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THEMATIC EDITION
Global Value Chains
and Africa’s Industrialisation
African Economic Outlook 2014
AFRICAN DEVELOPMENT
BANK GROUP
Thematic Edition
Global Value Chains
and Africa’s Industrialisation
African Economic Outlook 2014
AFRICAN DEVELOPMENT
BANK GROUP
AFRICAN DEVELOPMENT BANK
DEVELOPMENT CENTRE OF THE ORGANISATION
FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
UNITED NATIONS DEVELOPMENT PROGRAMME
The opinions expressed and arguments employed in this publication are the sole
responsibility of the authors and do not necessarily reflect those of the African
Development Bank, its Board of Directors or the countries they represent; the
OECD, its Development Centre or the governments of their member countries;
or the United Nations Development Programme.
This document and any map included herein are without prejudice to the status
of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.
Photo credits: Cover design by the OECD Development Centre.
Corrigenda to the African Economic Outlook may be found on line at:
www.africaneconomicoutlook.org/en.
© African Development Bank, Organisation for Economic Co-operation and Development,
United Nations Development Programme (2014)
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African Economic Outlook - Thematic Edition
© AfDB, OECD, UNDP 2014
The African Economic Outlook 2014
The annual African Economic Outlook (AEO) is an essential reference for monitoring the
economic, social and political developments of the continent. The 2014 edition contains
the following:
• an overview of Africa’s performance and prospects in five chapters,
• three chapters on the theme “Global Value Chains and Africa’s Industrialisation”,
• one- to two-page summaries of individual country notes for each of the continent’s
54 countries,
• a rich statistical annex.
The complete AEO content, including the full-length country notes, can be accessed
free of charge on the website:
www.africaneconomicoutlook.org
This AEO 2014 Special Thematic Edition
This complementary edition to the AEO 2014 gathers the complete AEO analysis on
global value chains and Africa’s industrialisation. It combines into a single document
the thematic chapters and the relevant sections of 53 of the 54 country notes (only the
Somalia note does not cover this theme).
Contact us:
African Development Bank Group
[email protected]
OECD Development Centre
[email protected]
United Nations Development Programme
[email protected]
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
3
Acknowledgements
The African Economic Outlook (AEO) was prepared by a consortium of three teams from the African
Development Bank (AfDB), the OECD Development Centre and the United Nations Development Programme
(UNDP). The Outlook benefited from the overall guidance of Mthuli Ncube (Chief Economist and Vice President,
AfDB), Mario Pezzini (Director, OECD Development Centre) and Pedro Conceição (Chief Economist and Head
of the Strategic Advisory Unit, Regional Bureau for Africa, UNDP). Willi Leibfritz was the Co-ordinator.
The AfDB team was led by Steve Kayizzi-Mugerwa, Charles Lufumpa, Abebe Shimeles and Beejaye Kokil.
The AfDB task manager was Anthony Simpasa. Key team members included Ahmed Moummi, Adeleke
Salami, Anna von Wachenfelt and Lauréline Pla. The team at the OECD Development Centre was led by
Henri-Bernard Solignac-Lecomte, while the team at the UNDP was led by Angela Lusigi.
The chapters on global value chains and Africa’s industrialisation were drafted by Jan Rieländer with
key inputs from Carolin Helmreich, Bakary Traoré, Keiko Nowacka, Eoghan Molloy, Maria Roquete, Kjartan
Fjeldsted, Sarah Goerres, Koon-Hui Tee, Gaëlle Ferrant and Luca Maria Pesando. Caroline Lesser, as well
as Annelies Goger, Andy Hull, Stephanie Barrientos, Gary Gereffi and Shane Godfrey contributed with
background papers. Salem Berhane, Dan Moran and Keiichiro Kanemoto provided data and support.
These chapters drew heavily from the knowledge of international experts invited to the AEO 2014 experts’
meeting in Paris on 29 November 2013: Tilman Altenburg (German Development Institute), Stephanie
Barrientos (University of Manchester), Tidiane Boye (UNIDO), Richard Carey (Former Director, OECD/DCD),
Julius Gatune (African Centre for Economic Transformation), Mark Henstridge (Oxford Policy Management),
Raphael Kaplinsky (The Open University), David Laborde (IFPRI), Megha Mukim (The World Bank), Anthony
Pile (Blue Skies Holding Ltd.), Roberta Rabellotti (Università del Piemonte Orientale), Isabelle Ramdoo (ECDPM),
Xiaoyang Tang (Tsinghua University), Joseph Wozniak (ITC), as well as Koen De Backer, William Hynes,
Przemyslaw Kowalski, Sébastien Miroudot, Annalisa Primi, Virginia Robano, Colin Webb, Trudy Witbreuk and
Norihiko Yamano (OECD).
In collaboration with the partner institutions and under the overall guidance of the AfDB regional
directors and lead economists, all AfDB country economists have contributed to the country notes. In
several cases, they collaborated with economists from the OECD Development Centre and/or UNDP. The
notes were drafted by Tarik Benbahmed and Hervé Lohoues (Algeria), Joel Muzima and Domingos Mazivila
(Angola), Daniel Ndoye and El Hadji Fall (Benin), Peninah Kariuki, Fitsum Abraha and Sennye Obuseng
(Botswana), Tankien Dayo (Burkina Faso), Sibaye Joel Tokindang and Daniel Gbetnkom (Burundi), Heloisa
Marone and Adalbert Nshimyumuremyi (Cabo Verde), Richard-Antonin Doffonsou and Lisa Simrique Singh
(Cameroon), Kalidou Diallo (Central African Republic), Claude N’Kodia (Chad), Alassane Diabate and Riad
Meddeb (Comoros), Nouridine Kane Dia and Ginette Mondongou Camara (Congo, Rep.), Séraphine Wakana
and Ernest Bamou (Democratic Republic of Congo), Pascal Yembiline, Bakary Traoré and Luis Padilla (Côte
d’Ivoire), Audrey Emmanuelle Vergnes (Djibouti), Charles Muthuthi (Egypt), Gérard Bizimana, Glenda
Gallardo and Lauréline Pla (Equatorial Guinea), Magidu Nyende and Luka Okumu (Eritrea), Admit Wondifraw
Zerihun, Haile Kibret and James Wakiaga (Ethiopia), Gérard Bizimana and Bakary Dosso (Gabon), Adalbert
Nshimyumuremyi (Gambia), Eline Okudzeto, Wilberforce Aminiel Mariki, Gregory De Paepe and Kordzo
Sendegah (Ghana), Olivier Manlan (Guinea), Yannis Arvanitis (Guinea-Bissau), Walter Owuor Odero and
Wilmot Reeves (Kenya), Edirisa Nseera and Alka Bhatia (Lesotho), Patrick Hettinger and Janice James
(Liberia), Sahar Taghdisi Rad (Libya), Jean Marie Vianey Dabire and Simplice Zouhon Bi (Madagascar),
Peter Mwanakatwe (Malawi), Abdoulaye Konaté and Bécaye Diarra (Mali), Marcellin Ndong Ntah and
Souleman Boukar (Mauritania), Martha Phiri and Asha Kannan (Mauritius), Samia Mansour and Vincent
Castel (Morocco), Andre Almeida-Santos, Luca Monge Roffarello and Manuel Filipe (Mozambique), George J.
Honde and Ojijo Odhiambo (Namibia), Daniel Ndoye and Mansour Ndiaye (Niger), Barbara Barungi (Nigeria),
Edward Batte Sennoga and Bernis Byamukama (Rwanda), Flávio A. Soares Da Gama (São Tomé and Príncipe),
Khadidiatou Gassama, Toussaint Houeninvo and Bakary Traoré (Senegal), Susan Mpande and Asha Kannan
(Seychelles), Jamal Zayid (Sierra Leone), Ahmed Dualeh (Somalia), Wolassa Lawisso Kumo, Jan Rieländer
and Omilola Babatunde (South Africa), Joseph Muvawala and Frederick Mugisha (South Sudan), Yousif
M.A. Bashir Eltahir, Suwareh Darbo and Kabbashi M. Suliman (Sudan), Albert Mafusire and Fatou Leigh
(Swaziland), Prosper Charle, Rogers Dhliwayo and Josef Loening (Tanzania), Carpophore Ntagungira (Togo),
Philippe Trape, Mickaelle Chauvin and Hatem Salah (Tunisia), Vera-Kintu Oling, Alexis Rwabizambuga
and Alex Warren-Rodriguez (Uganda), Peter Engbo Rasmussen, Kambaila Munkoni and George Lwanda
(Zambia), Mary Manneko Monyau and Amarakoon Bandara (Zimbabwe). The work on the country notes
greatly benefited from the valuable contributions of local consultants.
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© AfDB, OECD, UNDP 2014
Table of contents
Introduction............................................................................................................................................................................................. 6
PART ONE: Global value chains and Africa’s industrialisation............................................................................ 7
Chapter 1. Global value chains in Africa: Potential and evidence....................................................................... 9
Chapter 2. How ready is Africa for global value chains: A sector perspective......................................... 41
Chapter 3. What policies for global value chains in Africa?.................................................................................. 67
part two: Country notes.......................................................................................................................................................... 85
Algeria ........................................................................... 86
Angola ............................................................................ 88
Benin ............................................................................... 90
Botswana ..................................................................... 92
Burkina Faso .............................................................. 94
Burundi ......................................................................... 95
Cabo Verde .................................................................. 96
Cameroon .................................................................... 98
Central African Rep. ........................................... 100
Chad .............................................................................. 101
Comoros ...................................................................... 103
Congo, Dem. Rep. .................................................. 104
Congo, Rep. ............................................................... 105
Côte d’Ivoire ............................................................. 107
Djibouti ........................................................................ 109
Egypt ............................................................................. 110
Equatorial Guinea ................................................. 112
Eritrea .......................................................................... 113
Ethiopia ....................................................................... 115
Gabon ........................................................................... 117
Gambia ........................................................................ 119
Ghana ........................................................................... 122
Guinea .......................................................................... 124
Guinea-Bissau ......................................................... 125
Kenya ............................................................................ 126
Lesotho ........................................................................ 128
Liberia .......................................................................... 130
© AfDB, OECD, UNDP 2014
Libya .............................................................................. 132
Madagascar .............................................................. 134
Malawi ......................................................................... 136
Mali ................................................................................ 137
Mauritania ................................................................ 138
Mauritius .................................................................... 139
Morocco ...................................................................... 141
Mozambique ............................................................ 143
Namibia ...................................................................... 145
Niger .............................................................................. 147
Nigeria ......................................................................... 148
Rwanda ....................................................................... 150
São Tomé and Príncipe ..................................... 152
Senegal ........................................................................ 154
Seychelles .................................................................. 156
Sierra Leone ............................................................. 158
South Africa ............................................................. 161
South Sudan ............................................................. 163
Sudan ............................................................................ 165
Swaziland .................................................................. 167
Tanzania .................................................................... 169
Togo ............................................................................... 171
Tunisia ......................................................................... 173
Uganda ........................................................................ 175
Zambia ......................................................................... 177
Zimbabwe .................................................................. 179
African Economic Outlook - Thematic Edition
5
Introduction
This thematic edition of the African Economic Outlook 2014 (AEO) looks at how Africa can make
the most of global value chains to implement its industrialisation agenda, while at the same
time avoiding getting stuck at the lowest end of value chains. The choice of this theme largely
stems from the findings of the last three AEO thematic chapters: Africa’s emerging partners
(2011), promoting youth employment (2012), and structural transformation and natural resources
(2013). Each of them points to a specific challenge:
The competitiveness challenge. The phenomenon of shifting wealth – the centre of the global
economy moving East and South – has played a key role in Africa’s recent growth episode: Brazil,
China, India, Turkey and many other countries have emerged as significant investors in the
continent and as dynamic markets for African export products. Yet their rise has also led to much
stiffer competition in the global market.
The employment challenge. Every year 13 million young Africans join the labour market.
Africa’s total labour force is projected to reach 1 billion by 2040 making it the largest in the world,
surpassing both China and India. Education and skill levels are improving, but the majority of
Africa’s workforce remains low-skilled. In many countries informal work continues to account
for more than half of total employment. The challenge is particularly acute for young people,
who often are poor despite being employed or because they remain outside the labour market
altogether. In several countries, wage employment – the best job category – accounts for less than
15% of youth in the labour market. To turn the youth bulge into an opportunity, African countries
must create 100 million jobs every ten years, including for young people with few skills.
The structural transformation challenge. Structural transformation entails the rise of new,
more productive activities and the movement of human and financial resources from less
productive activities to these newer ones, raising overall productivity. The growth of Africa’s
economies over the last decade has been impressive and has been driven by more than just
natural resources, which accounted for one third of Africa’s growth. Structural transformation
has taken place: Africa’s labour productivity increased by close to 3% during the 2000s, with
almost half this attributable to workers moving to new activities with higher productivity.
However, this transformation has not been enough to make a sufficient dent in employment or
poverty. Africa thus needs to accelerate its structural transformation towards a type of growth
that produces more jobs.
In order to put in place the policies that will stimulate the development of competitive firms
in job-creating activities, policymakers need i) to be aware of what the new rules of the game
in international trade mean for African economies, ii) to assess those economies’ strengths and
weaknesses in that context and iii) to consider the policy options best suited to their country’s
endowments and their own national strategy. This AEO 2014 thematic volume, complete with
individual case studies for all 54 African economies, aims to help them in that endeavour.
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© AfDB, OECD, UNDP 2014
PART ONE
Global value chains
and Africa’s industrialisation
www.africaneconomicoutlook.org/en/theme
Chapter 1
Global value chains in Africa:
Potential and evidence
Global value chains (GVCs) are driven by firms that optimise their
sourcing strategies through the separation of production stages.
GVC integration could accelerate structural transformation in Africa
if combined with upgrading. Trade in value added serves to measure
global value chains. Africa so far captures a small but growing share
of them. Productivity gains from value chains have been easier to
achieve than employment growth.
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
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1. Global value chains in Africa: Potential and evidence
In brief
Globalisation has changed the way goods and services are produced. The country-centric
view of trade no longer reflects reality. Instead production networks, even for just a single
product, span many countries, often the entire globe. We call these networks global value
chains (GVCs) (see Box 1.1). They are driven by firms which use the advances in communication
and regulation to optimise their sourcing strategies through geographic re-organisation and
the separation of production stages. Global value chains offer new opportunities for structural
transformation in Africa. Countries can integrate into global value chains at a specific stage,
usually assembly in manufacturing and commodity production in agriculture. Ideally this
leads to opportunities to upgrade through knowledge transfers, product differentiation and
the addition of adjacent stages of the value chain. Measures of trade in value added – as
opposed to traditional gross measures of trade – can provide insights into integration into
global value chains and the benefits this entails. Africa so far captures only a small share of
global trade in value added terms, but its total level of GVC integration is high compared to
other regions. However, a good part of it is forward integration of Africa’s commodity exports
as inputs in foreign manufacturing, which creates relatively little additional value added in
Africa. In terms of gains from global value chains, export and productivity growth has been
easier to achieve than employment growth. Success depends on a country’s ability to respond
to external demand, as well as on the nature of the value chain and the lead firm.
Box 1.1. What is a global value chain?
A value chain identifies the full range of activities that firms undertake to bring a product or a
service from its conception to its end use by final consumers (Figure 1.1). At each step in the chain,
value is added in some form or other. Driven by offshoring and mounting interconnectedness, the
activities that make up the value chains of many products and services have become increasingly
fragmented across the globe and between firms. Various tasks along the production chain can
be carried out in distant locations, depending on the respective comparative advantages of
different countries. The interconnected production process that goods and services undergo from
conception and design through production, marketing and distribution is often referred to as a
global value chain or an international production network (Gereffi and Fernandez-Stark, 2011;
OECD, 2013).
Each stage carries, to varying degrees, opportunities for new local activities, jobs and corporate
profits, as well as the associated new skills, technology and public revenues in the form of taxes.
Successful integration into a value chain potentially allows a country to seize a bigger share of
those benefits and accelerate its industrialisation process.
Figure 1.1. Stages in a generic value chain
Upstream activity
Primary
inputs
Intermediate
inputs
Downstream activity
Main product/
service
Sales/
marketing
Packaging/
shipping
After
sales
Enduse
Research & development/design
Source: Authors’ elaboration.
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Global value chains allow for growing opportunities
How goods are traded has evolved along with the means needed to produce them.
Respecting private standards and joining specific global value chains can improve
African countries’ capacities, employment and social structures. A country’s position
in a chain and its ability to upgrade its participation determine success, as do adequate
services and governance, innovative entrepreneurs, and the requirements specific to
the chain.
Modern transport and communication technology have rapidly expanded global value
chains
International trade in goods on a large scale emerged with modern transport in
the 19th century. Before the invention of fast large volume transport by train, steam
ship or truck, each town and region had to produce most of what it consumed. From
the middle of the 19th century onwards, transport enabled large volume trade; towns,
regions and eventually countries began to divide labour and to focus on the production
of some goods that could be consumed and sold while buying the rest elsewhere. As
transportation costs have fallen, trade has continuously expanded (Baldwin, 2012).
Figure 1.2. Outsourcing and offshoring
LOCATION
Domestic
outsourcing
OUTSIDE FIRM WITHIN FIRM
DOMESTIC
SUPPLIERS
In t e
r
outs n atio n a
l
ourc
ing
l
ion a
rnat g
Inte ourcin
ins
Global sourcing
FOREIGN
AFFILIATES
OUTSOURCING
DOMESTIC
DIVISIONS/AFFILIATES
HOST COUNTRY
In-firm offshoring
Vertical integration
abroad
FIRM
HOME COUNTRY
FOREIGN
SUPPLIERS
OFFSHORING
Note: The geographic dimension or offshoring changes from left to right. Outsourcing or the organisational
location of the activity within or outside the firm changes from top to bottom.
Source: OECD (2013, p. 18).
Since the mid-1980s trade in final goods has given way to a global division of labour.
New communication technology and rapidly falling trade and travel costs – thanks to
trade liberalisation, containerisation and cheap air travel – have enabled the geographic
dispersion of individual segments of a production process while still allowing for
sufficient control and co-ordination (Baldwin, 2012). Today managers can be anywhere
in the world within a reasonable time and at affordable cost, and communication
technology allows for 24-hour work cycles spanning the globe.1
The increasing global division of labour is driven by firms which use the advances in
communication and regulation to optimise their sourcing strategies through geographic
re-organisation and the separation of production stages. For each operation and
production stage firms have to identify: i) whether to undertake the task within the firm
or outsource it to an independent supplier; and ii) whether to keep the tasks within the
firm’s country of origin or to move it offshore, i.e. to another country. Figure 1.2 describes
the four possible combinations of the organisational and geographical structure of
production. These new sourcing strategies result in greater foreign direct investment
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
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1. Global value chains in Africa: Potential and evidence
and intra-firm trade as well as vertical arm’s length trade with independent suppliers
(Cattaneo et al., 2013; OECD, 2013). Today an estimated 80% of global trade is linked to
multinational corporations (UNCTAD, 2013).
Services have become important in supporting global value chains. Goods and
services are intertwined in global production networks. The OECD/WTO Trade in Value
Added (TiVa) database reveals that the value created directly and indirectly by services
as intermediate inputs represents over 30% of the total value added in manufactured
goods (OECD, 2013; Figure 1.3). A significant share of these services relates to the actual
operation of global value chains, particularly transport, logistics and warehousing, but
also banking, insurance, business services, professional services and communications
services, which are supplied at every stage of the production phase. These services play
a crucial role for trade in goods by helping move components efficiently across borders
(Lesser, 2014; OECD, 2013; WEF, 2012).
Figure 1.3. Services share of value added in manufacturing trade,
all countries, 2009
Distribution and repair
Transport and storage
Finance
Business services
Other
%
40
35
30
25
20
15
10
5
0
Mining
Machinery, equipment
Textile
Transport equipment
Food products
Chemicals
Source: OECD, WTO and UNCTAD (2013).
12 http://dx.doi.org/10.1787/888933033156
Furthermore, in a way similar to that of goods, services are being disaggregated
and traded as separate tasks, thus creating service value chains. Knowledge-intensive
services industries are at the forefront of this trend. Value can be captured and stored
so that production of these services can be separated from consumption and scaled
up, creating higher added value final services. Cross-border digital trade then enables
these services to be used anywhere in the world, thus allowing for the development
of service value chains in their own right. Although there has been little research to
date on service value chains, such chains are seemingly being created in a variety of
sectors, including banking, tourism, and possibly education and health services, as well
as information technology and business processing services (Lesser, 2014).
Today global value chains, or international networks of production, span many
countries, often the entire globe and are closely intertwined with shifting wealth
and the rise of the South. Figure 1.4 illustrates this unbundling of trade, showing that
intermediate goods have been the main drivers of the boom in trade since the 1990s,
accounting for about 65% (USD 11 billion) of all imports in 2012, up from 57% and just
USD 2.8 billion in 1995. During the same time the share of OECD countries in global
imports of intermediate goods dropped from 75% to 60% while that of non-OECD
countries picked up accordingly (Figure 1.5). Similarly the share of OECD countries in
global manufacturing value added dropped from 80% to 60%.
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Figure 1.4. The unbundling of trade: The growth of trade driven
by intermediate goods, 1992-2012
Capital goods
Final goods
Intermediate goods
Global imports (USD billion)
18
16
14
12
10
8
6
4
2
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Authors’ calculations based on UN COMTRADE (2014).
12 http://dx.doi.org/10.1787/888933033175
Despite their name, global value chains exhibit high regional concentration, which
is shrinking slowly. Africa does not play a significant role yet. When measuring the
linkages between major supply-chain traders, the strongest relationships can be found
within the regional blocks of East Asia, Europe and North America (Baldwin, 2012).
About 85% of global value chain (GVC) trade in value added takes place in and around
these three hubs. While other regions remain marginal, their share has increased from
only 10% in 1995 to 15% in 2011. Africa’s share in GVC participation increased from
1.4% to 2.2% during the same time (Table 1.1). At 2% Africa’s share of global imports in
intermediate goods has remained the same since the 1990s (Figure 1.5).
Table 1.1. Share of trade in value added by region, 1995 and 2011
Region
1995
2011
Europe
57.5%
50.9%
East Asia
14.4%
16.2%
North America
13.1%
11.8%
Southeast Asia
6.0%
6.8%
Latin America
3.2%
4.2%
Middle East
2.0%
3.0%
Africa
1.4%
2.2%
2.0%
Russia and Central Asia
0.9%
South Asia
0.7%
1.7%
Oceania
0.9%
1.3%
Note: See section on measurements below.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
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1. Global value chains in Africa: Potential and evidence
Figure 1.5. Global imports in intermediate goods reflecting the rise of emerging
markets as production hubs, 1993-2012
OECD countries
Non-OECD countries
African countries
Share of global intermediate imports
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Authors’ calculations based on UN COMTRADE (2014).
12 http://dx.doi.org/10.1787/888933033194
This report assumes that the trend towards global value chains will continue as
internationalisation is forcing multinational corporations to become more efficient and
more flexible. Offshoring and outsourcing have allowed multinational corporations
to combine the advantages of various locations and to become more efficient. While
the core headquarter functions usually remain the home market of the firm, labourintensive production stages are often moved to countries with a lower wage level, while
marketing and distribution are placed in the market of final consumption. As more
firms optimise their networks and become more cost efficient, others will be forced to
follow suit. At the same time, the internationalisation of supply chains has introduced
more uncertainties and a greater need for flexibility to react (Gibbon and Ponte, 2005).
Maximising supply chain effectiveness can cut costs, but weakens the ability to cope
with disruption. Hence, more than 50% of the chief executive officers interviewed in
PwC’s Global CEO Survey 2013 want to diversify their supply chains and thereby render
their operations more flexible (PwC, 2013).
However, this is not destiny. Nascent technological developments could lead to a
slowing down of global value chain dispersion. The cost advantage of mass production
over customised manufacturing has been among the major drivers of outsourcing and
offshoring. Nascent production technologies, particularly in manufacturing, such as
3D printing and smart robotics bear the potential of reducing this cost advantage far
enough to kick off a shift towards “re-shoring” of production activities towards the highwage headquarter economies.
Global value chains offer potential for structural transformation
In a world of global value chains, countries are no longer the relevant frame of
analysis, and imports of intermediate goods have changed their significance. Focusing
on countries as the primary units of analysis and strategy implies that a country can
successfully create the capabilities for producing complex goods that can compete in the
global marketplace. Imports are then seen as signs of domestic weakness and exports as
strength. However, as the competitiveness of firms depends on their ability to combine
the strengths of different countries in a production process, a firm that works solely
with domestic inputs can have a competitive disadvantage. Put differently, imports of
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intermediate goods are no longer a sign of foreign competitiveness, but a means for
firms to access the most efficient inputs and thus produce more competitive goods
(Cattaneo and Miroudot, 2013).
The standards and product specifications of lead firms are increasingly replacing
prices and public trade standards as key determinants of GVC participation. The efficient
functioning of international production networks requires the seamless combination of
intermediate components from many different locations and often different suppliers. A
faulty component or a product that does not meet the specifications provided by the lead
firm can cause ripple effects and expensive hold-ups. Along similar lines, retailers in
developed markets are under increasing pressure by consumers to certify the sourcing
chain and innocuousness of their products in terms of social and environmental
standards. For most firms, GVC standards in the form of product and quality specifications
are therefore indispensable. Price becomes a second order criterion. Thus, while public
measures such as tariffs and health and safety (phyto-sanitary) standards continue to
play a role in global trade, they are increasingly secondary to private standards, often
defined by the firms that control global value chains (Cattaneo and Miroudot, 2013;
López González and Holmes, 2011).
African countries can now integrate into a value chain without having all the
other steps of the chain in place. In the past, for a country to industrialise it had to
develop the domestic capacity to perform all major steps in the value chains of complex
manufactured products. Today, through linking into an international production
network, countries can establish a specific section of a product’s value chain without
having all the upstream capabilities in place (Cattaneo et al., 2013; Gereffi and Lee, 2012;
OECD, 2013). These remain elsewhere and are linked through shipments of intermediate
products and communication of the know-how necessary for the specific step in the
value chain present in the country. The presence of high-tech goods in a country’s export
basket therefore no longer implies the presence of a wide set of industrial capabilities,
but merely the presence of the respective assembly operation.
Through participation in a value chain, countries and firms can acquire new
capabilities that make it possible to upgrade, i.e. to capture a higher share of the
value added in a global value chain. The development experiences of several Asian
countries show how industrialisation depends on linkages and on innovations arising
from knowledge spillovers. For instance, China integrated into global value chains by
specialising in the activities of final product assembly and was capable of upgrading its
participation by building a competitive supply base of intermediate goods (developing
linkages) and by enhancing the quality of its exports. At the firm level, economic
upgrading is defined as “moving up” the value chain into higher-value activities, which
theoretically enables firms to capture a higher share of value in the global value chain
and enhances competitiveness (Gereffi et al., 2005; Humphrey and Schmitz, 2002).
Economic upgrading must be linked to social upgrading to become inclusive. Social
upgrading refers to expanding employment and improving employment conditions
of the local workers in a given global value chain (Barrientos et al., 2011; Milberg and
Winkler, 2013; Bernhardt, 2013).
Global value chains thus hold the promise of boosting employment and structural
transformation in Africa. Structural transformation entails the rise of new, more
productive activities and the movement of resources from less productive activities
to these newer ones, raising overall productivity.2 Although Africa has experienced
impressive growth and some structural transformation over the last decade,3 this
transformation has not been enough to make a sufficient dent in employment or poverty
(AfDB et al., 2013). Global value chains can allow Africa to set up the type of new and
© AfDB, OECD, UNDP 2014
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1. Global value chains in Africa: Potential and evidence
more productive activities that are behind structural transformation. The 2013 edition
of this report showed that Africa needs large numbers of low-skilled jobs in fields that
are sufficiently close to existing capabilities to enable learning and effective linkages
with the wider domestic economy (AfDB et al., 2013). Particularly basic manufacturing
and agriculture-related GVC activities have this potential. In a survey for this report,
93% of responding experts on African countries considered global value chains to be an
opportunity rather than a threat. The majority of respondents also view “job creation
from new activities” as the top opportunity arising from global value chains and
resulting in new trade patterns for African countries (Figure 1.6).
Figure 1.6. The greatest opportunities arising from global value chains and
resulting new trade patterns
Job creation from new activities
80 %
Increased integration in international trade
59 %
Attracting foreign direct investment
57 %
Emergence of domestic higher value-added activities
41 %
Skill and technology spillover through interaction
with external suppliers and purchasers
39 %
Possibility to leap-frog into specific activities without having
to develop vertically integrated industries domestically
Increased regional trade
14 %
2%
Note: Numbers reflect the percentage of respondents per item. The survey covered one expert for each country.
Source: AEO Country Experts Survey (2014).
12 http://dx.doi.org/10.1787/888933033213
China’s gradual changes might allow Africa to increasingly participate in global
value chains. The Chinese population is expected to stop growing and wages are rising,
eroding China’s attractiveness as a labour-intensive manufacturing hub. In recognition
of these changes, China’s leaders have adopted the goal of rebalancing the Chinese
economy towards consumption and a greater role for the service sector. This has ignited
a shift in labour-intensive manufacturing investment away from China and towards
other regions, especially South and Southeast Asia. The World Bank suggested in 2011
that China might soon have 85 million light manufacturing jobs to export (Lin, 2011;
Chandra et al., 2012). Although it seems unlikely that these jobs will indeed be moved
away from China, many international firms are looking outside of China, also towards
Africa, for further expansion.
Success requires good conditions and targeted support
Where a country is located in a global value chain can affect the degree to which it
benefits from the chain. Economies can be positioned upstream or downstream in global
value chains depending on their specialisation, and their positions may change over time.
Upstream economies produce the raw materials or knowledge assets at the beginning of
the production process (e.g. research, design), while downstream economies assemble
processed products or specialise in customer services. Activities such as research and
development and design, but also certain services, tend to create more value added than
assembly (OECD, 2013).
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Entering into a global value chain can reduce domestic value added but growth can
follow if upgrading occurs. Lead firms strive to create global value chains that combine
the advantages of different locations and African producers (and countries) must
specialise in discrete segments of a chain to link into a global value chain. This implies
that initially a lower share of the value added can be captured locally and that exports
will show a higher foreign value as GVC participation increases. Upgrading is necessary
for the share of value added captured domestically to climb again, as demonstrated in
Figure 1.7 (Kaplinsky, 2013).
Figure 1.7. The global value chain upgrading wave
High
Building full
production
capabilities
Entering
global value
chain
Upgrading and deepening
capabilities in global
valeur chain
Depth
of value
added
in chain
Low
Time
Source: Kaplinsky (2013).
Without upgrading and the accumulation of new capabilities, however, GVC
integration risks downgrading. The initial decline in the share of domestic value added
need not be a problem, as long as the participation in a global value chain allows for
high growth rates of the domestic activities and employment.4 However, in the long run
local operations risk remaining confined to the low value-added segments of a global
value chain if no activities generating more value added are created locally. Worse,
downgrading, which describes the loss of value adding activities and employment
or the worsening of labour conditions, can occur when previously existing adjacent
links disappear before they can integrate into the global value chain. For example,
many African countries produce both clothing and cotton but have lost their textile
industries to Asian competition. Social downgrading can result from the destruction of
employment or reduction of real wages due to GVC integration. It can also result from
captive relationships between local value chain actors that lead to lower incomes for
primary producers, such as fishermen who receive lower prices from buyers and middle
men. In a survey for this report, African Economic Outlook country experts identified the
biggest threats associated with global value chains in Africa as “being locked into low
value-added stages of GVCs” and “foreign investors operating in isolation with only
limited spillovers to the domestic economy” (Figure 1.8).
© AfDB, OECD, UNDP 2014
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1. Global value chains in Africa: Potential and evidence
Figure 1.8. The greatest threats associated with global value chains and resulting
new trade patterns
Being locked into low value-added stages of GVCs
61 %
Foreign investors operating in isolation –
limited spillovers to domestic economy
45 %
Exposure to imported crisis due to greater connectivity
45 %
Depletion and outflow of the country’s natural resources
36 %
Potential marginalisation due to exclusion from GVCs
34 %
Volatility of trade flows based on changes in strategies
of multinational enterprises
30 %
Erosion of social and environmental standards
(race to the bottom) to attract investment
23 %
Loss of regulatory control to multinational enterprises
14 %
0
10
20
30
40
50
60
70
%
Note: Numbers reflect the percentage of respondents. The survey covered one expert for each country.
Source: AEO Country Experts Survey (2014).
12 http://dx.doi.org/10.1787/888933033232
The potential for upgrading within a value chain depends on the capabilities and
services in place. Increasing participation in most global value chains requires efficient
logistics and low barriers to importing intermediate goods, reliable energy provision as
well as a sufficient supply of workers with the right skills. Once a country has joined
a global value chain at the production stage of a product, moving up the value chain
in either direction (towards sourcing and research and development, or towards sales,
distribution and marketing) requires a range of services that must be available at
competitive prices and quality. This is particularly crucial for local small and medium
enterprises which need access to the necessary range of services in order to concentrate
on the value chain specific activity they do best.
The potential for upgrading also depends on the chain’s governance, i.e. the
distribution of power within the chain. Governance refers to the “authority and power
relationships that determine how financial, material and human resources are allocated
and flow within a chain” (Gereffi, 1994, p. 97). Governance structures of value chains
depend on whether the lead firm in the chain is primarily a buyer (and marketer) of
products or a producer. Beyond this basic distinction, governance structures vary by
the complexity of the information between actors in the chain; how the information for
production can be codified; and the level of supplier competence (see also Chapter 2;
Frederick and Gereffi, 2009; Gereffi et al., 2005). More open chains with low complexity
such as clothing are easier to integrate into, but upgrading can be difficult as competition
between providers at each stage is stiff and most value added is captured by the lead firm
which controls distribution and marketing. More complex and information-intensive
chains such as pharmaceuticals or automotive manufacturing are more difficult to enter
into, but the potential for building relationship and transferring skills between local
and international firms is significantly higher. Captive relationships need to be closely
monitored as they often bestow highly asymmetric power on intermediary buyers. In
Africa, captive governance forms are particularly prevalent in agricultural value chains.
Seizing the opportunities offered by global value chains requires competent and
innovative entrepreneurs who are committed to the country. Entrepreneurs combine
market knowledge with a vision of new ways of solving problems, either through new
products or better processes. As this report shows, many opportunities for upgrading are
to be found in product differentiation – making a similar, but slightly better product for a
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consumer base that is similar but has a higher willingness to pay. It takes entrepreneurs
to see these opportunities and accept the risks involved with trying to seize them. For
entrepreneurs to reap long-term benefits from global value chain participation they must
be committed to developing in the local market even in the face of economic difficulties.
Following the 2008 financial crisis, the Egyptian apparel industry was capable of
sustaining its export levels owing to the fact that the industry was locally embedded. In
contrast, the Jordanian apparel exports dropped more than 30% between 2008 and 2010
given its composition of footloose Asian investors (Azmeh, 2013 in Kaplinsky, 2013).
Using global value chains for development requires providing the best environment
for value chains with the greatest identified potential. The objective of development
policy can no longer be to create an industry that captures all stages of production but
should be to identify the country’s best position in a global value chain and the most
competitive supply of business functions (Cattaneo and Miroudot, 2013). Education and
other basic services, infrastructure and an environment conducive to doing business
are without question essential. The importance of a value chain lens, however, lies in
appreciating the requirements for integrating into and upgrading within a specific global
value chain; beyond the basics the necessary infrastructure, skills and services vary by
chain. Dairy products for example require dense and reliable cold chains and collection
structures; manufactures, textiles and many fruits necessitate efficient access to sea
freight; whereas fresh-cut fruits, vegetables and flowers need efficient air freight.
Measurements show increasing participation in global value chains,
with regional variations, due largely to the manufacturing sector
Conventional trade statistics have tended to give an ever more distorted view of
world trade, as intermediate goods are counted each time they cross international
borders. Measuring trade in value-added terms gets around that problem, but data on
trade in value added have only recently started to be compiled. The share of foreign
value added in a country’s exports – termed “backward integration” – and the share of
a country’s value added in other countries’ exports – known as “forward integration” –
are the main measures of a country’s participation in global value chains. Africa’s share
of global trade in value added is small but growing. Africa is rather highly integrated
into global value chains, albeit more as a source of primary inputs than as a production
hub. But backward integration has been growing far faster than forward integration
and faster than that of other regions. Southern Africa is the region most integrated
into global value chains. Asia and Europe are the main source of foreign value added
in African exports and Europe the main destination. Intra-African value added is more
prevalent in the more integrated regions of Southern and East Africa. South Africa is
the only country in Africa so far that is playing the role of headquarter economy in its
region. The manufacturing sector is the most integrated into global value chains and
agriculture the least. Financial intermediation and business services have the highest
proportion of intra-African value added.
Africa’s participation in global value chains can be measured in terms of trade in value
added and of backward and forward integration
Measuring GVC participation requires new approaches, as conventional trade
accounting suffers from double counting. By measuring international trade in gross
terms, conventional trade statistics often record intermediate inputs more than once
along the value chain. Double counting of trade occurs when intermediate inputs
cross borders and are then used to produce other goods for export, whether for further
processing or final consumption. The simple example in Figure 1.9 illustrates this. In
© AfDB, OECD, UNDP 2014
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1. Global value chains in Africa: Potential and evidence
the example Mali exports cotton at a value of USD 100 to Nigeria, where it is spun and
woven into textiles. This adds a value of USD 100. The textiles are exported to Senegal
for USD 200. Senegal then produces t-shirts, adding another USD 100 and exports them
for USD 300 to the United States. Conventional trade statistics would show transactions
worth USD 600 and Senegal’s exports worth USD 300, although only USD 100 of value
added was created there, while USD 200 were imported. As trade in intermediate
inputs is a large and growing part of cross-border trade flows owing to the increasing
geographic fragmentation of production, a significant part of international trade is thus
affected, giving a distorted picture of overall trade flows.
Figure 1.9. Traditional vs. value-added trade statistics – understanding double
counting
Gross export: USD 300
Senegal’s value added: USD 100
Gross export: USD 100
Mali’s value added: USD 100
Gross export: USD 200
Nigeria’s value added: USD 100
Source: Authors’ elaboration.
Measuring cross-border trade flows in terms of value added enables separating the
domestic and foreign value-added content of exports, thus mitigating or eliminating the
problem of double-counting. Measures of trade in value added reflect the value added
embodied in a product and the origin of this value added. The foreign value added in
a country’s exports refers to the amount of goods and services that a country imports
from abroad to produce its own exports. Using the example above, Senegal would show
clothing exports of USD 100 in domestic value added and USD 200 in foreign value added.
Nigeria’s trade in value added would show exports of USD 100 of domestic value added
and USD 100 of foreign value added.
Accounting for trade flows in terms of value added is data intensive. The OECD,
World Trade Organization (WTO) and United Nations Conference on Trade and
Development (UNCTAD) have recently created databases to compile such data. Value
added accounting requires regularly updated national input-output and supply-use
tables that are combined with data on trade flows to establish the use of supply in
production and the subsequent value added by sector. The OECD-WTO TiVA database
provides these data on the basis of the most recent available information for OECD
countries and a number of developing countries; however, owing to data constraints,
South Africa is the only African country covered in this database. The UNCTAD-Eora
GVC database also uses available information but, to produce measures of trade in value
added for all countries, interpolates for countries which do not have the necessary data.
The UNCTAD-Eora dataset is used here to analyse Africa’s GVC integration. Box 1.2 gives
an overview of recent data initiatives.
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Box 1.2. Tools measuring international trade in value added
The way international trade has traditionally been accounted for may no longer be
sufficient. A growing body of work aims to net out the double-counting effect of global
value chains on global trade, determine value added in trade and map how value added
moves between countries along global value chains before the final consumption of end
products. But measuring trade in value added is subject to significant methodological
challenges and is still in its infancy. The table below summarises the characteristics
of the main initiatives to measure trade in value added undertaken by different
organisations to date:
Table 1.2. Tools measuring international trade in value added
Project
Industries
Years
Joint OECD-WTO
OECD, WTO
Trade in Value Added
(TiVA) initiative
Institution
National I-O tables, 57
complemented by
BTDIxE, TIS and
STAN industry
databases
18
1995, 2000, 2005, 2008,
2009
UNCTAD-Eora GVC UNCTAD, Eora
database
National Supply
187
Use and I-O tables,
and I-O tables from
Eurostat, IDE JETRO
and OECD
25-500 depending
on the country
1990-2010
Asian International Institute of
I-O Tables
Developing
Economies (IDEJetro)
National accounts
and firm surveys
10
76
1975, 1980, 1985, 1990,
1995, 2000, 2006
Global Trade
Analysis Project
(GTAP)
Contribution
from individual
researchers and
organisations
129
57
2004, 2007
35
1996, 2009
Purdue University
World Input-Output Consortium of 11
Database (WIOD) institutions, EU
funded
Data sources
Countries
National Supply Use 40
tables
Note: (I-O) input-output.
Source: Authors’ elaboration.
These initiatives differ in terms of data sources, countries and years, as well as in their
industry coverage and methodology. The joint OECD-WTO TiVA database is recognised
as the most comprehensive effort to set a common standard for estimating value added
in trade by emphasising methodology and statistical rigour but sacrificing coverage. In
contrast, the primary objective of the UNCTAD-Eora Database is extended coverage in
order to provide a developing-country perspective. To obtain this extended coverage,
the UNCTAD-Eora database includes a degree of interpolation and estimation in some
places to provide a contiguous, continuous dataset for the period 1990-2011. Given its
focus on Africa, which is relatively absent from the OECD/WTO TiVA database owing to
data limitations, this report makes primary use of the UNCTAD-Eora database.
The UNCTAD-Eora database uses input-output (I-O) tables to estimate the importcontent ratio in exportable products and value-added trade. The value-added trade data
are derived from the Eora global multi-region I-O (MRIO) table, which brings together
a variety of primary data sources, including i) national I-O tables and main aggregates
data from national statistical offices; ii) I-O compendia from Eurostat, the Institute of
Developing Economies – Japan External Trade Organization (IDE-JETRO) and the OECD;
iii) national account data (the UN National Accounts Main Aggregates Database; and the
UN National Accounts Official Data); and trade data (the UN Comtrade international
trade database and the UN Service Trade international trade database).
© AfDB, OECD, UNDP 2014
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1. Global value chains in Africa: Potential and evidence
A macro view of trade in value added provides insight into a country’s level of
integration into global value chains; backward and forward integration offer this macro
view. Integrating into a global value chain means becoming part of an international
production network in which intermediate inputs are sourced in many different locations
and assembled in yet another country. Backward integration is the share of foreign
value added in a country’s exports. It looks back from the perspective of a country’s
exports across foreign inputs into local production (De Backer and Miroudot, 2013; López
González and Holmes, 2011; OECD, 2013).
Forward integration is the share of a country’s value-added exports that are embedded
in the exports of other countries. It looks forward from the country’s perspective at the
flow of its exports around the world, specifically those other countries use to produce
their own exports (De Backer and Miroudot, 2013; López González and Holmes, 2011;
OECD, 2013). Returning to the example above, Mali’s exports of cotton and Nigeria’s
exported value added embedded in its textile are both later embedded in Senegal’s
exports of t-shirts and as such constitute part of Mali’s and Nigeria’s forward integration
into global value chains. See Figure 1.10 for an illustration of backward and forward
integration.
Figure 1.10. Illustration of backward and forward integration
Backward integration
Forward integration
Source: Authors’ elaboration.
Combining backward and forward integration gives a measure of a country’s total
GVC participation. Both concepts are expressed as a percentage of a country’s gross
exports. Although GVC participation is roughly similar across African countries, large
economies show lower values as they rely less on international trade production, whereas
small open economies are more integrated in global production networks. Small open
economies such as Lesotho or Mauritius source more inputs from abroad and produce
more inputs used in global value chains than larger economies such as Nigeria or South
Africa, where a larger share of the value chain is domestic. Nevertheless, total GVC
participation is less related to country size than backward integration (foreign valueadded content of exports), as it also looks forward at the use of inputs in third economies
(OECD, 2013).
Income seems to follow a wave, leading from forward to backward to forward
integration. Countries with low levels of development, here measured by gross domestic
product (GDP) per capita, mainly export primary inputs into production processes such
as agricultural base products, ores and base metals. To the extent which these products
are embedded in the exports of the first importer, they account for a country’s forward
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integration into global value chains. As a primary country develops and successfully
integrates into global value chains at the production stage, it imports more intermediate
products. Since these intermediate products are embedded in the country’s exports,
they account for its backward integration into global value chains. As a country climbs
further in the value chain through upgrading and establishing headquarter functions, it
exports more intermediate goods with high value added, such as machine or electronics
components that are assembled into final products in other countries (López González
and Holmes, 2011; Baldwin and López González, 2013). Figure 1.11 shows this pattern.
Figure 1.11. The global value chain participation wave, 2011
GVC participation (backward and forward integration as a share of gross exports)
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
y = 2E-14x 3- 1E-09x 2 + 2E-05x + 0.4238
R 2= 0.18759
0.10
0.00
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
GDP per capita (constant 2005 USD)
Note: Each point represents one country.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014) and World Bank (2014).
12 http://dx.doi.org/10.1787/888933033251
Africa’s participation in global value chains is growing, particularly in primary goods
and in backward integration
Africa captures a small but growing share of GVC trade. Africa’s share in global
trade in value added grew from 1.4% in 1995 to 2.2% in 2011. This represents an increase
of almost 60%, whereas the established GVC regions in America, Asia and Europe saw
a relative decline in their shares. Africa’s growth was also higher than that of Latin
America and the Middle East, which play small roles in global value chains similar to
Africa, but lower than South Asia‘s (Table 1.1).
Despite its low share of global GVC trade Africa’s total level of GVC integration is
high compared to other regions, but more so for forward than backward integration.
Figure 1.12 shows Africa in third place for overall participation in global value chains
with about half of its gross exports either consisting of foreign value added or being
used to create intermediate goods elsewhere that will be exported onwards. Only Europe
and Southeast Asia, two dense and highly interlinked regions, are significantly more
integrated into global value chains. In both regions, embedding foreign value added
in a country’s own exports plays a more important role than exporting intermediates.
However, only Russia and Central Asia, the Middle East and South Asia have lower
values of backward integration than Africa.5 Africa’s low and so far constant share of
2% of global imports of intermediates equally points to its still marginal role in global
assembly (Figure 1.5).
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
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1. Global value chains in Africa: Potential and evidence
Figure 1.12. Integration of world regions into global value chains, 2011
Forward integration
Backward integration
Share of total value added exports
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
a
ni
ea
As
h
ut
So
Oc
ia
a
ic
er
Am
t in
st
Ea
Ru
La
As
ic
er
Am
r th
No
ut
So
s
C e si a
nt an
ra d
lA
si
a
M
id
dl
eE
as
t
ia
a
a
ric
Af
he
as
Eu
tA
ro
si
a
pe
0.00
Note: Backward integration is measured by the share of foreign value added embedded in a country’s exports.
Forward integration is measured by the share of a country’s exported value added that is further exported by
the importing country.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033270
However, this seems to be changing as Africa’s backward integration has been
growing faster than its forward integration and faster than that of other regions. Africa’s
GVC integration increased by 80% between 1995 and 2011.6 Almost three-quarters of this
growth was driven by backward integration. The growth of Africa’s GVC integration looks
particularly impressive compared to that of Latin America or the Middle East which both
saw their integration grow by no more than 25% over the same period (Figure 1.13). Only
India has shown a higher growth rate among the country groupings examined here.
Figure 1.13. Growth of global value chain integration, 1995-2011
Backward integration
Forward integration
India
China
Africa
East Asia w/o China
South Asia w/o India
North America
Oceania
Europe
Middle East
Latin America
Southeast Asia
Russia and Central Asia
-0.4
1
1.2
Growth 1995-2011
Note: Backward integration is measured by the share of foreign value added embedded in a country’s exports.
Forward integration is measured by the share of a country’s exported value added that is further exported by
the importing country.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
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0.2
0.4
0.6
0.8
© AfDB, OECD, UNDP 2014
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Volumes, sources and destinations of value chain trade vary across Africa’s regions and
countries
Southern Africa is the leading region in Africa in terms of GVC participation;
North and West Africa follow but are strongly driven by forward integration. With just
above USD 100 billion in 2011, Southern Africa accounts for about 40% of Africa’s GVC
participation, one-third of which is backward integration. North Africa accounts for
35%, but only a quarter stems from backward participation. West Africa accounts for
15% and has a profile similar to North Africa, with the use of foreign inputs in exports
only making up a quarter of total participation. East Africa and the island states in the
Indian Ocean together account for 6% of Africa’s GVC participation and have the most
balanced profile with half forward integration and half backward (see Figure 1.14).
Figure 1.14. Integration of African regions into global value chains, 2011
Forward integration
Backward integration
Value added exports (USD billion)
120
100
80
60
40
20
0
Southern Africa
North Africa
West Africa
East Africa
Central Africa
Indian Ocean
Note: Backward integration is measured by the share of foreign value added embedded in a country’s exports.
Forward integration is measured by the share of a country’s exported value added that is further exported by
the importing country.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033308
In terms of backward integration, Europe and Asia are the main sources of foreign
value added embedded in African exports. Intra-African value chains play a role in
the more integrated regions of East and Southern Africa. Europe accounts for 40% of
foreign intermediates embedded in African exports, Asia for 30%. For North, West and
Southern Africa, Europe is the main source of intermediates, whereas Asia is the leader
in East Africa and the Indian Ocean island states as well as in Central Africa. Backward
participation between African countries is highest in East Africa, where it reaches 25%,
followed by Southern and Central Africa, where intra-African GVC participation remains
at about 15%. In North and West Africa, African products account for less than 10% of
foreign value added embedded in exports (see Figure 1.15).
© AfDB, OECD, UNDP 2014
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1. Global value chains in Africa: Potential and evidence
Figure 1.15. Sources of foreign value added in African exports
Latin America
Middle East
Asia
North America
Europe
Africa
Share of foreign embedded in African exports (%)
100
90
80
70
60
50
40
30
20
10
0
Central Africa
East Africa
Indian Ocean
North Africa
Southern Africa
West Africa
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033327
Indications are that South Africa is playing the role of a headquarter economy in its
region, following the pattern observed in Asia, Europe and North America. Overall, South
African use of intermediates from other economies in the region increased nine-fold
between 1995 and 2011 (from USD 78 million to USD 686 million). In turn, South African
intermediates embedded in the exports of other economies in the region increased fivefold in the same period (from USD 675 million to USD 3 487 million). Table 1.3 shows
the share of intermediates sourced from regional trade partners for each country in
Southern Africa in 2011. Botswana, Namibia, Swaziland, Zambia and Zimbabwe all
source more than 10% of intermediates from South Africa.
Table 1.3. Backward integration matrix for Southern African economies, 2011
AGO
BWA
LSO
MOZ
MWI
NAM
SWZ
ZAF
ZMB
ZWE
AGO
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
BWA
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
LSO
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
MOZ
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
MWI
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
NAM
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
SWZ
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
ZAF
0.01
0.12
0.00
0.03
0.02
0.12
0.26
0.10
0.13
ZMB
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.01
0.00
ZWE
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Note: Rows represent exported value added. Columns represent imported value added that is then embedded in
exports. Zeros indicate values of less than 0.01% of exports.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
In terms of forward integration, Europe remains the main destination of African
intermediates that are bound for global value chains. Africa plays a much smaller role
as a destination than as a source. Asia is also less prevalent as a destination for African
value added than as a source.
26
African Economic Outlook - Thematic Edition
© AfDB, OECD, UNDP 2014
www.africaneconomicoutlook.org/en/theme
Figure 1.16. Destinations of African intermediates for further exportation
Middle East
Latin America
Asia
North America
Europe
Africa
Share of exported value added embedded in destination countries' exports
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Central Africa
East Africa
Indian Ocean
North Africa
Southern Africa
West Africa
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033346
The African average participation in global and regional African value chains masks a
great deal of variety between countries. Five African countries — Lesotho, the Seychelles,
Swaziland, Tanzania and Zimbabwe — are among the world’s top 30 countries in terms
of GVC participation; 13 countries, predominantly located in Western and Central Africa,
are among the bottom 30 globally.7 Six of the ten most integrated countries are located
in Southern Africa. Figures 1.17 and 1.18 show the levels of backward and forward
integration of African countries in 1995 and 2011: most countries increased both.
