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  Home > Sino-African Relations > Economic and Trade Cooperation
SMEs Play "Big Role" in Africa
2011/09/15

Author: Tang Jun, Zhang Chunyu

Source: International Business Journal

Date: 8-29-2011

 

The development of China-Africa trade and economic cooperation zones has been underway for five years since the approval of the first one came through. As a new thing, operational characteristics of the economic zones have gradually have emerged in recent years. We know that 85% of the businesses having settled in the zones are small and medium sized enterprises (SME). Taking the relatively established Sino-Nigerian Lekki Free Trade Zone (LFTZ) for example, the enterprises having been founded or signed access agreements not only include multinationals such as Shell and Total, but also scores of SMEs, whose areas of investment range from manufacturing, automobile, foodstuff to telecommunications, transportation and energy. Together, they make up the business ecology in the economic zones. Judging from the performance of the businesses that have settled in the zone, one of the features is that the SMEs are playing a "big role" and some useful lessons could be drawn from their successes.

 

Firstly, it is vital for SMEs seeking overseas development to have a "service awareness", which means an awareness of providing services to larger firms. Although China's bulk investment in Africa is concentrated in areas like mining and energy development, SMEs' cooperation and support are indispensible, generally speaking. Taking the Zambia-China Trade and Economic Cooperation Zone, formerly known as Zambia-CNMC Industrial Park, a large investment project by China Nonferrous Metal Mining Group(CNMC) in Zambia engaging in copper and cobalt mining and smelting, for example, as the project evolves and grows, the need for industrial chain expansion, spanning sectors such as prospecting, chemistry, construction, mechanic processing, steel processing and timber processing, emerges, all offering investment opportunities to SMEs. On top of that, with the growth of the economic zones, SMEs will be able to find investment opportunities in the connecting service industries.

 

Secondly, SMEs have such an advantage like the saying goes: "A small boat turns more easily". As the China-Africa economic zones are relatively new at the moment, they need to seek new industrial opportunities and expand the scale of production and market accesses. Moreover, the market environment in African countries could be unstable, facing great risks of policy changes, a factor that must be taken into consideration. Therefore, it takes time for an enterprise to succeed in the economic zone. Given these circumstances, companies investing there have to be ready to take high risks. For the time being, the SMEs that have moved into the economic zones have shown certain advantages in risk control due to their limited investment scales, sunk costs and experiment-failure costs.

 

Thirdly, SMEs could also benefit from cluster effect by "keeping warm by staying close together". In fact, the pursuit for cluster effect is one of the reasons to set up the trade and economic cooperation zones in the first place. The enterprises that went previously overseas, SMEs in particular, were isolated and had to "fight it alone". When faced with investment policy changes and cultural differences, common to overseas investing enterprises, one single enterprise alone would have to pay dearly. That is applicable to enterprises investing in Africa, also. In recent years, China's investment in Africa has been expanding year by year, but it is far and widely scattered, making it hard for the Chinese enterprises to forge synergy. The establishment of the trade and economic cooperation zones offers an excellent opportunity for such synergy to emerge. The once scattered and relatively vulnerable SMEs are now coming together to benefit from a stable investment environment and preferential policies by formulating in industrial clusters and it has brought about greater economic rewards.

 

Fourthly, many Chinese enterprises may use the economic zones as a base to transfer their production capacities, as China is at an important stage of industrial restructuring and upgrading. China's some SMEs in east coastal areas are facing the problems of rising labor costs and fiercer international competition. For them, to move production into the economic zones could be a way out, as the zones have served to save the costs of shipping for the enterprises markedly in transporting their products to Africa, while having made available preferential treatment in land use and taxation. In addition, the change of the producing place enables Chinese enterprises to use Africa as the place of origin in accessing to and circumventing trade barriers on the developed markets, including EU.

 

In the African trade and economic cooperation zones, the SMEs' development has proved their overseas investment strength and dynamism. Nonetheless, some special issues have to be borne in mind, e.g. intellectual property rights (IPR), technological transfer being one of them. Despite the fact that Africa now has a regional organization for intellectual property rights, namely, Organisation Africaine de la Propriété Intellectuelle or OAPIthat has 16 member states in West Africa and the CFA Franc zone in central Africa,and the rest of African countries, in general, have their own IPR governing authorities, due to the level of economic development, African countries' IPR legislation and protection, are in a relatively developing stage. Nevertheless, some Chinese enterprises have still suffered from malicious trademark squatting in recent years. Therefore, when investing in Africa, an enterprise should pay heed to IPR regulations of the host country, raise awareness in IPR protection, and actively engage in IPR actions overseas to safeguard their rights and interests.

 

(Tang Jun is a PhD from Institute of Economics of Chinese Academy of Social Sciences (CASS); Zhang Chunyu is an assistant research fellow from Institute of West Asian and African Studies of CASS.)

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