules of World Bank Supported Hydroelectric
Projects, July 1990.
No. 32 Review of Electricity Tariffs in Developing Countries During the 1980s,
November 1990.
No. 33 Private Sector Participation in Power through BOOT Schemes, December 1990.
No. 34 Identifying the Basic Conditions for Economic Generation of Public Electricity
from Surplus Bagasse in Sugar Mills, April 1991.
No. 35 Prospects for Gas-Fueled Combined-Cycle Power Generation in the Developing
Countries, May 1991.
No. 36 Radioactive Waste Management - A Background Study, June 1991.
No. 37 A Study of the Transfer of Petroleum Fuels Pollution, July 1991.
No. 38 Improving Charcoaling Efficiency in the Traditional Rural Sector, July 1991.
No. 39 Decision Making Under Uncertainty - An Option Valuation Approach to Power
Planning, August 1991.
No. 40 Summary 1988 Power Data Sheets for 100 Developing Countries, August 1991.
No. 41 Health and Safety Aspects of Nuclear Power Plants, August 1991.
No. 42 A Review of International Power Sales Agreements, August 1991.
_ 164 -
No. 43 Guideline for Diesel Generating Plant Specification and Bid Evaluation,
September 1991.
No. 44 A Methodology for Regional Assessment of Small Scale Hydro Power,
September 1991.
No. 45 Guidelines for Assessing Wind Energy Potential, September 1991.
No. 46 Core Report of the Electric Power Utility Efficiency Improvement Study,
September 1991.
No. 47 Kerosene Stoves: Their Perfornance, Use, and Constraints, October 1991.
No. 48 Assessment of Biomass Energy Resources: A Discussion on its Need and
Methodology, December 1991.
No. 49 Accounting for Traditional Fuel Production: the Household-Energv Sector and
Its Implications for the Development Process, March 1992.
No. 50 Energy Issues in Central and Eastern Europe: Considerations for the World
Bank Group and Other Financial Institutions, March 1992.
For copies, please call (202) 473-3616 or extension 33616.