Notable exceptions are Egypt and Mozambique whose exports contained relatively less
foreign value added in 2011 than in 1995. Their forward participation, on the other hand,
increased, indicating a move towards more resource exports.
Figure 1.17. Backward integration of African countries into global value chains,
1995 and 2011
2011 backward integration
1995 backward integration
Share of foreign value added in exports
0.60
0.50
0.40
0.30
0.20
0.10
ZW
LSE
S O
W
A Z
G
N O
A
B M
W
ZM A
B
ZA
M F
O
M Z
W
I
M
R
TGT
S O
L
G E
H
B A
F
C A
P
N V
ER
N
G
S A
T
GP
I
LBN
S R
EN
G
A
MB
L
B I
EN
C
M
G R
M
C B
IV
TU
M N
A
DR
Z
EG A
LBY
S Y
D
S S
U
D
S
Y
M C
U
M S
D
G
a
TZ
U A
G
A
D
J
K I
EN
ET
H
ER
S I
O
M
C
ric
Af
O
G
B
D
R I
W
TC A
C D
A
C F
O
D
0.00
Note: Backward integration is measured by the share of foreign value added embedded in a country’s exports.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033365
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
27
1. Global value chains in Africa: Potential and evidence
Figure 1.18. Forward integration of African countries into global value chains,
1995 and 2011
2011 forward integration
1995 forward integration
Share of domestic value added embedded in other countries' exports
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
G
I
G N
H
G A
A
N B
G
N A
E
L BR
C R
M
M R
R
T
C
I
S V
EN
TG
O
B
FA
S
LE
C
P
V
M
G LI
M
B B
EN
S
TP
ZA
ZMF
A B
G
B O
W
M A
O
S Z
W
M Z
W
LS I
N O
A
Z WM
E
D
Z
LB A
M Y
A
TU R
EG N
S Y
U
S D
D
S
S
Y
M C
D
M G
U
S
TZ
K A
EN
ER
ET I
U H
G
S A
O
M
D
JI
C
O
C D
O
R G
W
A
C
A
F
B
D
TC I
D
Af
ric
a
0.00
Note: Forward integration is measured by the share of a country’s exported value added that is further exported
by the importing country.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033384
The manufacturing sector leads Africa’s integration into global value chains, ahead of
business services and agriculture
Manufacturing shows the highest level of global and regional value chain
participation, agriculture the lowest. Vehicle manufacturing leads in terms of foreign
value added embedded in exports, reflecting the structure of Africa’s automotive
operations as assembly hubs in the production networks of the large international
car companies. This is the case mainly for Egypt, Morocco and South Africa. Other
medium to high tech manufacturing in Africa follows a similar structure, given the high
content of foreign value added embedded in the exports of electrical machinery and
metal products. Although its share has been declining, mining and quarrying remains
the sector with the greatest foreign value added in African exports in absolute terms,
followed by petroleum, chemical and non-metallic mineral products. In 2011, these two
sectors accounted for about a third of all foreign value added in African exports, down
from about 43% in 1996 (Figures 1.19 and 1.20).
Among services, finance and business have the highest GVC participation rates and
the highest share of African value chains. Africa’s high value added service sectors seem
well integrated into global networks. Especially in finance, regional African value chains
are of particular importance and the sector shows a much higher share of value added
from other African countries in a country’s exports than any other sector, attesting
to the strength of regional banking groups (Figure 1.20). Less sophisticated and more
traditional service sectors such as the hospitality sector and trade show much lower
rates of foreign value added in exports.
28
African Economic Outlook - Thematic Edition
© AfDB, OECD, UNDP 2014
www.africaneconomicoutlook.org/en/theme
Figure 1.19. Africa’s integration into global value chains by sector, 2011
Forward integration
Backward integration
Total integration
Share of total value added exports
0.80
USD millions
25
0.70
20
0.60
0.50
15
0.40
10
0.30
0.20
5
0.10
0
th
g
il
an
d
he
al
in
Fi
sh
s
ta
Re
n
ge
ra
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ve
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is
be
Ed
uc
at
io
n
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od
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re
ec
Te
l
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ad
ea
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Te
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in
le
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rt
W
ho
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a
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in
in
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d
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nt
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W
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d
ai
M
ch
em
ic
an
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n
s
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ns
tr u
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ct
io
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g
s
r in
tu
ac
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rm
he
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bu
Fi
na
nc
ea
Ot
nd
an
es
ss
er
vi
ce
ng
de
cli
cy
Re
In
t.
tr a
al
ry
M
et
ne
hi
ac
m
nd
.a
ec
El
Tr
a
ns
po
rt
eq
ui
pm
en
t
0.00
Note: Backward integration is measured by the share of foreign value added embedded in a country’s exports.
Forward integration is measured by the share of a country’s exported value added that is further exported by
the importing country.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033403
Figure 1.20. Regional value chain integration by sector, 2011
Foreign African value added in exports (right axis)
Share of foreign African value added in total exported value added (left axis)
Share of foreign African value added in African exports (2011)
0.14
Amount of foreign African value added in African exports ('000 USD; 2011)
1 200 000
0.12
1 000 000
0.10
800 000
0.08
600 000
0.06
400 000
0.04
Tr ical
an
sp
n
o
W and r t
oo
h
e
d
an al th
d
pa
pe
Te r
le
W c om
ho
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Ho s al
sp e
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ta
xt
F i il
il e
sh
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ap
pa
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A g nin
ric g
ul
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la
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an
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tr a
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od
an
ai
nt
t.
In
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cy
Tr
a
ns
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eq
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cli
ry
ne
Re
ct
tr u
ac
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nd
.a
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hi
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g
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Co
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tu
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he
rm
an
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ac
M
et
nc
na
Fi
Ot
s
0
ng
0.00
n
200 000
e
0.02
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033422
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
29
1. Global value chains in Africa: Potential and evidence
Export and productivity growth has been easier to achieve than employment
growth
Participating in global value chains is an important first step that must be turned
into economic gains and social gains. This section proposes measures for those gains
and analyses their relationship to GVC integration in Africa. It looks specifically at
productivity, domestic value added in exports, employment and other social benefits.
Domestic export content and productivity have grown alongside global value chain
participation in most African countries
Growth rates of domestic value added embedded in exports and productivity serve
to measure economic upgrading. While GVC participation can be measured at any point
in time, any measure of upgrading, which is a dynamic process, must consist of growth
rates. The growth in domestic value added embedded in a country’s exports scaled by
GDP is used as a specific measure of GVC upgrading. Growth rates of productivity at the
national and firm levels are used as a standard indicator for economic development.
Most African countries experienced growth in domestic value added embedded in
exports alongside growth in GVC participation from 1995 to 2011. Figure 1.21 shows the
relationship between changes in GVC participation and domestic value added embedded
in exports as a share of GDP. GVC performance can be plotted in four quadrants. Most
African countries fall in the upper right-hand quadrant, i.e. they have increased their
participation and the economic gains from this participation. The countries in the lower
right hand quadrant are largely petroleum exporters that have seen some change in
their participation but have not been able to increase GVC-related domestic value added
as part of their GDP which is heavily determined by the price of oil. The correlation
between GVC participation and growing domestic value added in exports was stronger
in the 2000s than in the 1990s,8 suggesting that global value chains are becoming more
important in world trade.
Figure 1.21. Linking global value chain participation to growth in domestic value
added in exports as a share of GDP, 1995/97 compared to 2009/11
Change in upgrading: domestic VA in exports (% of GDP, 1995/97-2009/11)
40.0
30.0
Upgrading +
decreased participation
Upgrading +
increased participation
20.0
10.0
y = 0,3379x + 4,992
R² = 0,06759
0.0
-10.0
-20.0
-30.0
-20.0
Downgrading +
decreased participation
-10.0
Downgrading +
increased participation
0.0
10.0
20.0
30.0
40.0
Change in backward GVC participation (1995/97 - 2009/11)
Note: Domestic value added embedded in exports as a share of GDP is used here to measure how much a country
has benefitted from GVC participation. Backward integration is measured by the share of foreign value added
embedded in a country’s exports. Three-year averages are used for the base and comparison periods to account
for year-to-year volatility.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033441
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African Economic Outlook - Thematic Edition
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Beyond the share of domestic value added in exports, however, backward and
forward integration have opposite effects, reflecting widespread dependence on natural
resources. Backward integration (the share of foreign value added in a country’s exports)
links strongly with a number of measures of structural transformation as the following
paragraphs will show. Forward integration (the share of a country’s exports that is
transformed into further exports by the importer), on the other hand, shows negative
links with measures of structural change and diversification, reflecting the negative
impact of dependency on natural resources9 (see also AfDB et al., 2013; Rieländer and
Traore, forthcoming). Going forward the analysis presented will therefore concentrate
on backward integration.
African countries with a higher share of foreign value added in exports on average
experienced higher productivity growth and positive structural change. In addition to
the basic link with growing domestic value added in exports, GVC participation has also
been linked to productivity growth in African countries. Following the methodology
laid out in last year’s report (AfDB et al., 2013), Figure 1.22 depicts compound annual
productivity growth for the countries for which these data were available, compared
to the share of foreign value added embedded in their exports. This suggests that a
larger share of foreign value added in exports on average comes with higher annual
productivity growth. The relationship with the structural change term, i.e. the share of
productivity growth driven by movement of labour from the less to the more productive
sectors of an economy, also seems to be linked to the foreign share of value added in
exports.10
Figure 1.22. Compound annual productivity change (range of different years per
country during the 2000s) and foreign value added in exports in 2011 in Africa
Compound annual productivity change
0.07
0.06
AGO
MOZ
0.05
NGA
0.04
MLI
0.03
MAR
TZA
MUS
ZMB
0.01
SEN
0.00
-0.01
GHA
ZAF
ETH
EGY
0.02
RWA
y = 0,1205x - 0,0011
R² = 0,2408
MWI
DZA
UGA
KEN
CMR
-0.02
-0.03
-0.04
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
Share of foreign value added in a country's exports, 2011
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014), productivity data from McMillan
and Rodrik (2011) and AfDB et al. (2013).
12 http://dx.doi.org/10.1787/888933033460
The share of foreign value added in exports is also strongly positively related to
diversifying and discovering new export items. Diversification is strongly correlated
with GDP per capita levels (Imbs and Wacziarg, 2003; Klinger and Lederman, 2006; Cadot
et al., 2012) and a key driver of structural transformation (AfDB et al., 2013; Rieländer
and Traore, forthcoming). Measures of export diversification and discoveries of new
products are strongly correlated to a country’s measures of GVC participation.
Analysis suggests that the gains made at national level do not follow a clear pattern
at the sector level. Although the relationship between GVC participation and growth
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
31
1. Global value chains in Africa: Potential and evidence
of domestic value added is overall positive at the national level, this is not reflected
in sector level results. Most countries show no clear link between the expansion of a
sector’s GVC integration, measured by the share of foreign value added in the sector’s
exports, and growth in the domestic value added generated by the sector; this is the
case particularly in manufacturing, but also in services. In agriculture the relationship
between the change in backward integration and the change in domestic value added
seems to be negative (Figure 1.23). This pattern suggests that African countries do
benefit from global value chains at large, but that the opportunities for upgrading and
growth differ by country and value chain.
Figure 1.23. Growth in backward integration into global value chains and
domestic value added in exports by sector, 2000/02 compared to 2009/11
African countries
Agriculture
Manufacture of metal products
10
5
0
-5
-10
-10
-5
0
5
10
15
20
25
30
35
Change in backward integration (as % of value added)
Post and telecom services
3 000
2 000
1 500
1 000
500
0
-15
-10
-5
0
5
10
3
2
1
0
-1
-2
-30
-10
15
20
25
Change in backward integration (as % of value added)
0
10
20
30
40
50
60
Change in backward integration (as % of value added)
Manufacture of textile and apparel
5
4
3
2
1
0
-1
-2
-30
Finance and business services
0.6
-20
6
2 500
-20
Growth of domestic VA in export sectors (%)
4
Growth of domestic VA in export sectors (%)
Growth of domestic VA in export sectors (%)
15
Growth of domestic VA in export sectors (%)
Fitted values
-20
-10
0
10
30
20
40
50
Change in backward integration (as % of value added)
Manufacture of transport equipments
2 000
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
-20
-10
0
10
20
30
40
50
60
70
Change in backward integration (as % of value added)
Growth of domestic VA in export sectors (%)
Growth of domestic VA in export sectors (%)
0.5
1 500
1 000
500
0
-500
-40 -30 -20 -10
0
10
20
30
40
50
60
Change in backward integration (as % of value added)
Note: Backward integration is measured by the share of foreign value added embedded in a country’s exports.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033479
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African Economic Outlook - Thematic Edition
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Even in countries that show success with GVCs, linkages between firms and
sectors that are integrated into global value chains and the rest of the economy are not
straightforward. Tunisia, one of the best performers in Figure 1.21, is a good example. It
has thriving export sectors in textiles and apparel, electrical machinery, business services
and tourism that are well connected to European production networks and markets.
However, owing to strict regulations separating the offshore and onshore sectors, most of
these activities operate in isolation from the broader local economy, limiting the potential
for further upgrading and employment creation (Box 1.3 and Tunisia Country Note in
this report). Cabo Verde has been able to boost its integration into global tourism value
chains, increasing this sector’s share of GDP to 20%. However, few linkages exist between
the resort-style hotels and the local economy because of an unfavourable geography and
the isolated operation of the hotel complexes (Cabo Verde Country Note).
Box 1.3. Tunisia: Successful but limited by insufficient links between
participators in global value chains and the rest of the economy
Benefitting from its geographic and cultural proximity to Europe, Tunisia has
progressively strengthened its relations with the EU, its main industrial partner
and main client. The association accord signed in 1995 established, over time, a
free-exchange zone between the two sides, which took effect on 1 January 2008 for
industrial products. The start of the national programme for upgrading industry at the
end of the 1990s allowed Tunisian industries to become more competitive for better
integration into global value chains. In this context, major international donors set
up branches in the country and/or developed subcontracting agreements, leading to
greater Tunisian participation in the world economy. In 2013, there were 2 614 wholly
exporting enterprises, the source of 323 262 jobs. Two sectors are particularly
significant in this regard:11 textile and clothing since the 1970s and, more recently, the
electrical, engineering and electronics industries. If textiles are declining somewhat as
a result of international competition, notably from Asia, the electrical, engineering and
electronics sector has seen major evolution over the last 15 years, with the development
of automotive and aeronautics component activities. The sector’s exports increased by
an average of 18% per year from 2000 to 2012. Since the early 2000s, the development
of information and communication technologies has allowed the rise of new service
activities and greater integration of Tunisia into GVCs. Call centres have developed, as
have other forms of outsourcing to a lesser degree (outsourcing of accounting services,
for example).
This progressive integration into GVCs has fostered growth in Tunisia, contributing to
the creation of many jobs and exports. In 2012, the textile sector accounted for 22% of
exports, and the electrical, engineering and electronics sector more than 36%. However
this development model is running out of steam and its impact on the Tunisian economy
appears limited today. The jobs created involve activities with little value added and
therefore with unskilled personnel. And the location of the majority of exporting
enterprises near logistical export zones (ports and airports) has accentuated regional
disparities.
The low management-staff ratio has not been beneficial to technology transfers and
the rise of value chains, limiting the development of these activities. Imported inputs
constitute a significant portion of Tunisian exports, although this varies according to the
products involved, and the exports mainly consist of intermediary products. According
to a study by the AfDB (2012), the level of sophistication of Tunisian exports has been
declining for several years.12 Finally the constraints of the 1972 law on companies that
export their entire production strongly limited their impact on the rest of the economy,
the local market being barely considered as a client or potential supplier.
Source: Tunisia Country Note in this report.
© AfDB, OECD, UNDP 2014
African Economic Outlook - Thematic Edition
33
1. Global value chains in Africa: Potential and evidence
Social benefits have been more elusive and dependent on economic benefits
Employment, including vulnerable employment, and wages can denote social
upgrading at the macro level. Case studies (Goger et al., 2014) can shed light on the
specific effects of value chain governance on the outcomes of social upgrading and
elements such as working conditions, workers’ rights and discrimination.
It has been difficult for African countries to increase employment through
participation in global value chains alone; gains in domestic value added in exports
are necessary. Unfortunately, comprehensive employment data on the impact of global
value chains on employment only exist for a few African countries. Those countries
show13 no relationship between employment gains and GVC participation. However, a
positive relationship emerges between employment and gains in domestic value added
in exports. Countries which increased the domestic value added embedded in their
exports as a percentage of GDP also successfully increased the domestic employment
linked to global value chains. The same relationship holds at the global level. In other
words, employment has increased only in countries where GVC participation has
significantly raised domestic value added for exports (see Figure 1.24).
Figure 1.24. Economic and social upgrading in Africa and the world,
1995/97 compared to 2009/11
Growth of domestic employment in global value chain exports sectors (%, 2009/11-1995/97)
350
300
Zambia
250
200
150
100
Algeria
50
Mauritius
Morocco
South Africa
Egypt
0
-50
-100
-150
-40
-30
-20
-10
0
10
20
30
40
Change in upgrading: domestic value added in exports (% of GDP, 2009/11-1995/97)
Note: Grey markers represent non-African countries.
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033498
Despite the weak link with employment, backward integration into global value
chains is linked with other measures of social progress. Countries with a higher share
of foreign value added in exports suffer less from inequality (Gini coefficient) and have
a higher share of women in the labour force (see Box 1.4).
However, case studies suggest that social gains from GVC participation have been
limited in Africa by several important factors, such as gender imbalances, skills deficits,
increasing informal employment and unequal power relationships within value chains.
In fruit, flower and vegetable value chains for example, the fact that most of the workforce
is composed of women14 places additional barriers to social improvements. In general
women face tougher barriers to social upgrading than men owing to lower comparative
wages, a higher propensity for casual work, sexual harassment, less access to training
and education, and stereotypes of patriarchy (see also Box 1.4). Additionally, increasing
informal employment is problematic because informal workers have much less access to
decent work, secure employment, and social protections than formal workers. The fact
that the African workforce is largely unskilled and lack access to training programmes
further prohibits social gains.
34
African Economic Outlook - Thematic Edition
© AfDB, OECD, UNDP 2014
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Box 1.4. Tackling gender inequalities in women’s labour force participation
to boost productivity and quality of global value chains
Global value chains reflect gender inequalities and discriminatory social norms. While
women’s presence is critical at different stages of global value chains, their opportunities
for economic empowerment are limited owing to a gendered division of labour and
the low economic value attributed to their contributions (Barrientos, 2013). Women are
often relegated to low-skill and low-wage employment, as informal or seasonal workers
or as unpaid domestic workers (World Bank, 2013). Women producers dominate in
export-oriented agricultural global value chains. Women represent 90% of producers
in Senegal’s fruit and vegetable industry and 75% in Kenya’s banana industry (FAO,
2011), but they represent a minority in the management, distribution and marketing
sections of the chain. Discrimination against women’s access and control of land and
economic assets also limits female agricultural producers’ access to tools, technology
or credit (Coles and Mitchell, 2011). Gender gaps in education, literacy and skills explain
the higher concentration of women in the lower-value segments of the chain; social
norms and perceptions also influence the gender-segregation of tasks and the low
value attributed to them (Coles and Mitchell, 2011).
Women face a dual challenge of upgrading within a chain and alongside a chain.
First, the unequal division of care and domestic responsibilities reduces women’s
opportunities to undertake skills training or join business networks, key to upward
mobility within a chain. Second, women’s lack of access to decent work and relegation
to lower-skill jobs make them vulnerable when a GVC upgrading increases demand for
high-skilled labour (Barrientos et al., 2004). While companies may benefit from shortterm competitive gains from women’s vulnerable employment, incentives to better
value their contribution and to invest in their skills can support long-term upgrading
objectives and maximise the use of existing human capital.
Gender equality can increase GVC sustainability and productivity. In the cocoachocolate industry in Ghana, women are responsible for the fermentation and drying
of pods that, while undervalued, are critical for increasing quality and quantity, as well
as the sustainability of production (Barrientos, 2013). Companies in the horticultural
and agricultural industries also prefer to employ women for tasks that require both
greater dexterity and high productivity (Barrientos et al., 2003). This feminisation
of employment has consistently raised women’s labour force participation in most
countries, as women are being drawn in large numbers into flexible employment.
Though women remain locked into their role as seasonal labourers, they form the core
of a semi-permanent skilled labour force, which is central to the smooth functioning of
value chains at both the production and retailing ends (Barrientos, 2001).
Upgrading women’s roles in value chains can be an important long-term sustainability
strategy. Interventions in the Ghanaian shea butter sector effectively increased
women’s control of resources, skills and presence in decision-making sections of the
chain, demonstrating the mutual benefits for women’s economic empowerment and
the quality and productivity of a global value chain (Laven and Verhart, 2011). The
Cafe Femino, a successful female coffee brand, benefits from consumer interest to buy a
product which was produced, processed and sold only by women in the context of “fair
trade” (FAO, 2011).
Promoting decent work for women can improve countries’ participation in global
value chains. Increasing the number of women in the labour force may be a way to
upgrade a country’s integration (Figure 1.25). This positive relationship holds stronger
for developing countries other than African countries, however the two groups only
marginally differ. The OECD Social Institutions and Gender Index 2012 (SIGI) shows that
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1. Global value chains in Africa: Potential and evidence
Box 1.4. Tackling gender inequalities in women’s labour force participation
to boost productivity and quality of global value chains (cont.)
gender discrimination in social institutions is highly correlated with vulnerable female
employment. Less discriminating social institutions often increase women’s economic
contribution through both a higher female share in the labour force and decent
work. Changing discriminatory laws and practices that restrict women’s choices and
behaviour can strengthen GVC integration.
Everyone shares the responsibility of ensuring that women have access to decent work
conditions. Countries and companies can provide childcare facilities, invest in training
for women, and increase women’s control over key economic resources and assets.
Consumers and civil society can also play a role, for example by including gendersensitive indicators in commercial codes of conduct.
Figure 1.25. Estimated integration into global value chains related to
women’s share of the labour force, 1995-2011
Other developing countries
Africa
GVC integration, 1995-2011 (fitted values)
0.24
0.23
0.22
0.21
0.20
0.19
0.18
0.17
0.16
0.15
0.14
10
15
20
25
30
35
40
45
50
55
Women's share of the labour force, 1995-2011
Note: This chart shows the relationship between the women’s share of the labour force and the estimated
values of integration into global value chains (foreign share of value added), controlling for GDP per
capita, country and year fixed-effects (on a five-year basis: 1995, 2000, 2005, 2010). The black regression
line and the black scatter plot describe the relationship for African countries, while the green regression
and green scatter plot present those for other developing countries.
Source: Authors’ calculations based on UNCTAD-Eora data and World Bank Indicators.
12 http://dx.doi.org/10.1787/888933033517
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Notes
1. Bathia (2012), for example, describes General Electric’s global network of innovation centres
that pass their work onto their colleagues in the next time zone at the end of their workday
and receive it back the next morning from another team with progress made in the meantime.
2. Without the first, there is little that drives the economy forward. Without the second,
productivity gains are not diffused to the rest of the economy (McMillan and Rodrik, 2011).
3. Africa’s labour productivity increased by close to 3% during the 2000s, with almost half of this
attributable to workers moving to new activities with higher productivity (AfDB et al., 2013).
4. In such a case even a lower share of domestic value added in a value chain captured locally
represents overall growth in the amount of value added and employment generated locally.
5. The likely reason for the low value of South Asia is India’s dominant position in the region.
Its huge size has a strong downward pull on trade-based GVC integration. Moreover, India’s
participation in GVCs is mainly in the form of services, which are notoriously difficult to track
with trade data.
6. Inter-temporal comparisons of African GVC participation based on UNCTAD-Eora data should
be taken as indicative. Data availability has been improving leading to more data being available
for the 2011 estimates than for the 1995 estimates, which might be driving some of the growth
in the results.
7. The 13 countries among the bottom 30 are Benin, Cameroon, the Central African Republic, the
Democratic Republic of the Congo, Côte d’Ivoire, Gabon, Gambia, Egypt, Libya, Mali, Somalia,
South Sudan and Sudan.
8. These results hold when controlling for GDP, geography, country effects and time period.
9. It is important to note dependence on natural resources, not natural resource wealth, shows a
strong negative correlation with measures of structural transformation.
10. The R² of this correlation is 0.095.
11. The industrial network counts 5 669 enterprises with a staff of ten employees or more.
Enterprises are represented as follows: agro-food 18.5%, construction materials 8%, chemical
industry 9.7%, electrical, engineering and electronics industries (IME) 17.6%, textile and
clothing 32%, other sectors 14.2%.
12. AfDB (2012), Comparative Study on Export Policies: Egypt, Morocco, Tunisia and South Korea, African
Development Bank.
13. The UNCTAD-Eora database links existing employment data with value added flows to translate
foreign and domestic value added into the foreign and domestic employment that went into
producing a country’s exports.
14. Women make up as much as 73% of the workforce of the floriculture sector in Uganda (Evers et
al. 2014) and as much as 90% of the workforce in the French bean and 60% in the cherry tomato
sectors in Senegal (Maertens and Swinnen 2009).
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1. Global value chains in Africa: Potential and evidence
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Gereffi, G. and J. Lee (2012), “Why the World Suddenly Cares About Global Supply Chains”, Journal
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is the Role of Preferential Trade Agreements?”, Working Paper No. 2011/41, Swiss National Centre
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Chapter 2
How ready is Africa for global value
chains: A sector perspective
Integrating into global value chains and upgrading within them
depends on country-specific and value chain-specific factors.
Taking this into account, this chapter examines value chains in
agriculture, manufacturing and services in Africa. Lead firms play
an important role in increasing domestic capacity to participate in
global value chains, while regional and emerging markets may be
more accessible for African producers and create opportunities for
more value added.
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2. How ready is Africa for global value chains: A sector perspective
In brief
The main drivers of participating and upgrading in global value chains (GVCs) are countryspecific and value chain-specific. An examination of country-specific factors shows that
Africa has attractive endowments but that domestic productive capacity and infrastructure
are holding it back. Regarding value chain factors, the distribution of power between lead
firms and suppliers as well as lead firms’ commitment to developing local linkages are
determinants of success. This chapter looks closely at the factors affecting GVC participation
and upgrading in the agricultural, manufacturing and services sectors. Across all sectors,
although most value added currently occurs outside of Africa, GVC participation offers
employment and learning opportunities, and there is great scope to increase value added
within Africa. Key factors for upgrading include meeting standard requirements, promoting
local entrepreneurship and enhancing domestic technical capacity. Additional opportunities
can result from targeting regional value chains and emerging markets.
Africa has attractive endowments but domestic productive capacity and
infrastructure are holding it back
Africans see their attractive endowments and openness as strengths for making
more of global value chains, but they consider the capacity to respond to external
demand, infrastructure and the business environment as obstacles. The AEO country
expert survey asked respondents to identify their country’s main strength and obstacles
for participating in global value chains. Attractive endowments,1 such as deposits
of natural resources and low labour costs, were identified as the most important
strength of African countries, accounting for 38% of all identified strengths, but only
18% of identified obstacles. Openness2 to imports, exports and investment, including
the efficiency of customs procedures and regional integration, accounted for 18% of
identified strengths and only 7% of obstacles. Certain elements of infrastructure and
the business environment3 were considered a relative strength for GVC participation in
some countries and accounted for as many positive responses as attractive endowments
(38%); however, they also made up the majority of identified obstacles with 63% of all
negative responses. Finally, the domestic capacity to respond to external demand,4
which combines the elements that are crucial for upgrading such as a skilled workforce,
the existence of local suppliers and local capacity to meet international standards, was
widely regarded as a weakness, but also as less important. It accounted for 6% of voted
strengths and 12% of obstacles. In other words, although capacity to upgrade seems low
in most African countries, barriers to integration in the form of infrastructure and the
business environment are considered more pressing in most countries (see Figure 2.1).
Investor surveys, interviews and case studies confirm that many African countries
have the endowments to attract investors. Investor motivation surveys (James, 2013)
in Africa show that most foreign firms that invested would have done so without the
provision of tax incentives and subsidies. They invested because of what the country had
to offer, such as natural resources, human capital at a competitive price and domestic
and regional markets with potential. Interviews with international lead firms conducted
for this report corroborate this impression. In Ethiopia, for example, the quality and
price of the available workforce have been the main reasons for foreign investments in
textile operations. Large food and consumer goods companies are often attracted by the
consumption potential of the local market.
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Figure 2.1. Drivers of global value chain participation and upgrading: Perceptions
of strengths and obstacles
Strength
Obstacle
38 %
Attractive endowments
(e.g. natural resources and low-cost labour)
18 %
18 %
Openness
7%
38 %
Infrastructure and business environment
63 %
6%
Domestic capacity to respond to external demand
12 %
0
10
20
30
40
50
60
70
%
Note: The percentages represent the share of total responses received for strengths and obstacles respectively.
Source: AEO Country Experts Survey (2014).
12 http://dx.doi.org/10.1787/888933033536
Yet domestic capacity in the form of skills and productive capacity to upgrade and
meet demanding standards is scarce. Operations often remain limited to assembly
of imported products as many African countries do not yet have the productive and
innovation capacity and the connectivity to markets required to become major hubs
for component manufacturing and global distribution (South Africa and Morocco are
exceptions as they partially play these roles in the automotive industry). Case studies
carried out in the framework of the Capturing the Gains project identify the lack of
skills and workforce development as a major hurdle for economic and social upgrading.
International lead firms and observers also cite the difficulty of standards compliance
among local firms as a constraint. This includes standards for product quality and safety,
and at times also cost. Standards and the limited capacity of local firms were identified
as the top reasons for the low level of inclusion of domestic suppliers in the extractive
industries in Africa in the last edition of this report (AfDB et al., 2013) and came third
(after infrastructure and finance) in the OECD/WTO survey on aid for trade measures
(OECD and WTO, 2013).
A sufficiently large base of local entrepreneurs is a key component of a country’s
domestic capacity to build on global value chains, but it is sorely lacking in many
African countries. Local entrepreneurs are more committed to the local market even
in the face of economic difficulties. Goger et al. (2014) showed that while East Asian
investors in some African countries tend to establish assembly-only operations and
make limited investments in workforce training, domestically owned firms (as well
as European) would engage in more complex activities and invest more in upgrading
workforce skills. These firms were also more likely to be locally embedded (Staritz and
Morris, 2013). The success of Mauritius’ garment industry is mainly attributed to the
strong local entrepreneurial capacity that counterbalanced the withdrawal of Asian
investors after the expiration of the Multi Fibre Agreement. However, entrepreneurs
and entrepreneurial skills are lacking in many African countries. Enterprise maps for
four African countries (Sutton and Kellow, 2010; Sutton and Kpentey, 2012; Sutton and
Olomi, 2012) show that only 51 of 200 leading firms started as domestic privately owned
firms (Gelb et al., 2014). The average management scores for firms in Ethiopia, Ghana,
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2. How ready is Africa for global value chains: A sector perspective
Kenya, Tanzania and Zambia fall substantially below the average score for firms in other
developing countries (World Management Survey, 2014; Bloom and Baker, 2014).
Surveys, case studies and regression analysis confirm the importance of and
challenges with infrastructure and the business environment. African countries must
compete with each other and many other developing countries for investments and
opportunities to join most global value chains. Even in the extractive sector, contrary to
common perception, international investments do not come automatically but require
the right conditions to make risky investments in exploration (AfDB et al., 2013). Surveys
among firms and governments (OECD and WTO, 2013), case studies, and regression
analysis with the UNCTAD-Eora GVC data used so far in this report confirm the crucial
importance of good infrastructure (transport and utilities), logistics capabilities, a stable
political and macroeconomic framework, and the ease of doing business for integrating
into global value chains. Local firms in particular need better access to finance to make
the necessary investments in quality to link with lead firms. Access to credit is also
important for small firms to finance the mismatches in payment schedules with big
firms.
Unfortunately, the business environment in many African countries is poor, and
indirect costs are high. Combining rankings for gross domestic product (GDP) and
business climates (measured by the Doing Business composite index), only eight African
countries make it into the top 100 of 173 countries. Of the bottom 50, 38 are African; the
rest are mostly microstates or countries with problematic governance conditions and
special circumstances such as Afghanistan (Gelb et al., 2014). Indirect costs – electricity,
transport, communications, security, rent, business services and bribes – form a larger
share of the costs of firms in African countries than elsewhere (Gelb et al., 2007).
Most of Africa is far away from major end markets, and transport and logistics are
particularly expensive in Africa, making GVC integration difficult. Most global value
chains depend on sea freight for transporting intermediate inputs to assembly centres
and final goods to markets. African countries, except for those in North Africa, face
disadvantages due to the high cost and the time required to reach major end markets
in Europe and the United States; they also suffer from inefficient transportation and
logistics infrastructures (Pickles, 2013). For example, the cost to export a 20-foot container
is USD 2 055 in Kenya, USD 1 680 in Lesotho and USD 1 531 in South Africa, while it is only
USD 737 in Mauritius, USD 577 in Morocco, and USD 500 in China (Pickles, 2013; World
Bank, 2012). Likewise, export time-to-market from Kenya, Lesotho and South Africa are
two-to-three times that of Morocco, which is 11 days (Goger et al., 2014). Inefficiencies
play a major role; in many African ports cargo sits for about two weeks, compared to
under a week in Asia, Europe and Latin America5 (Raballand et al. 2012; Gelb et al., 2014).
Port management and the availability of competitive logistics companies play a key role.
Once goods have arrived, road and rail transport is necessary and often immensely
expensive, especially to reach landlocked countries.
Corruption and cartels in the transport sector are also responsible for keeping costs
high. According to a study by the Rwandan government, for example, to get from the
port of Mombasa to Kigali via Kampala, a lorry has to pay USD 864 in bribes and stop at
36 roadblocks (The Economist, 2012; AfDB et al., 2012). Dismantling cartels in the transport
sector could reduce transport costs, particularly for agricultural goods in rural areas
(AfDB et al., 2013).
On the upside, the level of telecommunication services is increasing fast in many
African countries and strongly associated with economic upgrading in global value
chains. Mobile phone networks have expanded rapidly in Africa, today reaching 80% of
the population, up from only 2% in 2000 (Lomas, 2012). Africa is also building on mobile
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technology to leapfrog into new services. East Africa was the first region in the world to
offer entirely mobile-phone-based money transfers. Internet connections have greatly
improved as well since East, Southern and West Africa were connected to subsea cables
in the late 2000s. A recent study of the determinants of upgrading in manufacturing
value chains found telecommunications infrastructure and a competitive telecoms
sector to be strongly associated with economic upgrading (Nordås and Kim, 2013).
Governance and openness to linkages determine opportunities
for integrating into and upgrading in value chains
GVC governance influences potential paths to upgrading and can be classified
into five structures. Governance describes the “authority and power relationships that
determine how financial, material and human resources are allocated and flow within
a chain” (Gereffi, 1994, p. 97). Depending on the complexity of the information between
actors in the chain, on how the information for production is codified and on the level
of supplier competence, global value chains can be classified into five governance
structures: market, modular, relational, captive and hierarchy (see Box 2.1; Frederick
and Gereffi, 2009; Gereffi et al., 2005). The five governance structures can be broken into
two broader categories: producer-driven chains and buyer-driven chains.
Box 2.1. The five global value chain governance structures
Gereffi and Fernandez-Stark identify five types of structures that apply to governing
global value chains.
Market: Market governance involves transactions that are relatively simple. Information
on product specifications is easily transmitted, and suppliers can make products with
minimal input from buyers. These arms-length exchanges require little or no formal
co-operation between actors, and the cost of switching to new partners is low for
both producers and buyers. The central governance mechanism is price rather than a
powerful lead firm.
Modular: Modular governance occurs when complex transactions are relatively
easy to codify. Typically, suppliers in modular chains make products to a customer’s
specifications and take full responsibility for process technology using generic
machinery that spreads investments across a wide customer base. This keeps switching
costs low and limits transaction-specific investments, even though buyer-supplier
interactions can be complex. Linkages (or relationships) are more substantial than in
simple markets because of the high volume of information flowing across the inter-firm
link. Information technology and standards for exchanging information are both key to
the functioning of modular governance.
Relational: Relational governance occurs when buyers and sellers rely on complex
information that is not easily transmitted or learned. This results in frequent interactions
and knowledge sharing between parties. Such linkages require trust and generate
mutual reliance, which are regulated through reputation, social and spatial proximity,
and family and ethnic ties. Despite mutual dependence, lead firms still specify what is
needed and thus have the ability to exert some level of control over suppliers. Producers
in relational chains are more likely to supply differentiated products based on quality,
geographic origin or other unique characteristics. Relational linkages take time to
build, so the costs and difficulties required to switch to a new partner tend to be high.
Captive: In these chains, small suppliers depend on one or a few buyers that often wield
a great deal of power. Such networks feature a high degree of monitoring and control
by the lead firm. The power asymmetry in captive networks forces suppliers to link to
their buyer under conditions set by, and often specific to, that particular buyer, leading
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2. How ready is Africa for global value chains: A sector perspective
Box 2.1. The five global value chain governance structures (cont.)
to thick ties and high switching costs for both parties. Since the core competence of the
lead firms tends to be in areas outside of production, helping their suppliers upgrade
their production capabilities does not encroach on this core competency but benefits the
lead firm by increasing the efficiency of its supply chain. Ethical leadership is important
to ensure suppliers receive fair treatment and an equitable share of the market price.
Hierarchy: Hierarchical governance describes chains characterised by vertical
integration and managerial control within lead firms that develop and manufacture
products in-house. This usually occurs when product specifications cannot be codified,
products are complex or highly competent suppliers cannot be found. While less
common than in the past, this sort of vertical integration is still an important feature
of the global economy.
Source: Gereffi and Fernandez-Stark (2011).
Whether a global value chain is controlled by a producer or a buyer strongly impacts
the opportunities for African firms to move into higher value-added activities. Producerdriven value chains are dominated by large manufacturing firms whose competitive
advantage lies in a specific production methodology that is not widely available. Typical
examples are the automotive and microchip value chains in manufacturing and the
chocolate and coffee value chains in agriculture, as well as the extractive industries.
Buyer-driven chains are dominated by large firms that control marketing, distribution
and sales but not the production of the actual core product. Often these firms own a
brand with high market value. Apparel and horticulture are typical examples for buyerdriven value chains.
Producer-driven chains tend to offer opportunities for learning, for participating in
the supply chain and for creating additional varieties of goods rather than upgrading
into adjacent stages of the value chain. In producer-driven chains, the potential to build
relationships and transfer skills between local and international firms is significantly
higher than in most buyer-driven chains. However, producers control most higher-value
activities in processing along these chains, making them difficult to enter. Producerdriven chains are conducive to upgrading by participating in the supply chain, particularly
in manufacturing and extractive sectors, and by producing additional varieties of goods
that command a higher value, for example organic products (see AfDB et al., 2013 for
examples on extractives and Box 2.9 on South Africa’s automotive value chain).
Buyer-driven chains are more open and easy to access allowing for a wider range of
upgrading pathways, but they also tend to be competitive and can be captive. Retailers
prefer to deal with finished products that are ready for sale. Thus these chains can
present opportunities for African firms to incorporate additional stages of the value
chain into their activities, such as making flower bouquets, cutting and packaging fresh
fruit (see Box 2.4 on Blue Skies) or designing garments for apparel producers. The further
the distance between the producer and the final customer, however, the more captive
the chain can become, offering fewer opportunities for such upgrading. In large volume
apparel for example, marketers and branded manufacturers control global production
networks and dictate supply specifications, leaving little space for upgrading in design
or distribution (Gereffi, 1999; Morris and Barnes, 2009). Product differentiation and the
production of inputs are better means to upgrade in buyer-driven chains (see Box 2.2).
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Box 2.2. H&M in Ethiopia
In 2013, the Swedish clothing retailer H&M started to source from Ethiopian garment producers.
Traditionally, it sourced 80% of its production from Asian countries. As H&M does not have a
hierarchical governance structure, rather than building factories in Ethiopia, the company
established its offices in Addis Ababa to be close to its suppliers.
H&M “made in Ethiopia” illustrates a buyer-driven chain where retailers retain control over their
supplier’s production. The company’s presence in the country strictly serves to ensure that its
suppliers comply with quality standards. Suppliers not only need to meet quality requirements
but are also responsible for shipping the final product to the end market.
The link to H&M can increase employment and output in Ethiopia’s apparel sector. However,
opportunities for upgrading into higher value-added stages of the value chain are limited.
Instead suppliers can increase their incomes by offering multiple options of the same product
for different customers or by linking upstream (for example, sourcing Ethiopian textiles) which
increases the value added in the country.
Irrespective of the chain’s governance structure, lead firms differ in their willingness
to engage local suppliers and to institutionalise their commitment to local development.
Strong local relationships can serve to gain access to local knowledge, ensure a “social
licence to operate” in the face of social and political controversies, and improve the
firm’s image in the eyes of local consumers. Suppliers located at lead firms’ doorsteps
can also help reduce costs and increase flexibility (Jenkins et al., 2007; IFC and Engineers
against Poverty, 2011). However, in many cases local conditions are such that linkages
with local suppliers are not profitable instantly and require explicit commitment from
the lead firm. Therefore efforts for linkage development need to be embedded in longterm strategies so that they can be sustained long enough to bear fruit (see Box 2.3). An
increasing number of lead firms consider creating connections to local suppliers as part
of their core business strategy, which is the strongest form of commitment and implies
the existence of a business case. Many other firms work with local suppliers for reasons
of corporate social responsibility and philanthropy (Figure 2.2).
Box 2.3. Institutionalised commitment to local linkages: ExxonMobil
and Anglo American
Procurement regulations provide formal frameworks for managers on the ground to strengthen
relationships with local suppliers. These local procurement policies can be backed up with
performance measures and incentives to help managers make day-to-day decisions. Further to
these overarching procurement strategies, lead firm business practices can be adapted to better
accommodate local businesses. Examples include breaking up contracts to be more manageable
for small and medium enterprises (SMEs) and introducing shorter payment cycles to account for
SMEs’ difficulties in accessing finance (Jenkins et al., 2007).
ExxonMobil in Chad: National content strategy
In Chad, a consortium of oil producers led by ExxonMobil institutionalised its commitment to
integrating into the local economy as part of a national content strategy. The overarching strategy
establishes a mandate for managers to reach out to local businesses and communities. It encompasses
the Local Business Opportunity programme, which focuses on developing local suppliers (IFC, 2009).
Anglo American: Local procurement policy
Anglo American has a local procurement policy which explicitly states that staff and stakeholders
are accountable for its active pursuit. According to the policy, Anglo American commits to allocating
resources and building internal capacity to drive its local procurement agenda and embed it into the
work process. Further, the policy recognises specific challenges faced by SMEs, and pledges to adapt
sourcing practises and payment cycles in order to minimise obstacles (Anglo American, 2010).
© AfDB, OECD, UNDP 2014
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2. How ready is Africa for global value chains: A sector perspective
Figure 2.2. Reasons for lead firms to better connect developing country suppliers
to their value chains
Core business strategy
82 %
Corporate social responsibility agenda
59 %
Partnership with a development agency
33 %
Participation in a business-to-business scheme
28 %
Company corporate foundation programmes
25 %
International commitments
21 %
Regulatory requirements in local markets
17 %
Participation in a consumer labelling scheme
14 %
0
20
40
60
%
Note: The figure shows the responses by international lead firms present in developing countries (not only Africa)
when asked why they invest in better connecting suppliers from developing countries to their supply chains.
Source: OECD and WTO (2013).
12 http://dx.doi.org/10.1787/888933033555
Agriculture, manufacturing and services value chains offer upgrading
opportunities in Africa
Based on case studies, this section takes a closer look at the main factors that
contribute to GVC participation and upgrading in agriculture, manufacturing and
services. The analysis confirms that infrastructure, the business environment and
domestic productive capacity can restrict upgrading, particularly in the manufacturing
sector. The strong growth of telecommunication, business and financial service value
chains, on the other hand, attests to their relatively lower needs for infrastructure as
their products are intangible. The governance structures that determine upgrading
opportunities vary by value chain, rather than by sector, with buyer and producer driven
chains present in all sectors. In agriculture, the increase of direct sales to supermarkets
has had a profound impact on agricultural value chain dynamics, with an increase in
niche-markets and buyer-driven chains. The recent rise of supermarkets across Africa
amplifies these developments. Quality and process standards can help African firms
and farmers to acquire skills and access large markets, but they can also exclude many
owing to the high costs of compliance. Regional value chains and emerging markets
outside of Africa offer an important alternative as standards are lower and growth
rates higher. This section does not consider the extractive sector in detail as the African
Economic Outlook 2013 treated it at length.
At the value chain level, four types of economic upgrading exist:
• Functional upgrading entails expanding the range of activities that a country already
performs within a specific value chain. If the initial link to a global value chain is
in production only, for example in cutting, sewing and trimming shirts, functional
upgrading could entail upstream stages of the value chain such as the sourcing of
textiles.
• Product upgrading refers to the production of more sophisticated products, such as
going from whole pineapples to freshly cut ones.
• In chain upgrading, the skills acquired are used to enter a new value chain, for
example entering textile production based on the knowledge and skills gathered in
the apparel value chain.
• Finally, process upgrading refers to increasing productivity in a given stage of a value
chain through local innovation (WTO et al., 2013; Morris and Barnes, 2009).
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Upgrading in agricultural value chains requires new product varieties,
shortening the distance to consumers and boosting smallholder capacity
Global value chains offer many market opportunities for the agriculture sector
although at present most value added occurs outside of Africa. The agriculture sector
employed 65% of Africa’s labour force and accounted for 17% of growth in African GDP
between 2001 and 2011 (World Bank, 2013; AfDB et al., 2013). Thus global value chains
related to the agricultural sector arguably have the most profound impact on the largest
number of people. At present, Africa’s involvement in global agricultural value chains
is primarily in the production of raw agricultural output, where value added is low (see
Figure 2.3). As such, value added in African global agricultural value chains tends to
occur predominantly downstream, outside of Africa.
Figure 2.3. Global agricultural value chain activities currently performed
in African countries
Production of agricultural output
(fruits, vegetables, cotton, tea, etc.)
88 %
Sales and marketing
49 %
Processing of agricultural output into
higher value products (canned food, etc.)
39 %
Distribution (supermarkets, etc.)
36 %
Packaging and shipping
35 %
Ancillary services (input retail, equipment services)
35 %
Research and development
32 %
Primary inputs (fertilisers, equipment)
29 %
0
10
20
30
40
50
60
70
80
90
100
%
Note: The results are based on a survey of AEO country economists. Respondents were asked to identify up to
six activities that are currently performed within value chains in their respective countries. Production of raw
agricultural output was the most frequently cited activity, indicated in 88% of cases.
Source: AEO Country Experts Survey (2014).
12 http://dx.doi.org/10.1787/888933033574
Most cash crop chains are characterised by hierarchical and captive governance
structures which offer limited opportunities for moving up the value chain. Value chains
of export crops that require heavy processing, such as cocoa, cotton, coffee, sugar, tea
and tobacco, tend to be producer-driven chains which typically fall under the categories
of captive and hierarchical governance structures as defined by Gereffi et al. (2005).
African agriculture is dominated by the production of these crops, which collectively
account for 50% of the continent’s total agricultural output (Diao and Hazell, 2004). As
these chains are tightly controlled by lead producer firms, higher-value activities such
as processing and manufacturing are most often performed outside of Africa, leaving
little opportunity for functional upgrading (AfDB, forthcoming).
Product differentiation and quality upgrading are essential for value added in
producer-driven, agricultural value chains. Opportunities for increasing income from
traditional agricultural commodity exports lie in product differentiation, for example the
branding and grading of speciality coffees. Many countries can also secure higher prices
by raising the average quality of the products they export, establishing grading systems
and segregating different qualities for export (Diao and Hazell, 2004). For example, in
Côte d’Ivoire, the Qualité-Quantité-Croissance programme has resulted in a new standard
of quality Origine Côte d’Ivoire, such that in 2013, 81% of cocoa exports from Côte d’Ivoire
© AfDB, OECD, UNDP 2014
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2. How ready is Africa for global value chains: A sector perspective
were in the highest Grade 1 category and a national brand of quality assurance was
created (see Côte d’Ivoire Country Note). Moreover, improvements in access to markets,
inputs and credits, combined with low labour costs, could enable African farmers to
better compete with other countries in international markets for traditional export
crops (Humphrey and Memedovic, 2003).
Buyer-driven chains in the agricultural sector may offer more scope for expanding
along the value chain. Buyer-driven chains are more prevalent in exports of fresh
products that require little processing such as fruits, vegetables, fish and flowers.
Exports in these products have undergone phenomenal growth6 due to supermarkets
seeking to consolidate their supply networks in order to exert more control over
production processes (Lee et al., 2012). Functional upgrading can occur in such chains
as retailers want ready-to-sell products, thereby pushing processing and packaging
activities further upstream along the value chain. An example of a buyer-driven chain
in this regard is the cut-flower value chain in Ethiopia, Kenya and Uganda. European
retailers increasingly seek to deal directly with African growers, bypassing the Dutch
auction houses. This shift in the value-chain structure allows for an increase in valueadding activities (such as bunching, bouquet-making and sleeving) to occur in African
countries (AfDB, forthcoming). Blue Skies, which produces fresh-cut fruits in Ghana,
Egypt and South Africa is another good example of upgrading opportunities prevalent in
buyer-driven agricultural chains (see Box 2.4).
Box 2.4. Blue Skies Ltd. in Ghana
In Ghana the case of Blue Skies Limited is a successful example of functional and
product upgrading in an agricultural value chain directly involving smallholder
farmers. Blue Skies exports freshly cut fruits such as pineapples, mangos, papayas,
pomegranates, coconuts, melons, grapes and berries, which are sold primarily in
European supermarkets. Blue Skies has recently begun to target US markets.
Rather than shipping fruit by boat, Blue Skies cuts and packages it locally and then flies
the produce to retailers, reaching the consumer within 48 hours of harvesting. While
pineapples are traditionally exported unripe to be processed and packaged abroad, the
Blue Skies business model increases value added in Ghana by having local suppliers cut
and package the ripe fruit. Currently, Blue Skies employs over 1 500 people in Ghana,
making it one of the country’s biggest private sector employers (McMillan, 2012). The
company also sells to local markets in Ghana, where its fresh pineapple juice has been
particularly successful.
To comply with standards in Europe, Blue Skies must be selective about its suppliers.
A team of agronomists pays weekly visits to Blue Skies farmers in order to ensure the
farmers’ capacity to adhere to international safety standards and produce high quality
fruits. Blue Skies farmers are certified in GLOBALGAP and EUREPGAP requirements.
GLOBALGAP consists of four main areas: Integrated Farm Assurance; Plant Propagation
Material; Risk Assessment on Social Practice and Chain of Custody. The traceability of
each piece of fruit is of paramount importance (McMillan, 2012).
The strong commitment of management, staff and farmers has contributed significantly
to Blue Skies’ success. Strong managerial skills and social security benefits for employees
contribute to a friendly, favourable working environment. Prompt payments on receipt
of fruit provide a strong incentive to farmers to maintain regular supplies. As Blue Skies
specialises in cut fruit, the size of the fruit does not matter and rejection rates are lower.
Dedicated farmers receive interest-free loans which encourages good performance. An
education in EUREPGAP and GLOBALGAP standards also fosters commitment among
farmers (Dannson et al., 2004).
