Investing.com — Taiwan, a small island nation with solely 23 million individuals, performs an outsized function within the international tech trade and international financial system, as per analysts at BofA Securities in a notice dated Wednesday.
“It produces over 60% of the world’s semiconductors and 90% of the superior chips, contributing 10% of the value-added within the international semi provide chain,” the analysts stated.
This has bolstered Taiwan’s financial energy, particularly as semiconductor demand has surged with the rise of synthetic intelligence (AI).
But, analysts at BofA warn that Taiwan’s heavy reliance on its tech sector introduces substantial dangers.
Taiwan’s tech sector has been a key driver of its financial development. Over the previous few years, Taiwan’s GDP development charges have been 3.4% in 2020, 6.6% in 2021, and a couple of.6% in 2022, largely fueled by semiconductor exports.
Even amid international financial volatility, Taiwan has sustained robust efficiency, helped by its tech exports. “We anticipate the AI-driven export restoration, together with higher funding momentum, to assist underpin stable GDP development of three.7% in 2024,” the analysts stated.
Nonetheless, this reliance on know-how brings with it vital vulnerabilities. A big share of Taiwan’s financial exercise is linked to tech exports, which account for over 60% of its whole exports.
“Taiwan shipped as a lot as 35% of its exports to mainland China and Hong Kong in 2023, adopted by the US (19%), ASEAN (18%) and Europe (10%),” the analysts stated. This heavy focus in commerce connections poses appreciable dangers, as geopolitical tensions or commerce disruptions might have critical penalties for Taiwan’s financial system.
Regardless of makes an attempt to diversify its commerce companions with initiatives such because the New Southbound Coverage, Taiwan continues to rely closely on the tech sector.
Whereas there was some progress in redirecting overseas direct funding from China to different areas, these efforts haven’t essentially modified the inherent dangers in Taiwan’s financial construction.
Moreover, Taiwan faces a number of structural constraints that compound its vulnerability. Power safety is a urgent subject; practically 98% of Taiwan’s vitality is imported, with an enormous portion coming from fossil fuels.
Because the island strikes to part out nuclear energy, the stress on its vitality provide is predicted to accentuate. The rising demand for electrical energy, pushed partly by the tech sector’s wants, exacerbates this problem, making vitality coverage reform a crucial space of focus.
The scarcity of expert tech professionals is one other main concern. Taiwan has been combating a expertise hole, with a big variety of unfulfilled positions within the semiconductor trade. This subject is exacerbated by a declining youth inhabitants and fierce international competitors for tech expertise. Regardless of varied authorities initiatives aimed toward addressing these shortages, the hole stays a big menace to the long-term sustainability of Taiwan’s tech sector.
Moreover, Taiwan’s macroeconomic stability is affected by giant capital flows linked to the worldwide tech cycle. These fluctuations make it troublesome for Taiwan’s central financial institution to handle financial stability, contributing to volatility in property markets and different areas.
The speedy motion of capital, pushed by tech cycles and geopolitical shifts, additional complicates Taiwan’s financial administration.
BofA analysts advocate that Taiwan pursue a number of strategic measures. Enhancing vitality safety is important, and investigating new vitality applied sciences, together with superior nuclear choices, might assist alleviate provide constraints.
Tackling expertise shortages by way of enhanced instructional packages and initiatives to draw worldwide professionals can be necessary.
Furthermore, Taiwan should speed up its efforts to diversify its financial system by investing in high-value industries similar to semiconductor design, biotechnology, renewable vitality, and clever machines.
Increasing the providers sector, particularly in areas like healthcare, might provide new avenues for development.