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The strict entry requirements in the form of standards make participating in buyerdriven chains difficult. As retailers demand high-quality products that require little
processing, standard requirements are generally high, and therefore those markets tend
to be highly competitive and specialised, with rigorous quality standards. Generally,
farmers are required to comply with requirements imposed by Good Agricultural
Practices, while niche standards, such as organic, Rainforest Alliance and Fair Trade,
may also be difficult and costly to meet. Further downstream, processing and packaging
activities must adhere to strict health and safety standards such as Hazard Analysis and
Critical Control Points. Additionally, private social standards have proliferated in the
absence of adequate national inspection and certification systems, with a multitude for
different purposes.7 In this regard, buyer-driven chains are more suited to larger farms
capable of reaching the standards of foreign retailers, while smallholders face barriers
in meeting the production requirements of such chains.
Given the large number of smallholders in African agriculture, their integration
into global agricultural value chains is of crucial importance. The Food and Agriculture
Organization estimates that smallholders supply up to 80% of food in sub-Saharan
Africa (FAO, 2012), therefore the interactions of smallholders with global value chains
are of particular interest. Smallholders face many obstacles in accessing global markets,
most notably in terms of meeting strict standards of production, but also in ensuring
continuous supply. However, increasingly smallholder farmers participate successfully
in global value chains through the initiatives of lead firms and entrepreneurs that
have sought to include them. Indeed, some supply chains, such as cocoa and coffee,
depend heavily on smallholder farmers, owing to the particular nature of the crop
in question. Similarly, as larger farmers integrate into global value chains, formal
employment opportunities are created in rural areas, which may have a positive impact
on development in the surrounding region (OECD 2013; UNCTAD, 2013).
Box 2.5. Opportunities and constraints to integrate Ghana’s smallholder farmers
into global value chains
A study on farmers’ decision to upgrade their production or participate in global value chains
examined factors that influence Ghanaian pineapple smallholders. The data show that economic
development is determined by investments and good business relationships. The farmers’ choice
depended foremost on investments in agricultural productivity, e.g. physical inputs and knowhow, and on relationships based on mutual trust, which can be built, for example, by fulfilling
a contract despite difficulties. Business relationships in the study group ranged from contractfarming to smallholder co-operatives, with varying degrees of formality and involvement of
intermediaries. The main findings of the study include the following:
• Trust and reliability between value chain actors are decisive in keeping transaction costs low.
• Farmers who prefer rapid payment and have low trust are less likely to join a global value
chain, because of the delay between delivery and payment (in contrast to selling locally).
• Farmers who experienced an income shock in the past or have little information about the
functioning of a global value chain are less likely to join, because both factors are adverse to
trust and long-term planning.
• Importantly, more productive farmers are more likely to participate in global value chains
while farmers with less experience and small or remote fields are less likely, due to higher
production and transportation costs.
• For productive investments (e.g. using a new variety, fertiliser and mulch) confidence and
capital are the critical factors.
• Factors that encourage farmers to participate in global value chains include improved access
to credit; insurance and information; clear land rights; a feeling of agency; a relatively lower
aversion to risk; a reliable income; linkages with lead firms that encourage and support the
investments.
© AfDB, OECD, UNDP 2014
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2. How ready is Africa for global value chains: A sector perspective
Box 2.5. Opportunities and constraints to integrate Ghana’s smallholder farmers
into global value chains (cont.)
• Networks are of crucial importance as farmers tend to make most of their decisions within
their farming groups, especially when the decisions concern more radical options.
• Risk is a major concern for farmers in making productive investments (such as investing
in fertiliser or machinery), while the delay in receiving payments was of more concern in
deciding to participate in global value chains.
The findings underline that poverty is a barrier to benefitting from global value
chains. Overall, a strong focus on short-term gains and an aversion to taking risks
negatively impact smallholder farmers’ decisions to participate in global value chains.
Potential policy targets include i) securing incomes and land; ii) improving access to
credits, insurance and information; iii) demonstrating beneficial agricultural practices;
iv) developing more trust and co-operation among the stakeholders.
Further to these findings, Lee et al. (2012) have noted that while smallholders in traditional
markets have more autonomy with wider control of their activities, the decision to remain in
traditional informal markets may not be entirely sustainable, as developing country markets are
adopting similar standards to those in the export markets.
Source: Wuepper (2014).
Contract farming, also known as out-grower schemes, is a means to assist farmers
in meeting production requirements so they can participate in global value chains while
lead firms are guaranteed a supply. Contract farming usually involves a large agribusiness
firm entering into contracts with smallholder farmers, providing farmers with inputs
on credit and extension in return for guaranteed delivery of produce. The assistance
to farmers in such cases goes beyond the realm of corporate social responsibility, as
it is directly related to the sustainability of supply. These arrangements are close to
hierarchical governance structures, although the smallholder remains an independent
agent within the chain. Such arrangements have become increasingly common
throughout Africa as lead firms react to supply side shocks amid an exodus of youth
from the agricultural sector. Large firms such as Olam International and Unilever deal
with African farmers through such contractual arrangements. The case of SABMiller
in Uganda and Zambia is also a good example of how an out-grower scheme allowed a
lead firm to capitalise on market opportunities by assisting smallholder farmers to meet
their supply requirements.
Box 2.6. Examples of mutually beneficial contract farming arrangements: Olam
International, Mars and SABMiller
Olam International shows how contract farming can benefit both a lead firm and smallholder
farmers. While cashew exporters traditionally operate far from port cities, Olam’s business
model brings the exporter to the farmer, who may be 1 000 km away. Olam deals directly with
smallholders, offering micro-finance assistance and short-term advances for crop purchases.
It also assists farmers in meeting Good Agricultural Practice requirements, while providing a
market for farmers. In this regard, Olam can trace its produce and be certain that standards are
met, such as organic, Fair Trade and Rainforest Alliance, depending on the particular desires of
its customers. This contractual arrangement increases the capacity of the smallholder farmer to
meet the production demands of Olam and their clients, giving Olam a competitive edge (Olam,
2013).
Mars has undertaken a similar approach to ensure the sustainability of their cocoa supply in West
Africa. An exodus of farmers from rural areas in cocoa producing countries, such as Côte d’Ivoire,
reduced supply.
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Box 2.6. Examples of mutually beneficial contract farming arrangements: Olam
International, Mars and SABMiller (cont.)
At the same time, farmers sought to move away from growing cocoa, because of the four-year delay
of return on investment between planting and harvest. Fearing a future supply shock, Mars, along
with Cargill, the International Finance Corporation and in partnership with local government
and farmer groups, set up a multi-stakeholder initiative to assist smallholder farmers in meeting
international production standards, accessing finance and participating in the global cocoa value
chain (TCC, 2012). Mars started by raising farmer incomes, paying an extra EUR 200 per tonne to
their suppliers. Mars has a target to source 100% of their cocoa from certified producers by 2020,
and already more than half their global usage (over 200 000 tonnes) is from certified sources. This
case shows that programmes aimed at increasing farmers’ participation in global value chains
are most successful when all stakeholders are on board (OECD, 2013).
SABMiller breweries decided to substitute imported barley with sorghum sourced from local
smallholder farmers in Uganda; high production costs, driven by expensive imported barley
and high levels of taxation, prevented the company from selling at retail prices suitable for local
consumers’ purchasing power. Appreciating the company’s effort, the government agreed to
cut taxes. The retail price of a new beer variety, Eagle Lager, was reduced by roughly a third,
increasing the brand’s market share to 50% in Uganda, as well as to 15% in Zambia where the
concept was applied later on. More than 10 000 farmer families have become part of the supply
chain, and farmer income has increased by 50% on average (Jenkins et al., 2007).
High costs associated with stringent European standards increasingly contribute
to the expansion of South-South and regional agricultural trade (Goger et al., 2014)
Bamber and Fernandez-Stark, 2013; Evers et al., 2014; ACET, 2009). Standards in these
emerging value chains are less stringent, normally cover far fewer elements,8 and thus
are generally less expensive and time-consuming to adhere to (Barrientos and Visser,
2012). For example, Morocco’s citrus supply is increasingly shifting from traditional
European Markets to the Russian Federation where standards are lower and less costly
to monitor (Bamber and Fernandez-Stark, 2013). Additionally, South African producers
selling to other African countries and Asian and Middle Eastern supermarkets that pay
lower prices than European supermarkets, are often able to secure equivalent margins
taking into account the reduced costs of inputs, audits and monitoring afforded under
less stringent standards (Barrientos and Visser, 2012).
Table 2.1 offers interesting insights into these shifting end markets. Crucial here
is that for the products covered, all export shares to Africa, Asia and the Middle East
increased, while nearly all export shares to the European Union and United Kingdom fell
(the one exception being grapes to the UK which registered a small increase). Studies
indicating that this trend has escalated since the 2007 economic downturn (Evers et
al., 2014) fit well with other studies witnessing increasing South-South trade over this
period (Akyüz, 2012; Goger et al., 2014).
Table 2.1. Export destinations for South African fresh fruits and vegetables, 2001-11
Country
Apples, pears and
quinces
Grapes
2001
2011
2001
2011
Stone fruits
2001
2011
Tomatoes
2001
Onions, garlic and
leeks
2011
2001
2011
EU (excluding UK)
63.83
49.94
14.13
9.69
46.71
40.94
2.39
0.00
21.34
14.6
UK
20.30
20.65
32.97
20.66
37.68
32.69
9.04
0.00
4.33
3.33
AEC
4.11
19.21
11.93
20.55
3.59
6.43
0.00
0.96
0.72
1.35
Africa
1.15
2.25
12.45
22.98
2.13
2.66
88.3
98.76
70.28
79.02
Middle East
2.73
5.72
2.51
7.41
9.29
16.38
0.00
0.90
0.24
1.00
Other
7.88
2.23
26.01
18.71
0.60
0.90
0.27
0.28
3.09
0.70
Note: Percentage values of total exports from South Africa. (AEC) ASEAN Economic Community.
Source: Goger et al. (2014), based on ITC trade database 2012.
© AfDB, OECD, UNDP 2014
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2. How ready is Africa for global value chains: A sector perspective
Successful upgrading in manufacturing value chains depends on local
capacity, domestic and regional markets, knowledge transfer and openness
to imports
African manufacturing covers a wide variety of industries and has grown alongside
increasing participation in global and regional value chains. It ranges from low tech
industries such as apparel and textiles in Ethiopia, medium-tech industries such as the
automotive in South Africa and to high tech industries like aerospace in Morocco or
electronics in Nigeria. Africa’s manufacturing exports nearly tripled over the last decade,
from USD 72 billion in 2002 to USD 189 billion in 2012. Although only four countries
– Egypt, Morocco, South Africa and Tunisia – account for two-thirds of these exports,
the growth rates have been evenly spread and many African countries have seen their
manufacturing output rise. As shown in the previous chapter, manufacturing activities
exhibit a fairly high share of global and regional value-chain integration (see also
Figure 1.20). The medium- to high-tech sectors have seen particularly strong growth of
the share of foreign inputs embedded in exports (Figure 2.4).
Figure 2.4. Africa’s manufacturing industries by foreign share in exported value
added, 1995 and 2011
1995
2011
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
s
al
et
uf
an
rm
he
Ot
ca
tr i
ec
El
M
g
r in
ac
hi
ac
lm
ui
eq
rt
po
ns
Tr
a
tu
ne
en
pm
ra
ve
be
d
an
od
Fo
ry
t
s
ge
al
ic
em
ch
nd
la
Oi
d
oo
W
Te
x
t il
ea
nd
an
d
ap
pa
pa
pe
re
l
r
0
Source: Authors’ calculations based on UNCTAD-EORA GVC database (2014).
12 http://dx.doi.org/10.1787/888933033593
Product assembly is the most common entry point into global value chains for
African manufacturing and offers opportunities for low-skill employment and upgrading
along the value chain. The bulk of African participation in global manufacturing value
chains is in the form of final product assembly; generally in labour-intensive low- to
medium-tech industries. Integrating into international manufacturing production
systems has been an important stepping stone to structural transformation in many
developing economies. It can create the large numbers of low-skilled jobs needed to
employ Africa’s population and can raise the general level of capabilities in the economy
through knowledge spillovers and training of workers (Dinh, 2013; AfDB et al., 2013).
Participating in manufacturing value chains can also help upgrade into adjacent stages
in both directions of a value chain, such as packaging (downstream) and production of
intermediate inputs and components (upstream). Such activities are already present in
Africa to a much greater extent than it is the case in agriculture (Figure 2.5).
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Figure 2.5. Global manufacturing value chain activities in Africa, 2014
79 %
Final product assembly
64 %
Packaging and shipping
58 %
Intermediate inputs (production of components, modules)
56 %
Sales and marketing
44 %
Ancillary services (input retail, equipment services)
33 %
Design, research and development
24 %
After-sales customer service
0
10
20
30
40
50
60
70
80
90
%
Note: Based on a survey of AEO country economists. Respondents were asked to identify up to six activities
that are currently performed within manufacturing value chains in their respective countries. Final product
assembly was the most frequently indicated activity, citied in 79% of responses.
Source: 2014 AEO Experts Survey (2014).
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Despite employment growth in some countries, the overall potential of global value
chains for the manufacturing sector remains far from being realised. Middle-income
countries in particular struggle with downgrading in low-tech industries. Within the
apparel sector, GVC participation has created employment opportunities and sustained
output growth in some low income countries such as Ethiopia. In contrast, middleincome countries such as Lesotho and South Africa – whose wages are higher compared
to other African countries – have experienced social and economic downgrading through
the loss of market share (Goger et al., 2014). Across Africa, the manufacturing sector
accounts for about 8.3% of the labour force (De Vriers et al., 2013), which is far below
the share attained by the successful manufacturing-based developing countries at their
peak.9
Buyer-driven value chains dominate most low-tech manufacturing. They offer
employment opportunities but limited scope for upgrading along the value chain. The
case of the textile and apparel industry provides a telling example. In Ethiopia, the 2010
relocation of the Turkish company Ayka Addis Textile and Investment Group created
more than 10 000 jobs in the country. It triggered the relocation of 50 other Turkish
textile and apparel companies which, according to the Ethiopian Investment Agency,
are expected to create more than 60 000 jobs (EIA, 2013). However, the governance
structure of textile and apparel chains prevents African producers from influencing the
production processes since buyers’ specifications include quality, price, reliability and
“speed to market”. Put differently, African producers are left with little room to upgrade
along the value chain as buyers dictate where products are made, with which fabric, at
what price and how quickly, as well as their destination.
Upgrading opportunities exist in product differentiation. As buyers determine
production lines, differentiating products depends on the suppliers’ capacity to identify
new buyers and customise their products. For instance, in the apparel value chain, new
product varieties could involve making garments with unique kanga fabrics or organic
cotton textiles. In the textile value chain, upgrading could involve processing new types
of fibres (synthetic for example) and producing specialised fabrics. Developed countries’
growing interest in Africa’s cultural traditions could also help the apparel and textile
industries participate more and upgrade (see Box 2.7).
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2. How ready is Africa for global value chains: A sector perspective
Box 2.7. African cultural traditions are in fashion
The growing interest of developed countries in Africa’s cultural traditions could help
African countries capture more of the value within global apparel value chains. Fashion and
craftsmanship are potential comparative advantages for Africa. African fashion designers are
capitalising on the continent’s tradition of colourful and flamboyant clothing and on the high
degree of craftsmanship in African cultures. Demand for African fashion is likely to be further
boosted by the continent’s growing urban middle class, opening up the perspective of sustainable
growth for the African fashion industry.
A notable donor initiative is the International Trade Centre’s Ethical Fashion Initiative. Launched
in 2009, the initiative aims to link skilled artisans to global value chains through a partnership
with leading fashion brands. Beneficiaries are mostly women from disadvantaged communities,
many based in Kenya’s slums. Ethical Fashion Africa Limited, a social enterprise with a hub
in Nairobi, works as an intermediary between communities of women artisans and the global
fashion market, co-ordinating, training, controlling quality and packaging. The products are
marketed under globally recognised brand names, such as Vivienne Westwood, and sell in many
instances for hundreds of euros to the final consumer. So far, 7 000 jobs have been created for
women in marginalised communities in East Africa as a result of the initiative, and the project is
being extended to Burkina Faso, Ghana and Mali.
Source: ITC (2011).
Better technology and production systems could open new markets as well. “Just-intime” production systems, which decrease waste and reduce inventory costs by cutting
down warehouse space, are one option. Although economies of scale are harder to
achieve in this type of production organisation, if suppliers are capable of taking smaller
orders from an array of different buyers, they can achieve economies of scale and raise
value added. Large retailers such as Zara and H&M have adopted such systems, giving
rise to “fast fashion” strategies. The retailers rely on their suppliers to source fabrics,
manufacture garments and ship them within just a few weeks. Although a promising
strategy for economic upgrading, social gains from such upgrading are not automatic
(see Box 2.8).
Box 2.8. Mixed outcomes of social and economic upgrading:
The Moroccan garment industry
Since the mid-1980s, the Moroccan garment industry has changed dramatically as it has become
a key supplier for fast fashion supply chains, such as Zara. Fast fashion introduced a new logic
into garment supply chains, giving higher priority to demand-sensitive just-in-time production,
production in smaller quantities, higher quality and increased flexibility of suppliers. Under this
logic, proximity to market is highly valued, owing to the importance of speed and responsiveness
of suppliers to meet changes in demand effectively. Therefore, as a country close to Europe,
Morocco has a geographical advantage in global fast fashion value chains.
The Moroccan textile industry association created a sector-led code of conduct and social label
called Fibre Citoyenne, which the fast fashion retailers found attractive.
Despite Morocco’s successful economic upgrading into global fast fashion value chains, the social
upgrading outcomes were mixed. One of the biggest determinants was worker status. Overall,
regular workers shared in the gains from economic upgrading, gaining skills and benefitting from
measurably improved standards. However, focus groups revealed widespread use of an informal,
irregular workforce that experienced social downgrading in many respects. These workers were
concentrated in lower skilled, lower paid positions and lacked access to social protections, and
higher job insecurity.
Source: Rossi (2013) and Goger et al. (2014).
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Local supply of commodity-based materials could become a strength for African
manufacturing but currently presents a bottleneck in most countries. The growing
demand for product differentiation and just-in-time production increasingly requires a
diversified and reliable local supply of intermediate materials. Morocco and South Africa
have been able to move into the fast fashion segment of the apparel market because they
have local textile industries capable of supplying the desired quantities and qualities and
of being a responsive partner. Ethiopia’s combination of local cotton and textile supply
was among the reasons for H&M and its suppliers to invest there. In most other African
countries, however, the lack of a local textile industry is among the major constraints to
expanding or upgrading the existing apparel operations (Goger et al., 2014). In fact, only
about 15% of sub-Saharan cotton is processed in Africa. Insufficient finance and reliable
electricity supplies are among the main reasons for the absence of textile production,
which is capital and energy intensive (Gherzi and UNIDO, 2011).
Medium- and high-tech manufacturing is dominated by producer-driven chains with
tightly controlled stages of the value chain. They offer learning opportunities and the
potential for global reach. South Africa’s automotive sector is an example. The country
has attracted many of the large international car manufacturers to set up assembly
operations, including General Motors, Mercedes Benz, Nissan and Toyota. The automotive
value chain offers limited opportunity to upgrade into branding, marketing or design,
which are tightly controlled by the lead firms. However, it has allowed South African
suppliers to access global markets. By 2011, the average share of South African value
added in an exported vehicle was about 35%, reaching 75% for exported components
(NAACAM, 2011). Catalytic converter suppliers, and to a minor extent leather seat
suppliers, have been particularly successful in accessing global markets, and by 2011
South Africa’s global market share for catalytic converters reached 15% (Alfaro et al.,
2012). Removing explicit local content requirements and barriers to imports helped
South Africa’s automotive sector to integrate into and upgrade in global value chains
(see Box 2.9).
Box 2.9. The South African automotive sector
The development of South Africa’s automotive sector began in the 1960s under a framework
of protectionism and of direct and indirect subsidies with the aim of serving the local market
(UNCTAD, 2010). The country was characterised by a number of assembly and production
operations producing a range of vehicles at low volumes. However, a major policy change post1994 saw a turnaround in the automotive industry.
In 1995, the government implemented an explicit GVC policy in relation to its automotive industry.
With the Motor Industry Development Programme (MIDP), South Africa dramatically reduced
tariffs on imports of vehicles and components, from 115% pre-1995 to 30% in 2007, and abolished
minimum local content provisions (Humphrey and Memedoviv, 2003). Original equipment
manufacturers (OEMs) and, subsequently, component producers returned to South Africa. Since
1995, major international assemblers and manufacturers have established operations in the
country, including OEMs from traditional manufacturing powerhouses in Europe, Japan and the
United States (Alfaro et al., 2012).
At present, the automotive industry is the largest manufacturing sector in the South African
economy, accounting for 7% of GDP in 2012. The number of vehicle exports has increased
significantly, from 15 764 units in 1995 to 277 893 units in 2012. More importantly, the ratio of
exports of vehicles to production is now more than 50%, compared to a mere 4% in 1995. In
addition, while exports to Africa have formed the largest destination market, the share of exports
to Asia has been increasing.
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2. How ready is Africa for global value chains: A sector perspective
Box 2.9. The South African automotive sector (cont.)
Looking ahead, the South African government aims to ensure that the automotive industry
remains a premier supplier of high quality, competitive original equipment parts, accessories and
vehicles to international markets. To sustain the industry’s growth, policies should be enhanced
to broaden South Africa’s supplier chain, increase manufacturing depth, improve infrastructure
and supplier competitiveness, and upgrade the skills of the workforce (NAACAM, 2011).
Manufacturing quality products poses challenges for many producers, due largely
to a lack of skills. Addressing knowledge gaps is crucial to increase opportunities to
upgrade. Strict requirements in the form of ISO standards for accessing developed
markets, such as the European Union, exclude many African producers that are incapable
of complying with the quality provisions. The lack of quality is generally observed in the
level of rejection rates. In the clothing industry, when comparing Ethiopia, Tanzania,
China and Vietnam, product rejection both in-factory and by clients averages higher
in Africa than in Asia (World Bank, 2011). Developing skills and introducing modern
management practices through in-factory training or the establishment of training
schools is essential to raise valued participation in the chain.
Lacking domestic factors that attract global manufacturing value chains, African
countries tend to overly depend on fickle external factors such as trade preference
regimes. Domestic pull factors such as a strong local supply base, a large internal
market, a good location vis-à-vis major markets and a skilled workforce. Trade preference
regimes have had a powerful effect on the geography of apparel production. With the
disappearance of the Multi-Fibre Agreement (MFA) – a global system of quotas that
curtailed large-scale producing countries such as China – exports and employment
declined across African countries as many Asian investors relocated their production
to their home countries. Since the African Growth and Opportunity Act (AGOA) was
passed, many countries have attracted Chinese and Chinese Taipei investors, seeking
quota-free access to the US market. Yet, the future of these industries is uncertain as
AGOA ends in 2015 (Goger et al., 2014).
Looking ahead, Africa’s increasing consumer demand and regional integration are
attracting market-seeking investments. African consumer spending is predicted to
almost double in the next decade. While Nigeria and South Africa lead this expansion
of consumer demand, other countries such as Angola, Ethiopia, Kenya, Uganda and
Zambia will also see a substantial increase of their domestic demand (AfDB, 2012).
These developments are attracting numerous market-seeking companies. Unilever, for
example covers a market of 19 African countries and has identified Africa “as the next
growth market” (Zwane, 2013). Manufacturing activities are now carried out in Côte
d’Ivoire, Ghana, Kenya, Nigeria, South Africa and Zimbabwe, and the vast majority of
goods are produced for African markets, especially South Africa. As companies like
Unilever expand throughout Africa, facilitating trade between African countries is
crucial. Regional agreements such as the East African Community (EAC) and the Common
Market for Eastern and Southern Africa (COMESA) are helping build a more attractive
business environment by promoting measures which enable vertical specialisation
e.g. removing tariffs on intermediate inputs and machinery, simplifying rules of origin,
and harmonising customs and procedures (Lesser, 2014).
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Service value chains offer easier integration and provide crucial support for
global value chain operations in Africa
Although Africa exported about USD 100 billion worth of services in 2012, its total
share in world service exports remains low, particularly in high value-added services.
At around 2.2%, Africa’s share of world service exports has remained relatively stable
since the 1990s. In 2012, travel (43%) and transport (27%) made up about 70% of the
total. Exports in these two sectors have grown more rapidly in Africa than in developed
economies for the past decade, while growth in other service exports has been slower
in Africa. Growth in overall service exports accelerated considerably in the past decade
relative to the previous decade (UNCTAD, 2014). Africa’s medium to high skill services,
on the other hand, are only slowly regaining the market share that was lost during the
early 2000s. Africa’s share in global financial service exports is down to 0.7% from a
peak of 1.2% in 2003 and its share of other business services is down to 0.9% from 1.5%
in 2000. Computer services have experienced a more positive trend of stable growth,
but at a much lower level. In 2012 Africa accounted for roughly 0.5% of global exports in
computer and information services, up from 0.2% in 2000 (Figure 2.6).
Figure 2.6. Africa’s share of global exports in high value-added services, 2000-12
Computer and information services
Financial services
Other business services
Share of global exports (%)
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Authors’ calculations based on WTO Trade Statistics (WTO, 2014).
12 http://dx.doi.org/10.1787/888933033631
Services offer a promising avenue for upgrading in Africa, and regional value chain
formation is proceeding apace. Three sectors – financial intermediation and business
services, retail, and tourism – stand out in terms of their potential for economic
and social upgrading. Furthermore, the improved information and communication
technology (ICT) infrastructure and greater access to information technology (IT) are
helping expand global and regional value chains in African services sectors, enabling
upgrading and opening up opportunities in IT and IT-enabled services (ITES).
Regional value chain formation has been most pronounced in financial intermediation
and business services sector. African value added in exports in the sector more than
doubled between 1995 and 2011, outpacing all other sectors in that period in terms
of growth. This reflects the strong regional financial sector integration that has been
occurring in Africa over the past two decades. African regional banks, which play a
more prominent role on the continent than banks from developed countries, have been
a driving force behind this integration. In the period 1987-2008, intra-African foreign
direct investment accounted for around 42% of mergers and acquisitions in the African
financial sector and 24% of greenfield investment in 2003-07 (UNCTAD, 2013; UNECA,
2013). Africa is the only world region where regional banks are driving financial sector
integration to this extent (AACB and World Bank, 2012).
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2. How ready is Africa for global value chains: A sector perspective
Retail services are another sector where the formation of regional value chains is
advancing at a rapid pace. Large African supermarket chains – especially from South
Africa – are integrating the retail sector into regional value chains by expanding into
new markets on the continent. Africa’s biggest grocer, Shoprite of South Africa, now has
more than 260 supermarkets in 16 African countries. The growing African retail market
is increasingly drawing interest from Western retail chains.
Global value chains in the African tourism sector remain relatively captive and
producer-driven, with a few large Western travel agencies controlling the market. This is
exacerbated by the fact that a much higher proportion of tourists to sub-Saharan Africa
use tour operators than in other parts of the world because of the greater complexities
involved in making travel arrangements. Nonetheless, national and regional travel
agencies – especially from Kenya and South Africa – are emerging that could capture
more of the value added in the sector (Goger et al., 2014). The World Bank estimates that
by 2021, 75% of travellers in sub-Saharan Africa will be from Africa (World Bank, 2013),
which is likely to further reinforce this trend.
Upgrading and downgrading are both occurring in the African tourism sector.
Upgrading opportunities tend to depend heavily on placement within the value chain,
with mass tourism operators more likely than smaller ethnic or community operators
to experience upgrading. Firms with easier access to finance have a greater ability to
secure the necessary permits and licences to operate in the wildlife parks and protected
areas most popular with tourists (Goger et al., 2014).
More intensive use of information technology constitutes an opportunity for
upgrading. The increasing use of IT has greatly expanded regional value chains in the
financial intermediation and business services sector, where African lead firms have been
playing a key role. In the tourism sector, significant opportunities exist for upgrading, for
instance through the development of websites and online booking facilities that enable
direct marketing access for local operators and reduce reliance on large international
operators. But more IT skills are needed to exploit these opportunities.
Services have taken on greater importance as they make the manufacturing sector
more competitive. OECD/WTO data show that the value created directly and indirectly
by services as intermediate inputs represents over 30% of the total value added in
manufactured goods. Countries that have open and competitive service markets
tend to be more competitive in manufacturing. This reflects the fact that the quality
and cost of intermediate service inputs such as transport and logistics, utilities and
telecommunications affect the competitiveness of manufacturing.
Developing services linked to manufacturing exports therefore constitutes a good
way of creating domestic value added. Data from Latin America indicate that, typically,
around four-fifths of the service component of manufacturing exports consists of
domestic value added (OECD et al., 2013). While similar data for Africa are currently not
available, this ratio is probably lower given the relatively lower level of development of
service markets in Africa. There is therefore considerable scope for increasing African
value added by nurturing the competitiveness of service sectors linked to both natural
resource and manufacturing exports.
Telecommunications infrastructure and a competitive telecoms sector are strongly
associated with economic upgrading (Nordås and Kim, 2013). This finding highlights the
central importance of adequate telecommunications facilities in co-ordinating complex,
geographically dispersed production chains. The relatively strong, market-driven
investment in telecommunications infrastructure on the continent therefore constitutes
an important enabler of future economic upgrading in the African manufacturing sector.
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ICT-intensive service exports offer opportunities where transport infrastructure
holds back other sectors. The private sector participates to a greater extent in developing
telecommunications infrastructure in Africa than transport infrastructure. About
72% of the capital invested in telecommunications infrastructure in Africa is partly or
wholly in the hands of the private sector (Jerome, 2008). This means a lesser need to
rely on cash-strapped governments to put in place the necessary infrastructure for ICTintensive service as opposed to goods exports (see Box 2.10).
Box 2.10. Growth opportunities in IT-enabled service value chains
Several African countries have identified IT and IT-enabled services (ITES) as a key growth sector
in their development strategies and are actively working to put in place an appropriate enabling
environment and to stimulate investment.
Linking corporate social responsibility and ethical sourcing with the fledgling African IT/ITES
sector is a promising avenue for both global value chain integration and social upgrading. The
concept of “impact sourcing”, pioneered by organisations such as Digital Divide Data (DDD) and
conceived initially to replicate the Indian development model in other countries, could provide
an impetus to the sector. DDD operates business process outsourcing centres in three developing
countries, including one in Kenya which currently employs 250 people. Impact sourcing aims
to provide opportunities for youth in developing countries by linking up ethically conscious
markets with a relatively low-cost labour force trained to supply a variety of IT and IT-enabled
services. These include the conversion of non-digital content into digital and searchable form,
media tagging, online research and service centre support.
Donors are taking note and are scaling up basic ICT training and linking it with the development
of the necessary infrastructure and enabling environment. The Rockefeller Foundation recently
announced a USD 100 million initiative that aims to provide jobs for one million African youth
by developing the skills needed for the IT/ITES industry. Digital Jobs Africa focuses on training
youth in practical skills that businesses demand, which is often a weakness of African university
systems. The idea is to create a self-sustaining business model that can later be co-ordinated
by government and business and thus boost the IT/ITES industry. The project focuses on Egypt,
Ghana, Kenya, Morocco, Nigeria and South Africa, all of which have a potentially comparative
advantage in the area.
Nonetheless, in light of the relative dearth of high-skilled workers in Africa, high-skilled services
will likely remain a niche, not a vehicle for broad structural transformation. Many tasks in the
business service sector require high levels of education, which remain relatively scarce in most
African countries.10 Achieving broad-based growth on the basis of business service sectors in
Africa seems unrealistic, except, potentially, for small countries with a well-educated labour
force such as Botswana or Mauritius.
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Notes
1. Attractive endowments are the pull factors that attract lead firms to invest or seek relationships
with a particular country. They include deposits of natural resources that investors might seek,
as well as the size of the local market, the cost of labour (as an attractive factor for labourintensive industries) and the distance to consumer markets (for consumer goods industries in
search of an assembly location).
2. Openness includes here barriers on importing intermediate goods, inward investment
regulations, export restrictions, efficiency of customs regulations and border administration,
the level of regional integration and trade barriers in partner countries.
3. Infrastructure includes here access to transnational infrastructure (roads, ports, airports
and railways connecting to foreign markets), access to and reliability of telecommunications
and power supply, and internal transport infrastructure. The business environment beyond
infrastructure includes regulatory certainty, ease of doing business (red tape, administrative
hurdles), access to finance and corruption.
4. Domestic capacity to respond to external demand includes here availability of local supply,
domestic businesses’ ability to meet international standards and certification requirements,
integration between multinational enterprises and local businesses, innovation capacity and
availability of adequately skilled labour.
5. Inefficient ports will become an increasingly severe obstacle as more and more lead firms
move to “floating warehouse” strategies in their supply chains. Instead of storing goods in
warehouses, shipping is used not only to transport but also to store goods. Instead of taking
the direct route, a container of car components leaving Germany for South Africa, for example,
could be routed via a distant port in Latin America to save on warehouse space in both Germany
and South Africa. Such practices make the efficiency of ports even more important.
6. Horticulture exports from Africa have increased by more than six-fold, from USD 1.51 billion in
2001 to USD 9.74 billion in 2011, outpacing global growth averages and doubling its world share
from 3% to 6% (Evers et al., 2014; ITC, 2011; UNCTAD, 2012).
7. The full range of standards in operation can be fully appreciated using the International Trade
Centre Standards Map, which attempts to categorise them (www.intracen.org/itc/market-infotools/voluntary-standards/standardsmap/).
8. Woolworths is noted as the only known exception of African supermarkets to require social
standards (Barrientos and Visser, 2012).
9. India had a share of 12% in 2002, and China had 16% in 1996 (Rodrik, 2014).
10. Even in India where this sector directly employs only around 2% of the labour force, the
business sector has not been a force for the kind of employment growth that would allow
for large numbers of people to move from the agricultural sector (out of poverty) into more
productive sectors and higher-paying jobs.
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pnas.org/cgi/doi/10.1073/pnas.0913714108
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Chapter 3
What policies for global value chains
in Africa?
Global value chains magnify the need for a good business
environment, for openness to trade and investments, and for skilled
workers and capable firms and entrepreneurs. Policies for global
value chains must maximise economy-wide opportunities while
creating the optimal environment for the sectors with the greatest
potential.
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3. What policies for global value chains in Africa?
In brief
Global value chains (GVCs) amplify requirements for structural transformation in Africa.
The shortcomings in the business environment, infrastructure, productive capacity and
skills in Africa constitute major bottlenecks to structural transformation (see for example
AfDB et al., 2013 and 2012; ACET, 2012; WEF, 2012; World Bank 2013; OECD, 2013a; OECD,
2013b; Ramachandran et al., 2009). The accelerating spread of global value chains amplifies
these challenges, as they put African countries at a disadvantage in the competition for GVC
investments, especially in manufacturing. Any policy that aims at benefitting from global
value chains must effectively address these shortcomings, especially in infrastructure and
skills, the environment given to entrepreneurs, and effective openness to trade, including
with other African countries. This chapter addresses these needs in a summary fashion. For
countries that do not tackle them, integration into global value chains will remain marginal
and upgrading highly unlikely. Low road strategies that risk “races to the bottom” on social
and environmental conditions would be the only option.
Five key considerations must guide policies for global value chains
Analysis reveals five key considerations that should guide policy makers in using
global value chains for development. First, policies must be value-chain specific: Using
global value chains for development requires providing the best environment for the value
chains with the greatest identified potential. The objective of development policy is to
identify the country’s best position in a value chain and the most competitive supply of
business functions (Cattaneo and Miroudot, 2013). Manufacturing assembly operations
require efficient logistics and import/export procedures that facilitate bringing in
components and exporting the fully manufactured product. They also require reliable
energy provision as well as a sufficient supply of workers with the right skills. Once a
country has joined a global value chain at the production stage of a product, moving
up the chain or developing additional product varieties requires a range of services
that must be competitive both in price and quality. This is particularly crucial for local
small and medium enterprises which need to have access to a range of services in order
to concentrate on the specific value-chain activity they do best. The requirements in
terms of infrastructure, skills and services are often specific to the value chain. Dairy
products, for example, require dense and reliable cold chains and collection structures;
manufactures, textiles and many fruits efficient access to sea freight, whereas fresh-cut
fruits, vegetables and flowers need efficient air freight. Last but not least, in many global
value chains the main players are a few international lead firms. Integration requires
attracting these firms to the country, and upgrading requires working with them to
identify opportunities. In some cases policy dialogue must therefore be firm-specific.
Second, making the most of global value chains implies trade-offs: Providing the
best environment for the value chains with the greatest identified potential must be
done without harming the development of other chains. As budgets and resources are
constrained, the choice of prioritising infrastructure development, training programmes
or preferential access to one sector over another creates policy winners and losers. A
ground rule for formulating policy is therefore to ensure that no other sector or value
chain is disadvantaged through the enactment of a sector-specific GVC strategy but
that economy-wide opportunities are maximised.1 For African countries increasing
diversification within the economy is essential for achieving structural transformation
(AfDB et al., 2013) and for protecting the economy against market shocks (ACET, 2013).
Furthermore, even within sectors, there may be trade-offs concerning the targeting of
investments. For instance, setting up a policy supporting foreign commercial farmers
needs to be weighed against the potential of the same policy for smallholders (ACET,
2009). Analysing the strengths, weaknesses, opportunities and threats of potentially
successful value chains may assist in assessing such trade-offs.
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Trade-offs also exist between strategies for integration and upgrading: policies
that promote one may not be appropriate for the other and vice versa. For example,
using tax incentives to attract foreign investment can facilitate integration into global
value chains, however the loss of revenue may inhibit upgrading possibilities, as
fewer resources are available for investing in infrastructure and education. Similarly,
special economic zones may allow for GVC integration, because they attract exporting
companies with preferential arrangement; but they can also prevent linkages and
upgrading because they separate exporting firms from domestic non-exporting firms
(Brautigam et al., 2010; see Box 1.3 in Chapter 1 and the Tunisia Country Note in this
report). Furthermore, while localisation requirements can create linkages between local
firms and foreign lead firms that lead to upgrading, they may deter foreign firms from
investing in the first place and therefore may actually limit possibilities for integrating
into global value chains.
Third, entrepreneurship and collaboration between public and private actors is
crucial for using global value chains for development. Effective collaboration requires
strong business associations. Entrepreneurs play a critical role in identifying value chain
opportunities with high potential and accepting the risks involved in trying to seize
them. Using global value chains for development requires public institutions to help build
and support the country’s entrepreneurial base. This includes entrepreneurial training
and access to finance, as well as partnering with local firms when formulating global
value chain strategies. Domestic business associations are essential for this process.
Their role is to identify the needs of firms in a given value chain and communicate them
effectively to government. They also work as partners in capacity building and training
for firms and can be interlocutors for international investors. The Ethiopian textile and
garment manufacturers association, for example, has become a critical partner for
government and for international lead firms such as H&M. The association has helped
shape the government’s set of policies supporting the sector and been a partner to
H&M in building capacity for meeting quality standards among local firms. The Kenyan
Flower Council plays a similar role in Kenya’s horticultural sector. Actively supporting
the creation of such associations must be among the first steps towards using global
value chains for development.
Fourth, the power and ownership structure of a global value chain can determine
which pathways to increasing domestic value added are open and which are not. The
previous sections on the agriculture and manufacturing sectors as well as the section on
assessing Africa’s readiness explain in detail the links between chain governance and
upgrading opportunities. For example, upgrading to higher-value processing activities
may not be feasible in certain producer-driven chains (e.g. coffee, cocoa) owing to the
tight control over processing activities that is retained by large manufacturers. Promising
options are instead found in product differentiation into higher quality varieties and
in identifying additional buyers for them. Strategies must take into account which
pathways to upgrading seem the most promising and which ones have low chances for
success given the value chain’s governance structure.
Finally, global value chains are no panacea for structural transformation and inclusive
growth. Low road strategies risk “races to the bottom”. African countries need to create
10-12 million new jobs every year just to absorb the young people entering the labour
market (AfDB et al., 2012). Governments can tackle this challenge by making a national
priority of attracting foreign lead firm investments and integrating into global value
chains. This must be combined with a strong focus on creating the skills and domestic
productive capacity necessary for upgrading and linking the rest of the local economy
to the GVC presence in the country. Without such efforts, countries risk competing with
each other for GVC investments with low social and environmental standards and with
the generosity of their tax incentives. Such low road strategies tend to deliver limited
gains for a few while the price is paid by many.
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3. What policies for global value chains in Africa?
A four-step framework can help formulate effective and targeted policies
Global value chains already feature in the overall development strategies of many
African countries. However, there are few examples for specific strategies for participation
in global value chains. A country’s overall development agenda should facilitate GVC
participation and meet specific value chain requirements. Individual industries and
value chains require tailored policy responses to optimise upgrading opportunities.
Figure 3.1 shows that 61% of African countries surveyed have incorporated global value
chains into their development strategies2 but that specific GVC policies are not yet
common in Africa countries.
Figure 3.1. Global value chains and national development strategies
3%
Global value chains do not form
part of strategic considerations
Do not know
33%
61%
The country has a specific
strategy for its participation
in global value chains
3%
Global value chains feature
in the country’s development strategy
Note: The percentages reflect the share of countries in each category out of all responses to the question, “How
are global value chains considered in the country’s national development strategy?”
Source: AEO Country Experts Survey (2014).
12 http://dx.doi.org/10.1787/888933033650
This section outlines four steps that policy makers can take to ensure effective GVC
participation (Figure 3.2). The four-step process emerges from the findings in this report
and from recent literature on global value chain policy formulation (UNCTAD, 2013;
ACET, 2013; Bamber et al., 2014).
Figure 3.2. A four-step framework to formulate policies for global value chains
Identify value chains with opportunities
Identify current well-performing value chains
Identify value chains with potential
within the economy
(present in country or not)
Assess opportunities within the value chain
What opportunities exist for integrating
domestic industries into GVCs ?
What opportunities exist for enhanced
value added within existing value chains?
Identify current policy bottlenecks
Identify current policies which may
restrict/inhibit GVC participation
Are current policies conducive
to GVC integration/upgrading?
Develop enabling policy interventions
Source: Authors’ elaboration.
The first step in formulating policies is to appraise value chains that offer potential
for integration and those that are currently operating within the economy. A baseline
of current economic activities helps to identify areas of comparative advantages and
disadvantages with respect to both sets of value chains.3 Such an analysis must consider
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the position of local actors within the value chains and identify the role of lead firms so
that effective collaboration can enhance upgrading opportunities.
The second step is to assess ways to increase value-added or participation in the
value chain. This involves identifying opportunities for expanding current activities or
even upgrading to higher value activities within a value chain. Opportunities should
be prioritised based on the potential net gains, feasibility and risks. It is necessary to
consider the governance structures and power dynamics of the value chain, as well as
the technical feasibility and capabilities of domestic stakeholders. Some questions to
consider at this stage include:
• What are the opportunities for value added with respect to positioning along
the value chain? These vary depending on the country’s activities. For example,
apparel value chains in Africa tend to involve final product assembly. Although
limited for functional upgrading, opportunities for upstream participation may
exist, particularly for linking with the domestic textile industries.
• What is the governance structure, and who are the key players within the chain?
The governance structures of the chain determine the opportunities for upgrading.
For example, in producer-driven cocoa chains where chocolate producers control
the processing stages, further processing is limited. However, ways to upgrade can
lie elsewhere, such as in product differentiation and quality upgrading.
• What is the technical capacity for upgrading within the country? Even where
governance structures permit upgrading, a lack of technical capacity within the
country can hamper feasibility. This can be due to inadequate skills or infrastructure
or to the distance from final markets.
• What value-added opportunities exist in new or alternative markets? It is necessary
to look beyond the current structure of the value chain in question in order to
fully assess market opportunities for upgrading. There may be new and alternative
possibilities in regional, as well as emerging economy markets.
The third step is to analyse the potential barriers that existing policies might pose
to the value chain development. Policy barriers can include time-consuming customs
procedures that affect the competiveness of time-sensitive and perishable products.
High tariffs on the import of intermediate goods and requirements to procure locally
can hamper the overall competitiveness of the value chain activity, while existing
international trade agreements can restrict effective GVC participation and therefore
require renegotiation. Policies that affect the efficiency of the domestic business
environment (such as information and communication technologies (ICT), infrastructure
and education) should also be reviewed.
The final step is to develop appropriate policies based on the preceding analysis. The
policy choices will depend on the product and the country’s resources. Certain measures
may involve trade-offs to consider when designing and implementing an adequate GVC
policy response.
Having a good infrastructure and business environment is fundamental
for integrating into and upgrading in global value chains
Sufficient infrastructure and an adequate logistics capacity are essential to
participating in global value chains and attracting lead firms. The literature demonstrates
that poor infrastructure impedes trade due to the resulting high costs (OECD, 2012).
Despite the lower labour costs of some Africa countries, inadequate transport links can
translate into higher costs for foreign investors and therefore reduce their productivity.
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3. What policies for global value chains in Africa?
• Improving transport capacity − road, rail and air − should be a priority. Enhancing
the links to ports and airports can enable a faster delivery of goods and make
African economies more attractive to foreign investors. Moreover, African ports
should direct their efforts to solving severe efficiency and capacity problems that
result in long waiting times for export-oriented businesses.4
• Establishing rapid import/export processes is essential to integrate the global supply
networks that heavily rely on imports for assembling activities. Ultimately, these
policies should be accompanied by a commitment to improve transport governance
through regulatory and administrative arrangements to fight corruption in the
transport sector.
• Ultimately, these policies should be accompanied by a commitment to improve
transport governance through regulatory and administrative arrangements to
fight cartels and corruption in the transport sector.
• Furthermore, expanding nationwide electricity generating capacity should
continue to be on the top of African policy makers’ agendas. Without a reliable
energy supply, countries will not be able attract substantial investment either in
extractive industries or in manufacturing activities.
Value chain analysis should identify the specific needs of key value chains. Most
value chains stand to benefit from improvements in infrastructure, yet even within the
same sector, the requirements vary. In agriculture, fresh fish, dairy products and flowers
require air freight and cold chain facilities, whereas coffee and cocoa demand efficient
port facilities. In manufacturing, “just-in-time” clothing orders can require airfreight
capacity, while automotive production necessitates port facilities. Manufacturing and
assembly, on the other hand may be attracted by the presence of cluster parks and
special economic zones (see also Box 3.2).
The wider business environment beyond infrastructure equally needs attention.
Red tape, long procedures and corruption continue to deter investments by foreign
lead firms. They also hold back local entrepreneurs and farmers from making the most
of the opportunities presented by global value chains. Improvements are essential to
successfully compete in a globalised world.
African countries should further develop regional integration and increase
openness to trade
Overall, trade liberalisation measures can make African countries more competitive
in international supply chains. Measures restricting access to foreign intermediate
goods and services increase the costs of production and negatively impact on value
chain participation (OECD et al., 2013). For instance, import barriers need to be low in
order to attract multinational enterprises that rely on imported intermediate inputs to
export manufactured goods. In particular, import liberalisation of intermediate inputs
and of machinery required for assembly processes is key. As global value chains tend
to accentuate the negative aspects of protectionist strategies, countries that seek to
protect domestic production networks can become locked out of globalised trading
opportunities (Lesser, 2014).
Measures that facilitate trade can benefit African countries in their role as exporters
as well as importers. Reforming customs and border procedures can ease trade
transaction costs and contribute to development. In Ethiopia, for example, national
customs reforms increased imports and exports by 200% and tax revenues by over
51% (Lesser, 2014). Trade facilitation measures are particularly important for helping
African small and medium enterprises participate in global value chains, since they
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often lack the financial resources and human capacity to deal with complex borderrelated administrative requirements (Lesser and Moisé-Leeman, 2009). Reforms in this
area need not depend on international agreement.
Accelerating regional integration and fostering regional value chains can unlock
opportunities and lead to more effective participation in global value chains (ACET, 2013;
AfDB, forthcoming). As shown in the previous sections on agriculture, manufacturing and
services, regional markets and regional value chains provide significant opportunities
for growth as consumer markets across Africa are rapidly developing. Additionally,
emerging economy markets and regional value chains tend to be characterised by less
stringent requirements which can act as stepping stones to stricter, more demanding
requirements. The less stringent standards required to participate in regional and
South-South value chains may not offer sufficient social and environmental protection;
but African firms can enhance their productive capacities and gradually upgrade in the
value chain (Evers et al., 2014; Cadot et al., 2012).
Regional trade agreements could help raise the low levels of regional integration.
As shown in Chapters 3 and 6 of the AEO 2014, the levels of regional trade and regional
value chains in Africa are growing but remain low. Many trade agreements exist between
African countries, but the reality at the border post or in the customs office is often still
far from what the agreements stipulate. Deepening regional trade agreements could
create more opportunities within value chains that focus on regional production for
regional markets or for interconnected regional operations that supply global markets
(Bamber et al., 2014). Trade agreements between African countries should include more
simplified and flexible rules that allow the following:
• greater use of imported inputs,
• regional rules of origin,
• less costly compliance-related procedures (Draper and Lawrence, 2013; OECD,
2013c; Lesser, 2014),
• liberalisation of key services sectors beyond what is stipulated by the World Trade
Organization,
• more co-operation in infrastructure development,
• open competition,
• enforcement of international contracts between buyers and suppliers,
• movement of capital and the temporary movement of business people (Lesser,
2014; UNCTAD, 2013; see also Chapter 3 of the AEO 2014).
African countries must boost their capacity to respond to global value chains
The ability to respond to global value chains requires skills, productive capacity
and entrepreneurs. Given the rising complexity and competition in global supply
networks, multinational enterprises increasingly choose locations based on the
presence of skilled labour forces (Noorbakhsh et al., 2011; UNCTAD, 2013). Even in
industries as apparently low-skilled as apparel production, the lack of a skilled labour
force prevents countries such as Ethiopia from participating more fully in global value
chains (ETGAMA, 2014). Concerted efforts to provide the necessary skills are crucial
for Africa’s future participation in global value chains. A sufficiently dense presence of
firms capable of delivering supplies that meet lead firms’ requirements for quality and
timeliness is equally important. This is increasingly a binding condition for lead firms’
locational choices, particularly in the manufacturing sector (George et al., 2014). Local
entrepreneurs are essential for creating this productive capacity. Furthermore, they
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3. What policies for global value chains in Africa?
constitute an indispensable base of commitment to the local market that is needed to
overcome swings in the global environment that can cause international firms to leave
the country.
Developing education and skills is crucial to integrate into and upgrade in higher
value-added activities in global value chains. As outlined above and in the preceding
chapters, skills are essential for GVC participation and upgrading. Governments should
improve access to universal basic education and ensure its quality. In sub-Saharan
Africa, for example, 50% of children risk reaching adolescence without learning to
read, write or do basic arithmetic (Van Fleet et al., 2012). Investment in technical and
vocational training programmes should complement investment in basic education to
enhance specific skill-sets related to individual industries and value chains (AfDB et al.,
2008 and 2012; OECD 2013b). Fernandez-Stark et al. (2012) have elaborated a typology of
the educational policies necessary to move up in global value chains (Figure 3.3.).
Figure 3.3. Typology of skills development policies for upgrading in global value
chains
Early reactive
interventions
Ongoing proactive
interventions
Future-oriented
interventions
Workers’ skills
Current workers’ skills
Emerging workers’ skills
Future workers’ skills
Intervention area
On the job training
(private sector training firm),
tailored government programmes
Post-secondary education:
technical education
& universities
Education system
Type of value
chain upgrading
Value chain entry
Process
upgrading
Meet global standards, expansion
of market share, competitiveness
(incremental innovation)
Product
upgrading
Functional
upgrading
All forms of upgrading
Long-term development
of national economy
Source: Fernandez-Stark et al. (2012).
While reforms to the education system are necessary in the long-run, they will not
deliver the skills needed for the near future; therefore, sector-specific training is essential.
Activities in the services sector require broad improvements to the national education
systems, whereas the other sectors demand more technical skills. In agriculture, many
African smallholders are prevented from integrating into global value chains due to
their inability to comply with international food standards and certifications. Delivering
products that comply requires setting up schools and training institutes specialised
in the field as well as establishing multi-stakeholders programmes to develop skills.
Furthermore, establishing testing laboratories and improving technical and managerial
skills are essential to move into higher value-added activities, such as processing and
packaging. The situation is similar in the manufacturing sector where many producers
lack the skills necessary to meet international quality standards. They need technical and
business administration courses to be able to upgrade their productions. The technical
and skills demands are even higher in extractive industries. Technical training and local
employment requirements should bridge the gap in technology and skills,. Governments
should support research and development, as the capacity to innovate is essential in the
extractive industry. Conversely, as the service sector relies almost entirely on human
capital, the educational demands are much broader, from communication skills to
foreign languages.
To bridge the gap in skills and technology, both governments and lead firms have
an important role to play. Governments should encourage the training initiatives of lead
firms in order to maximise technological spillovers and capacity development (AfDB,
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forthcoming). Lead firms within value chains should be encouraged to support small
and medium enterprises and domestic producers by introducing training requirements
and corporate responsibility initiatives. Governments should also consider co-financing
training and capacity-building activities in order to maximise the technological
spillovers of GVC participation.
Capacity building with respect to meeting standard requirements is a crucial
aspect of GVC participation and upgrading. Both lead firms and governments play
important roles in helping local producers meet international standard requirements.
Governments need to develop national inspection and testing infrastructure, while
lead firms can provide technical assistance and capacity building. The requirements for
public enforcement of standards vary according to the nature of the value chain; public
certification may be more necessary in fragmented, less integrated chains, whereas for
certain highly customised value chains, buyers help ensure adherence to production
standards (Humphrey and Memedovic, 2003). Governments can also assist by developing
local certification bodies and corresponding domestic standards of production. Such
standards may be more suited to the local context and therefore more accessible than
stringent international standards. However, governments should avoid proliferating
standards with overly idiosyncratic national ones.5
Attracting large amounts of foreign investment make countries vulnerable
to the volatility of multinational enterprises’ locational choices. Therefore, local
entrepreneurship needs to be encouraged. Indeed, the shifting of multinationals’
sourcing strategies can reverse “hard-fought upgrading successes” (Bamber et al., 2014).
This risk is accentuated with highly mobile foreign firms seeking to profit from special
access programmes or preferential trade agreements. Lesotho’s experience provides a
telling example: following the uncertainty of the renewal of the United States’ African
Growth and Opportunity Act in 2005, Chinese and Chinese Taipei clothing investors
in Lesotho returned to China and India where manufacturing was cheaper, to the
detriment of Lesotho’s manufacturing industry. However, a similar withdrawal of Asian
investors from Mauritius did not have the same effect owing to the country’s strong
domestic entrepreneurial capacity. Local entrepreneurs are therefore indispensable to
decrease dependency on foreign investments, and policies should provide an enabling
environment for them to succeed.
Entrepreneurship and innovation can be encouraged through providing education
and training and improving the domestic business environment. Measures to
encourage entrepreneurship include i) general policies related to the domestic business
environment, such as facilitating access to finance and improving in infrastructure
and ICT; ii) targeted responses, such as offering business start-up grants, incentives
to explore new activities and foreign markets, and promoting success stories; iii) the
provision of business training and start-up assistance, in the form of business-plan
development, and managerial and organisational training. Policy makers should create
an environment that enables innovative African entrepreneurs to bring their business
ideas to fruition. In order to encourage African innovation, investments in ICT, tertiary
education, and research institutions are paramount (OECD, 2013b).
Promoting associations of smallholders and small and medium enterprises can
boost domestic capacity to benefit from global value chains. Effective associations can
do the following:
• enhance the negotiating position of small farms and firms,
• improve inter-firm learning and technology transfer,
• increase connections between small firms and large firms and between small
firms themselves,
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• increase supplier capacity to comply with national, regional and global standards,
• increase access to finance,
• improve representation in projects such as infrastructure development,
• provide a forum for exchanging management strategies and market information,
• help the domestic private sector strategically identify gaps and niches in the value
chain that represent opportunities for upgrading.
Box 3.1. Supporting African firms’ participation in global value chains: What role for
bilateral development partners?
Traditional development partners directly support African enterprises’ participation in global
value chains in the form of loans, equity and guarantees. They aid businesses operating in
sectors such as mobile telecommunication networks, roads, ports, railways and other critical
logistic infrastructure. The following are examples from the portfolio of European Development
Finance Institutions (EDFI):
• Large infrastructure projects. In 2013, the Lomé Container Terminal (LCT) in Togo received
financing of USD 225 million arranged by the International Finance Corporation and cofinanced by several international financial institutions, including EDFIs. The Port of Lomé has
been playing a major economic role for landlocked countries in the region, such as Burkina
Faso, Mali and Niger. The LCT aims is to allow large containerships to enter the Port of Lomé
and to stimulate the activity of trans-shipment by smaller vessels towards countries in the
sub-region, reducing transport and export costs and decongesting existing ports in Togo.
• Manufacturing and agribusiness. Kevian, a Kenyan fruit juice producer, initially received EDFI
financing in 2011 and used the patient growth funds to double production capacities and
increase productivity. Technical assistance increased environmental and social standards
and established renewable energy components. Today Kevian works with around 30 000
smallholders, has a strong market position and is an established exporter for the European
market.
• Vertically integrated agriculture supply chain management. Recent EDFI investments helped
expand the Export Trading Group (ETG). Founded in 1967, with its head office in Tanzania,
ETG procures, processes and distributes agricultural commodities, connecting African
smallholder farmers to consumers around the world. ETG procures 80% of Africa-originated
stock from African smallholders. Its 7 000 employees work across 30 African countries and
operate 26 processing plants and 600 warehouses. ETG also supplies fertiliser products to
small farmers across Africa, using its large-scale buying power to make products available at
competitive prices.
• Agriculture exports. Ivoire Coton was founded in 1998 in Côte d’Ivoire after the privatisation
of the national cotton industry. An EDFI equity investment in 2001 with the aid of Industrial
Promotion Services/AKFED allowed the company to become a leading cotton producer with
positive environmental and social effects. Today, Ivoire Coton is among the most important
private employers for smallholders in Côte d’Ivoire, in particular in the poorer northern
region. It also contributes to alphabetisation campaigns, sets up health stations for employees
and surrounding communities and constructs water wells.
The broader experience of bilateral and multilateral aid agencies in support of African economies’
integration into global and regional value chains is documented by the Donor Committee for
Enterprise Development (DCED, 2014).
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Global value chain participation and upgrading require partnerships
with international lead firms
International lead firms are essential players for integrating into and upgrading in
global value chains. African countries must attract them to invest and build linkages
with local firms. Recent estimates suggest that 80% of global trade is linked to the
networks of multinational corporations (UNCTAD, 2013). These firms are at the centre
of the drive towards global value chains as they expand their production networks in
search of the best global combination of production locations and market access (see
Chapter 1). To integrate into a global value chain in most cases requires attracting a lead
firm to establish a presence in the country. Once the firm sets up a production facility or
office, local businesses can benefit by developing new capabilities through exposure to
new technologies and through meeting the lead firm’s requirements.
Ideally, the co-operation between international and local firms becomes selfreinforcing, combining upgrading with continuously expanding GVC participation. In
the long run local upgrading can stimulate further investments. Suppliers located at
lead firms’ doorsteps can tailor inputs to their needs, help reduce costs, and increase
specialisation, quality and flexibility within their value chains (Jenkins et al., 2007;
IFC and Engineers against Poverty, 2011). The accumulation of such local expertise can
attract more foreign direct investment (FDI). This in turn can trigger additional cluster
effects that further boost the capacity for domestic production. Domestic small and
medium enterprises gain access to more diversified clients, and risks can be shared
among local firms through joint funding or joint operations, facilitating local innovation
and upgrading (Jenkins et al, 2007, Nelson, 2007; OECD, 2013b). China’s success in driving
development with global value chains underlines this model. Having learned from the
presence of international firms over many years, today China has a deeply integrated
supply base for many manufacturing activities; the supply base constitutes such a strong
comparative advantage that it outweighs rising labour costs.
Research has shown that for foreign enterprises seeking to invest, incentives are
secondary to more fundamental determinants, such as market size, access to raw
materials and the availability of skilled labour (James, 2009; Basu and Srinivasan,
2002; Zee et al., 2002; Cleeve, 2008). An easy and open investment regime both
includes measures that ease and automate procedures to start a business and offers
investment-related information. Lowering investment barriers and establishing sound
and predictable regimes are crucial for attracting investors (Draper and Lawrence, 2013;
Lesser, 2014).
Fiscal incentives can be a strategic tool for integrating into promising global value
chains, but they are costly and must be compatible with the long-term objective of
upgrading. This is particularly true for countries with few comparative advantages to
offer and for cost-sensitive industries, such as textile and apparel. Fiscal incentives range
from temporary rebates for certain types of investment, to tax holidays, tax allowances
and credits. These incentives are costly in terms of direct expenditures and – often
much more importantly – in terms of forgone tax revenues. For example, the loss of
tax revenues through the granting of incentives amounted to 10% of GDP in Burundi in
2006 (Chambas and Laporte, 2007; AfDB 2010) and roughly 6% of GDP in Ghana in 2011.6
Expenditures on incentives leave fewer resources for investing in the primary factors
attracting investments and driving upgrading.
Where incentives are considered necessary, investing in cost-recovery incentives
offers a more targeted and effective tool than providing tax holidays. Cost-recovery
incentives include investment allowances and investment tax credits and give priority
to investments in productive capacity in the form of plants and equipment. They have
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3. What policies for global value chains in Africa?
been shown to be more cost-effective in attracting FDI than tax holidays (Zee et al.,
2002). Under a tax holiday, a new firm investing in the country is exempt from paying
corporate income tax (and perhaps other tax liabilities) for a specific time period. In
2004, while only 20% of OECD countries applied for tax holidays, 70% of African countries
were proposing them to draw investment to their economies (Bora, 2002 in Cleeve,
2008). This is despite broad evidence suggesting that tax holidays are unnecessary to
attract beneficial investment (Van Parys and James, 2010; James, 2009) and that they risk
appealing to short-run projects with few long-term gains for the local economy (Cleeve,
2008; Zee et al., 2002).
Box 3.2. The limited success of African special economic zones
in global value chains
Today, about 60% of African countries have special economic zone (SEZ) programmes (Brautigam
et al., 2010). Established in a specific region, SEZs enjoy exemptions from a variety of fiscal
burdens. With the exception of Ghana and Mauritius, evidence suggests that African SEZs have
largely failed to deliver significant benefits. The majority of these zones struggle to attract
foreign direct investment because of their modest strategic and management plans and their
country’s overall unappealing political and legal landscape. The incentives brought by SEZs are
generally not enough to interest investors when the country’s national investment climate is
poor (Brautigam et al., 2010). Moreover, linkage creation between export-oriented and other local
firms is difficult where regulations and tax regimes for the two differ significantly. Tunisia’s
difficulties to create more social benefits from its offshore sector illustrate this (see Chapter 1).
Nonetheless, SEZs remain a frequently used tool in Africa, most recently by China. The African
SEZs officially approved by the Chinese government are located in Algeria, Egypt, Ethiopia,
Mauritius, Nigeria and Zambia. In addition to these, subnational entities and private actors have
undertaken several other projects in Africa of varying types and sizes. Although its own SEZs
were established in a different economic and institutional context, China is the world leader in
the field, having established more than 100. The Chinese SEZs are being implemented on a forprofit basis by private sector consortia, albeit often led by public or semi-public enterprises and
with the aid of subsidies and concessionary finance from the Chinese government (Brautigam
et al., 2010). Research shows that zones implemented by the private sector tend to do better
than government-led SEZ schemes. Some evidence shows that the Chinese SEZ in Egypt has
enabled Egypt to move along the global value chain within the extractive sector to manufacture
petroleum drilling rigs and related components for use by international oil companies operating
in the country.
Attracting foreign direct investment alone may not be sufficient to increase local
participation in global value chains: additional measures are required to promote linkages
between domestic and lead firms. As local firms interact with foreign companies, they
may gain technical skills through knowledge spillovers. Governments can facilitate
this transfer of skills and technology through two policy measures: i) facilitating the
exchange of information by providing institutional support and establishing investment
promotion agencies; ii) imposing localisation requirements to encourage investors to link
with domestic firms. Complementary measures may also be necessary to strengthen
the bargaining power of local producers relative to their foreign GVC partner (AfDB,
forthcoming). These include establishing domestic producer associations to help balance
the power between local producers and multinational enterprises and enacting specific
laws for GVC activities, such as local employment quotas and preferential treatment
regulations for local input suppliers (UNCTAD, 2013).
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Providing enterprise maps and supplier databases on major firms in various sectors
can help develop linkages. Enterprise maps contain sector profiles, detailed supply
chains, in-depth information on major companies within each sector as well as their
sources of inputs. This information can be useful both for domestic firms aiming to
enter supply chains as well as for governments seeking to identify potential areas for
promotion of local firms (Sutton and Kellow, 2010; Sutton and Kpentey, 2012; Sutton
and Olomi, 2012). Supplier databases or subcontracting exchange schemes help lead
firms identify local businesses with which to partner. Generally, the databases provide
information on potential suppliers, their quality and their capability of delivering on
specific tasks. The databases are often managed by enterprise centres, whose staff
evaluates the businesses’ performance to reduce the lead firm’s risks when contracting
with local partners for the first time.
Localisation requirements can encourage linkage development; however, they also
impose additional costs on foreign investors and can therefore simultaneously inhibit
upgrading opportunities further down the value chain. The requirements for foreign
firms to enter a joint venture or provide equity to local partners are meant to allow local
firms and investors to participate in and share the rent generated, while encouraging
linkages based on local know-how. The requirements to transfer technology aim to
increase technology spillovers to the domestic economy. Instruments include mandatory
technology sharing, or indirect tools such as weak enforcement of property rights. Local
content rules require foreign investors to source from domestic businesses, in order
to force linkage development (OECD, 2005). However, the added costs of localisation
requirements, coupled with a lack of domestic supply capacity, can divert investment to
countries with more investor-friendly conditions. Furthermore, mandatory localisation
requirements are increasingly ruled out in bilateral investment treaties and free trade
agreements (OECD, 2005). As an alternative measure, lead firms can benefit from
incentives to create linkages with domestic firms. If foreign investors fulfil certain
conditions in terms of local employment, local procurement or training of local business
partners, they are granted certain benefits. These can include the relaxation of binding
requirements such as import duties, ownership rules and limitations on expatriate staff.
To ensure inclusiveness and sustainability, global value chain policies must
be based on a strong social and environmental framework
Governments should consider the potential trade-offs between increased GVC
participation and social and environmental concerns in order to avoid a “race to the
bottom”. As policy makers seek to make domestic firms more attractive to investors and
increase market opportunities, they must also ensure to provide a strong environmental
and social framework.
Social upgrading does not necessarily flow from GVC participation or from economic
upgrading; explicit social policy is required. The challenge for African economies is to
ensure that increasing GVC participation has a positive impact on socially inclusive
development by providing quality jobs. Since the institutions that enforce legal standards
and compliance codes are generally under-resourced and weak in African countries,
informal employment, the segmentation between casual and permanent workers, and
overall non-compliance in many sectors harm society. Countries that have not ratified
International Labour Organization and human rights conventions should do so, and
those that have should enforce them. Enforcement is particularly critical for the most
vulnerable workers, such as women and migrants, who tend to be over-represented in
lower-value segments of the value chain or in positions that are casual, temporary or
undocumented. Policy makers can address gender inequality in global value chains by
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3. What policies for global value chains in Africa?
i) improving access to jobs (especially in non-traditional occupations); ii) increasing
training and mentorship opportunities for women; iii) promoting sexual harassment
policies and awareness in workplaces; iv) offering supportive services such as childcare
and social services; and v) developing transport infrastructure to provide safe access to
work.
Environmental safeguards are necessary to reduce the potential negative impacts
of GVC participation. GVC participation can change the use of land, resulting in
deforestation and generally degrading the ecosystem. Therefore effective natural
resource management systems are necessary to protect local environments, biodiversity,
and the quality of soil, water and the landscape. Similarly, policy makers should
encourage sustainable development to line up carbon and greenhouse gas emissions
with international frameworks and conventions. Lead firms are under mounting
pressure to ”green” their supply chains as eco-conscious consumers increasingly
scrutinise procurement practices. Therefore, collaborating with lead firms is crucial to
the successful implementation of environmental policies relating to global value chains.
Lead firms can play an important role in ensuring that certain environmental codes are
adhered to as it is in their interests to do so.
Beyond necessity, going social and going green offer African countries with
opportunities to diversify as consumers increasingly value socially and environmentally
certified products. As shown in Chapter 2, developing new varieties of products is a key
element of successful strategies in many global value chains. Certifications of social and
environmental quality standards can provide such variation and fetch premium prices
in consumer goods markets, particularly in high-income countries.
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Notes
1. Multi-purpose infrastructure is a good example of combining support to a specific value chain
while maximising economy-wide opportunities. A railroad that is needed for transporting
mining products such as coal and iron ore, for example, should be built in such a way that
it serves as many other sectors and towns as possible. Export restrictions on raw materials,
on the other hand, are an example of a policy that supports a specific value chain but harms
others: such restrictions can support local processing through cheaper raw material inputs but
harm the raw material sector through lower prices. Such measures must be time-bound and
conditional to strict performance targets in terms of effective domestic demand for the raw
material in question at export price parity minus the cost of transport.
2. Examples of national development strategies that explicitly target global value chains include
Rwanda’s Economic Development and Poverty Reduction Strategy-2 (2013-18) and Egypt’s
Industrial Development Strategy 2008 (MINECOFIN, Republic of Rwanda, 2013; ERF, 2006).
3. Given the infrastructure and difficult business environment, many firms in Africa must be
of higher productivity than comparable firms in countries with similar levels of development
(Harrison et al., 2013). As a result many economic activities do not yet exist in Africa because
they cannot be profitable; once infrastructure and the business environment improve, those
activities will develop. Many future opportunities for attracting global value chains to African
countries will therefore likely differ from current ones.
4. In Tunisia, a reduction in cargo delays from ten days in 2003-04 to 3.3 days in 2010 helped
generate 50 000 full-time and 50 000 part-time jobs for the firms involved (OECD, 2013c in
Lesser, 2014).
5. For instance, the proliferation of domestic standards in relation to fertilisers and seeds has
prevented producers and importers from exploiting economies of scale across markets.
Because of the small market size of many African countries, the additional costs of meeting
each country’s standards are spread over a small volume of sales. In the best case they increase
prices for farmers and consumers and in the worst case disrupt supply if the burden of a
country-specific standard renders import or production unprofitable (AfDB et al., 2013).
6. OECD estimation based on data provided by the Ministry of Finance and Economic Planning
(MoFEP).
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Van Fleet, J., K. Watkins and L. Greubel (2012), “Africa learning barometer”, www.brookings.edu/
research/interactives/africa-learning-barometer.
Van Parys, S. and S. James (2010), “Why tax incentives may be an ineffective tool to encouraging
investment? – The role of investment climate”, http://taxblog.com/svanparys/why-tax-incentivesmay-ineffective-tool-encouraging-investment-the-role-investment-climate/.
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3. What policies for global value chains in Africa?
WEF (2012), The Shifting Geography of Global Value Chains: Implications for Developing Countries
and Trade Policy, World Economic Forum, Geneva, www3.weforum.org/docs/WEF_GAC_
GlobalTradeSystem_Report_2012.pdf.
World Bank (2013), Growing Africa – Unlocking the Potential for Agribusiness, World Bank, Washington,
DC, www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/03/13/0003
50881_20130313160910/Rendered/PDF/756630v20Box374353B00PUBLIC0.pdf.
Zee, H., J. Stotsky and E. Ley (2002), “Tax incentives for business investment: A primer for policy
makers in developing countries.” World Development, Vol. 30(9), pp. 1497-1516, www.sciencedirect.
com/science/article/pii/S0305750X02000505.
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PART TWO
Country notes
Country notes
Algeria
The main activities concerning productive potential that are integrated into global value
chains (GVCs) are oil and gas, agri-food, the extractive industries and mining, and foreign trade in
goods and services (exports and imports). In 2011, the main productive sectors that contributed
to GDP were oil and gas (36.0%), services (19.7%) and agriculture (8.1%). Industry, meanwhile, had
contracted to 4.3% of GDP (down from 9.1% in 1998).
The institutional economic environment of GVCs is shaped by a national productive system
(excluding agriculture) structured around 934 250 economic units operating in business (54.8%),
services (34.0%), industry (10.2%) and construction (1.0%). The vast majority (98%) are private units,
while the rest (2%) are public units or public-private partnerships. The private sector generates
52% of total value added, and is formed by mainly family-run VSEs with limited investment
capacity, access to bank credit and development prospects. The larger public enterprises and
public-private partnerships (those with more than 250 employees and a turnover of more than
DZD 2 billion) provide 48% of value added. The oil and gas sector is centred around the Sonatrach
group (GSH), which alone provides 36% of GDP. All these public enterprises, and to a lesser degree
the private sector, are involved in GVCs through production and trade.
The 2011 input-output table shows the share of exported value added for each sector: 99.5% for
oil and gas (mainly GSH); 90.0% for leather and footwear; 47.5% for mining and quarrying; 10.6%
for the mechanical, metal, electrical and electronic industries; 10.2% for agribusiness; 10.0% for
wood, paper and cork; 8.0% for transport and communications; and 3.5% for building materials.
To put the weight of each sector into perspective, it should be noted that GSH provides 97% of all
of Algeria’s exports. Algeria’s economy is strongly linked to the global oil and gas economy both
during periods of prosperity1 and periods of decline.2 Other sectors’ more modest involvement in
the global economy is in the export of raw materials or materials that have gone through primary
processing. This integration in GVCs points to an industrial sector in decline, with frequent major
changes and ineffective reforms. The industrial sector is subject to an unrestrained opening of
foreign trade, which actually encourages the development of the informal sector (25% of GDP).
Furthermore, the law establishing the 51/49% rule for foreign investment has not yet yielded the
results that were hoped for.
The Algerian economy also participates in GVCs through trade. In 2011, exports of goods
were valued at USD 73.49 billion and imports of goods at USD 47.25 billion, giving Algeria a trade
surplus of USD 26.24 billion. Imports were equal to 31.9% of GDP and exports 38.7%. Excluding
oil and gas, exports were worth only 3% of GDP, partly because of the limited domestic supply of
goods.
Oil and gas (and derivatives) accounted for 97% of exports, with GSH overwhelmingly
dominating trade and GVCs. It is Africa’s largest company, with a consolidated turnover of around
USD 100 billion in 2013.
Excluding oil and gas, the Algerian economy’s integration into GVCs is relatively negligible,
accounting for only 2.81% of total exports. But it is substantial nonetheless, and is composed
as follows: i) raw materials or semi-finished hydrocarbon derivatives (USD 1.2 billion, 1.6% of
total exports), such as oils and products produced through tar distillation (USD 836 million, 1.1%
of exports) and anhydrous ammonia (USD 372 million, 0.5% of exports), which provide little
value added; ii) agri-food (USD 321 million, 0.4% of exports), including sugars produced by the
private-owned CEVITAL group (USD 268 million), drinks produced by the public-owned Eaux
minérales algériennes (USD 26.9 million) and dates produced by private firms (USD 25 million);
iii) other industries (USD 565 million, nearly 8% of exports), including skin-tanning products
(USD 20.3 million), calcium phosphate (USD 128 million), unwrought zinc (USD 25.7 million),
glass sheets (USD 19.1 million), acyclic alcohols (USD 41.8 million), hydrogen and rare gases
(USD 39.1 million), and other products (USD 290.3 million), led by those produced by the publicowned SGP Industries manufacturières. Although sectors other than oil and gas are not very
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integrated in GVCs, the productive sectors have the potential to become more involved in the
global manufacturing industry, especially flour milling, cement, steel, sugar refining and the
dairy industry, whose output was well below capacity in 2010 and 2011.
Imports totalled USD 47.25 billion in 2011, many of which were from European Union countries.
Imports of capital goods were worth USD 16.4 billion, or 34.7% of the total, and were mainly
transport vehicles for passengers and cargo. Imports of goods for production facilities totalled
USD 13.6 billion, or 28.8%, and consisted of iron and steel products and oils for the food industry.
Food imports, including cereals, milk and sugar, were worth USD 9.9 billion, or 21.0%. Finally,
imports of non-food consumer goods were valued at USD 7.3 billion, or 15.5%, and included
passenger cars, pharmaceuticals and motor-vehicle accessories.
There is significant integration in GVCs for imports, but only 28.8% generate value added in
exports. The remaining 71.2% consists of food and durable goods.
The reforms to the public industrial sector and the dismantling of the sector had various
consequences: assets were privatised, imports were replaced by domestic production (supported
by liquidity in the oil and gas sector), foreign trade was made fully open, productivity fell, and the
informal sector grew. The government sought to break this dynamic in 2013 by issuing a call for
proposals for 18 industrial sectors to stimulate the industrial recovery and integration of sectors
of the economy in order to increase and diversify domestic production and create jobs.
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Country notes
ANGOLA
Before independence in 1975, Angola possessed a diversified economy with strong agricultural
and manufacturing bases. The civil war caused major upheavals and the economy became mostly
dependent on oil, diamonds and other minerals. Angola’s involvement in the global oil value chain
has been limited with only underwater umbilicals, risers and flowlines made locally. Other key
activities performed at local level include systems, equipment, pipes and valves installation,
construction and services and drilling services. The oilfield service sector injected USD 51 billion
into the economy from 2004 until 2010. However, only about 1% of Angolan workers are in the oil
industry. Moreover, most activities in the oilfield value chain are global. Currently, Angola produces
1.8 million barrels of crude a day and refines about 39 000 barrels per day against total domestic
demand for 85 000 barrels each day. The country exports 90% of its oil production, primarily to
China (44%) and the United States of America (25%) according to petroleum ministry sources.
Despite the fact that all material inputs are imported, there are opportunities for Angola to
enhance its position in the global value chain and broaden its participation into sectors such
as liquefied natural gas, methanol, power gas transmission and gas-to-liquids. Investment in
these industries could generate jobs and promote the emergence of higher value-added activities.
According to a 2013 African Development Bank study, Angola is more likely to integrate into
the oil and gas value chain and play a catalytic role at regional level by: i) major investment
in liquefied natural gas; ii) adopting a phased approach to developing oil and gas downstream
industries, starting with high impact projects to demonstrate Angola’s viability; iii) additional
investment in fertilisers, methanol and gas-to-liquid downstream industries; iv) improving the
regulatory framework by ensuring stable transparent regulations, encourage transparency and
address capital gain taxes.
The major obstacles to developing these industries are the inadequate transport
infrastructure, difficulties in access to international infrastructure (roads, ports, airports and
railways connecting to foreign markets), inadequate and unreliable power supply, difficulties
in access to finance, volatile trade flows resulting from fluctuating global commodity prices
and strategy changes by multinational enterprises. Also the business environment is not yet
conducive to regional integration due to administrative barriers to free movement of goods and
labour. Weak capacity in local manufacturing and a lack of specialised oil industry skills limit the
development of links between oil service activities and the rest of the economy.
Because of the barriers to entering the oil and gas global value chain, the government has
introduced legislation to unleash oil and gas downstream transformation industries, create jobs
and ultimately contribute to poverty alleviation efforts. The Petroleum Activity Law assigns
the sole ownership of Angola’s hydrocarbon resources and mining rights to the Angolan state.
Under the law, Sonangol, the state oil company, is the concessionaire of Angola’s oil industry
and sole owner of mining rights. Other entities may access Angolan hydrocarbon resources only
in partnership with Sonangol and through concession and production sharing agreements. The
government has also used the Petroleum Activity Law and local content decrees to promote
the creation of local skills through the “Angolanization” of human resources. They also aim to
increase the participation of local firms in global markets by giving preferential treatment to
national firms in the supply of goods and services.
To stimulate a greater local input, the Angolan government could consider policy measures
such as:
• Balance support given to different sectors. The government could give the same fiscal and
financial incentives to all local firms involved in different parts of the oil industry and
prioritise the setting up of research and development activities alongside the promotion
of national enterprises, which is the main focus of current policy. The government could
pick ‘champion’ local manufacturing firms to enter the supply industry and encourage the
development of knowledge networks between suppliers and manufacturers and clients.
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• Invest more in training at higher technical level in the general education and training system
and at petroleum institutes to fill capacity gaps at this level.
• The petroleum ministry and Sonangol (the regulators of the oil sector) should work more
closely on policy with the industry and economy ministries which are leading Angola’s
industrialisation and diversification agendas.
• Clear policy implementation mechanisms to enable policy efficiency and stamp out potential
channels of corruption.
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Country notes
benin
Global value chains (GVCs) can provide the Beninese economy with an opportunity for
integration into international trade and a chance to attract foreign direct investment to exploit
its potential.
GVCs are embryonic in Benin. Several activity sectors – including agriculture, agro-food and
tourism – could be integrated into GVCs if they were structured by appropriate policies. The
country does have assets to facilitate its integration into GVCs, including political stability, the
availability of non-cultivated arable land irrigated with a dense network of rivers and effluents,
its integration into an organised regional area (ECOWAS and WAEMU) and a privileged gateway
to Nigeria, a huge market.
The activity sector in Benin with the most integrated approach to the production of added
value is cotton. Its integration into the cotton-textile GVC is limited but could be improved with the
development of a better structured distribution channel for Beninese semi-processed production.
The cotton sector in Benin is an integrated value-chain model that interconnects producers of the
chain – input suppliers, middlemen, cotton producers, transporters, ginners and international
traders. This value chain is mainly structured by the state, which guarantees inputs supply to
farmers and implements price-setting mechanisms amongst the different stakeholders (input
distributors, cotton producers and ginning industries). The state also ensures the movement of
financial flows between the different links of the value chain, from pre-financing of input (seeds,
fertilisers and pesticides) to payment of production to cotton farmers. Integration of the financial
sector into the process is also ensured by the state, which mobilises resources through bank
loans extended until the ginned products (cottonseed and fibre) are sold on the international
market. More than 95% of the cotton fibres are thus exported to Asian markets.
Schemes have also been set up to strengthen techniques in the sector with investments in
research and development (seed) and ancillary services to define technical and production routes.
Integration into the cotton-textile GVC could be further developed by seeking more added
value downstream, especially in the textile industry. Benin is part of a rich regional African
textile market but is struggling to assert its comparative advantages. Similarly, the European
and American markets today are niches to attract FDI into the textile sector through agreements
such as the African Growth and Opportunity Act (AGOA), given the country’s competitive cost of
labour.
Development of the cashew-nut sector, along with the export of raw cashew nuts, white
almonds and roasted almonds to India, Brazil, Viet Nam, Europe and to a lesser extent subSaharan Africa, is also an area where Benin is integrated upstream of the GVC. The production
of raw cashew nuts makes up more than 95% of the exports of the sector. The local value chain
is integrated through the structuring of the cashew producers’ region-based associations, the
URPAs, which organise the sector. The URPAs provide producers with jute bags, set marketing
rules and negotiate bundled-sales contracts for producers. The processing link of the chain is
still embryonic. It represents less than 5% of the production volume and is dominated by small
processing units with at most a 2 000 tonne capacity. There are, however, niches in: i) research
into the improvement of plantation productivity; ii) processing for greater added value (white and
roasted almonds); and iii) distribution.
Promoting sectors such as rice, pineapple, maize and cashew nuts, developing irrigation
infrastructure (dams, dykes and irrigation canals) and setting up agro-processing units are
among the policies likely to diversify Benin’s export agriculture and further integrate national
agricultural production into GVCs. Similarly, development partners such as the Netherlands
and the European Union are launching programmes for the integration of certain sectors
(pineapple, cashew, etc.) into GVCs. The goal is to strengthen the capacities of local producers in
terms of production techniques, organisation of the sector and of the capacity to contract with
international players on the one hand, and on the other to facilitate entry into the sector of agroindustrial multinational companies.
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In the service sector, tourism and transport have been identified as having the potential
to facilitate Benin’s integration into GVCs. Tourism in Benin is an important potential asset
(featuring zoos, royal and colonial relics, etc.), but the country is lacking in accommodation
infrastructure. The government is fostering an extensive public-private partnership programme
to promote the development of specific tourist areas, such as in particular the route des pêches
(fisheries route), with the development of facilities and tax concessions. Strengthening tourism
infrastructure should ultimately make it possible to get more out of GVCs by promoting Benin as
a tourist destination and encouraging regional tourism with Ghana or Nigeria in particular.
With regard to transport, Benin is a country with a transit vocation featuring a port and
more-or-less workable international road connections. The current projects to transform the port
of Cotonou into a third-generation port with dry ports and the Sèmè-Podji deep-water port and
to build the Glo-Djigbe airport and the Cotonou-Niamey-Ouagadougou-Abidjan rail loop should
allow Benin to use its geographical position to greater advantage, to increase its trade in West
Africa and to facilitate its integration into GVCs.
Benin must, however, remove a number of obstacles to the integration of its high potential
sectors into GVCs. The business environment is still hampered by, among other things,
the deficiency and poor quality of transport, energy-generation and telecommunications
infrastructure, as well as by corruption and the shortage of skilled labour.
Benin should also develop a policy to minimise the risks inherent in stronger integration into
the global production of added value, in particular exposure to imported crises, confinement in
GVCs to links with low added value, or overexploitation and depletion of the country’s natural
resources. Strategies to move up in the value chains and mechanisms for a sustainable and
optimal exploitation of natural resources should be implemented to mitigate these risks.
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Country notes
BOTSWANA
Botswana has an open economy. In 2012, imports and exports of goods and services amounted
to 99.78% of GDP, with 47.02 percentage points accounted for by exports. As in other developing
nations, Botswana’s commodities sectors and tourism are, by value, the most engaged in global
value chains. Official data from 2003-12 suggest that the sectors most engaged in global value
chains (GVCs) are mining (diamonds, copper nickel, soda ash and gold), vehicles, textiles, beef
and tourism.
Botswana exports its diamonds, mostly in their raw form, to the United States, Europe and
Japan. Still, the diamond subsector is by far the country’s main player in GVCs, accounting for
84.7% of the total value of principal exports in 2012. That year, polished diamonds, valued at
USD 706.6 million accounted for 17.6% of diamond exports. The relocation of the Diamond Trading
Company from London to Gaborone and the establishment of the Diamond Hub, with a focus on
developing downstream activities such as diamond cutting and the manufacture of jewellery will
significantly raise the sub-sector’s contribution to gross value added.
Though important in terms of job creation, textiles and vehicles have weak prospects for
long-term growth because of low domestic value added, high content of imported inputs and
low domestic and international competitiveness. Beef exports, in carcass form, are largely
destined for Europe. International tourism is a major and growing contributor to national output,
employment and foreign exchange earnings. However, it is primarily wilderness based and not
adequately measured in national accounts.
The potential development impact of these sectors’ participation in GVCs is enormous. Mining
has been the mainstay of the economy since the 1970s. In 2012, it accounted for 19.6% of GDP, 30%
of government revenue and in excess of 84.7% of foreign exchange earnings. Movement up the
value chain could contribute significantly to economic growth, export earnings, employment
creation and government revenue. The government has effectively utilised mining revenues to
finance the country’s infrastructure and the development of its human capital. Between them,
mining, tourism and beef directly account for approximately 17.2% of formal employment
(Labour Statistics Report 2010). The indirect impact on employment and livelihoods is even larger
because some of these activities, especially mining, have anchored the development of sources
of livelihoods beyond the primary activity. Botswana has mining towns that have developed
into the main centres of commerce, light manufacturing and services in their regions. Tourism
has had a similar effect on Maun and Kasane in northern Botswana. On the downside, and with
particular reference to mining, there are two concerns, namely: i) substantial external costs such
as environmental degradation, disruption of livelihoods and ill health; and ii) the risk of the
Dutch Disease phenomenon. Neither is adequately studied.
There is significant scope for Botswana to enhance its positioning within the minerals, beef
and tourism value chains. In sum, the challenge lies in improving the investment climate. Through
the Botswana Mineral Investment Promotion Strategy, Botswana continuously reviews the fiscal,
legal and policy framework for mineral exploration, mining and the processing of minerals to
secure the sector’s competitiveness. The key priorities in this regard are enhancing licensing
efficiency and the security of tenure; a fiscal regime that encourages investment in mining;
improving information management and exploring opportunities for local value addition. The
Diamond Hub is a good start in this regard.
The Mining Code of 1999 streamlined licensing and enhanced safeguards for tenure. It also
provided for an investor -friendly fiscal regime, elements of which include a variable income tax
rate based on project profitability, 100% capital redemption and stability. The National Integrated
Geo-Science Information System helps address information failures. A promising move to expand
processing capacity and therefore to place Botswana higher up the diamond GVC has been the
relocation of the Diamond Training Company from London to Botswana and the government’s
decision to reserve a proportion of Botswana’s diamonds for local processing. Both are products
of tough negotiations which are paying dividends in terms of investment, quality jobs, and
diversification into downstream activities in the diamond sector. Sustained investment in
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mineral exploration is critical to Botswana’s economic future because the profitability of mining
known diamond deposits has peaked and is expected to decline.
The beef sector requires serious reform to improve its performance. The existence of the
Botswana Meat Commission (BMC) as a state monopoly with sole responsibility for marketing
beef outside Botswana constrains investment, innovation and competition in the sector. The BMC
has had serious management problems for years, culminating in a parliamentary investigation
in 2012 that revealed extensive managerial inefficiencies. Ongoing dialogue suggests that
deregulation, including the privatisation of the BMC, is a possibility. Terminating the BMC
monopoly may lead to the unearthing of alternative markets whilst more effective management
of the threat of foot and mouth disease will ensure access to the EU market is sustained. The
performance of the sector could also be enhanced by improvements in the quality of the national
herd and management skills, especially in communal areas.
Tourism has significant potential for growth. Whilst the Botswana Tourism Board is doing a
good job of marketing Botswana’s tourism services, three other areas require urgent attention.
One is the diversification of the product’s emphasis on wildlife; culture, for instance, is an option.
The second is enhancing the sector’s capacity to provide services. The third is reforming the
management of the tourism sector to ensure that a greater proportion of the tourism revenue
is retained in the country. According to Botswana Tourism Statistics, only 10% of the tourism
revenue is retained locally. This is partly because the bulk of Botswana’s tourist bookings are
handled in South Africa, and partly because the sector’s supply chain is foreign-dominated.
Botswana faces a range of barriers to participation in global value chains. These include:
relatively high costs of accessing input and output markets on account of being landlocked;
serious power and water challenges and generally high utility costs; low labour productivity; and
bureaucratic costs. Most worrisome, Botswana has been slow to initiate reforms to improve its
business environment, managing only one reform in each of 2011 and 2012.
The foregoing challenges notwithstanding, Botswana has taken measures to enhance its
capacity to participate in GVCs. These include: the pursuit of macroeconomic stability through
strict adherence to a defined fiscal rule; the pursuit of a firm inflation target; and the accumulation
of reserves as a buffer against shocks. More specifically, Botswana has developed a number
of strategies to enhance competitiveness and the growth of Botswana’s private sector. These
include: the Botswana Excellence Strategy (2008), the Economic Diversification Drive (2011) and
the Botswana National Export Strategy 2010-2016. The Botswana Confederation of Commerce,
Industry and Manpower also developed the Private Sector Development Strategy (2009-2013).
Other efficiency enhancing measures are investment in broadband width and the modernisation
of the payment system.
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Country notes
Burkina Faso
Burkina Faso plays only a small role in global value chains (GVCs). For decades Burkina Faso’s
participation in value chains was essentially through its agriculture, with cotton being the main
product. The situation has changed substantially since 2000, with the extractive industries now
being centre stage. This is especially the case for gold: production rose to 42.8 tonnes in 2013 from
one tonne in 2000. As a result, it has become the main export, accounting for 72% of exports in 2013.
As for agriculture, apart from cotton (exports of ginned cotton reached 255 000 tonnes in 2013), there
are also opportunities for new products, particularly sesame and cashew nuts. Value chain activities
in these are limited, however, to research and development and production and extraction.
There are numerous possibilities of positioning the country in GVCs in agriculture and
manufacturing. Regional integration with the Economic Community of West African States
(ECOWAS) offers opportunities. The 15 member states have a relatively stable regulatory
framework and labour is relatively cheap. The guaranteed minimum inter-professional monthly
salary is XOF 30 684, less than EUR 50. This is much less than the wage offered by most companies
with foreign capital. As a result, the country has advantages that could help it develop its
agriculture, namely onions in a regional value chain. In the 1980s Burkina Faso’s production of
green beans became part of a GVC. But poor transport infrastructure and packaging, plus the low
level of innovation by producers to adapt to market demands, saw the industry decline.
The country also has potential for the production of higher value goods and the development
of segments for sale and distribution, namely the processing of shea nuts, cashews and dried
mangoes. The country also has significant value chain potential for sesame and cowpeas.
To take advantage of the value chain of extractive industries, the country could make more
use of niche segments using local products (agricultural and livestock products, etc.). With
this in mind, the government intends to set up a growth pole for the mining industry based
on local products. With respect to services, Burkina Faso has opportunities in banking and
finance. Segments that could be developed include venture capital, guarantee funds, leasing
and other services that facilitate structural investment. The tourism and hotels industry also
offers opportunities. However, infrastructure must be developed and tourist resorts and internal
transport must be promoted.
Access to trans-national infrastructure, reliable energy and qualified workers for technical
and professional fields are the main obstacles blocking Burkina Faso’s path to GVCs. As Burkina
Faso is landlocked – it’s about 1 000 kilometres from the nearest coasts in Côte d’Ivoire, Togo and
Ghana – the poor state of roads and railways is a key obstacle to the country’s participation in GVCs.
This drives up the cost of bringing in equipment and weighs heavily on export competitiveness.
Burkina Faso’s energy costs are the highest in the WAEMU zone at XOF 118 per kilowatt/hour,
compared to XOF 56 for Benin and XOF 53 for Niger. The lack of supply and frequent and lengthy
power cuts seriously affect the economy. A mere 13.9% of Burkinabé households are estimated
to be connected to the electrical grid. Finally, the lack of a qualified workforce in technical and
professional fields also constitutes a major constraint.
There is no specific strategy in Burkina Faso for taking up the challenge of participating in
GVCs. On a national level, however, the SCADD strategy contributes to this aim, particularly with
its first declared target of the “development of pillars of accelerated growth.” Measures which
contribute to strengthening Burkina Faso’s role in value chains are spread out across different
strategies and sectoral policies, such as those for industry, trade and skills and rural areas.
To improve the country’s chances in GVCs, these different measures should be applied more
coherently in a specific strategy that aims to develop its value chains.
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Burundi
The analysis of value chains in Burundi aims to: organise the population from the base up around
high-growth-potential sectors; integrate persons demobilised and displaced by successive conflicts
into producer and trader organisations to empower them; improve the population’s access to energy,
social services and markets to support the development of value chains; and develop inclusive
domestic markets in which the private sector contributes more to poverty reduction.
On a global scale, Burundi has a narrow, undiversified export base, and the few products it presents to
the international market are exported in their raw states, with very low value added nationally. Upstream,
the industrial system is not developed and is still in its infancy, but Burundi could take advantage of new
developments within the framework of the EAC and prospects offered by the mining sector.
Given the absence of data on trade expressed in terms of value added for Burundi, this analysis is
based solely on export data from the ITC Trade Map database.
Two companies can be considered models of success in the agri-food sector: Brarudi, a Dutch
company that brews beer from wheat, and the Burundi Tea Board (Office du thé du Burundi, OTB), which
processes tea. Both companies, however, are poorly integrated into the global value chain.
Coffee accounts for 70% of Burundian exports. Initiatives have been introduced to improve
businesses’ value added, mainly by renewing high-quality coffee trees, fertilising soils, and improving
hygiene at cleaning and hulling stations.
Tea is the second largest export crop. For a long time the tea sector was dominated by a single
public enterprise, the OTB. Following the recent liberalisation of the sector, a new company, Prothem,
has entered the market. Tea exports pass through the Kenyan port of Mombasa in their raw state,
with low value added. Since the sector’s liberalisation, efforts have been under way to modernise
equipment and improve the quality of the product.
Burundi has a considerable mining potential; mining is currently artisanal and informal. It has the
world’s second largest nickel reserves and sixth-largest coltan reserves, but the extractive industries
provide less than 1% of GDP. A mining code based on international standards has been adopted, and
legislation is being drafted to improve the legal framework and cash in on the mining potential.
Meanwhile, the government has addressed the country’s energy deficit by building new dams; in
transport infrastructure, negotiations are under way to build a railway linking the EAC countries.
The only industries in the manufacturing sector are food and textiles. There is great potential for
the food industry, with fruits, vegetables and milk. Some small fruit- and vegetable-processing units
are beginning to achieve results. Burundi could export banana, pineapple, passion fruit and tomato
juice to the sub-region and the rest of the world. The country has a large milk-production industry, but
it has low technological processing capacities.
The Burundian economy has long been dominated by the primary sector, but evidence in the
latest national accounts suggest it is turning towards the tertiary sector. Services have boomed in
recent years, accounting for 40% of GDP in 2013. The boom has been most prominent in the banking,
insurance, post and telecommunications, and hotel and restaurant sectors.
The boom in banking and insurance services is fuelled by the arrival of financial institutions from
other countries in the sub-region (KCB and CRDB Bank) and from India (Diamond Trust Bank). The post
and telecommunications sector, meanwhile, grew considerably thanks to the arrival of new operators
using cutting-edge mobile-telecommunications technologies. The coming decades will be marked by
intensive Internet use and better quality connections thanks to fibre-optic broadband installations.
Despite the lack of statistics, it is clear that the telecommunications sector has contributed significantly
to job creation in recent years. The post office has also diversified its range of products.
The hotel and restaurant sector has also boomed. Benefiting from tax exemptions on the
construction of new hotels – a measure taken to promote tourism in Burundi – the sector has been
growing by 15% a year since 2010, and in 2013 it represented 11% of GDP.
Despite these developments, Burundi is not well integrated into the value chain of the main economic
sectors. The country’s only factor of production is its labour, with all other factors coming from abroad.
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Cabo verde
Cabo Verde’s natural and geographic conditions combine a lack of non-renewable natural
resources, a lack of sizeable arable land, a dry climate, which makes it unsuited for large-scale
agriculture, and a relative small population of 500 000 dispersed in nine islands. These conditions
have limited the country´s ability to integrate into global value chains and to develop a strong
industrial sector. Integration through the manufacturing sector is also limited due to the scarcity
and price of inputs that are mostly imported, small-scale production of low value products, and
limited access to financing at the national level. Today the country connects to global value
chains through three main sectors: tourism, labour and sea products.
Tourism is the sector most engaged in global value chains, having become an important engine
of growth in the Cabo Verdean economy after 2005. The Central Bank of Cabo Verde estimates that
the volume of inflows associated with tourism travel into the country have reached the equivalent
of more than 20% of GDP in 2012 and 20137. In 2000, the volume of inflows associated with tourism
travel corresponded to less than 3% of GDP. However, the tourism sector’s substantial growth
relative to the rest of the economy has failed to create jobs and stimulate other sectors of the
economy. This is in part a result of other sectors of the economy not being structured to meet
the demand from the tourism sector and, also in part, a result of the very model of tourism that
is based on all-inclusive hotel chains. Indeed, the archipelagic formation in combination with a
relatively small-scale production and high costs of inter-island transportation has limited the
ability of national production of goods and services to reach the tourism sector with competitive
prices.
Cabo Verde has also a large number of nationals working abroad, which is estimated to be
twice as large as the number of nationals residing in the archipelago. The large diaspora connects
the country to global value chains through the labour sector and brings remittances that are
estimated to have reached close to 10% of GDP in 2012 and 20138. In 2012, the largest share of
remittances, around 32%, came from the diaspora from Portugal, followed by the diaspora in
France (around 24%) and the United States (14.5%). The weak global economic prospect, especially
in the euro area represents a considerable risk for the remittance flows going into the country.
The sector of sea products, which are mostly canned and frozen seafood, also engages the country
in value chains abroad. These products represented in 2012 total exports at a value of approximately
2.7% of GDP. Most of these products, about 91%, are exported to one single market: Spain.
Going forward Cabo Verde is seeking strategies that would more strategically position
country at higher-value stages of the global value chains by stimulating new exports of goods
and services of higher added-value and expanding existing ones. At the same time, these
strategies aim at enhancing employment opportunities, especially among the youth and women,
at national level. The strategies, that include the development of a strong creative economy, are
centered in three main pillars: i) create conditions necessary to produce and sell products and
services in the domestic and global markets that present a quality standard, that are adequate
to the national producers’ cost structures and that, at the same time, can enhance the country’s
capacity to conform to international standards; ii) promote creative capacity to develop new highvalue added and niche products and services based on knowledge and creativity that can position
Cabo Verde well in a competitive global market; iii) enhance the country’s market integration
by building up its national capacity to produce, store, move, and transport goods and services
between islands and abroad9.
Besides the problems with production scale, limited arable land, climate and small population,
there are other barriers that inhibit Cabo Verde’s participation in global value chains, including
the tourism sector. Included in these barriers are: the difficulty associated with the inter-island
transportation and the absence of an effective national system of logistics to efficiently store
and distribute goods. While information technologies and Internet-based services offer an
opportunity for the country to overcome many of its structural constraints, the fragmentation of
the domestic market is a bottleneck that, if solved, would allow a better flow of people and goods
inside the country and across its borders.
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A growing priority in Cabo Verde’s development strategy, as described in the GPRS Paper III,
is to develop the creative economy as the driving force for sectors such as the IT cluster, agro
industry, fisheries, cultural products and tourism. The creative economy is seen as a strategy to
develop niche markets and add value to primary produce through culture and design. The strategy
also aims at incentivising a more solid micro and small enterprise network at national level by
formulating, for instance, a special tax regime. The strategy expects that the value added and
differentiated exports of niche products and services will position Cabo Verde well to compete in
the global market at higher-value stages of the global value chains10. Cabo Verde is also investing
strongly in renewable sources of energy as a way to decrease its dependency on fossil fuel based
energy that boosts the cost of production at the national level.
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CAMEROON
The proven potential of raw materials (mines, timber, agricultural products) and production
factors (electricity, arable land) have shaped Cameroon’s participation and positioning in global
value chains (GVCs). The raw material-producing sectors (timber, agriculture and mining) and
high-voltage electricity-consuming sectors (basic metals and cement) appear to be most involved
in global value chains. Various services sectors are also integrated into global chains: ship repair
and maintenance, information technology and transport.
Cameroon’s participation is limited mainly to activities at the ends of the chains in lower
value sectors and little benefit for the rest of the economy. At the top of the chains, Cameroonian
businesses simply supply raw materials, or at best supply products that have been through
primary processing. At the bottom, Cameroonian firms act as intermediaries for foreign
industries, providing, for instance, packaging, assembly and distribution to the local market or
the Central African region.
In some industries, however, the government has adopted measures to encourage increased
local processing of raw materials. This timber industry has moved towards primary and secondary
processing. Moreover, strong demand from CAEMC and ECCAS countries and from Nigeria
– part of the Economic Community of West African States – is attracting more and more agroindustries (processing of palm oil, cocoa, etc.). Sluggish global demand for some raw materials
has forced manufacturers to look towards domestic and sub-regional markets. These changes
should gradually lead to a shift away from commodity exports and towards the production of
finished goods. Capacity-building in ship repairs (shipyards) has therefore enabled Cameroon to
participate fully in global value chains in this sector, at least within the Gulf of Guinea region.
Sectors that have increased their participation in global value chains have contributed to
economic growth, created jobs, developed capacities and improved infrastructure. However,
Cameroon’s position in value chains (at the extremes of the chains) exposes it to fluctuations in
commodity prices and global economic cycles. The recent global financial crisis highlighted this
vulnerability, especially among export-oriented industries.
These industries have a large number of small operators that are often poorly equipped and
largely disorganised. Their integration into clusters will allow them to regroup and upgrade more
effectively. This has already occurred with the timber cluster set up in Yaoundé to bring together
artisans, structure timber supply, and equip the site with a kiln and other finishing machines.
Opportunities to strengthen Cameroon’s position in global value chains
Analysis of geographical distribution identifies opportunities for participation in global value
chains in the north of the country, thanks to the concentration of livestock farming and cotton
cultivation. SODECOTON produces cotton fibres and refined cottonseed oil. The enhancement
of livestock farming, meat products and leather is still held back by the sectors’ infrastructure
deficits. The southern part of the country enjoys a tropical climate, making it ideal for developing
agricultural industries (cocoa, palm oil, natural rubber, cassava, fruit and vegetables, etc.). On
the coast, the potential development of hydroelectricity and gas-based thermal electricity (with
large reserves) and access to the sea offer Cameroon opportunities to participate in global value
chains (ship repairs, shipping, light metals, etc.). Furthermore, Cameroon’s strategic position as a
country of transit towards several countries in the sub-region provides opportunities to develop
global value chains at the borders with neighbouring countries.
Obstacles to global value chains
Obstacles have to be overcome to improve Cameroon’s place in the world economy through
global value chains. These constraints are related to the poor support infrastructure: the collection
markets and wholesale markets, the packaging and transport infrastructure at ports and airports,
and standardisation infrastructure. Furthermore, the deficit in human-resource capacities, the
largely obsolete production equipment in certain sectors, and the difficulties people encounter
in obtaining finance limit the country’s participation in GVCs. The lack of infrastructure is
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particularly a result of insufficient investment budgets and two decades of accumulated delays
during the period of structural adjustments since the mid-1980s.
Government policies to increase participation in global value chains
The government set up the Enterprises Upgrading Office and the CFCEs to tackle these
shortcomings. The Enterprises Upgrading Office aims to build the capacity of companies, while
the CFCE ensures the growth of clusters and sectors. In addition to these measures concerning the
structure of sectors and the capacity-building of businesses, the development of infrastructure
to reduce the costs of production is one of the key areas in which the government is working
to increase Cameroon’s participation in global value chains. More rational budget choices are
required. Fuel subsidies, for instance, are equivalent to 3.3% of GDP and represent 19.5% of current
expenditure.
Better budgeting would free up finance for infrastructure investment for internal resources,
which could be added to extra external resources that could be raised with a judicious debt policy.
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Central african republic
Despite its abundant natural resources and huge agricultural and mining potential, Central
African Republic has never experienced growth that could transform the economy. The country
has not been part of significant regional nor global value chains. Although there is an estimated
15 million hectares of land suitable for highly varied crops, most is only farmed for subsistence
food. Export cash crops account for only 800 000 hectares.
Wood production bears no relation to the potential of the forestry sector, despite attempted
reforms. Exports remain limited to unprocessed lumber and over the past few years wood
production has slumped from 555 143 cubic metres (m3) in 2008 to less than 300 000 m3 more
recently. Global demand having fallen following the international financial crisis, forestry
companies had reduced operations before the political crisis.
While diamonds, gold, uranium, iron, oil and other extractive industries could bring the
country into global value chains, mining remains artisanal and limited to diamonds and gold.
Foreign direct investment targeting mineral extraction, which should have been completed in
recent years, has been delayed. The Canadian group, Axmin, obtained a permit to exploit gold
and the French company Areva a permit to produce uranium. These companies had not reached
the production stage when the Seleka crisis erupted. Three other international companies in
diamond and gold extraction had already ceased operations following political crises in Central
African Republic.
The country has faced perennial challenges in harnessing its natural resources and
participating in global value chains during decades of political instability and armed conflict,
as well as poor economic and political management. Central African Republic is sprawling,
landlocked, and served by inadequate transport, energy and telecommunications infrastructure.
However, particularly since 2006, considerable efforts have been made by successive governments
supported by the international community to put the country on a path towards growth.
Political and institutional normalisation programmes have been given international support and
donors have funded transportation infrastructure projects, particularly regional corridors and
multinational programmes in the energy and telecommunications sectors.
Institutional and sector reforms to develop the private sector and encourage foreign
investment have also been undertaken. Reforms of the mining and forestry codes and taxation,
as well as support for private sector development, enabled Central African Republic to become an
EITI conforming country in 2011. These, like other initiatives, were halted by the crisis which has
exacerbated the country’s difficulties. Many challenges must be overcome before Central African
Republic can harness its natural resources and participate in global value chains.
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CHAD
Four decades of fighting have prevented Chad from building a solid and diversified industrial
foundation and participating in global value chains (GVCs). Before oil was found, cotton,
introduced in the 1920s, was the main economic activity and brought in a lot of money to fund
development. It accounted for two-thirds of export earnings and one quarter of the population
lived off the industry. The technical, financial and production problems of CotonTchad (which
runs the sector), along with the collapse of world prices, have undermined this national value
chain, but the industry is being restructured.
Growth of the oil sector is the country’s most successful evidence of participation in a
major value chain so far and has increased the state budget tenfold in a decade, from about
XAF 160 billion in 2001 to some 1 300 billion in 2011. Domestic investment has risen 22-fold to
surpass external resources, the share of which in the budget has dropped sharply.
Starting oil production required an investment of USD 3.7 billion. USD 1.5 billion were needed
to launch three oilfields in the south and a 1 070-km pipeline was built for USD 2.2 billion to
link the oilfields to the Cameroonian port of Kribi. Oil operations are run by a consortium of
production firms, Exxon Mobil, Petronas and Chevron, with two companies running the pipeline
– Totco in Chad and Coctco in Cameroon – and the Chadian and Cameroonian governments. The
consortium handled all oil production between 2003 and 2011, selling it mainly to Asia and the
United States. Two other consortia were then formed, the first led by the China’s CNPC to extract
the Bongor Basin deposits, and the second – made up of Chinese Taipei’s Overseas Petroleum and
Investment Corporation (OPIC) and the Société des hydrocarbures du Tchad (SHT) – extracting
the deposits in the Chari Ouest III block.
The number of operators in the sector has increased greatly since 2010, with productionsharing contracts being established. Construction of an oil refinery in partnership with China
has allowed crude oil to be turned locally into value-added products such as petrol and diesel
fuel. The refinery, owned by CNPC (60%) and the Chadian government (40%), began operating in
July 2011, with a production capacity of 1 million tonnes to meet domestic demand of half that. It
can thus meet both domestic needs and subregional ones in northern Cameroon and the Central
African Republic. Cotco estimates that between 2003 and 2013, the Cameroonian government
earned about XAF 200 billion from oil activity, mainly in transit fees and taxes. Activity in this
value chain will increase with the arrival of new operators who also intend to use the pipeline to
export their production. The government of Niger decided in 2013 to build a 600 km pipeline to
link with the Chad-Cameroon one to transport its own oil production. This will further strengthen
the regional nature of the value chain.
Opportunities exist to create value chains in other economic sectors. Livestock is the most
promising, given that Chad has about 20 million animals and that the sector accounted for 85%
of non-oil exports in 2012. Income from this industry, ranging from meat to leather and hides, is
estimated at XAF 140 billion, with Nigeria and Cameroon constituting the chief markets. The value
chain is still not very dynamic, however, either in the subregion or worldwide, because little value
is added to its products and the lion’s share (60%) goes to unofficial trading channels. The value
chain could be boosted by developing dairy activities and the production of leather and hides.
The growth and modernisation of the gum-arabic sector also offer good prospects to Chad,
the world’s second biggest producer after Sudan gum arabic, which is the country’s third biggest
export item.
Difficulties in setting up value chains include lack of infrastructure, which hampers their
operation in a landlocked country very dependent on the infrastructure of neighbouring states.
The remoteness of consumers of the products further drives up the cost of handling and
shipping, which is a crucial factor in a successful value chain. About 85% of Chad’s exports pass
through the Cameroonian port of Douala on their way to customers mainly in Europe, Asia and
America. The country’s capital, N’Djamena, is about 2 000 km by road from the sea. There is also
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no attractive environment in which to develop commercial activity and investment, create new
businesses or boost the productive capacity of existing ones. The dearth of small and mediumsized enterprises and industries (SMEs/SMIs) makes it even harder to tap into some of the added
value generated by value chains already in place, especially in the oil sector. The absence of
government support for SMEs/SMIs and the difficulty for them to comply with required standards
are further obstacles to their growth.
To seize and make best use of the economic opportunities that global value chains offer, Chad
needs to create structural policies around key players and elements, especially the government,
whose role is crucial in developing infrastructure but also in strengthening value chains already
in place and even more so in defining the strategic shape of value chains that could be created
and energised, especially in the livestock industry. Government action is also crucial in reforming
the regulatory and legal framework. Given its small domestic market, Chad needs to focus on
regional integration in its efforts to promote value chains.
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comoros
A former French colony, the Union of the Comoros comprises three of the four main islands in
the Comoro Islands, an archipelago in the Indian Ocean to the north of the Mozambique Channel
and to the north-west of Madagascar. Anjouan, Mohéli and Grande Comore are part of the Union,
while Mayotte is part of France. As a result of its insularity, the Union of the Comoros is not well
integrated into the regional and global economy.
The country’s current economic climate is dominated by the primary and tertiary sectors,
especially agriculture, fisheries and livestock and trade in imported goods. The industrial sector
accounts for only 12.5% of GDP and is formed mainly by small processing units in sectors such as
carpentry, bakeries and small-scale distilleries.
The Comorian economy is not integrated into international production networks such
as global value chains (GVCs). If GVCs were introduced into the Comoros they could provide
opportunities and enable economic growth to recover. These new production models would allow
the Comoros to become involved in international trade, create jobs linked to the new economic
activity, and attract foreign direct investment (FDI), which accounted for only 4% of GDP in 2012.
GVCs could benefit products from various sectors of the economy. In agriculture, the UNDP
and the Chamber of Commerce and Industry will shortly launch an ambitious USD 3.5 million
value-chain programme for vanilla and ylang-ylang. The UNDP has also committed to upgrading
the fisheries sector to bring it in line with sanitary and phytosanitary (SPS) standards, giving
the Comoros access to international markets. In the extractive industries, which are in the
exploration and prospecting phase, gas and oil may benefit from GVCs. In the manufacturing
industry, the Comoros could better integrate in the sub-regional economy by developing value
chains in the cement industry (bagging), the agri-food industry (bagging ordinary rice), and the
production of fruit juices, mineral water and soap. In the services sector, there are opportunities
to develop tourism, banking services and communications.
The Comoros can fulfil different roles in the GVCs, depending on the sector. In agriculture
and fisheries the country can provide production, processing and packaging. In the extractive
industries (in the prospecting phase) it can extract the material and sell it. In manufacturing it
can offer inputs, final product assembly, packaging and shipping. Finally, in the services sector it
can provide inputs and auxiliary services, sales, marketing and associated services.
The economy’s structural weaknesses make it difficult to introduce GVC industries.
These weaknesses include: i) a severe lack of basic infrastructure (roads, ports, airports, etc.);
ii) insufficient, expensive electricity, severely hindering production activities such as developing
the cold chain in a country that imports more than 90% of its food; iii) an inauspicious business
environment, with the country ranked 158 out of 189 countries in the World Bank report Doing
Business 2014; iv) the country’s small size and small domestic market; and v) widespread corruption,
with the country ranked 127 out of 177 countries in the latest Transparency International index.
Aware of these difficulties, the Comorian government intends to use the opportunity
presented by the development of the new accelerated growth strategy to begin to provide some
answers. This strategy proposes using the development of basic infrastructure and support for
the private sector to drive growth over the next five years.
The factors that make the Comoros attractive include cheap labour, an attractive investment
code, membership of major regional markets (IOC, COMESA, Arab League), and good security.
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Congo, Dem. Rep.
The Democratic Republic of Congo remains one of the least developed countries in the world,
due to its poor capacity to develop its enormous production potential. Structural weaknesses,
lack of infrastructure and governance issues since independence in 1960 are some of the reasons
for the absence today of an industrial fabric that could make this an emerging country.
Agriculture and mining, the two pillars of the economy, do not create enough wealth or jobs.
Since 1970, agriculture employs 70% of the labour force but provides only 40% of production,
reflecting its low productivity and an inability to adequately feed the population. The mineral
resources of the country, which is of global strategic interest, have seen their relative importance
decrease due to the sharp fall in markets of the late 1970s. The secondary sector’s share of GDP
declined between the 1970s and the 2000s. This deindustrialisation was exacerbated in the 1990s
by looting and armed conflicts that tore the country apart.
The private sector contributes only marginally to international production networks,
contributing mainly to the low end of the value chain. The country’s participation in global trade
is also limited by the range of products offered and demanded (capital goods and food). Exports
are concentrated on low value-added raw materials. The investment rate is low and capital
unproductive. The development model adopted (commodity exports and import substitution)
has not led to a diversification of the production base. The country has for decades been in a
situation of commercial technological and financial dependency. From 1960 to 2000, the share of
primary products in exports has remained the same (about 80%), while their share in the world
market has declined.
In addition, the productive sectors of the economy are poorly interconnected. Several
agricultural products are exported unprocessed. While in the 1970s the country had a dozen
food industries, it only has five today. The mining industry does not transform raw materials
locally. They are connected to the energy sector and the transport sector for the sole purpose of
extracting minerals and shipping them abroad. Extraction, even when it is not artisanal, is based
on obsolete equipment which limits its efficiency.
Manufacturing contributes little to growth (no more than 2 percentage points) due to the
obsolescence of production equipment, limited ability to use new technologies and the effects of
foreign competition, as well as costs imposed by the effects of poor infrastructure and access to
energy. Textile mills that once contributed 5% to GDP have lost ground against foreign competition,
unable to control their production costs. Only breweries have been relatively successful, despite
difficulties caused by unpredictable electricity cuts.
Growth is relatively unstable in the short to medium term due to the low diversification of
the production base, a strong dependence on the world market and a low capacity to respond
to external shocks. By integrating its industries into global value chains, the country could
consolidate its growth, reduce poverty and improve its net external position.
Recognising this need, in 2012 the government created a study group to define its new
industrial policy. Two major objectives have been set: to strengthen private-public partnerships
to overhaul the industrial fabric of the country and promote the optimal use of natural resources;
and the gradual creation of an industrialised, competitive and fully integrated, dynamic, regional
and global trade economy. A strategic document has also been prepared on the role of agrofood, building materials, mining and metallurgy in the economic recovery and the fight against
poverty. An industrialisation strategy for the country is in preparation, which will focus on six
sectors: wood, textiles, oils and fats, building and construction materials, metals and livestock
products. In addition, to encourage mineral processing and refinement within the country, the
government has banned the export of copper concentrates and cobalt.
Industrialisation will not happen without a better business climate. The lure of natural
resources is not enough to attract new capital and expand the wealth creation chain. The country
must establish an institutional and infrastructural architecture to support their exploitation and
encourage the private sector to play its full role in driving growth.
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CONGO, REP.
Although its wealth of natural resources gives it significant natural advantages in participating
in global value chains (GVCs), Congo’s share in international production networks is still modest.
The biggest sectors are oil, timber and logs in GVCs and sugar in regional value chains. The
country’s share in GVCs in agriculture and services has been very slight. Aside from oil and sugar,
the main contributions to GVCs nationally have not changed much over the last decade and
have been mostly limited to the export of primary inputs. Finished products, mainly refined oil
products, make up no more than 5% of overall exports. In the oil sector, apart from the extraction
and export of crude, mainly to Europe and Asia, the other form of participation in GVCs is, at
a marginal level, the sale of refined petrol. The sugar industry is also relatively well integrated
into regional value chains. Thanks to the advantage afforded by its production of sugar cane,
Congo has been able to take its place in a regional value chain. Around 60% of production goes
for export to ECCAS member countries and to the United States in the framework of the African
Growth and Opportunity Act (AGOA). In respect of forestry, despite laws imposing a minimum
local processing of 85%, production of timber with high value added accounts for just 3%.
The impact of Congo in GVCs is not great. Oil exports have certainly been very conducive
to the country’s good economic performance over the last decade and oil income has provided
nearly 80% of overall state receipts, and served to finance a large part of public investment and
social expenditure. But the overall impact of oil on socio-economic indictors has been limited.
The economy’s dependence on the very capital-intensive oil sector has not favoured employment.
Moreover, because of the weak linkages between national enterprises and the foreign firms
exploiting resources, the country’s participation in GVCs has had no significant impact on
bolstering the capacities of local SMEs. The weak impact of GVCs in Congo contrasts with the
opportunities it possesses.
Congo has great potential for increasing its positioning in GVCs. Apart from oil and timber,
the country has substantial mineral and forestry resources, and good agricultural potential.
Improving the transformation of oil and timber provides, in the medium term, the potential for
increasing added value and creating jobs. There could also be sub-contracting to local SMEs in oil
and mining companies (building and public works, training, boiler-making, maintenance). The
country’s considerable mining potential should begin production in 2014, and also gives Congo
the possibility of a bigger role in GVCs, as well as the treatment of agricultural production and
agro-industry, in which the country has a certain comparative advantage. Finally, the country’s
strategic geographical position, with a coastline and a deep-water port, is a major advantage for
Congo’s SMEs in accessing regional and international markets. Despite the strong hand it holds,
Congo’s integration into GVCs is held back by major structural obstacles.
The main constraints hindering Congo’s wider participation in GVCs are the absence of quality
transport infrastructure, of adequate energy supply, the lack of skilled workers, of technological
capacity and an uncongenial business climate. Infrastructure shortcomings are specially marked
in the transport sector, with only 10% of roads paved and a dilapidated railway, and are a major
obstacle in accessing foreign markets. Moreover, despite increased energy production, the
unreliable electricity supply is one of the main factors weighing upon the competitiveness of the
Congolese economy and restricting foreign investment. Lack of infrastructure also stops Congo
from taking advantage of regional trade.
The underqualified available workforce and skills shortages are a further serious impediment
to Congo’s progress towards adding value in GVCs. The country is still confronting a major
challenge improving its technical and scientific education and strengthening its technological
abilities. Technical and professional training attracts fewer than 10% of pupils. The dearth of
skills, combined with an absence of investment in technology, prevents local enterprises from
improving their competitiveness and meeting quality norms of international markets. The serious
deficiencies in the business climate, as illustrated by Congo’s poor showing in the Doing Business
2014 ranking are a major hindrance to the private investment needed to transform the economy.
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Knowing the opportunities GVCs can give Congo to speed up its industrial development, the
government wants, through its 2012-16 national development plan, to step up its efforts to create
conditions conducive to the country’s having a significant participation in GVCs. To this end, the
strategy identifies seven clusters, which should act as the principal vectors of Congo’s participation
in GVCs. These include in particular agriculture and agro-business, forestry and timbers, oil and
hydrocarbons as well as mines. But optimal exploitation of these clusters necessitates certain
reforms and specific measures. In this regard, government is prioritising : i) increasing investment
to build competitive infrastructure; ii) speeding up the implementation of the action plan to
improve the business climate; iii) creating specialised institutes to meet the needs of sectors with
a high potential for creating added value. (the government has already set up specialised technical
and vocational training centres under 120 educators in 12 key areas); iv) increasing investment
in science and technology; and v) improving access to finance to support the development of
businesses’ productive capacity.
The authorities are also considering setting up four special economic zones, with the aim of
diversifying economic activity and exports and supporting integration into the global economy.
These zones, for which feasibility studies are complete, will be devoted to petrochemicals, mining,
timber and agro-business as well as transport, financial and logistical services. At the same time,
an agency for the promotion of investment and a fund to encourage, guarantee and support SMEs
have been created and ought soon to be operational. Finally, given that regional markets are very
important for Congo because of the small size of its economy and that they can assist the country
in joining GVCs quickly, the government intends to increase investment in building an efficient
regional infrastructure, to eliminate bottlenecks strangling regional integration and trade.
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Côte d’Ivoire
Côte d’Ivoire participates in global value chains (GVCs) involving many agro-food items (palm
oil, cashews, pineapples, bananas) and agro-industries in heavy demand regionally or worldwide.
The country supplies 40% of the world’s cocoa, as well as coffee (300 000 tonnes a year) and
rubber (256 000 tonnes in 2012). These are exported unprocessed or after intermediate processing
and attract giant international firms such as Cargill, Michelin, Olam, Nestlé and Unilever.
Potential exists for better participation in GVCs, through rich soil, plentiful farm labour,
established firms and production sectors with good growth prospects. Rubber, for example,
already has 16 industrial processing plants. Very good weather for production results in yields
among the five highest in the world, in a global market where supply cannot keep up with demand.
Worldwide cocoa demand is also growing, driven by chocolate consumption in emerging
countries. Since 2012, Ivorian coffee and cocoa producers enjoy locally guaranteed prices and
new quality control giving the right to a country-of-origin label under the 2QC (Quality, Quantity,
Growth) programme. The last harvest produced 81% grade-1 cocoa.
Côte d’Ivoire is Africa’s biggest exporter of palm oil, with all processing (into refined oil and
by-products) done domestically before export to ECOWAS countries, where demand is soaring.
The two main firms, Palmci and Sania, majority-owned by the Ivorian group Sifca and its partners
Olam and Wilmar (Singapore), do 90% of their business in the sub-regional market (Burkina Faso,
Mali and Nigeria).
Limited access to rural land is one of the main structural obstacles to higher production
and yields, mainly of perennial crops. Palm oil yields are seven times less than for growers in
Indonesia and coffee yields are two-and-a-half times less than in Indonesia. A lack of secure
long-term farmland tenancy (no deeds or leases) limits funding and development opportunities
and also the possibility of outsourcing production. A good land access formula is needed, perhaps
modelled on neighbouring Ghana’s Lands Commission, which enables a practical link between
the government and local tribal chiefs and creates the predictability needed for agricultural
contracts.
The government wants to boost the industrial sector’s share of the economy from around 30%
of GDP in 2012 to 40% by 2020, and is looking into how to increase raw-material processing, taking
into account that some strategic GVCs do not have much room for direct industrial input, such
as those whose related products are not traded on world markets. Making a finished product also
requires capital and proper transport and distribution. A committed policy of local processing to
supply world markets could be costly and of little benefit for GVCs.
Côte d’Ivoire’s best industrial growth opportunities, along with creating value and jobs, lie
in GVCs with strong regional potential, and also in strengthening SMEs involved in intermediate
export activity. The country has a diversified production, ports and good roads. This potential is
still underused in the sub-region, if not underestimated by sectors such as textiles and clothing.
Population growth, urbanisation, the emergence of regional hotel chains, the diaspora and
regional trade preferences (zero duty inside WAEMU, preferential access to European markets and
only 6% duty on exports to the United States) offer West African stylists and clothes designers
healthy niche markets in high-class dressmaking, household textiles, interior decoration,
traditional embroidery and luxury handicrafts. Côte d’Ivoire has good industrial capacity to
compete in rapidly supplying these customers by diversifying its products. The two main current
products, bazin and wax fabric, are only a small part of the regional market’s needs.
Many industrial opportunities also exist in agro-food, especially tropical fruit processing. Côte
d’Ivoire is Africa’s leading cashew-nut producer and top international exporter (450 000 tonnes a
year). The wooden furniture market also has big potential, with Africa’s rapid urbanisation. By
putting a specific focus on improving port facilities and administration, the country’s geography
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and expertise in port logistics would be an advantage in attracting assembly operations by big
international firms seeking West African markets. The extension of the CET in ECOWAS in 2014
should provide better opportunities for these activities.
Additional obstacles need to be removed to use this regional potential. SMEs still perform
too few useful functions for producers, such as packaging, marketing and distribution, and
struggle to win new business in raw-material processing or exports. The national survey of SMEs
(firms with annual turnover of less than XOF 1 billion and fewer than 200 employees) showed
30 000 enterprises, many more than expected. Nearly all were focused on the local market, 84%
of them in the tertiary sector (telecommunications and commerce), only 15% in the secondary
(processing) and 1% in the primary sector.
Apart from the idea of creating a guarantee fund for access to credit and setting up an SME
development agency, export and sub-contracting activity must be made more attractive through
simplified procedures for SMEs, special incentives and greater assistance in management. Small
businesses know how to move quickly between sectors and into new and profitable activities.
They lack the skills for the formalities required to get into export markets or presenting adequate
loan applications. Their production capacities are also still too small to meet large orders.
Better local structuring of activity in special zones, with firms geographically close to the
services they require, could also be an important attraction. The Moroccan model of integrated
industrial platforms (with offers of infrastructure and training skilled labour) could be followed.
The government’s plan to set up new free zones and modernise existing industrial areas is a first
step in the right direction.
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DJIBOUTI
Djibouti is low on the global value chain (GVC), with its economy focused on maritime transport
services. An agreement in 2000 for Dubai Port World to run the port of Djibouti has enabled the
country to use its geo-strategic position at the crossroads of key commercial maritime routes.
Since 2008, a state-of-the-art container port at Doraleh for transit and transhipment of goods has
led to an increase in port business that previously passed only through the port of Djibouti. About
80% of goods handled are to or from Ethiopia. Transhipment can include destinations worldwide
but volumes vary from year to year.
New port infrastructure investment begun in 2012 will boost port activity in the short term
through greater specialisation, with two new ports being built for salt and potash exports. The
government plans to build others to handle livestock exports and storage of oil and liquefied gas.
Such specialisation will help to boost activity but funding has not yet been secured.
The country also plans to expand participation in the GVC through the assembly industry,
which could be developed alongside transhipment. Djibouti’s manufacturing is small-scale,
apart from bottling beverages for the local market. The country could develop food processing
industries based on its fisheries and livestock resources.
But these GVC expansion plans are still limited by the high cost of factors of production such
as water, electricity and to a lesser extent human resources. Lack of water and electricity will
be eased in the medium term by projects that began in 2013 to build an aqueduct and a second
electricity line from Ethiopia and a desalination plant. Exploratory drilling to exploit geothermal
resources has also been reported.
The infrastructure investment programme also aims to boost the country’s role as a major
regional shipping centre. Djibouti competes with nearby ports such as Mombasa (Kenya), Berbera
(Somalia) and Aden (Yemen). Recent policy decisions have prioritised removing structural
constraints on water and electricity supply, followed by a new goal in 2012 identifying potential
growth sectors to diversify the economy. Investment policy was reviewed with the UN Conference
on Trade and Development in 2013 to improve the country’s attractiveness to investors.
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egypt
In early 2008, the IMF described Egypt as “one of the Middle East’s fastest-growing
economies”, as the country’s real GDP had accelerated beyond 7% in 2006/07 from 3.2%
in 2001/02. This acceleration was due to the economic reforms introduced in 2004 by
President Hosni Mubarak’s administration. The reforms increased the participation of
the private sector in the Egyptian industry and service sectors; pumped in massive FDI
inflows, resulting in the expansion of key sectors such as telecommunications; and
created millions of jobs. The tourism sector, which has strong backward linkages to
SMEs, was boosted when EgyptAir joined the Star Alliance in 2008. Since the January 2011
revolution, however, the sector has contracted sharply because of political unrest,
denying the full benefits of globalisation to the poor.
Building on China’s experience, Egypt has boosted its industrialisation drive with
the enactment of Law no. 83 of 2002 on special economic zones (SEZs). A research paper
(Emma Scott, “China goes global in Egypt: A Special Economic Zone in Suez”, August
2013) shows that since 2005, China has entered into joint ventures with Egyptians and
others, with initial investments totalling USD 334.47 million. These investments are
contributing to knowledge transfers and industrialisation in a number of manufacturing
sub-sectors: fibreglass, high- and low-voltage electrical equipment, textiles and
petroleum equipment. For example, Chinese investment has enabled Egypt to move along
the global value chain (GVC) within the extractive sector to manufacture petroleum
drilling rigs and related components for use by global oil companies operating in the
country.
Vodafone, Orange, Microsoft, Intel and Oracle have set up operations in Egypt that
serve their global clients in the information and communication technology (ICT) sector.
These players’ operations in Egypt span the entire GVC, from new product development
to provision of technical solutions to their global clients in state-of-the-art call centres.
For example, over 80% of Microsoft’s system software development in the Middle East is
performed by Egyptians, either in Egypt or in the Gulf countries, who focus on creating
user interfaces in Arabic and providing after-sales technical support, according to
the United Nations Conference on Trade and Development’s 2010 report “Integrating
developing countries’ SMEs into global value chains”. In addition to the Arabic language,
Egypt offers several advantages to the ICT sector, including proximity to Europe and the
Gulf, strong fibre-optic infrastructure for outsourcing services and a huge market that
drives up demand for product enhancements.
According to Egypt’s General Authority for Free Zones and Investment (GAFI), the
country has established over 100 SEZs that offer competitive incentives to investors,
including land, adequate supplies of utilities, high-grade road networks, tax breaks
and a one-stop shop for government services. Inspired by the Chinese experience,
Presidential Decree no. 35 of 2003 created the North-West Gulf of Suez Special Economic
Zone (SEZone). Situated next to Port Sokhna in the Suez Canal region, the SEZone is
organised in several light and heavy industrial clusters, including the automotive
industry, petrochemicals, pharmaceuticals, food processing and textiles. Information
from GAFI reveals that Egypt’s textiles sector is engaged in the full range of GVC-related
activities – from cotton cultivation to production of fabrics and ready-made wear – thus
creating about 30% of manufacturing job opportunities. Marks & Spencer, Levi Strauss,
Calvin Klein, Pierre Cardin and Tommy Hilfiger are examples of the international
brands that produce in Egypt. A Chinese-Egyptian industrial zone established in 2006
has benefited Egypt through the transfer of textile manufacturing technology. Egypt’s
natural resource endowments and locational advantage, with easy access to key markets
in Europe, Africa, and the Gulf, are key comparative advantages that the country offers
global players in the textile sector.
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The aviation sector provides the greatest opportunities for Egypt to expand its
participation in regional and global GVCs. According to the Ministry of Aviation, Egypt
has acquired the sole licence for a satellite-based communication and navigation system
that would cover the whole of Africa. In the view of the International Civil Aviation
Organization, all air navigation systems worldwide will need to migrate to a new
communications, navigation, surveillance/air traffic management (CNS/ATM) system
that is satellite-based and that will greatly enhance air travel safety. To capture the
benefits of this unique asset, the government has approached the African Development
Bank for support in bringing together Africa’s governments and private sector players
to invest in a geostationary satellite project called NAVISAT that will undertake the
requisite investments. The project will also deliver broadband Internet services to private
sector actors across the continent for a fee. Furthermore, because of its capabilities in
the aviation sector, Egypt is exploring opportunities to become the trainer of choice for
Africa’s national and private sector airlines.
Although Egypt has several comparative advantages that it can exploit to enlarge
its participation in current GVCs and open up new opportunities, it needs to overcome
several challenges and constraints. Improved governance is crucial if Egypt is to create
a favourable climate for private sector development. Such improvement would better
enable the country to leverage its solid infrastructure, competitive costs of production,
proximity to regional and global markets, and favourable bilateral trade agreements to
extract more activities from the GVCs. Increasing private sector participation in the statecontrolled textile industry, which is plagued by ageing machinery in ginneries, would
remove a binding constraint of outdated technologies and put Egypt in a better position
to compete with Asian producers of ready-made garments. Furthermore, formalising the
SME sector, which is characterised by low value added, would enhance the opportunity
for integrating such businesses in GVCs through twinning arrangements with global
players in Egypt’s SEZs and other areas.
The Ministry of Trade and Industry’s 2006 industrial development strategy aims to
broaden Egypt’s integration into the global economy through new niches in mediumto high-technology clusters. Building on this effort, the Ministry of Communications
and Information Technology (MCIT) has launched an ICT strategy (2013-17) that aims
to forger deeper public-private sector collaboration. The strategy calls for strengthening
legislation and technology infrastructure to transform Egypt into an ICT hub for North
Africa. The government expects this to create an enabling environment for higher
foreign investments that will create new jobs for Egyptians. The strategy mandates
MCIT to create an EGP 20 million fund to provide incentives for SMEs to capture value
in the GVC’s upstream activities in the areas of mobile and open-source applications.
The government hopes that the initiatives outlined in its ICT strategy will create over
100 000 jobs in 2014.
Although the tourism sector is performing poorly because of the ongoing political
crisis, the Egyptian Civil Aviation Ministry’s new strategic plan aims to increase the
capacity of Egyptian airports from the current 30 million passengers to 40 million by
2025. This is expected to create millions of jobs because of the sector’s close linkages
with the tourism sector and related business and recreational travel. In addition to
deepening the reach of EgyptAir in global aviation networks, the ministry is seeking
to capitalise on Egypt’s locational advantages to forge more linkages with the global
aviation economy. An important initiative in this regard is the unveiling, at the March
2013 Airport Cities World Conference and Exhibition in South Africa, of a USD 20 million
airport city development project at the Cairo International Airport. To create jobs, this
480 000 sq.m. facility will include recreational facilities, five-star hotels and a Disneyland
theme park that will enable Egypt to tap more deeply into the aviation and tourism
sectors’ GVCs. The first step that Egypt must take, however, is to tackle the current
political and security concerns in order to secure urgently needed FDI that would enable
it to participate more fully in the global economy.
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Equatorial Guinea
The country was radically changed in the 1990s when oilfields were discovered and went into
production. It was upgraded from a low-income, mainly agricultural country to a middle-income
country, the third largest oil producer in sub-Saharan Africa and the second main destination of
FDI – from foreign oil companies – in Central Africa. The country’s main trading partners are, in
order of importance, the United States, China, Spain, Italy and France, to which Equatorial Guinea
exports petroleum, methanol, timber and cocoa. Major imports include petroleum equipment,
food and beverages. The tremendous growth driven by the oil and gas sector has enabled the
development and improvement of basic infrastructure but has at the same time led to a decline
in agriculture, fisheries and forestry, making the economy highly dependent on the oil sector.
Oil reserves are estimated by the authorities at 1.2 billion barrels, or 10 years of production at
the current pace. The authorities are now focused on developing the petrochemical value chain
in order to increase the vertical integration of the domestic oil industry. The main opportunities
for foreign investors identified and highlighted by the government in the area of petrochemicals
are the gas industry, bioethanol and biodiesel, refining and industrial-waste recycling, paint,
asphalt, tyre retreading and plastics recycling.
Natural gas should provide half of the total hydrocarbon resources by 2016 and is being
considered as a remedy to the decline in oil production since 2012. The country aims to become
the regional hub for gas production. The first LNG terminal for exporting liquefied natural gas was
built in 2007, and a second terminal is scheduled to open in 2016. The government aims to build a
natural-gas collection system in the fields currently in operation (Zafiro, Alba and Alen) as well as in
future fields, with transformation planned in the Punta Europa port area. The country also wishes
to attract foreign investment to mine its gold, diamond, bauxite, tin, tungsten and coltan deposits.
Unused arable land, combined with strong demand for agricultural products both within the
country and in the region, has made developing agriculture and livestock a key vector in the
country’s economic diversification strategy. The government is seeking to attract foreign investors
in processing activities for animal feed and fertilisers; cocoa and coffee; soap manufacturing;
juice and derivative products; palm oil and coconut oil; packaging, processing and conservation
of fishery products; and canning. The main foreign company currently operating in this
sector is SOEGUIBE (a subsidiary of the French group Castel), which produces and distributes
300 000 hectolitres per year of drinks (beer, sugary drinks and mineral water).
Despite massive public investment to modernise infrastructure, Equatorial Guinea’s
industrialisation level is lower than the regional average. To take an active part in building global
value chains and to promote industrialisation of the economy, the authorities intend to improve
competitiveness, notably by setting up a one-stop shop for investors. The stated goal of the PNDES
is to diversify the economy to free it of its dependence on hydrocarbons and turn the country into
an emerging economy by 2020. To do so, the Equatorial Guinean government has committed
to supporting foreign investment by allocating XAF 500 billion to a joint investment fund, the
Fondo de coinversión (FCI), which testifies to the country’s determination to lay the groundwork for
economic diversification in order to achieve sustainable growth and create more jobs. The FCI
should support the country’s development in the key economic sectors identified for industrial
development: agriculture and livestock; fisheries; petrochemicals and mining; tourism; and
financial markets.
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eritrea
The Government of Eritrea considers global value chains as one of the main engines for
reducing economic volatility and improving growth. Major activities within the value chain are
currently performed in the provision of ancillary services, production of agricultural goods,
processing, natural-resource extraction, and sales and marketing. The mining sector has been
the biggest area of attraction with more than 14 mining and exploration firms from Australia,
Bermuda, Canada, China, Libya, the United Arab Emirates and the UK involved.
In the agricultural sector, China-based firms are increasingly investing in the construction
of cold food-storage facilities, an aluminium-tin manufacturing plant and a high-quality PVC
agriculture drip-irrigation pipe-production line. The government is strongly encouraging
companies and individuals to invest in building residential housing, roads, airports, ports and
hospitals. In the housing sector, Gruppo Italiano Costruzioni, an Italian firm, is constructing
1 680 housing units in the capital city, Asmara, as well as several housing projects and a resort
in Massawa. The main drivers of the development initiatives are embedded in the country’s
commitment to development through a self-reliance policy.
The Eritrean Investment Centre has been reaching out to potential investors and has provided
assurances of protection to investors in the country. The government also introduced a crash
programme for export take-off designed to penetrate the European and US markets (through the
US Africa Growth and Opportunities Act, 2000). Eritrea was thus able to export textiles/garments
to the United States free of duty and free of quota restrictions up to 2008.
Overall, the impact of the country’s participation in the value chain is noticeable, particularly
in job creation, infrastructure and capacity development and in increased revenue inflows. Direct
and indirect employment associated with the Bisha mine only is expected to amount to as many
as 700 jobs when in full operation.
The growth potential of agriculture has not been fully exploited mainly due to low connectivity
of the production locations, low levels of value addition and low productivity. The fishing value
chains are relatively well-developed, but there is considerable room for improvement. Key
investment opportunities in the fisheries subsector provide a potential of 90 000 km² of fishing
grounds, with an estimated annual production potential of between 65 000 t and 70 000 t of fish
and other marine produce. Demand for fish exceeds supply in urban areas and there is latitude
for increased domestic consumption. In addition, the Eritrea fisheries sector has the potential
to contribute significantly to Eritrean food security, foreign-exchange earnings and job creation.
The tourism sector has huge potential based on the scenic and topographic diversity of the
country as well as on its history, in addition to a long coastal line of pristine sandy beaches, many
islands and clear water with abundant marine life. There are also good investment opportunities
in developing the historical and cultural heritage of the country.
Investment in exploration activities for reserves of oil, natural gas and other minerals provide
a potential source for the expansion of export receipts. Offshore-oil and natural-gas exploration
are specific areas of potential investment.
In spite of these investment opportunities, the country faces many challenges, amongst
which low productivity in agriculture attributed to archaic farming practices and a land-tenure
system that vests ownership of land to the government.
Exploitation of the existing economic opportunities in Eritrea will require not only the
commitment of the Government of Eritrea and its people, but also regional integration and
international trade. The country therefore needs to undertake effective policy reforms, including
regional co-operation and integration policies, and develop a strong infrastructure base in
addition to the provision of sufficient energy, transport, communication and physical marketing
facilities, as well as adequate institutional and human-resource capacity and incentives. For
example, with adequate policy reforms and investment, there is ample room for accelerated
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agricultural development. By using modern cultivation, fertilisation, plant-protection and waterconservation techniques, large quantities of food crops, exports and raw materials for industrial
enterprises can be produced. The development of irrigated agriculture in the lowland river basins
is highly promising.
In the medium-term, Eritrea should consider the following key measures:
• Actions to deepen the value chain must be driven by market opportunities and demands.
Here, the Government of Eritrea must address barriers such as high infrastructure costs, lack
of access to finance (capital) and the limited availability of skilled workers and appropriate
incentives. In particular, it must address barriers facing small and medium-sized firms, as
these provide greater opportunities to deepen the value chain within the major economic
sectors.
• Policies aimed at supporting private-sector development in manufacturing and primary
input processing are also useful. There is great potential for Eritrea in processing agro-food
products for export.
• The government’s forthcoming development plan emphasises the move into higher valueadded activities. The government needs to consolidate these plans into one national plan
and detail out synergies across sectors. It should further develop a business environment
through the creation of supply-chain linkages between foreign and local firms in formal
manufacturing in order to foster the emergence of local manufacturing firms capable of
subcontracting tasks and subsequently competing with foreign firms. This will encourage
domestic firms to become more innovative and raise labour productivity in order to work
with multinational enterprises.
• To improve the country’s business climate, the government should make efforts to
develop human skills further and provide appropriate incentives in order to respond to
labour-market demands. The government, with assistance from the AfDB, is developing
the required skills and technical expertise through a vocational and technical training
programme. The government has asked the AfDB to support the programme continuously
over the medium term in order to close the skills gap in the country.
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Ethiopia
Ethiopia’s participation in global value chains (GVCs) and its relative share in total valueadded created by trade in GVCs are minimal both in forward and backward linkages. Ethiopia,
along with many African countries, is still in the initial stages of gaining access to GVCs beyond
natural-resource exports, highlighting the need for new strategies to enable better access to value
chains. Even those engaged in GVCs are not yet getting the full benefit. A representative producer
co-operative in Ethiopia gets only about 7% of the retail price of speciality coffee and this share
would decline to about 4% for non-member (private) coffee exporters. The selling price of cut
flowers from Ethiopia is about USD 0.183 per steam while the retail price in the European market,
where the bulk of Ethiopian cut flowers are destined, is about USD 9.09. This makes the share of
the Ethiopian exporters in the vicinity of about 2%. Notwithstanding the extremely small share of
the retail value that accrues to the cut-flower exporters, the sector has shown respectable growth,
mainly due to favourable government support to the sector, along with a conductive climate. The
Ethiopian flower industry represents an extraordinarily fast and successful diversification into a
non-traditional export product. The floriculture industry began to emerge in the early 2000s and,
within a decade, Ethiopia became the 5th largest non-EU exporter to the EU cut-flower market
and the 2nd largest flower exporter from Africa (after Kenya). One of the largest shoe exporters
in China – Huajian – set up a factory in Ethiopia in 2011, as part of a plan to invest USD 2 billion
over 10 years in developing manufacturing clusters focused on shoemaking for export. The
company has the potential to create 100 000 jobs over this period and will integrate local input
manufacturers into global supply chains.
Ethiopia has many natural resources that can provide valuable inputs for light manufacturing
industries serving both domestic and export markets. Among its abundant resources are cattle,
which can be processed into leather and its products; forests, which can be managed for the
furniture industry; cotton, which can support the garments industry; and agricultural land and
lakes, which can provide inputs for agro-processing industries. Ethiopia has abundant low-cost
labour which gives it a comparative advantage in less-skilled, labour-intensive sectors such as
light manufacturing. The Ethiopian livestock value chain can become a thriving industry that
can produce packaged meats destined for Middle Eastern, European and East African markets, or
fashion gloves and shoes that sell in volume on the high streets and boutiques of Europe. To reach
this level of development, operators and investors along the value chain might consider how to
improve the quality and value of meat exports by establishing a standardised grading system for
meat and live animals; encouraging more supply into the abattoirs to increase capacity utilisation,
thereby lowering costs; improving cost competitiveness and providing more raw material for
leather producers; and introducing proper and improved feeding, fattening, animal health care
and other services while encouraging foreign and domestic investment at all points along the
value chain. Ethiopia has identified the leather and leather products value chain as one of the
promising industries in the country. The leather value chain’s potential is to become a leading
supplier of leather and leather-based products to fashion houses in Europe and Asia.
Important issues facing the agro-processing industry as it strives to strengthen its
capabilities in the face of increasingly fierce global competition include lack of sufficient supply
of raw materials to meet demand, lacks of a price incentive that reflects premiums for superior
quality; limited foreign and domestic investment in the value chain and lack of access to
operating capital; lack of specialisation necessary for accessing key niche markets in Europe and
Asia; low worker productivity and weak backward and forward linkages. By addressing several
shortcomings, including increasing the supply of animals into the abattoirs, improved collection
and introducing quality standards, the promise of accessing the globe’s leading buyers of leather
can be realised. Friendly macroeconomic policies and domestic administrative reforms would,
properly sequenced, enable Ethiopia to use its abundant factor of production – cheap labour – to
drive its development on a basis less vulnerable to the risks inherent in rain-based agricultural
production, including participation in the processing trade. The government can follow the course
pioneered by a succession of Asian nations by taking the initiative to accelerate the realisation
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of latent comparative advantage in segments of light manufacturing in which specific, feasible,
sharply focused, low-cost policy interventions can deliver a quick boost to output, productivity,
and perhaps exports, opening the door to expanded entry and growth. The value chain requires
efficient services as well as the possibility to move people, capital and technology across
countries. Policy should thus address obstacles at all points of the value chain, especially on the
trade logistics. As mentioned earlier, Ethiopia’s performance in trading across borders is relatively
weak. Globally, Ethiopia stands at 166th in the ranking of 189 economies. Policies and strategies
are not yet tuned towards the forward and backward linkages of the Global Value Chains.
The GoE, under its GTP, launched a strategy openly to lay the foundation for a rapid structural
transformation in the economy to benefit from the GVC. The vision is building an economy which
has a modern technology and an industrial sector that plays a leading role in the economy. The
significance of expanding the industrial sector lies in its capacity to help transform other sectors,
particularly agriculture. Efforts are currently marshalled through a holistic, comprehensive
industrial development policy and incentive packages. Textiles and garment, leather and leather
products and agro-processing have got due attention. FDI in these sectors, especially in the
industrial parks, is flowing in. Several multinationals are vying to be part of the new governmentdeveloped industrial zones that are being established in Addis Ababa, and in other areas around
the country. Some 20 foreign companies are setting up in the Bole Lemi industrial zone on
the outskirts of Addis Ababa, the first of its kind constructed by the government. The Eastern
Industry Zone, developed and owned by a Chinese firm some four years ago, paved the way for
the government to realise potential in the area. The export sector and foreign direct investors
have received a lot of encouragement through tax and non-tax incentives. More precisely, in
its Agricultural Sector Policy and Investment Framework, the government has planned to
address the bottlenecks, through increased rural commercialisation, increased private-sector
participation and natural-resource management. The industry policy advocates export-oriented
industrialisation that could be taken as support towards increased participation in the global
value chain. In addition, the ongoing negotiation for accession the WTO is another commitment
by the government that would indicate the country’s prospects for increased participation in the
global value chain.
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GABON
In 2010, Gabon initiated a strategic plan to propel itself to the status of an emerging economy
by 2025. The plan is underpinned by a sweeping reform programme aimed at diversifying the
economy and making the industrial and services sectors more competitive while preserving the
country’s great environmental wealth. Implementation of this programme since 2011 has brought
heavy public investment and an industrial policy involving the development of SEZs to attract
FDI, PPPs and acquisition of equity stakes in Gabonese subsidiaries of large multinationals.
In line with this industrial policy, Gabon issued USD 1.5 billion in eurobonds on 5 December
2013, in order to reduce its borrowing costs and finance part of the new infrastructure in the port,
airport, road and energy sectors. The government, observing the stalled implementation of the
Bélinga iron mining project, has undertaken to review the agreement on mining operations that
it signed with Compagnie des mines de Bélinga (Comibel), which is 75% owned by China National
Machinery & Equipment Import & Export Corporation. The Government of Gabon has acquired
180 000 shares of the Chinese holding company and now owns the entire capital of Comibel.
Gabon’s entire industrialisation strategy rests on the timber industry. The sector is booming,
and forests, which cover nearly 85% of Gabon, offer opportunities to reduce the country’s
dependence on oil, fight poverty and improve living conditions. With more than 400 tree species,
Gabon has immense ecological wealth. Given this potential, the authorities decided in 2010 to
stop exporting raw logs in order to encourage local processing. It should be noted that Gabon has
long exported its wood as logs, even though the forestry code of 2001 stipulated that 75% of logs
should be processed in Gabon. Research studies demonstrated in 2012 that only 35% of logs were
actually processed in the country. The ban on exporting raw logs is aimed at creating jobs and
boosting profits by exporting semi-finished products ready for consumption on the world market.
The government created an administrative body, the timber industry office (Bureau industrie
bois), to support the industrialisation of the forestry sector and to provide training to industrial
operators.
Until 2008, China was the leading importer of processed wood from Gabon, with 1.1 million m3,
followed by France, which at the time accounted for 14.3% of the market share. When exports of
raw logs were prohibited, Europe became in 2012 the largest importer of processed wood products
from Gabon (42% of sales), ahead of Asia (36%), Africa and the Americas (22% combined).
The creation of the Nkok multi-sector SEZ made it easier for new foreign firms to set up shop
in Gabon. Of the 62 investors in the SEZ in 2013, 40% operate in the timber industry, and the
number of factories rose from 81 in 2009 to 114 in 2013. The number of jobs in the sector rose from
4 000 in 2009 to nearly 7 000 at year-end 2012. The boom in the sector also prompted the start-up
of small and medium-sized transport firms to haul logs from the interior to the SEZ, as well as
services and handling companies to maintain vehicles and mechanical equipment.
At the regulatory level, Gabon, with the support of foreign firms, has introduced an
international standard, the Forest Stewardship Council (FSC) label, guaranteeing that its timber
is harvested from a sustainably managed environment. The authorities have also introduced
a “legality and traceability grid”, managed by the AEAFB, an agency that checks up on forestry
operations and certifies that their activities are in compliance with regulations. Gabon is thus in
compliance with the criteria set by the European Union, which requires traceability of all wood
imports to Europe in order to be sure that they are in compliance with regulations and were not
harvested illegally.
The central government has also reviewed the missions of the national forestry/timber
company SNBG. Opening its capital to foreign investors enabled this public enterprise to build
an industrial complex that attracted many more outside investors, and SNBG’s capital increased
from XAF 4 billion to XAF 10 billion. The complex can now handle all stages of processing,
including slicing, sawing and plywood production. This acquisition offers new opportunities for
the sector and gives it an advance over the other Congo Basin countries. Gabon has become
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the main timber-processing location in the region, with a wider potential market. A training
centre specialising in forestry and timber-processing trades is to be opened in 2014 at Booué,
in the Ogooué Ivindo province. It will train technicians, engineers, sales representatives and
maintenance staff qualified to work at every stage of the timber industry.
The new petroleum and gas institute, the Institut du Pétrole et du Gaz (IPG) will train young
Gabonese for jobs in the extraction and management of oil resources. The IPG, which was founded
through a PPP with oil companies operating in Gabon, will give its trainees access to positions
of responsibility. It will accept students at the master’s level for an 18-month training course
that delivers both theoretical and practical knowledge in a learning environment that simulates
actual operating conditions.
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GAMBIA
The Gambia is connected to global value chains through two main sectors: tourism and nuts.
Tourism and nut production are the main foreign exchange earners outside the re-exports sector.
We will analyse in this section the tourism and cashew nut sectors for which information is
available.
Tourism value chain
Tourism has become the fastest growing sector of the economy, contributing 12% of the
country’s GDP and 3.8% of total employment in 2011. In 2012 about 175 871 tourists visited the
Gambia in comparison to 91 000 arrivals in 2010. Tourism’s contribution to GDP is targeted to
increase to around 18% by 2020, which implies that tourism will grow considerably faster than
other sectors of the economy.
Tourists mainly come from the UK (54.6% of traditional markets in 2012), Holland (17.9%)
and Sweden (7.3%) because of proximity (only 5 to 6 hours by air from the airports of northern
Europe). As the destination is almost entirely dependent on the charter flights of the major tour
operators, decision making about capacity is in the hands of the UK-based tour operators. The
Gambia is very vulnerable to any downturn in the demand for sun, sand and sea tourism in its
originating markets. This form of tourism is highly competitive, with new beach tourism and
winter sun destinations being developed. Tourism in The Gambia is highly seasonal, with most
of the originating market tour operators only operating from November to April. From the UK,
Gambia Experience is the only major all-year operator and its charters constitute the scheduled
service between London and Banjul.
The Gambia Tourism Board (GTB) was established in July 2001 to promote, develop, regulate
and oversee the tourism sector in the Gambia. This is comprised of hoteliers, travel businesses
and entertainment. The GTB is also responsible for advising the tourism sector and it offers a
one-stop-shop service; the board is aggressively marketing and promoting foreign and local
investment in the tourism industry. It also works in co-operation with its European partners to
develop sustainable tourism products and services in Africa.
The Gambia is seeking to diversify its tourism brand from a low-cost budget “sun, sea and
sand” destination to more upscale attractions cross-country. Incentives are being offered to
investors through the Investment and Export Promotion Act, the Gambia Tourism Development
Master Plan (developed in 2006) and the national development strategy. These incentives are
aimed to benefit eco-tourism, national heritage, up-country tourism, tourist camps, sport fishing,
river sports and cruising, 4/5 star hotels, integrated resorts and marinas.
The Gambia Tourism Development Master Plan highlights key priorities in order to ensure
more spill-over of tourism earning to the rest of the economy. These include infrastructure
development, especially in terms of increased access to the interior and agricultural linkages.
For agricultural linkages, the short-term strategy includes the promotion of local products in
hotels and restaurants, while the medium-term strategy focuses on improving the functioning of
the horticulture supply-chain to the food service industry in terms of wholesalers and women’s
groups. To address seasonality, the Master Plan emphasises the need to target niche markets,
including through the conservation and exploitation of natural and cultural heritage sites and
areas.
The structure of the Gambian tourism sector is concentrated with a few package operators
that work with only 4 national operators and approximately 20 hotels along the coast. The
package holiday value chain accounts for the majority of tourism into the country. In an
Overseas Development Institute (ODI) study of March 2008 by J Mitchell and J Faal, “The Gambian
Tourist Value Chain and Prospects for Pro-Poor Tourism” the authors calculated that one-third
of the package holiday value remains in-country while the remainder is retained abroad by air
transport companies and international tour operators. In the case of out-of-pocket expenditure
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from tourists, though, a much larger share remains in the country and much of this spending
has relatively high pro-poor impacts. The ODI calculations conclude that overall “14% of the
Gambia-based part of the value chain flows directly into the hands of the poor.” For agriculture
in particular, the use of local inputs for food and beverage sales to tourists has been estimated to
translate to about 1 million British pounds (GBP) at the farm gate.
Aside from policy reform, such pro-poor benefits can also be attributed to in-country
initiatives such as Gambia is Good (GiG) which works to strengthen linkages between the fruit
and vegetable sector and the tourism industry and the Association of Small-Scale Enterprises in
Tourism (ASSET). The Tourism Challenge Fund through ASSET had also resulted in formalising
some small and medium enterprises (SMEs) enabling them to enter the tourism value chain.
For example, it has been reported that beach, fruit sellers and juice pressers adopted a code of
conduct to reduce the hassling of tourists and established stalls so that they no longer needed to
hawk for business on the beaches. Guides and craft workers took similar initiatives, and hoteliers
invited craft workers to sell within the hotels on a rotational basis. Fruit sellers’ incomes increased
by 50%; juice pressers’ by 120%; guides’ by a third; and craft workers in the market reported a
doubling of their incomes and 43 new jobs.
Though the country has achieved a relatively high multiplier effect from tourism, such
returns are mainly limited to coastal areas. By promoting up-country eco and cultural tourism,
the Gambia can expect greater benefits to the poor. In order to promote investment in such
opportunities, an enabling environment needs to be created through land and river networks
and ICT to increase accessibility.
Cashew value chain
Cashew occupies a prominent place in the international trade of nuts, accounting for nearly
20% of total trade by weight. West Africa currently harvests about 650 000 tonnes of raw cashew
kernels per year, which makes up 30% of the world crop. The vast majority (95%) of the cashew
produced in West Africa are exported to India, where the kernels are baked, stripped of their
shells, and processed into edible cashew nuts before being sold locally and internationally.
Although the price of cashew has been variable in the past, the trend is leaning on the upside.
The price spike in 1998/99 was caused by crop shortfalls and processors contracting in advance
for more product than they were able to deliver.
Currently more than 1.2 million small-scale farmers grow cashew in West Africa. The current
yields in cashew farming in West Africa stand at around 400kg/ha. This is low considering the
potential yield of 1 500kg/ha if best cashew farming practices were adopted. With the help of
the Africa Cashew Alliance, the region is developing into an increasingly significant producer
and processor of cashew nuts, feeding into lucrative markets in India. The benefits of developing
a local processing industry in West Africa are evident: fairer prices for farmers selling to local
processors, reduced unemployment, improved rural food security and improved income for
farmers. Countries with the best business environment and government commitment are likely
to see the fastest increase in processing industries.
At independence in 1965, the Gambia was dependent on the production and export of nuts,
a sector which has subsequently declined in relative importance as tourism has grown in
significance. Nut production now accounts for some 10% of GDP. In this section we will focus on
cashew nuts which are better integrated in the global value chain and accounted for 62% of nut
production and 44% of total exports in 2013. Cashew was introduced in the Gambia in the 1960s
and was originally intended as a fire break surrounding forest areas. Cashew production as a
cash crop has increased significantly since 2000, especially for small farms in the West Coast and
North Bank regions. The production of raw cashew nuts has multiplied by more than 20 times in
fewer than 10 years, from an estimated 150 tonnes in 2001 to 6 500 tonnes in 20091. Production is
estimated to have reached 10 000 tonnes in 2010. The Gambian government is keen to support the
cashew sector as one of the value chains earmarked to achieve the country’s trade development
objectives.
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The economic environment of the Gambia is ideal for investing in cashew nuts. Notable
among these ideal conditions are: very good drying conditions, a superior quality nut (nut count
of 190-210 per kilogram and an outturn of 23-28 kilograms of kernels per 80 kilograms of raw
cashew nuts) comparing well to nut production in Senegal and Guinea Bissau. The cashew is
mostly purchased by seasonal Indian exporters. There is currently no major purchaser of cashew
nuts and, as a result, farmers are never sure of whom to sell their products to, and at what price.
Over the years, however, the price of raw cashew nuts (RCN) has steadily increased as a result of
increasing global demand and the quality of the Gambian crop. Currently, the cashew throughput
at the ports is estimated at 54 000 tonnes annually which is an 8% increase over 2009.
The Gambian cashew nut value chain includes several different stages between the farmers
and processors which further squeezes the margins of the farmers. Specifically, after the postharvest handling, purchasing is generally handled by middlemen, village shop owners, and
collection agents. The product is then transported to either local exporters, seasonal Indian
exporters, or to national stockists. National stockists, who are mostly Gambians, are generally
local businessmen who stand to make a profit by buying, storing, and selling nuts to seasonal
Indian buyers. Almost all of these nuts that are purchased are eventually shipped to India for
processing.
The value chain would need to overcome a number of challenges to enhance wealth creation
opportunities: i) marketing challenge, i.e. lack of official cashew buying centres in the Gambia;
ii) no processing facilities; iii) farmers and technicians in need of best practices training; iv) no
processing done on the cashew apple; v) insufficient and expensive transportation from rural
farming areas to urban areas; vi) lack of storage and drying facilities at the farm level.
Cashew processing in the Gambia is negligible: only between 5-10 tonnes are processed
annually. A large proportion of cashew nuts are exported to processors in India. With the
165 000 tonnes of cashew nuts that come out of the region, there is an opportunity for companies
to set up processing facilities in the Gambia and to become a major processor in Africa. The
advantage of the location is its efficient and cost-effective port system relative to that of the subregion.
Another potential venture would be processing of the cashew apple. This would be a venture
for which the input would essentially be free as farmers in the region throw cashew apples away.
In some parts of the world, the pulp from the cashew apple is used to make juice, spirits, and
jams. Another serious potential for the cashew apple is ethanol production.
Note
1. In 2009, the production was about 2 000 000 tonnes for the whole world, 124 000 tonnes for Guinea Bissau
and 35 000 tonnes for Senegal.
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GHANA
Strategic and selective integration in global and, in particular, regional value chains offer
opportunities to Ghana to develop its industrial capabilities and diversify its sources of growth.
Ghana’s economy has not undergone a significant structural transformation, despite a sustained
annual average economic growth of 5% since 1990. Indeed, agriculture still provides over 60% of
total employment and primary commodities, mainly oil, gold and cocoa, correspond to over 80%
of total exports. For Ghana to sustain this high growth rate and create sufficient employment will
likely depend on its capacity to develop its industrial sector and on the linkages it creates with its
emerging oil and gas sector.
Ghana’s industries are characterised by a small number of leading firms dominating the
sector. Five sub-sectors – metal products, wood products, fats and oils, plastics and rubber and
pharmaceuticals – represent over 50% of Ghana’s non-primary commodity exports. Since 2000
the industrial sector’s share of GDP has remained stable at around 25%. Construction, driven by
an urban housing boom and infrastructure development, became the largest sub-sector, while
manufacturing’s share in industrial GDP has declined from 36% to below 30%.
Energy provision and access to finance are the two most pressing hurdles facing Ghana’s
manufacturing sector. The rising cost of energy has eroded manufacturers’ profit margins, while
erratic energy supply results in expensive loss of production and the need to use fuel for electricity
generators. The high cost of credit and the inadequacy of Ghana’s financial sector to provide financing
adapted to the needs of the manufacturing sector makes it hard for SMEs to scale up production,
modernise their machinery and raise their competitiveness. As a result most natural-resource-based
manufacturers (wood, metals, agri-business) prefer to be fully integrated, so as to control and ensure
the quality and reliability of their inputs, ancillary services, logistics and distribution channels.
The Ghanaian government has launched several strategies to promote Ghana’s
industrialisation process: the Industrial Policy (2010), the Industrial Sector Support Programme
(2010), the Trade Sector Support Programme and the Export Promotion Strategy (2013). These
strategies are very broad based and their design process was inclusive, yet, the lack of clear
priorities and low implementation capacity due to financial challenges has limited their impact.
This absence of decisive government action, combined with a difficult business environment
and poor transport infrastructure render most of Ghana’s manufacturing sector uncompetitive
on international markets, which complicates its integration into global value chains (GVCs) or its
ability to compete against imported products.
In 2013 the government started to develop a strategy, which it aims to implement in 2014, to
promote the integration of specific sectors into GVCs, including aluminium, textile, agri-business,
plastics and pharmaceuticals. So far Ghana’s integration into GVCs has been limited and is largely
driven by the existence of preferential trade agreements (ECOWAS, AGOA) or its natural resource
endowments (bauxite, tropical wood, cocoa, fresh fruits and gold). Ghana’s relative low labour
productivity is not sufficiently offset by the relatively lower wages in Ghana to attract efficiencyseeking industries on a large scale.
Rising consumer demand in regional markets (Togo, Burkina Faso, Nigeria, Côte d’Ivoire, etc.)
offer significant export potential to Ghanaian manufactures and could facilitate their insertion
into GVCs over the medium term. By eliminating tariffs the ECOWAS export-liberalisation
trade system (ELTS) offers Ghanaian exporters a competitive advantage over cheaper imports
in regional markets. Additionally, regional markets typically require lower and more accessible
standards than EU or US markets. Most Ghanaian manufacturers cannot bear the costs of adapting
to frequently changing and increasingly demanding standards and consumer preferences of US
and EU markets. For instance, the AGOA trade agreement spurred a revival of Ghana’s garment
industry in the early 2000s, exporting shirts, trousers and scrubs to large US retailers. However,
the recent energy crises have severely impacted the viability of the sector and forced most smallscale producers out of business.
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Additionally, the longstanding presence of some of Ghana’s leading firms, in some cases since
the country’s independence, has enabled the country to develop Ghanaian brands in textiles
and pharmaceuticals that are recognised and valued by consumers in the sub-region. Also, in
comparison to cheaper imports, “Made in Ghana” is considered to be of premium quality for
construction material (aluminium, steel, plastics and wood). This quality premium compensates
for the higher price of the product and targets middle-class consumers and formal entrepreneurs
in ECOWAS countries. Yet, for most African citizens “low price” remains the decisive factor
in the decision to purchase, resulting in the rising popularity of cheaper Chinese (light tools,
construction material, furniture, plastics, etc.) and Indian (pharmaceuticals) imported and
counterfeited products. This trend threatens existing brands and local production capacity.
Ghana’s comparative advantage in integrating GVCs resides in its natural resources,
including cocoa, tropical wood, fisheries, fresh fruits and bauxite. Yet, poor infrastructure,
unreliable agricultural production and lack of clear land-tenure rights constrain the development
of competitive agro-processing for the potential domestic market that is currently met from
imports. Ghana’s wood-processing industry, once exporting tropical wood to the EU and
regional markets, is threatened by resource depletion and insufficient reforestation. Antiquated
machinery and unskilled labour render processing lower value wood uncompetitive, compared to
cheaper processed wood from Asia. Ghana exports bauxite to Central America for processing into
Alumina, which it then re-imports as inputs for the Aluminium smelter VALCO. VALCO’s output
serves as inputs to Aluworks, West-Africa’s only rolling mill and producer of aluminium ingots.
Government provides incentives to attract foreign investors as well as to ensure the
competitiveness and survival of most of the nation’s leading firms. The Ghana Free Zone Board
offers significant tax incentives to 260 companies that export at least 70% of their total production.
These companies do not need to be located in an enclave, which enables agri-businesses and
mining companies to benefit from free-zone incentives while being located close to their raw
inputs. Other policies include import duties to protect local industries, including plastics,
aluminium and alcoholic beverages or export bans on round logs and metal scrap to ensure the
provision of raw materials for the wood and metal processing industry.
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Guinea
Guinea’s small industrial structure and energy supply problems hinder its inclusion in global
value chains (GVCs), which are chiefly in mining, chemicals (plastics, paint and cement) and
agro-food. The small value-added operations are in mining, assembling and packaging semifinished products and selling them locally and sub-regionally. The unskilled labour-intensive
factories involved hire mainly machine operators.
Guinea has abundant mineral resources and about 6.2 million hectares of arable land, with
45% of the population under the age of 30. It borders six countries and actively participates in
sub-regional organisations. It has also signed up to the African Growth and Opportunity Act
(AGOA) and has partnership agreements with the European Union. These give the country great
advantages in joining GVCs, especially for making metal parts for vehicles and construction,
supplying raw materials to agro-industries, assembling garments, and for tourism. This potential
is greatly under-used, as the country does not advertise itself and business activity is focused in
commerce and construction.
An industrial policy, which has been lacking for years, should focus on establishing industrial
production stages. But poor and erratic electricity supply is still a major obstacle and the
inauguration of the Kaleta hydro-electric dam is a big opportunity. The improved business climate
is important but private property and contracts need to be more secure. The 58.7% primary school
completion rate is still below the 2012 UNESCO-calculated sub-regional average (67%), as is the
34% adult literacy figure (69%). Beyond these inadequacies, research and development activity
could be promoted.
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Guinea-bissau
Generally speaking, Guinea-Bissau is only weakly integrated into global value chains (GVCs).
With an industrial and commercial fabric that is structurally underdeveloped, the production
of goods and services in the country contributes little value added. Industrially, after significant
growth in recent years pushed value added in manufacturing up from 8.8% of GDP in 2002 to
13% in 2005, this share fell to 11.7% of GDP in 2012. Apart from the low levels of value added, the
industrial sector represents only a tiny portion of the country’s exports (less than 5% of total
exports), with a trivial amount of FDI supporting its development. This final point is partly linked
to Guinea-Bissau’s political instability in recent decades, as well as to a lack of the infrastructure
needed for production. Similarly, extractive resources are scarce, with no prospects for the short
or medium term.
The only sector which can claim to be integrated into GVCs is that of the cashew nut. GuineaBissau is indeed a major producer: in 2013, cashew nut production amounted to 150 000 tonnes
(16% of total African production), accounting for 11.9% of the country’s GDP and 87.7% of its
exports. Less than 5% of the cashews produced are processed in Guinea-Bissau, however; the
rest is exported raw, mainly to India (more than 80%), where it is mixed with local production or
that imported from other countries and processed. In order to capitalise on this resource, in 2011
the government created a fund to promote the industrialisation of agricultural products (FUNPI)
to encourage processing, research and development. This fund is financed by an export levy
that has fluctuated between XOF 10 and XOF 50 per kilo several times since its implementation.
The government collected the equivalent of 2.1% of GDP from the FUNPI, but this has yet to be
employed in such a way that it effectively contributes to the sector.
In addition to the cashew nut, the agricultural and agri-food sectors have great potential. GuineaBissau enjoys an abundance of natural resources with good quality land, extensive biodiversity,
significant fishing resources and ample rainfall, receiving an average of 1 500 to 1 900 mm over
112 days. Productivity nonetheless remains weak with low yields (around 1.7 tonnes per hectare
for rice and 0.8 tonnes per hectare for millet and sorghum). The use of these resources has not
led to economic progress that matches the existing potential, due to a lack of hydro-agricultural
improvements, inputs and infrastructure to support production. In addition, the land law approved
in 1998 has been only partially implemented, preventing the sector from developing. The annual
grain requirement exceeds annual production by 100 000 tonnes, the gap mainly being plugged
with rice imports. In addition, political instability and logistical problems have slowed agri-food
investments. There are only a few isolated cases of foreign investors, mainly involved in rice
cultivation (production and processing) and in horticulture in the Bafatá region.
There are several main obstacles preventing Guinea-Bissau’s integration into GVCs. First, the
political situation over the past 20 years has hindered investment. The country has inherited
an unfavourable business environment, heavy regulatory burdens and obsolete physical
infrastructure. In addition, the general lack of resources has prevented Guinea-Bissau from gaining
any competitive advantage in terms of the workforce – by investing in training, for example – or
from stimulating research and development so that it might benefit from the favourable regional
trade policies in the WAEMU area.
Successive governments have drawn up a variety of sectoral policies with a view to boosting
production levels and attracting investment that could potentially promote the integration of the
country’s production base into GVCs. These strategies have been interrupted a number of times,
however, due to a lack of resources for their implementation. Overall, these strategies are set out
in the poverty reduction strategy paper, which advocates: i) strengthening the rule of law and
greater security for investors; ii) a stable macroeconomic environment to guarantee a framework
for growth; iii) promoting inclusive and sustainable economic development to support growth
sectors; iv) improving human capital, thus boosting levels of production and of productivity.
These are the conditions that will allow sectoral policies, in particular for cashew nuts, to bring
about successful participation in GVCs.
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kenya
Kenya has a range of value chains in floriculture, textiles, leather, automotive production,
intermediate and final manufacturing, music industry and tourism. It is evident that the country
is generally at the low end of the value chain, given that a large component of Kenya’s exports is
in raw materials (e.g. coffee, tea, animal products) which have low foreign value added content
(Box 1). For example, though Kenya has been integrated in the global leather value chain, this has
not been done in a manner that is beneficial to the country and the local industry players. There
is little value addition and about 70% of the exports from Kenya are raw hides and skins. Analysis
also shows an industry that has been neglected after liberalisation, one that suffers from poor
regulation and weak policy support. The production of processed leather has actually declined
and installed capacity utilisation is below 50% in all tanneries. The competitiveness of the sector
is weak compared to Asian countries.
The range of barriers to global value chains (GVCs) in Kenya include are domestic, regional
and international. Local barriers to GVC prospects include policy gaps, corruption, poor transport
infrastructure, crime and insecurity, high cost of energy (esp. electricity), land tenure issues;
high cost of finance; lack of economies of scale for small firms and poor financial intermediation,
among others. Regional and international barriers include tariffs and quotas, technological
barriers, currency fluctuations, political risks and market failures, among others. Though Kenya
has surplus and fairly well trained manpower, some industries have not been able to find ready
and appropriately skilled personnel due to mismatches between the training provided by Kenyan
institutions and labour market requirements. However, as part of Kenya’s long-term plans
contained in the Kenya Vision 2030 and occasional curriculum updating, a number of policy
reviews are being made to ensure schools equip graduates with market demanded skills.
In promoting growth, trade, jobs and development, Kenya has sought to increase domestic
value added from GVC participation, through such policies as import substitution, subsidies,
tax holidays, export processing zoning, export promotion, export compensation, and industrial
property legislation. Many of these policies have had implementation and/or outcome challenges;
for example the import substitution policy failed to build international competitiveness, but
instead created a scenario where Kenyans paid higher prices than they would have otherwise
while the country’s ability to export diminished, leading to skyrocketing and enduring balance of
payments deficits, before it was finally abandoned. The EPZs, through such programmes as AGOA
(where Kenyan-based firms primarily make and export apparel to the USA), have led to significant
increase in exports and employment, though the expected technology and skill transfers as well
as backward linkages have not been realised, which suggests a low chance of sustainability once
the AGOA arrangement comes to an end. The tax holidays ended up benefiting foreign investors
at the expense of Kenyans, as most of them tended to relocate at the end of their respective grace
periods.
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Box 1. Participation in global value chains (GVCs)
Sector
Sub-sector
Activity in the GVC performed in the country
Agriculture
& Agro-processing
Floriculture
Utilisation of imported chemicals and equipment
Production and export of cut flowers for repackaging and resale
Tea
Utilisation of imported chemicals (e.g. fertiliser) and equipment
Production and export of processed tea for repackaging, rebranding and
resale; exported tea also used in blending other teas and beverages
Coffee
Utilisation of imported chemicals (e.g. fertiliser) and equipment
Production and export of coffee beans for foreign processing; a small
percentage processed locally for use by residents and tourists, with some
exports to the COMESA region
Leather
Utilisation of imported chemicals and equipment
Production and wet-processing of leather; bulk of which is exported for final
processing and making of final products
Textiles
Utilisation of both local and imported raw materials
Utilisation of imported chemicals and equipment
Export of final products to US and other markets
Edible Oils
Utilisation of both local and imported inputs
Utilisation of imported machinery
Sale of final products to both local and export market
Automotive
Utilisation of imported CDKs and semi-processed inputs
Utilisation of local inputs (e.g. upholstery and fabricated parts)
Sale to both local and export markets
Plastics
Utilisation of imported raw and semi-finished inputs
Utilisation of imported machinery
Sale to both local and export markets
Utilisation of imported inputs
Utilisation of imported machinery
Sale of final products to both local and export market
Manufacturing
Petrochemicals
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lesotho
Livestock, textiles and clothing are the main areas where Lesotho has attempted to participate
in regional and global value chains. Though currently undeveloped, opportunities for value chains
also exist within mining, agro industries and the natural resources sector, such as sorting, cutting
and polishing diamonds. Livestock plays an important role as a source of livelihood, contributes
about 4% of Lesotho’s GDP and has considerable potential to contribute to poverty reduction. It
also accounts for 60% of total value added in agriculture. The sector is largely in the hands of the
private sector, which operates with underdeveloped value chains. Value-added interventions in
the agriculture sector would have an immediate positive impact on the livelihood of the majority
of the population.
The clothing sector plays a crucial role in Lesotho’s economy, accounting for 60% of total exports
and employing 80% of Lesotho’s manufacturing workforce. It provides more than 30 000 people,
mainly to women and young people and is the second biggest employer after the government.
Asian and South African investors and manufacturers dominate the industry. Asian companies
have more market control than South African enterprises as they are linked to US value chains.
However, the South African market is increasingly important. While Asian investors operate in
Lesotho to take advantage of US market concessions under the African Growth and Opportunity
Act, South African manufacturers are attracted by favourable labour conditions, including wage
differentials as well as ease of access to South Africa and SACU markets. The Lesotho clothing
sector is a buyer-driven value chain common in labour-intensive consumer industries and
characterised by decentralised, globally dispersed production networks, co-ordinated by lead
companies that control activities that add value to products. Textiles and clothing manufacturing
in Lesotho is linked to two important value chains comprising of the US value chains, which are
global, and the South African one, which is regional.
While the two sub-sectors have good opportunities, they are constrained and measures
have been recommended by recent studies on value chains in Lesotho. There is good potential
for developing textiles and clothing as well as livestock value chains regionally although global
opportunities are also available. For livestock the opportunities are mainly regional focusing on
wool and mohair. These are the only well-developed livestock value chains in the country and
have enormous trade connections with South Africa. Lesotho can also develop poultry, meat and
egg marketing value chains.
In textiles and clothing, Lesotho could supply South Africa the products traditionally bought
from China. It has a cost and time advantage over Chinese suppliers. In this respect, Lesotho-based
South African-owned firms can remain cut trim and make suppliers. Alternatively, upgrading
opportunities exist where more advanced functions based in South Africa could be shifted to
Lesotho, where firms could strengthen their value chain links. There are also opportunities for
integrating in value chains in Asia and other countries such as Russia for textile and clothing
exports.
Lesotho must overcome formidable challenges to fully harness the regional and global value
chains. In livestock, there is poor genetic quality, poor nutrition, diseases, low-quality products
and stock theft. Other constraints relate to limited knowledge and business management skills,
market requirements, poor access to technology, weak market links and limited access to
investment and financial services. The textile and clothing industry also suffers from limited
skills and industrial capabilities as well as poor infrastructure. In view of the required skills
levels, high-value activities such as design, marketing and retailing remain with lead companies.
While upgrading and shifting more functions and responsibilities to staff in Lesotho is desirable,
South African firms are sceptical about the availability of skills in Lesotho.
Unless strategic moves are made, the benefits of the livestock, textile and clothing industries
will be limited. In livestock, there is need to build capacity in value chains by training farmers,
developing entrepreneurship in young farmers and strengthening farmers associations, focusing
specifically on dairy, poultry and pig farmers’ groups. Other interventions could be to extend
credit facilities to medium and small enterprises, improve animal health through better
drugs procurement and improving agriculture ministry capability for livestock value chains
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development. The textiles and clothing industry needs to develop better skills to support the
desired upgrading to higher level manufacturing. This will allow the industry to go beyond
generating employment and develop locally owned companies that maximise the linkage effects
of the foreign-owned ones.
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Country notes
liberia
Liberia has participated in global value chains for decades through its export of primary
commodities, and the revitalisation of this sector after the war has been a key driver of economic
growth. Exports have been dominated by three commodities – iron ore, rubber and timber – that
accounted for more than 80% of exports and an estimated 22% of GDP in 2013. These shares
should increase by 2015 as iron ore production increases. Much of Liberia’s commodity exports
were interrupted during the conflict, and since the end of the war, the government has awarded
concession contracts in iron ore, rubber, timber and palm oil to revive growth, achieving more
than USD 16 billion in FDI commitments. Iron ore production re-started in late 2011 with one mine
(Arcelor Mittal) beginning exports, while other mines will commence production between 2014
and 2015. Timber exports were banned by United Nations sanctions from 2003 to 2006. Logging
re-started in 2008 and exports picked up considerably from 2011 to 2012, but plummeted in 2013
after fraud and abuse related to logging permits resulted in a moratorium. Rubber production
and exports, led by the Firestone plantation, continued during the conflict. Since the end of the
conflict, several oil palm plantations have also begun planting, although the process has slowed
due to disputes with local populations regarding prior consultation and land access.
Liberia’s current activities are focused on the export of primary commodities, with limited
processing and few local business linkages. The government and partners are making concerted
efforts to avoid repeating Liberia’s history of “growth without development”, where growth was
based on enclave primary export industries that largely bypassed local business. Therefore,
increasing the linkages between exporters and local businesses will be a key growth strategy.
Given the low sophistication of the Liberian private sector, this is starting with increasingly
supplying goods and services such as transportation, catering, security, and the procurement of
goods and services. These services require only limited skills, but would increase employment
and capacity. After improving standards, the private sector could increasingly participate more in
construction and civil works, maintenance, and supplying agricultural inputs. Local procurement
is currently limited, with two mining firms reporting only 2.6% of expenditure was from Liberian
manufacturers or service providers, and only 0.1% from a local importer. This compared with 3.3%
and 3.2%, respectively, of spending in Burkina Faso, showing that expansion of local procurement
for mining may be limited (Kaiser/World Bank Survey).
There is potential for increased valued addition in Liberia. The timber industry supplies wood
for a burgeoning woodworking industry, but quality is still low. While palm oil plantations should
increasingly install refining capacity, it will be only after production increases substantially.
Rubber plantations do some limited processing, with rubber and latex plants at Firestone. The
market for rubber wood has been active and additional investment could help develop rubber
goods production such as tubes, hoses, inflatables and sporting goods. Potential additional
sectors for increased value-added and exports include fruits and vegetable processing, as well
as fisheries. Tuna fish licensing is commencing in 2014 and two fish processing zones are being
constructed.
Despite significant potential, Liberia’s general business environment presents numerous
barriers to increasing exports, increasing linkages with local businesses or value addition. The
country currently supplies power to less than 2% of the population (compared to around 29%
in all of sub-Saharan Africa) at a price that is among the highest in the world. Businesses rely
on generators at a prohibitively high cost, limiting the potential for small-scale manufacturing
and diversification. Additionally, lack of paved roads – less than 10% of the road network is
paved – cuts off much of the country from Monrovia during the long rainy season. Low capacity
and poor infrastructure at ports is also a problem, particularly for forestry. For agriculture, the
lack of warehouses and other storage is an additional constraint. Labour force skills are limited
with some 57% of the labour force having either less than full primary education or none at
all. Liberia’s largely informal private sector also faces limited access to credit, especially for the
long term, and contract enforcement is problematic. Access to land and tenure security continue
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to thwart the expansion of mining, agriculture and timber concessionaires, which has led to
disputes with local populations. Government regulation and oversight of the extractive sectors
will need to improve to balance local needs with commercial interests.
The government is working together with partners to address these infrastructure
constraints. Its Agenda for Transformation for 2012 to 2017 puts a strong emphasis on rebuilding
power, roads and port infrastructure. Electricity access will gradually increase in Monrovia and
should experience a significant boost in 2015 and 2016 when the Mount Coffee Hydropower Plant
comes online and there is more investment in transmission and distribution networks. Road
construction, including outside Monrovia, is also progressing, as well as improvements to the
ports. The government is also promoting Special Economic Zones, which would provide dedicated
infrastructure and services to allow for improved value addition to exports.
The government is preparing a local content policy, led by the National Investment
Commission (NIC), intended to promote increased linkages between local businesses and
large foreign investments. Public procurement has a preference system for Liberian firms and
the last two government budgets have called for 25% of government spending on goods and
services from Liberian businesses although there is not currently sufficient capacity to fulfil
this demand. Concession agreements, except for agriculture, currently encourage reporting on
local procurement, but do not require it. Agreements allowing for the duty-free import of inputs
may, in fact, constrain increased local procurement. Agriculture concessions generally require
out grower schemes, where the concessionaire designates and manages a portion of land for
out growers, from which it would then purchase crops. Concession agreements further require
various contributions including using national labour, granting access to infrastructure, investing
in communities, and providing social services to workers. The newly established National Bureau
of Concessions could increase the monitoring of concession agreements while also working with
the NIC to improve dialogue and policies on increasing local procurement.
The government is also supporting initiatives to improve the business environment. It is
working to improve access to finance by improving the credit reference system and developing a
collateral registry. The Liberian Better Business Forum brings together government and the private
sector to regularly discuss and address other business environment issues. Various training and
capacity building programmes for small and medium-sized enterprises are also underway, as
well as programmes that have improved information-sharing and created directories of local
businesses to identify potential suppliers for concessionaires.
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Country notes
libya
Libya’s economy is primarily structured around the energy sector, which generates about 50%
of GDP and 96% of government revenues. Concentration on the export market for hydrocarbons
has led to dependence on imported consumer and industrial goods, both failing to create
domestic employment opportunities and inhibiting domestic entrepreneurship. Notably, most
of these activities have been concentrated on the upstream part of the industry whereby crude
oil is exported with no transformation or value added. The substantial revenues from the energy
sector have not been used sufficiently to develop national infrastructures, or to promote other
sectors. However, the country’s large financial reserves leave room both for public investment
and fiscal incentives for private initiatives linked to local transformative industries and
services. Developing a self-sustaining non-petroleum sector is highly important to the long-term
sustainability of the Libyan economy as it will diversify the country’s sources of revenues, create
new employment opportunities, and allow Libya to use its natural and competitive advantages to
participate more fully in international production networks. The country’s other major industrial
products, apart from hydrocarbons, are petrochemicals, aluminium, iron and steel, processed
food, textiles, handicrafts, and cement – however, these have not been developed fully.
Much of Libya’s post-independence industrial policy was state-led and aimed at moving
away from dependence on foreign ownership or control. There have been attempts to promote
Libya’s positioning in the global value chains (GVCs), for example through the promotion of
industrial projects creating downstream petrochemical operations, satisfying internal demand
for processed petroleum products, and taking advantage of cheap energy to build exportoriented manufacturing capacity. However, these were not completed due to the country’s lack
of infrastructure and adequate regulatory environment. The government attempted to develop
light processing and a petrochemical industry, with particular priority given to the processing of
food products, especially since the 1970s. However, given the high dependence of development
expenditure on oil revenues, actual spending often failed to reach planned levels given the
fluctuations in oil prices.
Libya’s new political landscape creates opportunities for a renewed drive towards
diversification and sophistication of non-oil sectors through greater reliance on the private
sector and an enhancement of the relationship between public and private sectors. Some of
these opportunities are limited in the short term, given the lack of available expertise and skills,
adequate infrastructure, weak regulatory and institutional capacity, and the absence of an overall
development framework in the country. The post-revolution Libyan government has highlighted
the potential of the industrial sector to bring added value to the economy and contribute to
economic diversification. The Libyan Ministry of Industry has announced Libya’s desire to export
finished goods rather than raw materials, while recognising that Libya’s diversification also
requires the development of human resources, private-sector operations, and infrastructural
development. Broader issues of reforming the regulatory and enabling environment for the
expansion of non-oil sectors, as well as an increase in the country’s overall economic and
political stability, are essential requirements for Libya’s successful positioning in regional and
global value chains.
Libya could leverage its other comparative advantages to diversify its economy away from
the hydrocarbon sector and link it to GVCs. For instance, given its extensive Mediterranean
coastlines and its close proximity to Europe, Libya is well positioned to develop a sophisticated
ports and shipping industry which would benefit trade between Africa and Europe, and beyond.
Currently, lack of equipment, skills, container handling facilities and deep water quays to
accommodate mega-container ships are among some of the major challenges facing the industry.
Unless addressed, these weaknesses will undermine Libya’s competitiveness, with an increasing
number of cargoes being shipped to neighbouring countries such as Tunisia. In the area of oil
refining, this sector was impacted by UN sanctions, specifically UN Resolution 883 of 11 November
1993, which banned Libya from importing refinery equipment. Libya is seeking a comprehensive
upgrade to its entire refining system, with the aim of increasing output of gasoline and other light
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products. However, given their strategic significance, these refineries have been targeted by the
recent domestic tensions. In November 2013, the government announced plans for building new
oil refineries aimed at meeting most of the fuel and other refined goods needs of eastern Libya.
Although vulnerable to oil-price fluctuations, a more developed refining industry could increase
the value added of Libya’s energy exports, resulting in higher levels of revenues from this sector.
Home to some of the world’s most unique archaeological heritage sites (including five UNESCO
World Heritage Sites, three of which are classical ruins), combined with some of the most
extensive Mediterranean coastlines, Libya’s tourism industry, which has been hit hard by the
recent internal tensions, is a sector with great potential for development, provided the political
turmoil subsides and the relevant skills and infrastructure gaps are addressed. In Libya, 88% of
the land is desert, offering huge potential for solar-energy generation. The latter would reduce the
country’s reliance on oil, allowing for increased non-oil exports. Libya could potentially export
part of the clean energy output to the European markets that are under pressure to meet their
clean energy targets. Proximity to Europe is a significant comparative advantage in this regard.
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Country notes
madagascar
Madagascar’s participation in global value chains (GVCs) is limited to exporting unprocessed
goods to Western Europe and North America and selling to consumers mainly non-food products
imported from France and China and food imported from SADC and COMESA member states.
Sectors such as tourism, the textile-manufacturing free zone and ICT-related services are
exceptions in that they are not limited to unprocessed products and also include transformation
and processing activities.
Tourism has developed over the past 15 years and arrivals of tourists were about 375 000 in
2008. The political crisis and increasing lawlessness slowed tourism down and arrivals fell 52%
between 2008 and 2013. The industry did generate more than 31 000 direct jobs in 2011.
The country’s textile industry has greatly benefited from the free zone set up in 1989 and from
the US African Growth Opportunity Act (AGOA) which the country signed up to in 2001. Textile
exports grew strongly, from 14.9% of all exports in 1995 to 54% in 2008, before dropping after
2009, when the country was excluded from AGOA, to 27.5% in 2012. The sector, which accounted
for 1.6% of jobs created in 2012, according to the MDG survey, was the hardest hit by the political
crisis, losing about 20 000 jobs.
Despite the crisis, the ICT sector has expanded steadily over the past decade thanks to the
opening-up of the sector and major infrastructural investment. The volume of business by mobiletelephony companies grew 13-fold between 2005 and 2009 and created direct and indirect jobs.
Madagascar could also boost its GVC participation through its natural resources of agriculture
and minerals. Only a quarter of the country’s 8 million hectares of arable land is cultivated. The
island also has 5 000 km of coasts and more than 1 500 km2 of natural lakes that could be used for
fishing and fish-breeding. The country’s rare and endemic medicinal and aromatic plants give it a
potential competitive advantage too. Growing regional demand for agro-industrial products and
the recent world food crisis are also potential sources for greater agricultural exports.
The firm Lecofruit is doing research on green beans and engaging in contract agriculture with
small farmers to gather, process and ship produce to local and European markets, transforming
the subsistence activity of 9 000 farmers into export production. Another firm, Guanomad, has
set up a business over the past decade manufacturing bio-fertiliser made from bat droppings for
local and foreign markets, an example of successful entry into the GVCs at the level of sustainable
bio-agriculture.
The government has granted prospection and production licences since 2003 for major mineral
deposits. Rio Tinto has invested some USD 760 million in the QMM (Qit Madagascar Minerals)
group to build an ilmenite mine and a port to ship the mineral to Quebec – 870 000 tonnes in
2013, about 12% of world output. The firm Sherritt has invested about USD 4.5 billion in a nickel
and cobalt mine at Ambatovy and a processing plant at Toamasina. The mine began operating
at the end of 2012, with annual production of 5 600 tonnes of cobalt (10% of world output) and
60 000 tonnes of nickel (5% of world output). A dozen other firms are prospecting for oil.
Tourism is the services-sector activity most geared to exports, with foreign-exchange
revenue that rose from 90.2 million special drawing rights (SDR) in 2001 to 229 million in 2013.
Activity chains in Madagascar involve conception, production and marketing of tourism. Better
transport and reception infrastructure will enable growth of luxury tourism.
ICT has great potential to draw the country further into GVCs, as shown by the firm Vivetic,
which began as a specialist in data entry but whose marketing and relocation strategies led it to
expand into cross-channel-customer marketing in French-speaking European countries, creating
1 000 jobs in Madagascar.
Several obstacles prevent the country from moving faster towards more value-added stages
in the GVCs, notably its physical distance from developed-country markets, lack of transnational
infrastructure and remoteness of agricultural areas, then the small size of local markets, difficult
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credit access and costly and unreliable energy, which discourages investment. Governance
constraints are also significant, especially repeated political crises that force investors to include
them as risks in their decision making, and the still major problem of corruption. Slow growth of
human resources is another big snag, with tradition still weighing heavily on the economy and
curbing creativity and innovation. Fewer than 3% of Madagascan workers completed secondary
education according to figures for 2010.
GVCs have been implicitly taken into account in the country’s development strategies. The
first poverty reduction strategy paper (PRSP), for 2003-06, stressed the need to make the economy
more competitive in order to reduce costs and improve quality. The Madagascar Action Plan
(2007‑12) which followed the PRSP aims for “a diversified and strong private sector” that can
meet “the challenges of globalisation and gain a competitive advantage”. Another aim in the
agriculture, livestock and fisheries development plan being prepared is to “produce better to sell
better, at home or abroad, and profit from known competitive advantages”. Economic recovery
plans after the end of the political crisis and the country’s development programmes should
include vigorous strategies to boost export items with strong added value.
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Country notes
malawi
Malawi’s economy is highly undiversified, rendering it vulnerable to exogenous shocks. The export
basket consists mainly of primary commodities.
The main export commodity is tobacco, which accounts for 60% of Malawi’s foreign exchange
earnings. Other key export commodities include tea, sugar, and cotton and uranium. Because of
concentration on low-value primary commodities, the benefits to Malawi from globalisation are limited.
Malawi’s industrial base is very narrow. The share of manufacturing in GDP has declined during
the past decade from 15% to 10%. Moreover, existing manufacturing activities are limited to lowvalue products, mainly agro-based processing. These are primarily for the domestic market. Malawi’s
production and supply capacity is limited; hence the country’s high import dependence.
Malawi enjoys a comparative advantage in labour-intensive activities, notably agro-processing and
production of less sophisticated consumer products. The shift in the production and export patterns
of industrialised countries, as well as emerging economies, such as China, towards higher value and
knowledge-intensive products has opened up opportunities for low- income countries, such as Malawi,
to export labour-intensive products and integrate into regional and global supply chains. The challenge
facing Malawi is to reposition its economy and build capability to exploit such opportunities through
enhanced competitiveness.
Currently, Malawi’s integration into global supply chains is limited to tobacco. Malawi’s tobacco
industry is organised around clusters with strong linkages throughout the value chain. Small-holder
farmers grow Burley and Virginia tobacco leaf, which is sold at auction. The tobacco leaf undergoes
limited processing, involving mainly destemming. The semi-processed tobacco is exported by local
buyers to international tobacco companies on a contract basis. When the tobacco leaf reaches foreign
markets, it is processed into the final consumer products.
In 2013, tobacco earned Malawi USD 362 million. The direct economy-wide effects to the rural
economy of tobacco incomes are, therefore, quite significant. In some instances, the multiplier effect
measured as the differential between the unit cost of production and the unit selling price could be as
high as 1:3. As tobacco is the main foreign exchange earner for Malawi, the government has developed
deliberate policies to strengthen the tobacco value chains. The model adopted involves linking farmers
to agriculture research and extension, input suppliers, and other players along the value chain. This
model of linking farmers to international buyers through local intermediaries through contractual
arrangements could be replicated to other commodities in which Malawi has a comparative advantage
There is significant potential for Malawi to diversify into the export of higher value products and to
join regional and global supply chains. Agri-business, in particular, offers significant potential for value
chain development to exploit regional and global market opportunities. Malawi Mangoes, a new agroprocessing venture located in Salima along Lake Malawi, is a good example of how such opportunities
can be exploited. The venture involves the establishment of a large-scale fruit-processing plant to
produce banana and mango puree and concentrates for export to regional, Western and Asian markets
targeting major retail chains.
The main factors hindering competitiveness of enterprises in Malawi and their ability to move
up the value chain and supply regional and global markets are high trading costs, associated high
transport costs and NTBs. The other constraint is the lack of skills required to produce products of
competitive quality. Therefore, the removal of these constraints is necessary for Malawi to exploit
emerging opportunities to participate in regional and global value chains.
The government is taking deliberate steps to address these challenges, including trade facilitation
reforms. The government of Malawi has developed a National Export Strategy (NES), which establishes
a road map for building Malawi’s productive base to raise exports and reduce demand for imports with
the ultimate objective of reducing the trade deficit. The NES identifies three priority export sectors in
which Malawi has potential comparative advantage for domestic value addition. These clusters are: i) oil
seeds products: e.g. cooking oil, soaps, lubricants; ii) sugar cane products: e.g. sugar, high-value branded
sugar, and confectioneries; and iii) other manufactured products, such as packaging. The strategy is
to move up the value chain over the longer term as skills are developed and infrastructure improves.
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mali
Mali focuses on growth of global value chains (GVC) through its programme for competitiveness
and agricultural diversification (PCDA) and integrated economic growth initiatives (IICM).
The PCDA is a government project to promote supply chains to raise and diversify income and
economic opportunities in the countryside, by improving supply chain organisation and efficiency
(from production to marketing) in commercial agriculture, livestock and fisheries, where Mali
has clear competitive advantages. It aims to promote commercial farming as an alternative to
subsistence and is a chance for professionals to expand their sources of income through more
responsive and efficient commercial farming.
The project is targeting the transformation of the value-added market chain into fully-fledged
industries that boost development, based on growth shared by the private sector and small
farmers to create value at every step in the chain. The project acts in response to requests from
the private sector and encourages dialogue and public-private partnerships through contracts to
bring producers to markets. The crop sectors involved are mangoes, potatoes, shallots, onions,
shea butter, papayas, tomatoes, fish, milk, meat and on the hoof livestock.
Joining GVCs offers Mali a real chance to create jobs, especially for young people, as well as
access to new technology with skills training and growth of more value-added economic activity
that can help industrialise the country. But the dangers of GVCs include: the development of foreign
economic enclaves with poor links to the local community, the over-exploitation and exhaustion of
natural resources, the undermining of social and environmental standards (especially in mining)
and exposure to imported crises through the wider links to the world economy.
The country has the potential to profit from GVCs in the extractive sector, agro-industry,
livestock, crafts and tourism. To make good use of them, the government needs to adopt policies
and strategies to remedy weaknesses such as the country being landlocked, access to and
reliability of energy, shortage of a trained workforce, low consumer buying-power and corruption.
Setting up a plant to process mangoes at the Diguiya women’s cooperative in Yanfolila, backed
by the government and the UNDP, is a good example of a project to increase the added value of
fruit and vegetable exports, boosting the skills and living standards of co-op members. Annual
production capacity is about 150 000 jars of jam for domestic and foreign markets, which could be
expanded to process other fruit. First-year annual turnover is estimated at almost XOF 40 million,
and should rise to XOF 205 million after five years. The plant employs 20 people directly and also
generates indirect employment for local farmers, pickers and suppliers.
Cotton is the country’s second biggest export and an AfDB project (FAFICOT) to support
the cotton-textile sector is also helping to grow value chains. It supports not only increasing
production and productivity (through improved inputs, agricultural research, regional scientific
co-operation and easier credit access for growers), but also focuses on marketing and distribution
(linking growers to markets, building and improving rural roads and building storage warehouses)
and processing (creating and strengthening national processing capacity).
Potential partners in developing GVCs in Mali include Europe (as part of the EU/ACP
partnership), China and some emerging countries (India, Brazil, Turkey and Venezuela) and North
Africa (Morocco, Egypt and Tunisia), with which Mali is developing very close trade, financial and
economic ties. The Banque internationale pour le Mali (BIM), which was been bought by the Moroccan
group Attijariwafa Bank, is working on increasing trade and industrial relations between Malian
and Moroccan firms. It should play a big part in expanding value chains in Mali through MoroccanMalian joint-venture firms. Attijariwafa is expected to make it easier to attract more Moroccan
funding for the potential Malian value chains. Plans to open an Indian tractor-assembly plant in
Samaya, a few kilometres from Bamako, could launch another value chain.
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Country notes
mauritania
Mauritania is integrated into global value chains (GVCs) to varying degrees through its
mining and oil sector, its fisheries sector and its Nouadhibou free zone. Iron, oil, copper, gold
and fish are exported unprocessed to Europe and China, where they are used as inputs into the
value chains of their own production systems. Advanced processing of these products before
export would give them higher value and allow Mauritania to move up the GVCs. The country
could encourage the development of domestic enterprises around the wide range of activities
that would be generated by the processing of its natural resources. Growth would then be more
inclusive because local jobs would be created.
The mining activities managed by the SNIM on behalf of the state play a leading role,
dominating exports and imports. The budget increasingly depends on mining revenue, the share
of which rose from 13.4% to 29% of total revenue (excluding grants) between 2006 and 2013. The
SNIM is the main employer in Mauritania’s productive sector, with a staff of more than 5 000, and
is the second largest iron-ore producer in Africa. Fishing, meanwhile, has enormous potential, but
domestic production is not sufficiently processed in Mauritania. It would be advisable to define
a new strategy for the processing of goods on the one hand, and preservation of the resource on
the other. A Fisheries Partnership Agreement (FPA 2012-14) considered “ethical and fair for all”
was signed by Mauritania and the EU in October 2013. The agreement preserves Mauritania’s
strategic interests by protecting its fishery resources and local economies. This is a crucial step,
as the fisheries sector alone accounts for 40% of revenue in foreign currencies, 25% of government
revenue, 12% of GDP and 40 000 jobs. The free zone in Nouadhibou will also allow Mauritania to
host industries seeking relocation and to integrate the country into various GVC levels.
Several obstacles could slow down Mauritania’s participation in GVCs or prevent it from
moving upwards to levels of higher value added. One is the country’s deficient electricity supply,
notwithstanding the ongoing construction of the 120 MW combined-cycle power station in
Nouakchott, which will be an important asset. Access to finance remains difficult even though a
development fund, the Caisse des dépôts et de développement, was set up in 2011. Furthermore, the
country’s workforce lacks skills and is not fluent in foreign languages. In addition, Mauritania’s
sub-regional integration still needs to be optimised.
The government’s priority ought to be to remove all these constraints and obstacles. A genuine
innovation policy also remains to be developed in the following seven areas: i) exporting products
with high value added; ii) adding value to unprocessed local production; iii) stepping up the pace
of reforms to improve the business climate and innovation; iv) identifying and developing sectors
with a high potential for integration into GVCs; v) promoting innovations that are in the collective
interest; vi) strengthening scientific and technological structures; and vii) promoting a technical
culture and enterprise.
All observers believe the emergence of GVCs provides an opportunity for Mauritania. It could
enable the country to improve its competitiveness, benefit from more outlets, and diversify
its production and exports, either by going upmarket with its main exports or by exporting its
products to regional and international markets.
Three great opportunities are offered under GVCs. The first is greater integration in international
trade with more exports and more diverse exports. The second is related to a greater potential for
local job creation. The third involves greater attractiveness for foreign direct investment, which
is already present in the mining sector, averaging approximately USD 450 million over the last ten
years with good prospects ahead.
Outside of the major export products, all the sectors of the economy offer other opportunities.
In the primary sector (fisheries and forestry included), integration into GVCs could be explored
in rice cultivation and livestock, by developing meat and milk supply chains, for example. In the
secondary sector, branches such as leather (tanneries) and cement (gypsum mine) could be easily
integrated into GVCs. In the tertiary sector, sectors such as trade, restaurants and hotels could be
better exploited with a view to integrating them into GVCs.
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mauritius
Mauritius’ small and geographically isolated market has historically motivated its integration
into the global value chains (GVC). With trade accounting for about 120.5% of GDP the economy
is highly open and strongly linked to other markets. Building on peace and stability, strong
institutions and fiscal discipline, the country has made huge strides towards the frontier with
respect to business environment and global competitiveness, occupying a leading position in the
region. The objective is to deepen its participation in global value chains and accelerate growth
so as to catapult the country into a high-income status. Participating in global value chains has
so far helped the country optimise comparative advantage through linkages to raw materials
and cheaper sources of production from Madagascar, Bangladesh and India. It has also helped
maximise economies of scale, and achieve technological improvement in Mauritian factories, thus
releasing older generation equipment and machinery for relocation to other destinations. This in
turn assists in the conclusion of trade agreements which allow market access and reinforces
regional economic integration. Positioned between Africa and Asia with strong economic ties to
the euro area, Mauritius is strategically positioned to be an economic hub, bridging value chains
in the three economic blocks.
Several sectors are engaged in GVCs, including textile and clothing, sea food, agro-industries
(in particular sugar) and the services sector (most notably tourism and the ICT/BPO sectors). As
regards the textile and clothing sector, increased global competition as a result of globalisation
and the erosion of preferential treatment has led to a variety of strategies being adopted by
Mauritian firms involved in the value chain. These include: i) process upgrading (improving
technology and/or production systems to gain efficiency and flexibility); ii) product upgrading
(shifting to more sophisticated and complex products); iii) functional upgrading (increasing the
range of functions or changing the mix of activities to higher-value tasks, for example moving
beyond production-related activities such as design, input sourcing or distribution/logistics);
iv) supply chain upgrading (establishing backward manufacturing linkages within the supply
chain, in particular to the textile sector); and v) channel upgrading (diversifying to new buyers or
new geographic or product markets).
Similarly, the sugar sector has also undergone substantial changes, successfully transforming
into a cane industry. Mindful of the resilience of EU refined sugar prices relative to raw sugar prices,
the Mauritian sugar industry has pursued a strategy of investment in moving up the sugar value
chain, as well as developing other revenue streams from sugarcane production such as electricity
co-generation. As part of this restructuring strategy, the Mauritian sugar industry has sought
out new corporate partners in Europe to assist them in packaging and marketing refined sugar
products. The experience gained on the EU market is of considerable value when it comes to the
packaging and marketing of refined sugar in both regional and international markets, where the
growth of sugar consumption is projected to be far stronger than in the EU. Mauritius’ ultimate
objective is to scale-up production of value-added products based on sugarcane. Investment in
sugar production in neighbouring East African countries needs to be seen in this light, since it
assists in securing supplies of sugar to enable the development of a globally competitive scale of
production of value-added sugar products.
The Mauritian seafood strategy aims at promoting an efficient and attractive environment
for the supply of value-added processes and services related to the sourcing and marketing of sea
food products. The value chain of the Mauritian Seafood Hub includes fishing, trans-shipment,
storage and warehousing, light processing (sorting, grading, cleaning, filleting and canning, and
ancillary services). For the sustainable development of the Seafood Hub, a Fisheries Partnership
Agreement and Protocol was concluded and initialed by both the European Commission and
Mauritius in February 2012. The Fisheries Partnership Agreement establishes the terms and
conditions under which vessels registered in and flying the flag of the EU may carry out tuna
fishing in Mauritian waters in accordance with the provisions of the United Nations Convention
on the Law of the Sea (UNCLOS) and other rules of international law and practice.
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In the global business sector, a wide range of activities including software development,
call centre operations, business process outsourcing (BPO), IT-enabled services (ITES), webenabled services, training, hardware assembly and sales, networking, consultancy, multimedia
development, disaster recovery (DR) and other support services are presently being undertaken.
The ITES-BPO operations are mainly centered on customer support, help desk and telemarketing
campaigns1.
Participation in GVCs has helped Mauritian companies to integrate into regional and global
value chains gaining visibility and recognition as emerging players. Companies participating
in GVCs have greatly improved their income from the offshore activities. Mauritius is actively
engaged in developing backward and forward linkages with Africa and other neighbouring
countries. Most players engaged in the GVCs are large companies, mostly local multinational
corporations (MNCs), and thus only a few SMEs have integrated into the value chain. Where
large firms have integrated into the GVCs, they have shifted out old technology, machinery
and equipment and their labour-intensive operations. As a consequence they have upgraded
technology in their local companies and enhanced value creation in Mauritius, e.g. design in
Mauritius; production in Malaysia, Bangladesh and India; research and development in Mauritius;
and project implementation in Africa, such as biotechnology, seed cultivation and plant nurseries.
Immediate opportunities exist for Mauritian companies to integrate into the regional value
chains, in respect of agriculture, manufacturing and services. Mauritius has built up know-how
and capacity in these areas that it can share in the region. The first option should be for local
firms to integrate into the region. Thereafter, the process could be extended to industry level
integration, namely the fibre to fashion cluster (textiles and apparel); the seafood sector; the seed
to market pipeline for agro-industry; and the integrated services sector development, such as
tourism, financial services, ICT, health and education.
The main barriers to upgrading along the value chain remain over-dependence on overseas
markets as value is added on local and regional markets for producing products for exports largely
to the EU and USA. Thus few benefits accrue to the region except through employment creation
and limited technology transfer. In addition, there are also restrictive regional measures which
may inhibit Mauritian firms’ ability to integrate into GVCs, such as restrictive national labour,
trade and investment policies relating to local economic empowerment and trade protection.
Furthermore, the emergence of other global players in some of the GVCs in which Mauritian
firms are involved, coupled with the erosion of preferences also constitute further impediments
to increased participation in GVCs. Lastly, the lack of investment in research and development is
a major deterrent to the innovative capabilities of firms to move upstream in the GVCs in certain
sectors. The uncertainty surrounding the Double Taxation Avoidance Agreement with India
which remains unconcluded after years of negotiations may be a source of concern for Mauritian
firms involved in the global business sector.
Note
1.www.hsbc.co.mu/1/PA_ES_Content_Mgmt/content/website/documents/guide_to_global_business.pdf.
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morocco
In recent years, Morocco’s trade balance deficit has widened due to the entry into force of
numerous free trade agreements, while the country’s export profile, in particular of advanced
technology products, has become a problem. The policy of import substitution that lasted from
independence to the mid-1980s led to specialisation only in products with low value added and
low labour costs. The objective of the National Pact for Industrial Emergence (PNEI), in force since
2005, is thus to attract new international investment to Morocco. The goal is to develop skills in
demand internationally and in which Morocco has a comparative advantage, while redirecting
exports towards high-growth markets. The PNEI is expected to achieve growth of 6% by 2015,
creating value added of MAD 53 billion and generating more than 250 000 direct jobs.
In line with the PNEI, the introduction of new industrial strategies oriented toward Morocco’s
internationally marketable skills has accelerated industrial growth. Led by the automobile and
aeronautical industries, the industrial sector saw average growth of 7.6% per year from 2005 to
2011, compared to 1.5% between 1999 and 2004. Overall employment creation in industry has
only risen slightly despite this growth, however, because the jobs created in the dynamic sectors
are lost elsewhere in industries suffering from contraction. In addition, it should be noted that
the structure of exports changed between 1998 and 2011, and although the chemical and parachemical sectors and electric and electronic sectors benefited (growing from 32% to 43% and from
5% to 19% of exports, respectively), it was at the expense of the traditional textile and leather
sectors, which fell from 41% to 15% of exports.
In recent years the government has created a programme dedicated to making industry
more dynamic, the Moroccan Emergence Plan. This was launched in 2005 and updated in 2009,
to become the National Pact for Industrial Emergence (PNEI). This pact sets specific objectives
for increasing industrial GDP and turnover from exports and for creating additional jobs by 2015.
Six economic sectors – known as Morocco’s Global Jobs (Métiers mondiaux du Maroc - MMM) –
have been identified and supported due to their strong potential for growth: aeronautics,
offshoring (sub-contracted activities from outside the country), agrifood, textiles, electronics and
automobiles. The pharmaceutical and chemical and para-chemical sectors were added to the list
in February 2013. The choice of sectors was motivated by a re-casting of the country’s natural
strategy from being based on geographical location and availability of cheap labour to one based
on logistics and competitive offer.
Despite these efforts, Morocco’s industry still contributes little to the valued added of other
sectors, in the absence of any true structural transformation. Improvements have been achieved
only in the metallurgy, mechanical and electromechanical industry, through its links to the
automobile and aeronautic sectors, and in the agrifood industry: the two industries recorded
respective growth rates of +32% (increasing from 16.7% in 1998 to 22% in 2012) and +4% (increasing
from 26.3% in 1998 to 27.4% in 2012). The textile and leather sectors, in contrast, suffered a net dip
in their contribution to industrial value added of 22% for the period 1998-2012, while the chemical
and para-chemical sector’s contribution fell by 21%.
Currently, Morocco’s main industries are phosphates, agri-food, automobiles, and aeronautics.
The phosphate industry has developed across the entire value chain, covering everything from
extraction to fertiliser and phosphoric acid production as well as that of other derivatives. The
Office Chérifien des Phosphates (OCP), which initially had just a few hundred employees and turnover
of USD 3 million, employed nearly 23 000 people in 2012 with a turnover of USD 7.1 billion.
The agri-food sector also plays an important socioeconomic role in Morocco through the
“contract programmes” introduced with the Morocco Green Plan in 2008. The goal of these is
to restructure all value chains in export industries, in particular through better organisation of
those involved in structured inter-branch organisations. These contracts require an investment
of nearly MAD 70 billion, mainly for four sectors: citrus fruits, arboriculture, fruit and vegetable
market gardening and olive cultivation. The fact that such a large percentage of Moroccan exports
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is intended for the European market means that the Kingdom is very vulnerable to the economic
situation in the European Union countries. The low levels of diversification, in terms of market
outlets, and a policy that stresses increased production at the expense of promoting and seeking
new markets, represent significant challenges for the sector.
Morocco’s automobile sector has enjoyed significant potential for growth for more than a
decade, with double-digit annual growth rates for investment and exports. The best example of
the sector’s emergence in Morocco is the opening of the Renault-Nissan industrial complex in
Tangiers in 2012, which has an annual production capacity of 340 000 vehicles, 90% of which are
intended for export, in particular to Europe. Since the Renault group began operating in Morocco
it has continued to implement a policy of local integration aimed at increasing the number of
components that are locally sourced. This is due to savings achieved through lower logistics
costs.
Finally, the development of the aeronautics sector, a very promising global value chain, has
been aided by specific government measures, such as that which created MidParc, the integrated
industrial platform inaugurated on 30 September 2013 near Casablanca; other examples are a
newly created pool of skilled human resources and public financing of up to EUR 2.7 million through
the Hassan II Fund for Economic and Social Development. With 100% of its production aimed
at exports, the Moroccan aeronautics sector comprises nearly 100 companies of international
scope involved in activities covering production, services and engineering, which are the main
components of the global value chain for aeronautics. EADS, Boeing, Safran, Ratier Figeac and,
more recently, Eaton and Hexcel, are all present in Morocco.
Despite the contribution made by the PNEI, Morocco’s industrial model remains vulnerable.
Four factors illustrate this vulnerability: i) persistent shortcomings in the basic prerequisites
(effective industrial and sectorial policies, and a high-quality transport infrastructure, in
particular) for the integration of Moroccan companies into global value chains; ii) limited progress
in industrialisation and the country’s overall competitiveness; iii) the failure of the education and
training system to produce enough highly skilled human resources for the needs of production;
and iv) the limited contribution of industry to economic growth.
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mozambique
Mozambique has a residual place in global value chains (GVC). The economy is focused on
the primary sector, and particularly the extractive industries. During the last decade agriculture
progressively increased its share of GDP to 32%, over the secondary sector (24%) and services
(44%). The services sector is mostly dynamic in telecommunications, financial services and
retail, servicing the urban final consumer. The recent prominence of the extractive sector has
brought about little transformation. Economic activity occurs mostly at the primary input level,
with little added value both on the upstream and the downstream processes. During the last
decade with the exception of the Mozal aluminium plant, the industrial sector presented the
lowest growth rate, employing just 2.8% of the labour force. Some studies point to a labour shift
from more productive to less productive activities, such as agriculture. The average productive
capacity of Mozambique is lower today than in 1975. According to a joint report between the
Government of Mozambique and the University of Copenhagen, the country presents one of the
lowest productivity levels of sub-Saharan Africa, particularly at the SME level, which constitute
the bulk of companies. Recent evidence indicates that imports of intermediary products by SMEs
decreased between 2006 and 2011, signalling a possible decrease in links to GVCs.
The aluminium industry, however, is well integrated in the GVC via the Mozal megaproject.
Established in 1999 as the country’s first megaproject with an initial investment of USD 1.34 billion,
(increased to USD 2.2 billion in 2003) the aluminium smelter plant is currently the second largest
in Africa. The investment in the plant took advantage of the country’s comparative advantages,
such as its geographic favourable position, the availability of low cost electricity (provided
from Mozambican hydropower sources) and extensive fiscal incentives. Moreover, Mozambique
benefited from the European Union under the Lomé Convention, which allowed aluminium to be
exported to Europe tax free.
Despite Mozal’s success, several reports and studies have documented the low fiscal revenue
generated for the country and the limited positive links with the country’s economy. Some
studies noted a 5% increase in GDP in the early years, but a less than 0.5% increase in Gross
National Income. Currently 1 200 people are directly employed by Mozal, of which over 80% are
Mozambicans, and indirectly employment is upwards of 10 000. Mozal created a joint programme
with government and development agencies – MozLink – to promote connections between
the project and Mozambican suppliers, which achieved some success. The greatest indirect
impact of the programme came via the adoption by national suppliers of quality standards and
certifications. The launch of similar programmes with other megaprojects did not replicate the
same success. Only recently, some progress has been made in integrating Mozambique into the
global value chain. A deal was signed in 2013 between Mozal and Midal Cabos, a subsidiary of the
Bahrain-based Midal Cables, for the first aluminium processing industry in the country to be built
in an industrial park beside the Mozal plant.
Aside from natural gas, electricity and aluminium, representing more than 66% of exports,
Mozambique mostly exports unprocessed agriculture products (cashew, cotton, shrimp, wood and
tobacco). Export of manufactured or processed products is low and only 3% of SMEs are exporters,
with South Africa being the primary destination for food and beverages, and fabricated metal
products. Asia (China) provides a market for wood products. The main constraints for integrating
Mozambique in GVCs are: i) the lack of qualified human resources; and ii) poor infrastructure that
impedes the country’s connectivity. Among the SMEs considering launching exports, the main
stated constrains are lack of knowledge of potential markets, difficulties setting up distribution
channels, and high tariff and non-tariff barriers.
The development of an efficient infrastructure network coupled with the creation of a logistical
structure will facilitate trade, particularly within the SADC region, enhancing Mozambique’s
position as entry point to hinterland countries including Botswana, Zambia, Malawi and
Zimbabwe. However, the free trade zone also exposes Mozambique’s lack of competitiveness,
specifically due to low productivity and the currently overvalued currency.
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The recent discoveries of large-scale natural gas reserves that allow for the construction
of a multi-billion dollar LNG plant, together with the extensive coal basins already being
exploited, have opened the possibility of developing value-added products locally, such as iron,
steel, power and a diversity of downstream hydrocarbon related industries. The agricultural
sector also presents good opportunities for agro-processing, in particular the more developed
crops of cashew, cotton and tobacco. The government is currently preparing its new National
Development Strategy (ENDE) with a special focus on the country’s industrialisation, as well as a
specific industrialisation policy. These are opportunities to strengthen the country’s framework
to take advantage of global value chains.
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namibia
Namibia has the potential to step up its integration into a number of global value chains
(GVCs). Some positive diversification trends have occurred in the structure of the Namibian
economy over the past three decades although the economy has remained narrow and resourcebased. The contribution of the mining sector to GDP shrunk from about 47% in 1978 to 19.6%
by 1990 and reached 12.6% in 2012. The contribution of the manufacturing sector to GDP
increased from 5.3% in 1990 to 12.7% in 2012, mainly thanks to the rapid expansion of fish and
meat processing and some mineral beneficiation, the areas in which manufacturing activities
are currently concentrated. The share of services in GDP rose significantly from an average of
about 39% in the 1970s to an average of about 56% since the 1990s, standing at 62.4% in 2012.
The contribution of agriculture to GDP declined to 7.7% in 2012 from 9.3% in 1990, mainly due to
unfavourable climatic and soil conditions but also reflecting the rapid expansion of other sectors
(manufacturing and services).
Namibia’s participation in GVCs is difficult to measure due to lack of data. The emergence
of GVCs is however perceived as an opportunity for the country, especially in view of Namibia’s
abundant natural resources. Namibia has a variety of minerals, including diamonds, uranium,
lead, gold, copper and zinc. It boasts some of the world’s most unusual flora and fauna, as well
as some of the most spectacular and varied scenery and wildlife in the world, and it is one of the
richest fishing grounds in the world. The country is also suspected of having large deposits of
oil, iron ore and coal. These natural resources offer Namibia a unique opportunity to expand its
operations in GVCs, especially in fish- and agro-processing, and secondary industries through
further exploration of mineral beneficiation.
The extraction and the processing of minerals – mainly diamonds – for export remain
Namibia’s main growth driver despite the relative decline in the contribution of mining to GDP in
recent years. In 2012, the mining sector generated NAD 12.1 billion (USD 1.2 billion) of added value,
and contributed 37% of total export earnings and about 10% of total public revenue. The capitalintensive nature of mining and its weak linkages with the other economic sectors have limited its
contribution to value chains in other sectors of the economy. Even though the sector contributed
12.6% to GDP, it employs less than 2% of the labour force. Diamonds are Namibia’s most significant
mineral resource, making up about half of total mineral exports, followed by uranium. Most of
the diamonds mined in Namibia are exported in rough form, now mainly to Botswana instead
of the United Kingdom following the decentralisation of De Beers’s rough-diamond sorting and
trading from London to Gaborone in 2011. Only about 10% of the diamonds are kept for cutting
and polishing by the local industry. Namibia has the potential to move towards further value
addition and beneficiation with existing opportunities in the diamond-cutting and -polishing
industry by raising its productivity and lowering its cost of processing.
Namibia’s manufacturing sector has registered significant growth since independence. Its
activities are concentrated in meat processing, fish processing, other food and beverages, and
mineral beneficiation. Mineral beneficiation is the most important subsector, accounting for 50%
of value addition in the manufacturing sector. The importation of ores underlines the significance
of the sector with ores ranking fifth in Namibia’s 2013 import statistics. There is, however, little
value addition so far carried out in Namibia as regards agriculture products. Agro-processing is
one of the priority areas in the Industrial Policy and it would be worthwhile to explore the viability
of importing agricultural products from neighbouring countries with more fertile soils for further
processing in Namibia because of the country’s reliable infrastructure. Besides the polishing and
processing of diamonds, mineral beneficiation includes the refining of copper and zinc. As for
fish processing, some fish products are imported into the country, to which Namibia adds value
before they are exported. In 2013, imported fish accounted for about 2% of total imports. There are
also a few companies located in the Export Processing Zone (EPZ) in Namibia that are providing
inputs such as specialised packaging material to the European automobile industry. There is still
significant room for expansion in the manufacturing sector that will enable Namibia to integrate
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into several GVCs, including upstream mining products (input for mining), mineral beneficiation
(potentially in copper, diamonds, gold, uranium and zinc), and agro- and fish-processing. As part
of the SACU common industrial policy, research is being conducted to determine whether the
manufacturing of automobile parts across the region would be a viable cross-border value-chain
industry.
Namibia is well-placed to take advantage of the opportunities arising from GVCs. Thanks to
its proximity to South Africa, the country has easy access to a range of South Africa’s expertise,
research and development, advanced technology, developed infrastructures, relatively advanced
intermediate input and goods markets, marketing and distribution and after-sales services, capital
and financial markets and investment resources. The country also has an established network of
modern transport and communication infrastructure. Its strategic geographical location connects
it with southern African countries, Europe and the Americas through the Walvis Bay Corridors,
an integrated system of well-maintained tarred roads and rail networks comprising the Port of
Walvis Bay and the Trans-Kalahari, Trans-Caprivi, Trans-Cunene and Trans-Oranje Corridors. The
quality of overall infrastructure is generally good, ranked 4 th and 11th in Africa by the 2013-14 Global
Competitiveness Report and the AfDB’s 2013 Africa Infrastructure Development Index, respectively.
The implication of this is that Namibia has the potential to connect to supply chains in South Africa
and the region, as well as globally. Through the Walvis Bay Corridors, Namibia also has the potential
to become a regional leader in logistics and distribution. This is reflected in logistics’s being one of
the four priority sectors in the Fourth National Development Plan, which covers the period of 2012/13
to 2016/17. This would offer further value-addition opportunities through packaging/repackaging,
distribution, intermodal transport services and the provision of related services.
There are a number of challenges that need to be addressed in order to enhance Namibia’s
competitive advantage. The country is facing skills shortages across all sectors of the economy,
especially middle-level skills. The situation is further compounded by mismatches of available
skills and job vacancies in the labour market and inflexible labour laws and regulations. The
business environment in Namibia is also relatively less attractive than those in neighbouring
countries. A wide range of policy, legal, regulatory and institutional weaknesses places the
country at a competitive disadvantage compared to South Africa and Botswana, for example.
Key weakness areas include excessive bureaucracy, regulatory bottlenecks and a weak PPP
framework. Namibia is also currently facing the risk of serious power deficits. If measures are not
taken to increase its capacity to generate power, there is a strong likelihood of an energy crisis
in the near future. Access to financial services, particularly for business start-ups and micro,
small and medium-sized enterprises, is a challenge. Although Namibia has relatively developed
financial systems in sub-Saharan Africa, high bank-user charges and fees, high transaction
costs, low levels of financial literacy, lack of appropriate and innovative finance products (such as
microfinance) and instruments, and lack of entrepreneurial and business management skills are
key factors limiting access to finance. Some of these deficits are being addressed by for instance
the Namibia Financial Literacy Initiative spearheaded by the Ministry of Finance, including a
basic bank account for low-income earners and abolishing fees for cash deposits at banks up to
a certain monthly limit. These initiatives support Namibia’s 10-year Financial Sector Strategy.
Although GVCs do not specifically form part of the government’s strategic considerations,
the government is aware of the need to implement innovative measures to enable the country to
make the most of its comparative and competitive advantages, including policies to reduce the
high cost of doing business, removing various bottlenecks in infrastructure and investing in skills
as part of a broader diversification strategy. Notable measures the government has implemented
include the establishment of the EPZ regime and special incentives for manufacturing companies.
Following approval of the Industrial Policy in 2012, the government is currently completing a
strategy for its implementation, which will give impetus to private-sector-led industrialisation,
export orientation, value addition, skills development and economic diversification. The
government has also already embarked on reforms to promote an enabling business environment.
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niger
Niger’s participation in international trade remains low-key because of an underdeveloped
productive capacity. Global value chains (GVCs) are perceived to present an opportunity for Niger
to take advantage of globalisation. Indeed, the country possesses assets, notably low labour costs, a
sizeable regional market that is benefiting from the current integration process, and abundant raw
materials. The agro-food, extractive and manufacturing industries have good potential for developing
GVCs. Their development should increase foreign direct investment and technological and knowledge
transfers. The most promising markets are China and West Africa.
The principal value chains are:
Agro-food industry: The government is attempting to create additional value for farming and
livestock products in the key GVCs of meat, onions and gum Arabic. Its support thus aims to target
all levels of the value chains that offer considerable potential, especially in terms of processing, sales,
packaging and dispatch. According to national data in 2011, Niger’s livestock herd was estimated at
9.5 million cattle, 9.9 million sheep, 13.2 million goats, 1.6 million camels, 306 878 horses and 1.5 million
donkeys1. The national herd, which guaranteed an average of 107 litres of milk per person a year in
1968, now only supplies around 45 litres per person a year, with a contribution of around XOF 10 billion
to exports2. When it comes to the Violet de Galmi onion, which is highly rated and in demand in the
sub-region, losses due to insufficient storage and transport are more than 30%. It is estimated that
there are more than 300 000 hectares on which gum Arabic could potentially be exploited.
Extractive industry: As the principal source of the country’s exports, the extractive industries
form an enclave within the national economy. They contribute little to national added value, as they
are exclusively focused on raw natural resources such as uranium. The authorities are focusing on
the development of national enterprises in the mining sector, either to supply inputs or to process
production. In addition, oil refinery activities began at the end of 2011 with the Zinder refinery.
Following the government’s decision to use the Chad-Cameroun pipeline, exports should not be long
delayed. Overall, great potential for sales and distribution exists, both domestically with the indirect
effects on the transport sector and internationally with production largely in excess of market needs.
Manufacturing industry: The manufacturing sector, dominated by tanning, also offers potential
for transformation and the creation of value added for basic commodities and their sale and
distribution. It contributes as much as 22% of all export value and is the second source of export
revenues for Niger after uranium. In this sector, efforts target: i) increasing the contribution of the
leathers and hides sector to economic and social development in order to reduce poverty; ii) improving
the competitiveness of leathers and hides by reinforcing the capabilities of actors in the value chain.
Service sector: Mobile telephony presents attractive potential for GVC development. This relates to
the integration of upstream and downstream activities with internet service provision, bill payment,
access to funds , and access to agricultural products markets and digital leisure (music, ring tones, etc.).
The development of these GVCs is a powerful job-creation tool, making possible financial consequences.
However, in the short term poor productive capabilities and the preponderance of the informal sector
restrict integration into GVCs. Niger must surmount a certain number of hurdles relating to organisational
capabilities, inadequate inter-professional organisation, and lack of respect for international standards
and certification demands. Likewise, access to energy is not reliable enough, infrastructure is not
sufficiently developed and the home market remains limited in size. In addition, GVCs could expose the
country to the risk of large crises, notably demand shocks or exchange rate fluctuations. They could also
have limited economic benefits if they take the form of enclaves that are not integrated into the national
economy. It is necessary that policies be introduced to improve the business environment and promote
greater integration between sectors, particularly the mining sector and the rest of the economy, for
Niger to be integrated into GVCs in time, and the associated risks managed.
Notes
1.Statistics Directorate/Ministry of Livestock and Animal Industries.
2.Prodex.
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nigeria
Nigeria’s industrial sector is categorised into crude petroleum and natural gas, solid minerals
and manufacturing. Exploration of oil and gas is the main contributor to industrial activities.
The level of industrialisation is low as outside of oil and gas, this sector only accounts for 3.4%
of total GDP and offers low employment opportunities. Lack of competitiveness in the industrial
sector, particularly in the areas of cost, packaging and product quality, has contributed to its
underutilisation thereby preventing the country from climbing up the global value chain towards
industrialisation. The average manufacturing-capacity utilisation declined to 55.8% in 2010 from
78.7% in 1977. This is gross underperformance when compared with countries such as Ghana and
Togo. In South Africa, industrial-capacity utilisation is higher than 80%.
Nevertheless, there is potential for expansion of activities in the extractive sector. Ongoing
plans towards large-scale refining of crude oil in Nigeria should add value to crude oil and enable
the country to become more integrated into the global value chain. In addition, they should
increase export and foreign-exchange earnings and also save the nation’s foreign-exchange
earnings hitherto spent on imports of refined oil. Increased linkages with other sectors of the
economy are also expected to boost its employment-generation capacity.
The manufacturing sector is another viable area in which the country can expand its integration
into global value chains. This sector has more potential to create jobs than the extractive industry
due to its labour-intensive nature, especially at the bottom of the value chain. Use of modern
technologies will improve the quality of tradable items, make the products more competitive
and enable Nigeria to reap greater benefits from the global value chain. Nigeria has been a major
producer of textiles and fertilisers, but these sectors have not performed well over the years.
Capacity utilisation in the textile industry dropped to 38% in 2010 from a 79.7% peak in 1975, while
fertiliser and pesticide production only operate at 11.7% of its capacity utilisation. The cotton and
textile production in Nigeria involves many activities such as spinning, weaving, dyeing, etc. These
activities are largely labour-intensive and have job-creation potential. Nigeria has a comparative
advantage with its huge population and relatively lower labour costs. The expansion of production
activities in textile production, particularly in the areas of quality improvements, will reduce the
cost of textile exports and make the country more competitive in the international market.
The dwindling performance of this sector is also largely linked to adverse government
policies and high operating costs caused by epileptic power supply and corruption. These
factors have compelled businesses to collapse or move to neighbouring countries with relatively
lower operating costs. Electricity generation in the country was 3 600 megawatts in 2013, while
estimated demand for private consumption and production activities was approximately 13 000
megawatts. A large volume of manufacturing activities takes place in the informal sector due
to the high cost of entry into the formal sector and the high unemployment rate. The informal
sector, although often neglected, was estimated to amount to 57.9% of GDP already in 2000.
Globalisation, particularly international trade, presents varying opportunities for Nigeria to
develop its industrial sector and integrate into the global value chains. The major export trading
partners of Nigeria are the Americas, Europe and Asia. In recent times intra-Africa trade relations
have also increased significantly. Nevertheless, a large volume of exports from Nigeria such as
agricultural products, oil and other resources are exported in their crude form. For instance, Nigeria
is the largest producer of shea nuts, estimated at 425 000 t in 2008. Mali and Burkina Faso follow
with about 182 000 and 70 000 t, respectively. Although it is evident that Nigeria has a comparative
advantage in the export of this agricultural commodity, only about 10% of the production is exported
annually, either as nuts after roasting or processed traditionally into shea butter, thus keeping the
country at the bottom of the global value chain where nuts are collected and processed locally for
export. There are strong prospects in the export of processed shea nuts, which are intermediate
inputs for pharmaceuticals, cosmetics companies and chocolate factories. Improving the quality
and standards of shea-butter production and adding value to it would further integrate the country
into the global value chain and also increase the country’s share in the value chain.
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Another area that has not been fully exploited is the automotive industry. The ongoing
government National Automotive Industry Development Plan aims at discouraging importation
of vehicles by setting up local assembly plants. Two Indian automotive companies, TATA and
TVS, are finalising plans to set up assembly plants in the country, as is the Japanese auto giant,
Nissan. This should create jobs for Nigerians and integrate local input manufacturers such as
textile for car upholstery, rubber, tyre manufacturers, etc., into the global value chain.
Integrating successfully into the global value chain should offer opportunities to the large
and vibrant informal segments, particularly of Nigeria’s agricultural and industrial sectors. The
agricultural sector presently employs more than 70% of the population. This is a key path to creating
jobs, increase income and reduce poverty incidence in the country. The government would also
benefit from higher export revenues and foreign-exchange earnings. Upgrading the standards of
these tradable products is also essential to ensuring their competitiveness on the world market. The
onus lies on the government as regulator to ensure that industry players conform to international
standards while promoting an enabling environment for the production of tradables to thrive.
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Country notes
rwanda
Embedding domestic firms into global value chains (GVCs) has been identified as a key
government priority to support export growth and diversification, bolster private sector
development and leap-frog the various impediments that continue to hinder the contribution of
the country’s private sector. In the absence of data to quantify the content of foreign added value
in the country’s exports (an indicator of participation in GVCs), the thematic analysis focuses on
three clusters with the potential to lead Rwanda’s integration into GVCs: coffee, tea and mineral
exports; food processing, dairy and beverages; and ICT and Business Process Outsourcing (BPO).
Most of the value chain activities are upstream, focusing on the development and supply of
primary and intermediate inputs to export markets in the region and elsewhere. This is due to
several factors. For instance, manufacturers and other processors typically seek raw materials
from other countries due to the inadequate quantity and quality of domestic raw materials and
the structure of the domestic input supply market, which ‘diverts’ inputs to the final consumer.
In the dairy sector for instance, milk farmers also sell directly to the final consumer as opposed
to channelling their products through milk collection centres. However, due to the high
transportation costs, estimated at 40% of the country’s imports and exports, the bulk of the
upstream activities are increasingly being conducted domestically.
In the coffee and tea sectors, actions by processers and exporters to overcome constraints
such as inadequate supply and poor quality of pre- and post-harvest handling have expanded
the downstream and upstream value chain activities. Coffee processors and exporters are
expanding beyond the core activities of processing and marketing to activities such as providing
extension services to farmers. For instance, two leading coffee exporters, Coffee Business Center
and Rwanda Trading Company, have established networks of wet mills and exclusive supply
contracts with farmers. NGOs and exporters are also providing incentives to farmers and cooperatives to ensure high-quality coffee production. These incentives include working capital to
farmers, support in the management of wet and dry mills and aid for the marketing and export
of coffee. The tea sector demonstrates some explicit examples of GVCs. For instance, the curltear-curl (CTC) black tea, which dominates Rwanda’s tea products, is processed domestically but
packaging is usually sourced from Kenya and Uganda. Rwanda Mountain Tea, the leading tea
processor in the country, established a tea packaging company in Rwanda in 2009 to primarily
serve the domestic market.
Light manufacturing is developing, particularly in food processing, dairy and beverages and
construction materials such as steel bars and cement. Downstream activities like marketing,
packaging and shipping are undertaken domestically. Industry developments, including mergers
and acquisitions, have also led to the entry of Rwandan firms into GVCs1. The acquisition of
CEMERWA cement factory in 2012 by Pretoria Portland Cement (South Africa) is expected to
facilitate knowledge transfer, allow the country to leverage the Portland cement brand and
expertise as well as break into GVCs.
The food and beverages sub-sector also presents additional opportunities to link national
value chains with GVCs. AZAM (Bakhresa Grain Mill Rwanda Ltd.) processes wheat for domestic
consumption and export. Wheat is imported from the USA, German, Russia, Canada and Australia
and processed in Rwanda. Local farmers have been integrated into AZAM’s value chain with
pilot wheat farming in Musanze and Kayonza in the northern and eastern parts of the country,
respectively. AZAM has expanded into the production of juices with some of the raw materials
being sourced from other countries as well. BRALIRWA Ltd. is engaged in the production and
distribution of beer and other beverages. Raw materials (maize) are sourced locally and also from
Europe (malt) and Southern Africa (sugar), and the company’s products are exported to Uganda,
Burundi and DRC. Inyange is the largest dairy producer in the country and also has interests in
bottled water and juices. To adequately respond to its market, Inyange has recently installed
packaging equipment and currently undertakes the bulk of its downstream value chain activities
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in-house. Moreover, to address supply constraints, particularly for dairy, Inyange has entered into
contractual agreements with domestic dairy farmers, an indication that the company’s upstream
activities are also increasingly being undertaken domestically.
Case study evidence demonstrates that some downstream activities in the mining sector are
undertaken outside the country. Mineral Supply Africa, a company incorporated in Rwanda, is
one of the firms engaged in the mining trade in Rwanda. The company procures minerals from
various mines operating in the country, processes and ships the products to Switzerland for other
high-value processing, packaging and marketing activities before they are shipped to their final
markets, typically in Asia.
To expand the backward and forward linkages in ICT and BPO, the government has
undertaken reforms in telecommunications to increase competitiveness and also attract FDI.
This has increased the number of telecom network operators from 1 in 2005 to 3 in 2013. It also
increased the ICT composite network coverage from 75% to 90% during the same period. Rwanda
is currently partnering with institutions such as the Massachusetts Institute of Technology
and Carnegie Melon University to upgrade the capacity of ICT instruction and develop critical
ICT skills to support the country’s contribution to ICT GVCs. In 2013, GoR and Korea Telecom
(KT) agreed on a Joint Venture (JV) to, among other things, deploy and operate a high-speed 4G
broadband network, which will cover 95% of the population and expand the country’s online
services capability. A subsequent JV was agreed between GoR and KT in 2014 to expand the
nation’s capabilities to undertake an unlimited range of online economic and social activities.
These partnerships will allow Rwanda to niche into ICT-enabled high-value shared services, such
as in the financial sector and BPO.
In conclusion, expanding linkages between domestic production and GVCs requires addressing
three key factors. First, the supply constraints, which lead to low capacity utilisation, particularly
in manufacturing and agri-business, need to be resolved. These constraints typically stem from
a variety of factors, ranging from cyclical fluctuations for coffee and low productivity for tea to
excess demand for processed manufactured products. Second, the inadequate quality of domestic
raw materials requires urgent attention. For instance, AZAM routinely relies on imported wheat
as the domestically produced wheat lacks the required quantities of protein and wet gluten.
BRALIRWA sometimes substitutes imported maize grits from Uganda for domestic production
due to the irregular quality of the domestic supply. Third, inadequate infrastructure, particularly
in transport and energy, remains a binding constraint. The cost of energy at USD 0.22/kwh is more
than twice the regional averages of USD 0.10-0.12/kwh. Together with the skills gaps in technical,
operational and management functions, infrastructure bottlenecks reduce the competitiveness
of domestic production, thus limiting the scope for inclusion in GVCs.
Note
1. BRALIRWA (1), AZAM (3) and CEMERWA (4) were among the top 10 manufacturing and agri-business firms
by turnover in Rwanda in 2010/11.
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Country notes
São Tomé and Príncipe
The emergence of global value chains (GVCs) presents an extraordinary opportunity for São
Tomé and Príncipe, a small island state off the coast of Central Africa that gained its independence
from Portugal on 12 July 1975. GVCs have the potential of increasing the value of the country’s two
main export crops, cocoa and coffee. This could bring major benefits to an insular country where
nearly half of the population is living in poverty. According to the United Nations Development
Programme’s 2010 poverty profile, 49.6% of the population lives below the poverty line and 15.9%
in extreme poverty, compared to 53.8% and 19.2%, respectively, in 2001. Beyond cocoa and coffee,
which account for more than 80% of total exports, the tourism sector has become an engine of
growth in recent years. The country also has significant potential in the agriculture sector, while
the discovery of oil has raised expectations of growth.
São Tomé and Príncipe is still in the initial stages of gaining access to GVCs and joining global
production networks. At present, cocoa and coffee beans produced in São Tomé and Príncipe are
exported to Europe raw or roasted and packaged. This denies the country the most profitable part
of the confectionary market value chain – the processing of the cocoa into chocolate. Growers in
West Africa are estimated to receive only 3.5% to 6.0% of the final value of a chocolate bar, depending
on the percentage of cocoa content. In the last few years, following the construction of a small
chocolate factory, the country has observed some processing of cocoa beans into chocolate. This
not only adds value to the raw cocoa and produces a higher price, but also generates employment.
São Tomé and Príncipe also has an abundance of exotic and tropical fruits. In early 2013, a small
company that processes fruit juices, Naturalismo, began operations in the country.
As an island economy, the country has an abundance of fish and marine resources, and in
recent years the fishery sector has seen a high level of government investment. Private operators
have been encouraged to enter the fish processing industry to prepare products for export, mainly
to European destinations. However, the majority of São Tomé and Príncipe’s fish continues to be
processed abroad, hindering the country’s potential to add value and increase employment. The
lack of highly qualified skill labour also hampers the country’s participation in GVCs.
In the medium to long term, São Tomé and Príncipe needs to develop its comparative
advantage in cocoa, coffee, tropical fruits and marine resources to benefit from GVCs. There is a
critical need for future investment in research and development, as well as after-sales customer
service. Beyond the European market, the Central Africa region has the greatest potential for
linkage via GVCs and would allow São Tomé and Príncipe to benefit from its membership in the
region. China/Chinese Taipei also represents a significant opportunity for linkages in GVCs.
In addition, there are positive prospects of São Tomé and Príncipe becoming oil-rich country,
with oil production expected in 2015/16. Good governance and prudent management of the
country’s oil resources will provide an unparalleled opportunity for structural transformation of
the economy. Research and development have already begun, with exploration contracts awarded.
With the expected forthcoming production of oil, it is also advisable for the authorities to invest
heavily in resource processing to fully benefit from the country’s natural resource endowment.
Nonetheless, the country´s undiversified economy presents the government with several key
challenges that could inhibit effective implementation of its growth agenda and prevent it from
capitalising on the potential of GVCs. These challenges include: i) poor infrastructure development
(e.g. roads, railways and ports and airports for connecting to foreign markets); ii) difficult access
to credit; iii) a weak legal system; iv) the country’s small size and low level of local consumption.
These challenges are compounded by São Tomé and Príncipe’s exposure to exogenous shocks
owing to its high dependence on external assistance. Possible threats of participating in GVCs
could include a decrease in (already weak) domestic resource mobilisation, in particular tax
revenues, and volatility of trade flow as a result of changes in strategy by international financial
institutions.
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According to the African Development Bank´s study on Insularity and the Cost of Insularity in
São Tomé and Príncipe, completed in July 2010, the above mentioned obstacles affect the potential
of the country’s participation in GVCs. Findings of the study included the following:
1.Agriculture: Bio-cocoa is of significant economic interest. Thus the reduction or
elimination of additional transport and production costs related to insularity will
substantially increase the producer’s income.
2.Fishery: It is important for the country to capitalise on the economic viability of its tuna
industry for export. As a World Food Programme study in 2009 reported: “The average
cost from packaging to exit from the local factory is about EUR 2 500/tonne, of which EUR 1 200
represents the raw material partially fished from STP’s Exclusive Economic Zone, EUR 200 labour
costs and EUR 300 intermediate consumption”.
3.Tourism: São Tomé and Príncipe needs to: i) develop legislation while maintaining the
eco-tourism balance, taking into account the insular specificity of the country, in order
to avoid uncontrolled tourism; ii) carry out the necessary training; iii) prepare promotion
measures; iv) improve infrastructure, health and hygienic conditions. It is worth noting
that tourism remains a capital-intensive activity (the investment needed for operation
is higher, compared to the expected turnover, by a factor of 2 to 3), according to the
insularity study.
4.Construction: The study found that the total cost of building an individual house of 200 m²
is about USD 300 000, or USD 1 500/m². Imported goods represent a significant portion
of materials (cement, bricks, plumbing, paint, etc.). Therefore, improving construction
planning, diversification of supply markets and training will be beneficial to the country.
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Country notes
senegal
The emergence of global value chains (GVCs) is seen by the authorities as an opportunity
more fully to integrate the country into world trade, even if there are risks attached. For example,
the processing of peanut oil, an export product, has encountered difficulties including variations
in production and the export of non-treated unshelled peanuts to China and India. In textiles,
the country’s only cotton mill closed in 2008 in the absence of a plan to adapt to competition.
The main extractive industries – phosphates, limestone, cement and oil refining – have limited
industrial potential. The new information technologies sector, by contrast, offers opportunities,
in particular call centres (word processing, accounting for foreign companies, web pages and so
on). Horticultural products and leather also offer GVC possibilities.
There are two elements in the strategic vision. The first is better to position Senegal as a
regional competitive hub in logistics and international subcontracting. The second seeks to
improve local and regional circuits in the supply of tropical fruits and vegetables, with a view to
re-export to the markets in Europe, West Africa and the Gulf states where there is demand for
these products.
The country is relatively well endowed with transnational infrastructure (seaport, air links),
with railways and a road network to neighbouring countries, and the quality of telecommunications
infrastructure gives Senegal opportunities to exploit in international logistics, sub-contracting
of back-office services, reception of fitting and assembly activities, and in distance services other
than call centres, in particular in the targeted areas of education and health. The country aims
to establish a “business park” and by 2018, to host 50 regional headquarters of international
businesses and institutions in the sub-region. There is also the issue of turning Senegal into a
regional “campus of excellence” and making Dakar a health capital, a development that involves
the rehabilitation of the country’s secondary airports. But the problem of access to electricity
remains a major obstacle. The price, of XOF 115 per kilowatt hour (kwh), is almost twice that in
Côte d’Ivoire (XOF 63), but service quality is seen as only half as good. The same applies to access
to credit, transport and logistics in general.
One of the constraints affecting access to GVCs is the shortage of local supply of raw materials.
Backed by the accelerated growth strategy, the approach aims to establish better connections
between all the participants involved at different levels of the chain between production, delivery,
processing or export. A sector-based approach aims to identify clusters of activities with high
potential for growth, added value, export competitiveness and job creation. It is accompanied by
a territorial rationale so the geographical zones concerned, the “competitiveness territories”, can
be better organised and connected. The clusters identified in this way will form the central axis
of Act III of the decentralisation process that seeks to organise the country into viable territories
equipped with consistent financial resources and sources of growth. The accelerated growth
strategy seeks to build on 50 clusters as opposed to 12 at present.
For each identified chain, the aim is to improve client/producer supply chains, solve problems
of unsold raw materials and increase local value creation by introducing the missing critical skills
and activities. In this way, for carrots, the introduction of new skills for packing, creating labels,
marketing and managing distribution chains made it possible to double the quantity of carrots
marketed to the equivalent of eight months of production. In the same way career opportunities
were created for young marketing managers. The same policy is in place for milk and poultry with
a view to extending it to sweet corn and other cereals. In the case of horticulture the experience
of a farm at Kirène (about 60 kilometres from Dakar) is another example of integration into GVCs.
Activity is mostly centred on production, on a site of some 300 hectares, of beans and sweet corn
for European markets.
The challenge for public policy is to uncover the various elements of expertise, which are
often fragmented between several types of participants with very little formal structure and
scattered through the informal sector. For example, the breakdown in supplies of cassava during
the crisis in Côte d’Ivoire revealed how substantial national demand in Senegal could be. As flour
or as a vegetable cassava is used as an ingredient in several widely-consumed types of food such
as bread, cooked dishes, garri and tapioca.
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About 90% of entrepreneurs operate in the informal sector. Most say they have problems
in selling their products (60.4%) and obtaining raw materials (19.1%). The unsuitability of their
sales outlets and an inadequate managerial organisation limit their capacities in regional and
international markets. Leaving the informal sector would very obviously give them the possibility
to export easily and at a lower cost combined with a greater chance of growth, with bigger and
more regular orders.
In textiles, the Aïssa Dione Tissus company has a very substantial turnover, mainly with
luxury goods in Europe and the United States (80%) and some big African hotels. The designer
Aïssa Dione employs about 100 people. China and other Asian countries do have a global advantage
in industrial manufacture and large-scale supply but prospects exist for Senegal. New trends in
ethical consumption and international trade preferences – with 0% customs duties in the ECOWAS
region, preferential access to the European Union market and only 6% customs duties in the
United States – are all encouraging. (See OECD and WTO 2013 Aid for Trade and Value Chains in
Textiles and Apparel). Senegal has a large number of stylists and small self-employed designers
who have an acknowledged expertise in independent design, embroidery and high-class couture.
As is the case with textiles, opportunities for the processing of leather are impeded by
structural obstacles, starting with the major role played by the informal sector. There is substantial
demand from India and the whole sub-region. An 80% share of the production of the association
of shoemakers of la Médina, based in Dakar, finds its way to Mali, Guinea-Bissau, Guinea, Congo
and as far afield as Angola. The challenge for Senegal is therefore to make its formal circuits more
attractive with appropriate measures of encouragement and support.
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Country notes
SeychelleS
Seychelles has a small, open economy, limited in natural resources and in skilled labour, which
imports over 95% for its consumption and production. As a result, the country has to depend upon
global value chains (GVCs) to sustain its economy, enhance incomes and employment.
Like many Small Island Developing states (SIDS), Seychelles is characterised by its small size,
remoteness from global markets, limited natural and human resources, but it is also endowed
with unique biodiversity, cultural richness and an expansive maritime environment. Tourism
has therefore emerged as the major economic pillar, providing livelihood to a large segment of its
population and a major source of foreign exchange earnings. Seychelles has emerged as a dream
destination for high-end tourism especially from Europe (which accounts for approximately 69%
of tourists). In the wake of the global economic crisis, however, successful attempts have been
made to diversify markets to Asia (China), Eastern Europe, Emirates and Africa. The growth of
the tourism sector has forged both forward and backward linkages with the development of new
products and diversification into newer destinations, while supporting ancillary sectors such as
hotel and food establishments, yachting and cruise ships, transportation services, water sports,
spa and wellness and also boosting housing construction and development around the islands.
To reap the benefits of complementarity and sustainable tourism, Seychelles has forged regional
partnerships through the “Vanilla Islands initiative” linking seven Indian Ocean islands – Comoros,
Réunion, Madagascar, Maldives, Mayotte and Mauritius. The Fisheries sector, while providing less
employment than tourism (at only 1% of the workforce), is also a key foreign exchange earner,
due to the licensing fees paid under the numerous Fisheries partnership agreements. The country
is home to one of the world’s largest tuna canning factories, Indian Ocean Tuna, which mainly
exports to Europe and Asia.
The government has undertaken several policy initiatives to develop these two economic pillars
and integrate them into GVCs. The tourism sector, on average, contributes more than 20% of the
country’s GDP and 60% of total foreign exchange earnings (2009-13). Over 23% of the total work force
is directly employed in tourism-related businesses including accommodation, restaurants, car hire,
airlines, tour operator, dive centres etc. The government’s strategy for the tourism sector set out in
the Seychelles Strategy 2017 and the recent Seychelles Sustainable Tourism Master Plan 2012-2020
envision the attainment of the highest standards in the industry and the distribution of the benefits
of the industry for the optimum social and economic benefit of the people of Seychelles, without
compromising the country’s natural environment and biodiversity, and its international reputation
as an environmental leader. The innovative marketing strategies1 of Seychelles Tourism Board
(STB), the agency responsible for tourism promotion, as well as partnerships with various airlines
have paid-off and led to a diversification of markets with tourist arrivals from other countries
such as Russia, UAE, South Africa and China. Seychelles tourism is highly competitive compared
to other small islands in the Caribbean and Oceania and the country has handled exceptionally
well the years since the 2008 global crisis2. The sector is however, not without challenges. Tourism
in Seychelles is vulnerable not only to climate change, but also to other externalities (piracy, for
example, which has led to a sharp decline in the calls made by cruise ships in recent years). The
skills mismatch, with a concentration of expatriate labour in managerial positions, is also a concern.
Furthermore, the on-going trade liberalisation as part of the country’s accession to the World Trade
Organisation (WTO) and in keeping with regional commitments has led to the reduction in size of
the local agriculture sector.
A Tourism Value Chain Analysis done by the Commonwealth Secretariat on behalf of the
government identified three specific areas for policy interventions: increasing the supply of local
agricultural produce to the tourism sector; engineering related training for mature students; and
additional support to micro and small businesses in tourism3. These recommendations are yet to
be implemented under the 2012-2020 STMP.
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The fishing industry has over time developed from primarily sustaining the local population
to one capable of competing internationally as an important foreign exchange earner. Seychelles’
location at the centre of the western Indian Ocean tuna migratory routes makes it the region’s most
efficient hub for tuna fishing and home to industrial fishing fleets from the European Union and the
Far East. The Indian Ocean Tuna (IOT) canning factory is the largest single employer. Canned tuna
remained the dominant commodity produced, accounting for 90% of total domestic production in
2011. Trade in fish and fish products and other related activities accounted for 33% of current account
receipts in 2011. Exports of fish products represent around 68% of the Seychelles exports (excluding
re-exports). Industrial tuna fishing activity continued to increase in importance in the economy,
in terms of revenue generated (derived mainly from foreign fishing vessels’ expenditure on goods
and services in Port Victoria, as well as through payments for licences and financial compensation).
The government is promoting investments in fish processing to be used mainly by the artisanal
sector, developing the aquaculture sector for high value fish such as sea cucumber, and improving
port infrastructure and fisheries infrastructure. A new Mari-culture and Aquaculture action plan is
being developed in 2014 to improve the sectors linkages to the local economy.
Seychelles has a very small manufacturing sector, the main lines being beverages (rum and
beer by Takamaka Bay and Sey Brew, respectively) as well as a small retail distribution industry.
Due to its small size and geographical isolation, deepening along GVCs is difficult.
However, the financial services sector, the third and growing pillar of the economy, offers a
range of services and products to encourage it as a destination for investment. The Seychelles
International Business Authority (SIBA) is responsible for monitoring, supervising and co-ordinating
the conduct of international financial services in Seychelles. The major challenge for the country is
to emerge as a well-regulated centre that meets international standards with a good reputation. To
achieve this vision, the government has embarked on regulatory reform in the financial sector to
strengthen regulation, modernise its services and enhance private sector access.
Participation in GVCs, though limited, has enabled Seychelles to become more competitive and
integrated in a few key sectors. Some of the major barriers for upgrading along global value chains
are limitations in skilled manpower, land resources and access to finance.
As the government aims to address some of the main barriers to benefiting from GVC, there
is still some scope for further opportunities for Seychelles to integrate further into regional and
global value chains in tourism (regional tourism, ecotourism), fisheries (aquaculture, boat repair
services), financial services (offshore services) and agriculture (small scale, high value nonperishable farming of essences/spices). The government is currently drafting their next mediumterm development plan as it seeks to broaden the scope of economic activity beyond fisheries and
tourism.
Notes
1.Innovative marketing strategies such as “The Seychelles Islands, Another World” in March 2007, the
“Affordable Seychelles” campaign in 2009 and the recent “Seychelles Sustainable Tourism Label”.
2.See A.Culiuc,” The Determinants of Global Tourism Flows”, IMF Working Paper quoted in IMF Country
Report No.13/202.
3.David McEwen and Oliver Bennett, “Seychelles Tourism Value Chain Analysis”, 31 October 2010.
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Country notes
Sierra Leone
Overall appraisal of the country’s participation in global value chains (GVCs)
Plagued by ten years of civil conflict that inhibited commodity production and trade capacity
and weakened market systems including the country’s infrastructure, it would be understandable
that during and immediately after the conflict period, the country’s level of participation in global
value chains were quite weak and limited. However, following a successful post-conflict recovery
in the early 2000s supported by interim and full poverty reduction strategies (PRSPs) in 2001 and
2003 respectively, the country was on track in building the foundation for its participation in
global value chains through policy reforms and institutional strengthening.
Due to consistent economic and trade policy reforms the country achieved two significant
milestones that enhanced its global and productive competitiveness in 2006. These were:
i) qualifying for debt relief under the Heavily Indebted Poor Country’s Initiative (HIPC) that did
not only wipe out the country’s debt stock but provided space for robust policy reforms including
productive-sector-related reforms; ii) developing and implementing an action-oriented Diagnostic
Trade Integrated Study (DTIS) that included an extensive productive-sector-based action matrix
aimed at prioritising and sequencing trade related policy reforms and rendering the productive
sectors such as agriculture and fisheries more competitive. These two milestones set the pace
for the country’s gradual participation in global value chains especially at the sub-regional level.
However, despite these milestone achievements, the country is expected to undertake
extensive and holistic supply- and demand-side reforms in the trade and production sectors
for it to be fully integrated in the global value chain network, especially in commodities in the
production of which it has a comparative advantage. Implementation of the 2006 DTIS action
matrix – which includes around 100 actions covering 8 areas – indicated considerable progress
including legislative and regulatory changes to improve the overall business climate and
expanding institutional capacity for formulating and executing trade policies. The updated DTIS
finalised in November 2013 builds on progress made on the 2006 action matrix by complementing
its achievements and drawing on useful lessons learnt.
Description of the GVC participation in the country context – Historical and futuristic
The updated DTIS provides deep insight and analysis on prioritised productive sectors such
as agriculture, tourism and fisheries and sets the country’s trade-enhancement agenda for the
next five years by giving special emphasis on some cross-cutting issues such as trade facilitation
and logistics in order to reduce supply-side barriers to trade and global competitiveness. The
updated DTIS also effectively mainstreams trade issues in the governments A4P (2013-18).
An evaluation of the 2006 DTIS action matrix indicated that while notable progress has been
made such as the adoption of regulations and strategies, these actions have not necessarily
translated into lower trade costs, value added exports and reliable supply chains. Therefore Sierra
Leone can be assessed to be at the entry point of becoming fully integrated in GVCs. Implementation
of the updated DTIS is expected to accelerate the country’s integration in the GVCs.
The analysis in the updated DTIS indicates that the key sectors involved in global value
chains are the agriculture sector with a focus on four cash crops namely cocoa, cassava, rice and
palm oil; the fisheries sector with a focus on limiting illegal, unreported and unregulated fishing;
the tourism sector enhancing tourist-related infrastructure and tourist-related employment.
As a country richly endowed in base and precious minerals, the mining sector is part of the
integrated GVC network especially from the perspective of primary production and the export of
raw materials. The diamond sub-sector (Kimberlite and Alluvial) has also been a key player in the
GVC network and accounts for a fair share of mining exports. Due to the country’s fragile status,
value chain operations are mainly conducted at the primary level.
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For instance most base metals are exported as raw materials to industrialised countries for
further refinement and processing into higher-value products. In 2012, the country exported
7.5 million tons of iron ore mainly to China and Europe but imports of finished mineral products
for the same year amounted to 32.4% of total imports. Special stones such as diamonds are also
exported mainly as raw materials.
The same holds true for cash crops such as cocoa, coffee and palm-oil, produced and exported
to regional countries. In essence the key activity performed in Sierra Leone along the value chain
is to produce or extract the commodity and export to other countries for value addition. With
very poor infrastructure especially in energy supply and in its roads network – only 12% of the
population has access to electricity and 8.9% of trunk roads are paved – the country lacks the
necessary conditions for its participation higher up in the value chain.
While the final markets for the exports of mining commodities have a global dimension
– such as China and Europe for iron ore/ bauxite/titanium oxide, Belgium and Israel for diamonds
and gold – the final markets for food commodities are still local or to a limited extent regional
in nature, probably with the exception of cocoa and coffee. The country’s marine products still
cannot access EU markets. However, due to illegal and unregulated fishing, most of the country’s
marine resources find their way to the EU market with the country losing out on much needed
revenue from the sector.
There are some opportunities for the country to enhance its positioning in GVCs especially in
the diamond mining sub-sector and cassava (agriculture) sub-sector. For instance, the updated
DTIS indicates that production of cassava and processing it into gari is a highly profitable venture
for farmers, traders and processors and the overall production cost is lower due to limited
application of inorganic inputs. The finished product (gari) currently attracts significant demand
in countries in the sub-region. Sierra Leone has huge potential in participating in GVCs in cassava
given its comparative advantage and favourable production conditions.
Opportunities and potential for GVC participation
Sierra Leone also has potential in diamond cutting and polishing into higher value commodities
given its status as a key producer and exporter of both alluvial and kimberlite diamonds. The
country has two large-scale kymberlite diamond projects and a huge alluvial mining community
in both gold and diamonds and a fair share of diamond exports. The opportunities for enhancing
Sierra Leone’s participation in the diamond industry value chain are imminent and the country
should provide the right conditions for this to happen.
Opportunities to broaden the scope of value addition participation to other sectors such as
iron ore within the mining sector and cocoa in the agriculture sector require huge investments
in infrastructure.
Limiting factors for GVC participation
As a state in transition out of fragility, there are numerous limitations that inhibit the
country’s full participation in GVC’s or advancing to higher levels in the value chain as identified
in the evaluation of the 2006 DTIS. The most limiting factors include the high production costs
and sub-optimal levels of productivity. Other factors include inefficient commodity-assembly
and processing methods used by farmers with little scope for specialisation as farmers combine
various functions along the chain. In some cases, for instance, production, assembly and processing
are all combined as one. High input costs due to low technology use create inefficiencies that
increase production costs. Labour-intensive production methods are a further barrier to GVCs.
For instance, the updated DTIS indicates that the country has a comparative advantage in rice
production. However, imports are substituted due to labour-intensive methods of production and
relatively low yields per hectare. In the cocoa sub-sector, an analysis of the value chain shows
that approximately 43% of costs come from farming, 27% from assembly and 30% from processing
and exporting stages, reflecting low productivity as a result of poor agronomic practices and
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the use of old plantations. In addition, assembly functions, sorting and local transportation of
the commodity are very inefficient. Palm-oil trade competitiveness is affected by high costs
incurred at the processing and logistic trading stages. Cost elements at the processing stage
include packaging, energy provision, vehicle operations and maintenance. At the assembly stage,
cost elements include vehicle depreciation costs, and overheads and levies and fees. However,
despite these inherent limitations, there have been numerous national policies and strategies
focused on creating a more conducive business environment consistent with global value chain
integration. The country is part of regional bodies such as ECOWAS and MRU that facilitate tariff
harmonisation efforts. Infrastructure deficits in water, energy and roads/sea/air transport are
the most binding barriers to upgrading along the value chain. Weak domestic SME participation
along the value chain and low skills and systemic weak capacity in critical sectors are also
inhibiting factors for GVC participation.
National policies and strategies
The two medium-term strategies for facilitating GVC participation include the updated
DTIS adopted in December 2013 and the programmes and practices articulated in the Economic
Diversification Pillar in the Agenda for Prosperity (A4P). As mentioned earlier, both strategies
are complimentary and mutually reinforcing. Implementation of the 2006 DTIS indicated useful
lessons for updating the actions in the 2013 DTIS taking cognizance of the changing global and
regional context.
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South africa
South Africa is integrated into several global value chains (GVCs), particularly in the
automobile, mining, finance and agriculture industries. It may be unique in Africa in possessing
the efficiency and scale to drive a global value chain. As the largest African economy it is also
an important regional hub, and South Africa increasingly capitalises on regional value chains,
especially in retail, finance and telecommunications.
According to the joint OECD-World Trade Organization (WTO) Trade in Value Added database,
South Africa ranks 2nd amongst the BRICS countries in terms of the content of foreign value added
to exports. China’s exports contain 37% of foreign value added, whilst South Africa’s contain
16%, ahead of those coming from Brazil, India and Russia with 15% or below. In terms of specific
industries, in South Africa, the automotive industry adds the most value to exports at 40%, whilst
finance, retail and mining are the lowest at less than 10%.
These data reflect the position of South African operations in global value chains. In the
automobile value chain, South Africa serves as an assembly hub for Africa and for right-hand
steering. Some of the models produced in South Africa are also exported to the US market. The
large assembly presence has also come to attract component manufacturers too that produce
parts alongside the automobile plants. These component and car manufacturers are large
international firms that own the core elements of the value chain all the way from research and
development through assembly, marketing, distribution and after-sales services. Consequently,
many intermediary products are imported for assembling in South Africa. Experience working
with the local assembly lines has enabled local firms to become exporters of several components,
of which catalytic converters and leather seats have been prominent in the recent past. South
Africa’s automotive industry accounts for more than 6% of its GDP and 12% of its manufacturing
exports.
The high value of domestic content in mining exports reflects the industry’s long history,
local ownership and extensive backward integration into the wider South African economy. In
2012, mining contributed ZAR 468 billion to South Africa’s economy. The impact of the mining
industry on other sectors (steel, timber and rail, for example) is close to 19% of South Africa’s
GDP. Additionally, mining accounts for over 16% of formal sector employment. Recent cost
figures from the mining industry indicate that of the ZAR 437 billion spent in 2011, purchases
and operating costs for steel, timber, electricty, rail, etc. accounted for the largest proportion of
total expenditure, followed by wages at ZAR 89 billion and capital expenditure at ZAR 47 billion.
The finance from mining circulates throughout the economy, affecting sectors as diverse
as financial services and housing. The mining services and equipment sectors have developed
into important exporters in their own right. Indeed, South African suppliers are global leaders
in numerous areas, particularly the provision of washing spirals, underground locomotives,
submersible pumps, hydropower equipment and mining fans. South African firms are also leaders
in some of the vast mining services including geological services, prospecting, shaft sinking,
turnkey solutions to the mining and mineral processing industries, and operation services. They
are also competitive on a global scale when it comes to the four vital areas of mine safety, tracked
mining, shaft sinking and ventilation. Development in these areas is strong and considered much
greater than in comparable countries such as Chile or Australia. According to the South African
Capital Equipment Export Council (SACEEC), one of South Africa’s largest exports is mining
equipment, accounting for 8.5% of total exports from 2005-09, and 55% of capital equipment
exports during the same period. It is estimated that 90% of the exports of the mining equipment
and specialist services are local content. Mining houses are clustered around Johannesburg and
supply industries around East Rand. Mining equipment and specialist services have not received
any direct government subsidy at any stage in their development.
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South Africa’s finance and retail industries also have deep value chains, and have an expanding
presence in other African countries. The four major banks are well established, offering a full
and comprehensive range of banking services and are amongst the top players on the continent.
South African retailers are similarly branching out into neighbouring countries leading the
supermarketisation of retail there. These regional value chains offer important opportunities to
create value in key industries, boost employment opportunities, and improve economic growth.
South Africa’s advantages in global value chains pertain to skills (especially experiential skills),
well established companies with leading products and competencies, public research linked to
firms, sophisticated customers, well-developed and dense networks of local supply industries and
services and geographical clustering. However, these advantages must be maintained and some
are not being further developed. There are skills shortages at every level, particularly amongst
engineers and artisans, with many firms stating that standards are declining. Publicly funded
research has fallen significantly. Global value chain-related activities are ignored in South Africa’s
innovation policies and there is less research and declining links between firms and science
councils. Companies increasingly see their major areas of operation outside the country, and
regard South Africa as a less attractive place from which to direct and administer global value
chain investments. The lack of new investments in global value chains in South Africa is reducing
the overall size and impeding the prospects for technological advancement for local suppliers.
Improving the capacity of specific value chains, and on a globally competitive scale, is a
critical part of an important diversification strategy. South Africa would stand to benefit from
the diversification promoted by linkages and spillovers between industries. In order to increase
the depth of value chains, measures that target skills development, expansion of technological
capabilities and access to capital are essential.
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South sudan
Developing domestic production and exports in the non-oil sectors is important for South
Sudan’s drive for industrialisation, yet its participation in global value chains (GVCs) is still in
its infancy. South Sudan has great potential in sectors such as mining, agriculture, forestry,
livestock, fisheries, energy (except oil) but supply capacity remains severely constrained. As part
of Sudan, South Sudan used to be mainly active in the global value chains of gum arabic and
crude oil. While gum arabic is still produced in Upper Nile state, the production is no longer part
of an international network. Regional and global companies in telecommunications, beverages,
and banking have an established presence in South Sudan mainly as retail outlets. Product
development in these companies is done outside the country.
Opportunities exist for South Sudan to enhance its positioning and broaden its participation
into further sectors. In the short run, the opportunities to enhance its positioning in existing value
chains is limited because of the skill levels required. The skill set required in telecommunications,
for example, is not the same as in agriculture. The greatest opportunity South Sudan has is
to broaden its participation into further sectors in which it has a comparative advantage. For
instance in livestock, it has one of the world’s highest number of cattle per capita; in agriculture
over 95% (or 428 260 km2)1 of arable land is uncultivated; in mining, it has rich deposits of major
metals, precious stones, energy minerals, and industrial materials including gold; in tourism,
national parks cover a vast area; and in forestry it has timber, teak, gum arabic, and shea nut
trees2.
There are substantial barriers that inhibit participation in GVCs, or prevent the country
from advancing to higher-value stages. The critical barriers, most of which are binding, that
inhibit South Sudan to advance to higher value chain stages are inadequacies in skills, roads and
electricity, institutions, and security. These are reflected in the World Bank’s report Doing Business
that ranks South Sudan at 186 out of 189 countries.
In order to achieve gainful participation in international production networks, national
policies and strategies need to be more explicit with regard to GVCs. In its two years of existence,
a number of polices and plans have been concluded for specific sectors. Value chains as a strategy
are implied, but are only explicit in the agriculture sector. Even within the agriculture sector, no
comprehensive strategy has been developed to facilitate gainful participation. The agriculture
strategy, for instance, identifies cereals, roots and tubers, pulses and oilseeds, beverage crops,
fruit trees, and vegetables as strategic crops. Value chains will likely evolve with a more explicit
policy focus, which, by raising awareness, will enable more targeted development and South
Sudan’s meaningful participation in international production networks.
There are three essential strategies to propose. First, in the short run, South Sudan needs to
focus on global value chains that are of high value but requiring a low skill set, and not dependent
on having a well-developed road and transport infrastructure. For example, gum arabic and
shea nut trees are available in 7 of the 10 states. Hides and skins too are available in all the
10 states. South Sudan could usefully invest in a nationwide process to prioritise and develop
4 to 5 value chains that pass this test and create jobs. Second, South Sudan needs to embrace
regional economic co-operation to “import” skills and allow itself to move up the value chain.
As a producer, South Sudan will have to focus at the bottom of the chain in the short term. In
the medium term, South Sudan will climb the chain and “import” skills in the form of economic
co-operation to quicken this transition. The development of national value chains, especially for
food, will be critical. Regional value chains will dominate global ones, as the county strengthens
its ties within the region. In this context, South Sudan will, as a general principle, need to
prioritise its national, regional and global engagement in that order. Third, barriers that inhibit
participation in global value chains have to be addressed in the medium to long term even within
the context of conflict. The efforts to improve road infrastructure, capacity of institutions and
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security of persons and property will need to be revived quickly. These are binding in most parts
of the country. Additional barriers such as the relative absence of a private sector and general low
levels of skills and literacy (e.g. only 27% are literate) will have to be addressed too.
Notes
1. It is estimated that about 70% of the 644 000 square kilometres of South Sudan is arable. Xinshen Diao,
Liangzhi You, Vida Alpuerto and Renato Folledo (2012). Assessing Agricultural Potential in South Sudan – A
Spatial Analysis Method, Application of Geographic Information Systems, Dr. Bhuiyan Monwar Alam (Ed.),
ISBN: 978-953-51-0824-5, InTech, DOI: 10.5772/47938. Available from: http://www.intechopen.com/books/
application-of-geographic-information-systems/assessing-agricultural-potential-in-south-sudan-a-spatialanalysis-method
2. SSDDR & UNDP (2012); “Report on the South Sudan Livelihoods and Economic Opportunities Mapping”,
South Sudan Disarmament, Demobilisation and Reintegration Commission (RSSDDRC) and UNDP, South
Sudan.
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sudan
Sudan’s recent experience revealed that the value chains processes of precious minerals
and agricultural production were competitive rather than complementary. Although oil has
contributed to exports and generated positive forward linkages in terms of downstream
industries (refining, plastic production and oil-related infrastructures) including the provision
of energy input into the economy, the negative backlash effects are substantial. The resultant
export concentration and the sharp drop in the share of cotton exports from 39.8% average over
1970-98 to 2% average during the oil boom (1999-2011) have considerably weakened the access of
agriculture to global value chains (GVCs). At its prime, cotton supported a broad-based supply
chain with high domestic value addition, involving cultivation, harvesting, grading, ginning,
packaging and exporting as well as cotton lint, spinning, textile and apparel for the local market.
After secession Sudan continues to be a provider of upstream inputs to the GVCs; during
2012-13, exports were dominated by oil (44.8%) and gold (40.4%) with agricultural crop exports
accounting for about 10%. Over 2012-13, export of crude oil accounted for 85.4% of total exported
oil, benefiting from the existing interconnected network of pipelines and export terminal.
In the gold-subsector, informal and small-scale miners are the main producers, contributing
about 90% of production (60 tonnes in 2013). The major value chain activities comprise mining,
ore crushing, beneficiation, small-scale refining and marketing and the main actors are the
miners, stamp mills operators, chemical and equipment suppliers, financers and middlemen.
The intermediate inputs include locally fabricated tools, gold pans, metal detectors, petrolpowered jackhammers, jaw crushers, chemicals as well as hand and machine operated trommel
classifiers. Deep gold mining up to ten metres is regulated by the 2010 Ministerial Act; and a
licence costing SDG 3 225 is required. Small miners often sell their produce on-site to traders,
jewellers’ agents or in the nearby towns, depending on the quantity and purity, with the profit of
the onsite traders (who also supply inputs to the miners) estimated at 11% per gramme. In 2012
the government established a gold refinery (with a design capacity of 270 tonnes per annum) for
the refining and fabrication of gold bars with high purity up to the international standards for
export; since then, the BoS has been the sole exporter with most of gold export targeting the UAE
(90.1% in 2012). Because of the low purity of gold extracted by the small miners (50% on average),
a number of artisans operate in-house refining. However all were closed by a ministerial decree in
2012, to standardise the quality of traded gold and combat smuggling. Despite the government’s
attempt to internalise part of the gold value chain, the supply chain in the SSGM sector is largely
informal and prone to illicit activities. Furthermore the variation in purity and informal financing
of production (with 25% capital share in output) including the relatively low price in the onsite
gold market prevent many miners from benefiting from downstream value capture.
With a share in exports of 18.6% in 2012, agriculture is less integrated in the upstream GVCs as
an input provider; in addition the agricultural trade balance is negative (the ratio of agricultural
exports to food and agriculture-related imports is 25%). However, the reliance of agriculture on
foreign inputs has increased (the ratio of imported agriculture-related inputs such as chemicals,
fertilisers, tractors, pesticides and sacks in total imports was about 6% in 2012, up from 4.8%
in 2011). The traditional rain-fed production, (crops and livestock), accounted for 62.1% of
agricultural GDP between 2000 and 2008 and contributed most to GVCs as an input provider, with
about 90% of livestock exports in 2012 sourced from this sub-sector. The main value chain actors
involve producers, collectors, fatteners, middlemen, traders, live animals and meat exporters.
Sudan has diversified agriculture, (rain-fed and irrigated, with a mix of small and largescale farming) as well as oil and gold products that are supportable by buyer-driven GVCs, with
potentials for recovering the cotton linkages and up-scaling minerals and traditional exports. In
this regard, the revitalisation of cotton production benefiting from existing significant irrigation
infrastructures would revive cotton supply and value chains, especially since the Sudanese
barakat cotton ranks among the world’s highest quality cottons. Also the domestic market
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is sizeable; in 2012 imports of textile and related products accounted for about 3% of imports
(USD 300 million). At present only three out of 16 textile factories are operating.
Moreover, Sudan is one of the countries with the largest livestock inventories in Africa; the
population of sheep and goats alone was estimated at about 69 million in 2013. Live sheep are
the largest livestock export earner, contributing USD 286 million (8.5% of exports) in 2012. Sudan
is neighbour to some wealthy Middle Eastern countries with sizeable markets and considerable
preference for Sudanese breeds of sheep; also the country could explore the EU market for
imported sheep meat. The livestock farm-gate value addition could be upgraded by undertaking
the fattening and reconditioning of animals including linking herders to regional terminal
markets.
Sudan’s oil industry is virtually vertically integrated and the rent accrues to the public sector;
there are good prospects for boosting oil yield from depleting fields using enhanced oil recovery
techniques to increase the recovery factor up to 30% and reserves by one billion barrels by 2020.
Also, there is great potential for value addition in the SSGM sector through upgrading the locally
fabricated tools and establishing machine leasing schemes together with enhancing the small
miners’ and the larger mining firms’ synergies, including strengthening the community-based
mining organisations.
The I-PRSP 2013, acknowledges that to create jobs and reduce unemployment and poverty,
agriculture, livestock, manufacturing and services should be the main sources of growth. To
that end, Sudan needs to address trade and non-trade barriers, including production, to upscale
value addition and participation in the GVCs. Studies revealed that lifting the burden of high
taxes and other levies along the supply chains would upgrade the value chain. Charges on crops
are estimated at 30% of the total assembly and logistic costs and average tariffs on imported
agricultural inputs at 30.6%. Marketing costs represent, on average, 33% of the cost of the sheep.
Also, reducing the high cost of energy and infrastructure services, which raises the domestic
resource cost (a measure of the opportunity cost of producing or saving foreign exchange),
would enhance participation in GVCs. During 2001-07 about 41% of all factories closed due to
high competition from imports and in export markets. The supply chain could be upgraded into
value chains by clustering SMEs to increase participation of small producers (as in the case of the
Sudan and Ethiopia organic banana project). Increasing the quality and safety measurements of
production in compliance with international standards would raise the domestic value added.
During 2000-01 Sudan’s sheep were banned, and the EU also banned groundnuts. Attracting
foreign mining companies with advanced technology would ensure healthy development of the
mining industry. Improving the governance of extractive industries would enhance traceability;
transparency, and confidence, and hence, reduce property disputes and upstream costs. More
important, the supply and value chains need to be incorporated into the national development
planning framework.
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swaziland
Swaziland’s inflows of foreign direct investment (FDI) targeting the export market were larger
than those for Botswana and Namibia in the early 1990s. Its attraction for such investments has
declined since the demise of the apartheid regime in South Africa and the end of civil war in
Mozambique. Despite the decline in FDI inflows, USD 136 million in 2010 to USD 90 million in
2012, the stock of foreign direct investment has remained significant at almost a billion dollars.
In 2011 and 2012, the share of FDI in gross fixed capital formation was more than 24%. With
foreign firms being key drivers of global value chains, Swaziland’s participation in such activities,
although small in terms of the global value, is quite significant at the domestic level. Swaziland’s
share in global trade, however, has fallen over the years – its share in world merchandise exports
peaked at around 0.02% of world trade in 2004, but fell sharply to 0.01%in 2010. Exports have
therefore declined as a source of economic growth, especially over the last decade, with the
current ratio of exports of goods and services to GDP below the 30-year average of 0.67 and close
to the value recorded in 1980.
The World Investment Report 2013 noted that value-added trade contributes nearly 30%
to developing countries’ GDP on average. Inflows of FDI constitute about 24% of GDP. Foreign
direct investment is spread across many sectors of the economy, including natural resources,
manufacturing and services. For a country whose trade openness ratio is about 1.94, global
value chains are an important element of the country’s economic activities. The exports from
Swaziland include sugar and sugar products, forestry products, processed fruit products, textiles,
soft drink concentrates, refrigerators and, more recently, pneumatic drills.
Based on the social accounting matrix for 2006, it is observed that the extent of value addition
within specific sectors varies widely across products. In agriculture, for instance, winter grain,
tobacco and canned fruit comprise of less than 20% in domestic value. Imports from South Africa
and the rest of the world form most of the value in the final products. Such imports include
packaging materials, marketing and transport services and the final products themselves. For
canned fruit, the main producing firm is of South African origin and sells its product to the rest
of the world and the home country. Opportunities for increasing local value are very limited
in this operation due to the limited stages of production that are required to produce the final
product unless Swaziland could attract a can producing firm. For the livestock and poultry sector,
local value could be increased if Swaziland were to be able to increase the grain output that is
required in feed production. Significant increases in productivity would be required to replace
grain imports from South Africa.
In the extractive sector, the greatest domestic value is generated from forestry, coal, lignite
and peat, while other mining activities generate less than 40% in domestic value. Once again,
limited upscale activities in these products, given the size of the Swazi economy and the size of
operations would suggest little scope to extract greater value out of such activities.
In manufacturing, sugar and textiles related activities are dominant in the Swaziland economy.
As indicated in the Economic Diversification Study (EDS), the erosion of trade preferences for
sugar and textiles pose a challenge for Swaziland. Although textiles are an important product by
value, they constitute a large component of imports in the form of fabric. Given Swaziland’s low
labour costs and the rigid and hostile labour relations environment in South Africa, improving
the productivity of labour could attract investments from its neighbour or further afield. With
regards to sugar, critical issues relate to diversifying sugar products. Coca-Cola Swaziland (Conco
Ltd) produces soft drink concentrates that are exported to 20 countries in Africa. Conco imports
dairy products and sources most sugar materials locally. The EDS identified possible additional
sugar and sugar-related products including chewing gum, solid sugar and alcoholic solutions as
possible products where there is demonstrable competitive advantage. The existing relationship
between Swazi and South African firms could also be exploited to diversify export markets.
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Key challenges impacting negatively on Swaziland’s ability to benefit from global value
chains are the existing constraints to domestic production. Export-oriented firms have been
hamstrung by an unfavourable investment environment, regulatory restrictions, government
distortions and the high cost of trade. The service sector, which is one of the fastest growing
sectors, especially telecommunications, is still to fully emerge out of a legislative bind that
has impacted investments. Also, limited export market diversification has cast a shadow of
uncertainty regarding trade preferences in key products. Limited access to finance by local small
and medium-sized enterprises in the face of declining FDI affects the extent that the country can
exploit existing links into global value chains.
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tanzania
Tanzania’s current role in global value chains (GVCs) is low. The service industry contributes
48% of Tanzania’s GDP. It is heavily geared towards urban centres in the domestic market and
especially active in telecommunications and financial services. Agriculture contributes 27%
to GDP but plays the predominant role for employment. Industry’s share in GDP is 25%, with
particular contributions from light manufacturing and agro-processing. Tourism is important
too, contributing some 20% of GDP, but with little value addition at the local level. Economic
value addition thus occurs predominantly at the primary and secondary input levels. There is
little generation of value added in GVCs, both in terms of forward and backward participation1.
And despite the international financial and euro area crises, output growth and trade was
remarkably stable and virtually resilient to exogenous shocks – a clear indication of seemingly
little integration of the economy into GVCs.
Tanzania has experienced strong export growth and diversification away from traditional
markets and products. Its total merchandise exports grew approximately five-fold over the past
decade. This rapid growth has been partly fuelled by higher prices for traditional agricultural export
commodities, such as coffee, tea, tobacco and fish. But the main factor has been the emergence of
gold, rising from USD 383 million to over USD 2 billion. In addition, light manufacturing and agroprocessing exports grew from 7% of total merchandise exports to 20%. Between 2003 and 2012,
exports to the EU decreased from approximately 50% to 30%. Total exports to Asia increased
from 23% to almost 30%. Most importantly, exports to Tanzania’s neighbouring countries in EAC
and SADC rose from less than 10% to over 30% today.
While no specific data is available on trade in value added, Tanzania’s overall trade patterns
do suggest important trends. On the export side, these include the emergence of raw mineral
exports at the expense of traditional agricultural commodities. On the import side, the trends
concern more than 25% of petroleum and oil refined products and another 25% in the form of
intermediary industrial products, mostly focused in the car industry and the power sector.
Another feature of Tanzania’s export performance has been diversification away from traditional
markets in the EU. Trade is steadily increasing towards Asia and to some extent also regional
neighbours. Overall, with only a slight shift from raw agricultural to raw mineral exports, these
trends suggest that Tanzania currently continues to generate little value added in its main exports
markets. In turn, the country is becoming more dependent on intermediary and final industrial
products, namely from Asian markets. Tanzania is becoming one of Africa’s FDI front runners,
yet the large majority is for greenfield investments in the extractive and tourism sectors, with
seemingly little local value addition. The most important development potential for Tanzania
to generate trade in value added therefore probably lies in strengthening Regional Value Chains
with neighbouring countries (i.e. Burundi, DRC, Kenya, Malawi, Mozambique, Rwanda, Uganda
and Zambia). Selected case study evidence supports these assertions.
Looking forward, the biggest potential to value added trade lies in the exploitation of Tanzania’s
trade linkages to its neighbouring countries. Improved overall transport interconnectivity and
corridor development is hence crucial for Tanzania and its landlocked neighbouring countries.
The port of Dar-es-Salaam is currently a major trade hub for East and Central Africa. It also opens
the door for the development of Special Economic Zones and more global trade, in particular
with the Asian markets, to which the country has a privileged geographic position. Due to
cost advantages this includes the possibility of outsourcing lighter manufacturing businesses.
Tanzania therefore needs to prioritise transport corridor infrastructure and port development
to facilitate better regional trade connectivity. Moreover, institutional upgrades can improve coordination in the hinterland access regime.
Of course, the commercial exploitation of vast natural gas resources might open a unique
opportunity for better integration into GVCs, namely through the proposed investments in a LNG
plant, domestic energy generation and various spin-off effects, leading to employment-intensive
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participation of domestic businesses in the gas boom. It is estimated that the contribution of
the extractive industry will increase from currently 3.5% to approximately 10% in 2025. Beside
infrastructure investments, key areas include continued improvement in the overall business
environment, the development of Tanzania’s skills base and the effective implementation of
national development strategies.
Tanzania case study evidence on GVCs
• Agri-business has a strong potential for regional trade. For example, value chain analysis
of the cross-border trade of Tanzanian onions into the Kenyan market reveals that many
farmers in Arusha have specialised in regional trade (Koening et al., 2011). This is because
of the input cost advantages, superior quality of Tanzanian onions and reversed cropping
seasons in both countries. The market is characterised by informal entrepreneurs and onthe-spot market linkages among the actors. Across the entire value chain, casual wage labour
and small-scale retailers are among the poorest, while wholesale brokers and the transport
sector benefits the most. Farming can be highly profitable, too, although farmers tend to
have the highest risks of all part participants in the value chain. There is little support from
the public sector and virtually no export regulation for onions. Although a number of quality
standards and regulations exist, enforcement is rare.
• The tourism GVC has so far contributed little to local development. De Boer and Tarimo
(2012) assess community-business tourism partnerships in northern Tanzania, the country’s
main tourism hotspot. One of the characteristics of the nature-based tourism industry is
the fact that it takes place in poor rural areas with a lot of surrounding wildlife. In principle,
the tourism businesses are important, as they do not only generate additional income but
also positive externalities, including enterprise development. However, the impact of global
tourism on the local economy remains absent. One of the important lessons from Tanzania
is that the conditions of inclusion into GVCs matter, rather than inclusion or exclusion per se.
As Loconto and Simbua (2012) show, this is also evident in the fair trade GVCs for Tanzania
tea.
• Changing public perception in industrialised countries about GVCs matters. In Tanzania,
a prominent case is the value chain of fish from Lake Victoria. Fishing communities are
better incorporated in the export-oriented Nile perch GVC rather than in fish chains that
are oriented towards local and regional markets. At the same time, as Ponte (2008) and
Molony (2007) show, risks and vulnerability of participation in the export-oriented GVC can
be very high. For example, the award-winning European documentary Darwin’s Nightmare
dramatised the supposed vastly deleterious social impacts of fishing on local communities
in Tanzania. As a result, public perception in import countries on the social costs related to
Tanzania fish suddenly shifted, with substantial temporary effects on trade and the local
economy.
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togo
Togo became part of global value chains (GVCs) in the 1860s, with the export of several
dozen tonnes of cottonseed to Europe, followed by coffee and cocoa. This trade with the world in
cash crops has intensified since the 1940s, peaking in the 1970s. Towards the end of the 1970s,
Togo went through an initial phase of sustained industrialisation, financed by loans backed
by the boom in phosphates, cocoa, cotton and coffee. Government initiatives to build factories
for textiles, chemical products, agro-food, construction materials, oil refineries and steelworks
succumbed to the test of time and the vicissitudes of the market.
Almost all state or mixed-economy industries were in deficit by the end of the 1980s. Over
time the authorities resigned themselves to selling off, renting out, liquidating or shutting down
industrial enterprises. These factories on the whole made extensive use of capital and little use of
manpower – the opposite of what needed to be done to create local value added. The companies
producing and exporting raw materials (phosphates, coffee, cocoa and cotton) had highs and
lows, which eventually led to their being temporarily shut down or restructured. In 2013 their
exports were less than a third of what they were during the peak in the 1980s and 1990s. Of the
big factories in the 1970s and 1980s only a beer and carbonated soft drink factory and a clinker/
cement factory have continued growing until now.
The second period of industrial growth dates back to the 1990s, with the development of the
free-trade zone for processing exports in 1991. Ten years later, in 2001, value added represented
51% of the turnovers of companied based in the free-trade zone1. Since then this percentage has
been in constant decline, standing at 36% in 2008 and a mere 18% in 20122. This situation is partly
due to a decline in high value-added agro-industrial companies. The share of local inputs fell to
12.3% in 2012 from 12.5% in 2008 and 32% in 2000.
The modern sector today employs around 94 000 permanent employees3, including 60 000
in government, 21 000 in industry in the customs area and 13 000 in the free-trade zone. The
contribution of the free-trade zone to modern employment was 12% in 2013, compared to 14%
in 2007. This is not even remotely close to the figure of 100 000 new employees projected when it
opened in 1991. The majority of the zone’s companies do not respect the agreement that requires
them to use local raw materials and labour-intensive equipment in exchange for tax deductions
and state benefits.
In 2012, roughly 60% of Togolese industry operated in the free-trade zone. The zone had
62 companies, of which 52 were industrial firms, with revenue of XOF 250 billion. Out of these
40% had capital from Asia, 34% from ECOWAS, 27% from Europe, 25% from Togo and 5% from the
Americas4. A full 73% of intermediate consumption is imported.
Mining companies created value added to the tune of 62% of their turnover in 2012. This was
followed by food processing companies (25%), services (11%) and manufacturing (3.8%). Since
1997, the biggest economic activity in Togo has been clinker/cement, including everything from
extraction of the local raw material – limestone – to its transformation into a final product ready
for export. Its share in Togo’s exports increased to 15.7% in 2013 from 15.3% in 2006 and 1.6% in
1998.
Exports provide 94% of manufacturing’s intermediate consumption and represent 96% of the
sector’s revenue. It makes up 88% of jobs in the free-trade zone, but its share in the total value
added of the zone is a mere 12%5. This is a direct consequence of the low-skilled jobs. Half of these
jobs are in the production of synthetic hair, wigs and toupees. The other companies in the freetrade zone are capital intensive.
In 2012, 70.2% of Togolese exports went to Africa, 20.6% to Europe, 8.4% to Asia, 0.3% to the
Americas and 0.5% to other, unspecified countries. The same year 37.8% of imports came from
Europe, 33.8% from Asia, 14.8% from Africa and 11.8% from the Americas6. The mining industry
and related processing plants for exports were Togo’s main opportunity for GVCs.
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The country has 2 billion tonnes of phosphate carbonate reserves, 70 million tonnes of
unconsolidated ore and 300 million tonnes of metaphosphate. In addition, it has 200 million tonnes
of limestone, 40 billion cubic metres of marble, 500 million tonnes of iron, 15 million tonnes of
manganese, and oil, the quantity of which remains to be determined. Port infrastructure was
expanded with a new wharf, which is expected to be operational in 2014, and a new container
terminal for transhipment, slated for 2015. These additions are unquestionably an asset for Togo,
which will be able to export its port services. Opportunities in other industrial areas will depend
on the development of the quality of public service and the availability and price of utilities.
The cost of energy and communications, coupled with the poor quality of public service, has
been one of the most serious hurdles to industrialisation in the country since the 1980s. The
competitiveness of companies in the free-trade zone remains low compared to Asian products
and those manufactured in Togo’s customs area. The deductions and benefits accorded to the
free-trade zone make it artificially competitive, leading to substantial speculation at all levels and
market distortions. The new industrialisation strategy must first open up the national economy
to competition – without necessarily handing out benefits – in order to create significant local
value added. In this way Togo will be able to better position itself and take advantage of its assets
by integrating its mining industry and its services sector in GVCs. The authorities have already
started down this road by making private investment and an openness to world trade the drivers
of the country’s development.
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tunisia
Since the 1970s, Tunisia has opted for an economic model oriented toward exports and
industrialisation, supported by a proactive policy of public investment in physical and human
capital, and of attracting FDI through a law favouring enterprises that export their entire
production. Mainly dominated in the early 1960s by the agricultural sector, the structure of
Tunisia’s economy has changed profoundly in favour of industry and services.
The industrial network counts 5 669 enterprises with a staff of 10 employees or more.
Enterprises are represented as follows: agro-food 18.5%, construction materials 8%, chemical
industry 9.7%, electrical, engineering and electronics industries (IME) 17.6%, textile and clothing
32%, other sectors 14.2%.
Benefiting from its geographic and cultural proximity to Europe, Tunisia has progressively
strengthened its relations with the EU, its main industrial partner and main client. The
association accord signed in 1995 established, over time, a free-exchange zone between the
two sides, which took effect on 1 January 2008 for industrial products. The start of the national
programme for upgrading industry at the end of the 1990s allowed Tunisian industries to become
more competitive for better integration into global value chains (GVCs). In this context, major
international donors set up branches in the country and/or developed subcontracting agreements,
leading to greater Tunisian participation in the world economy. In 2013, there were 2 614 wholly
exporting enterprises, the source of 323 262 jobs. Two sectors are particularly significant in this
regard: textile and clothing since the 1970s and, more recently, the electrical, engineering and
electronics industries. If textiles are declining somewhat as a result of international competition,
notably from Asia, the electrical, engineering and electronics sector has seen major evolution
over the last 15 years, with the development of automotive and aeronautics component activities.
The sector’s exports increased by an average of 18% per year from 2000 to 2012. Since the early
2000s, the development of information and communication technologies has allowed the rise of
new service activities and greater integration of Tunisia into GVCs. Call centres have developed,
as have other forms of outsourcing to a lesser degree (outsourcing of accounting services, for
example).
This progressive integration into GVCs has fostered growth in Tunisia, contributing to the
creation of many jobs and exports. In 2012, the textile sector accounted for 22% of exports, and
the electrical, engineering, and electronics sector more than 36%. However this development
model is running out of steam and its impact on the Tunisian economy appears limited today.
The jobs created involve activities with little value added and therefore with unskilled personnel.
And the location of the majority of exporting enterprises near logistical export zones (ports and
airports) has accentuated regional disparities.
The low management-staff ratio has not been beneficial to technology transfers and the
rise of value chains, limiting the development of these activities. Imported inputs constitute a
significant portion of Tunisian exports, although this varies according to the products involved,
and the exports mainly consist of intermediary products. According to a study by the AfDB (2012),
the level of sophistication of Tunisian exports has been declining for several years. Finally the
constraints of the 1972 law on companies that export their entire production strongly limited
their impact on the rest of the economy, the local market being barely considered as a client or
potential supplier.
The socio-economic difficulties of recent years have slowed Tunisia’s integration in the world
economy, but many opportunities exist in the medium term. The Minister for Industry, Energy
and SMEs published a document in 2008 on “national industrial strategy looking toward 2016”.
Based on an analysis of international trends and the good practices of countries with successful
integration into GVCs, this strategy aimed to transform Tunisia into an innovative and high-level
Euro-Mediterranean centre of competitiveness. In 2010, Tunisia also began readying a strategy for
promoting the services and outsourcing sector. Since the revolution of January 2011, and in view
of urgent socio-economic matters, these projects have been on the back burner.
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Tunisia’s participation in GVCs, meanwhile, faces the same difficulties as the economy as a
whole, namely a workforce less and less adapted to the needs of the market, along with political,
economic, and social uncertainty, insufficient logistical infrastructure (the port of Radès is
saturated) and the crisis in the euro area.
Nonetheless, various sectors offer the potential of major development for Tunisia, such
as local transformation of products that are usually exported untreated (hydrocarbons or
agricultural products), or the creation of niche products with high value added from traditional
sectors (technical textiles, for example). To encourage this development, the Tunisian authorities
must make considerable efforts in order, notably, to improve the business climate, to strengthen
industrial capacities and logistical infrastructure, and to reform the education sector. The fight
against corruption at every level will also be a determining factor. Tunisia has many support
structures for enterprises, and many public and private institutions that are engaged in the
process of creation and development (technical centres, business centres, chambers of commerce,
business incubators, etc.), but their effectiveness is limited.
Negotiations currently underway with the EU concerning, among other things, the liberalisation
of trade in agricultural products and services, are likely to open opportunities, on the condition
that they are accompanied by the upgrades necessary to meet international production standards
as well as real worker mobility. The diversification of partnerships and the development of new
markets, notably through the strengthening of regional integration, are additional strong points,
even for exchanges with the EU. Finally, the country’s integration into GVCs will fully bear fruit
only if local Tunisian enterprises participate fully in the productive system. A reorganisation of
sectors will be needed to end the duality of the Tunisian economy, involve the entire economic
network, and allow more inclusive growth. Tunisia’s strong dependency on Europe, which still
absorbs more than 70% of its exports, and inequalities in territorial development linked to the
physical constraints of import-export, remain two factors of vulnerability that need to be offset
by appropriate policies.
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uganda
Global value chain (GVC) development is receiving increasing attention in Uganda. The
National Development Plan (NDP) 2010/11-2014/15, for instance, includes as a key intervention
“supporting and strengthening key product value chains to access high value markets and
penetrate global value chains through Public Private Partnerships and inter-government sectoral
collaboration”. The NDP document goes further and identifies key products that should be the
focus of these efforts. These include: dairy products and poultry, beef, fish products, coffee,
floricultural and horticultural products, maize, beans, cassava, processed bananas and processed
mineral products.
Value chain development in the Ugandan context, however, is largely seen through the lens
of domestic value chain development; i.e. as a strategy for strengthening production integration
within the Ugandan economy and increasing value added generation at the sector level, with
the aim of capturing domestic and, to a lesser extent, regional markets for selected products. It
is not, in this sense, seen as a strategy for deepening Uganda’s integration in the world economy
through the participation in selected segments of key global value chains. Similarly, value chain
development is largely seen as a means for developing production capacities and enhancing value
added generation in primary sectors, not as a strategy for industrialisation, as can be seen by the
list of products identified for value chain support in the NDP.
The lack of adequate data for GVC analysis makes it difficult to assess the extent to which
Ugandan producers are integrated in global value chains. The most recent available input-output
table for Uganda dates back to 1991 and it is reasonable to assume that the structure of the
Ugandan economy has changed significantly since then. Moreover, these are not international
input-output tables, capturing elements of global production, and are therefore not suitable for
GVC analysis. Still, the various case studies that have been undertaken for value chains do provide
useful insights into value chain development in Uganda. We review in the next paragraphs
developments in apparel, floricultural and fish and fish products value chains.
The apparel industry has traditionally been chosen by many developing countries to accelerate
the process of industrialisation and structural transformation. In the African context, the US
African Growth and Opportunity Act (AGOA) of 2002 presented LDCs in the region with a unique
opportunity to enter this value chain, an opportunity, which some countries, such as Lesotho or
Madagascar, successfully seized. Uganda has been eligible to benefit from AGOA provisions for
apparel and textiles since October 2003. However, despite policy pronouncements to the effect, it
has never managed to establish an apparel industry on the back of AGOA. Hence, exports of these
products to the US, which in 2003 amounted to USD 1.6 million, have been on the decline since
then, reaching only USD 143 000 in 2012. The main reasons put forward for Uganda’s failure to
take advantage of AGOA provisions for the apparel sector are high transportation and logistical
costs, the absence of an appropriate policy framework for the Textile & Apparel industry,
weak government commitment, lack of industry specific government support and the limited
availability of quality raw materials.
Uganda has been more successful in entering the floricultural global value chain. This
industry started in Uganda in 1993, with a focus on exporting to the EU market. Initially, exports
of roses and cut flowers experienced a sharp increase, from 1 150 metric tonnes in 1995 to a peak
of 7 500 tonnes in 2005, employing around 6 000 workers on 15-20 farms on the shores of Lake
Victoria and indirectly providing livelihoods to 30 000 people. However, exports volumes have
gradually declined since then, down to only 3 436 tons in 2011. Some of the reasons cited for this
decline are the increasingly unfavourable climatic conditions that exist in flower producing areas
in Uganda, due to the effects of climate change and the resulting increase in disease. However,
weak government support, high production costs, including high energy and air freight costs,
and the competition from other East African countries have also played an important role in
undercutting Ugandan flower producers’ market share in the EU and other advanced economies.
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The fish and fish products industry, heavily concentrated around Nile perch fishing in Lake
Victoria and mainly focused on the EU market, has experienced a similar fate. Also established
as an export industry in the early 1990s, exports of fish and fished products initially experienced
a sharp increase, from around 1 664 metric tons in 1991 to 39 201 tons in 2006, but have since
declined, reaching only 21 552 metric tons in 2011. The main reason behind this drop has been the
gradual depletion of fish stocks in Lake Victoria, driven by a surge in illegal fishing and inadequate
regulation and control of fishing activities. In addition, exports of fish and fish products to the EU
market have suffered from several import bans imposed by the European authorities due to the
failure of Ugandan exporters to comply with EU sanitary and phyto-sanitary standards.
Altogether, the review of these three case studies and those for other key value chains in
Uganda (e.g. coffee, horticulture), point to a number of common constraints hindering Uganda’s
insertion in GVC and the maximisation of its benefits. These include high production costs,
including transport and energy costs. Also, weak policy frameworks that provide for adequate
support to the development of specific value chains, in the form of improved sector-specific
business environment conditions, training and business development support services, etc.
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Zambia
Zambia is abundantly endowed with natural resources such as land, forests and water, as
well as non-renewable minerals, including copper, cobalt and emeralds. The implementation of
appropriate development policies therefore has the potential to lead the country to reap the full
benefits of its resource endowment. Designing and implementing effective private-sector-led
economic transformation policies that create employment and reduce poverty remain a national
challenge. With little value addition, the country thus remains an exporter of unprocessed
primary products.
In order to stimulate value addition and industrialisation, as well as increase the manufacturing
sectors share of GDP from its current levels (below 10%), the country has embarked upon the
establishment of Multi-Facility Economic Zones (MFEZs). These zones blend the best features of
free trade zones, export processing zones and industrial parks. They create the administrative
infrastructure, rules and regulations to support both export and domestic-oriented industries.
The zones are designed to support firm clusters that can benefit from spatial proximity throughout
various industrial processes, from primary production, processing, marketing and sales and
ultimately distribution.
Two MFEZs have been developed and are already operational. Four others are still at early
development stages. The parks are located in the Copperbelt, North-Western and Lusaka regions.
Chambishi MFEZ in the Copperbelt is focused mainly on the copper supply chain and houses both
heavy and light industries, including copper smelting, manufacture of copper wire and cables,
household appliances such as stoves, motor parts and agro-processing. More than 10 enterprises
have been established, creating over 3 500 jobs.
MFEZ development has been sluggish due to poor road infrastructure and unreliable and
undeveloped power and water supply. Successful industrialisation will require that government
creates an enabling environment by stepping up its efforts to provide infrastructure and support
services. The rewards will be access to human capital, technological innovation, financial systems
and financing.
There are some products in Zambia that are well suited to integration in global value
chains (GVCs), with the potential for further development. Copper mining is already creating
higher value through smelting and refining copper into cathodes for exports. The Chambishi
mentioned above is an example of this. Gemstone mining is another, with latent integration
into the GVC. In an attempt to realise this potential, the country has made it mandatory that all
locally extracted gemstones be auctioned in the country in order to stimulate beneficiation as
well as local market development. In order to spur this further, there is a need to ensure that the
policy is complemented by initiatives that will produce and enhance local skills in stone cutting,
polishing, jewellery design and production and marketing and sales.
The agriculture sector can be harnessed to become the leading sector for economic
transformation and employment creation. Over the past few years, agri-business has demonstrated
consistent growth, particularly in livestock production, providing linkages to the dairy, beef and
leather industries. A small niche in fruit and vegetables also provides potential for expanded
development. The Zambia Export Growers Association assists farmers who grow vegetables
and flowers, exporting their products to Europe. Farmers lump their products together through
storage facilities provided by the association, which later handles transport and marketing of
their products to Europe and other markets. Out-grower schemes help small-scale farmers gain
access to markets, while there is technological transfer from large-scale farmers. Zambia Sugar
is one such company. It obtains 30% of its throughput from larger private growers, while 10% is
from small-scale farmers. In turn, small-scale growers receive training, extension services and
benefit from technological transfer. Another example is honey production. Beekeepers form cooperatives through out-grower schemes, provided with buckets and registered as members to
ensure traceability of the product while they receive training. The value addition is significant,
with more than 10 000 beekeepers occupied in major production areas of north-western Zambia.
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Zambeef has been highly successful in vertically integrating its different businesses along the
value chain, from farming to beef and dairy production, manufacturing, processing and retail. In
order to meet the demand for its products, the company has enlisted local farmers, who supply
it with cattle which are slaughtered in its abattoirs. The beef is sold in its own retail outlets or
in supermarkets. The hides are processed to good standard leather for markets in the region,
the Far East and Europe. It also produces leather products such as shoes and bags for the local
market. Aside from the milk obtained from its own farms, it also buys raw milk from small and
medium-sized farmers. The milk is used to produce yogurt, cheese, butter and cream. Zambeef
also engages in pork production and processing by enlisting small-scale farmers to supply pigs.
Through these value additions the company has been able to create over 5 500 direct jobs.
The textile industry was historically significant in Zambia, with over 140 companies operating.
With the help of Chinese investors, the sector was resuscitated in the 1990s. But in 2007 the
industry started to crumble, with the closure of Mulungushi Textiles. It was hit by imports of
second-hand clothes and low-cost imports from Asia. In an effort to once again revamp the
industry, government recently announced that a new investor is willing to invest in the factory.
Industrial policy needs to address the integration of the rural sector in the rest of the
economy. This can be done by advancing agro-industry value addition and the supply of goods
and materials, which enhances the competitiveness of domestic enterprises. Increasing vertical
integration in global agri-business supply chains changes the requirements placed on small-scale
farmers. But policies aimed at supporting such farmers need to be realistic about the prospects
for small-scale farmers of being upgraded by large firms.
Zambia faces a number of challenges for effective participation in GVCs. First, Zambia’s
landlocked position substantially increases the cost of long-haul transport by up to 40% of the final
product’s value. There is a need to improve trans-boundary corridors and border administration
to reduce delays. Deepening regional integration could offer the potential to tackle some of these
challenges by providing access to regional and global markets.
Second, access to reliable and stable electricity is critical in ensuring constant food production
flows to reduce production wastage, particularly for perishables. Access to good quality water for
production and sufficient wastewater treatment is also required.
Third, the linkages between rural primary production areas and urban processing plants are
often weak, adding additional costs to the final product. A system of reliable feeder roads linking
rural and urban areas is critical.
Other challenges the industry is facing include access to qualified local labour, with the
right skills mix needed to operate machinery that is more automated and complex than ever.
Global consumers and health and environmental authorities require better and safer products.
This means increasingly higher food-safety standards, with smaller margins of error. Increased
technical knowledge and know-how, combined with investments and improved control
procedures, is needed to ensure continuous compliance.
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zimbabwe
Global value chains (GVC) that operate in a transparent and accountable way can be an
engine for sustainable development. Zimbabwe is currently integrated in global value chains
in agriculture (tobacco, sugar, cotton and horticulture), mining (diamonds, gold, and platinum)
and manufacturing (food and beverages, clothing and textiles, wood and timber, fertilisers and
chemicals and pharmaceuticals).
Zimbabwe has some of the largest deposits of diamonds, gold and platinum in the world. The
GVC of the diamond industry includes exploration, mining, sorting, polishing, dealing, jewellery
manufacturing and ultimately retail. Zimbabwe is able to conduct the first three stages but must
now focus on achieving the other four.
With respect to gold refining, the RBZ first opened Fidelity Printers (Private) Limited in 1966.
After it established a gold refinery section in 1987, the company changed its name to Fidelity
Printers and Refiners (Private) Limited. The refinery produced internationally accepted delivery
bars, however, it ceased operations in 2008 after gold output slumped to a record low of three
metric tonnes. Since then, Zimbabwe has been sending its gold for refining and marketing to
Rand Refinery of South Africa. With respect to platinum, the country currently has no refineries.
Zimbabwe has one of Africa’s largest copper processing plants in the town of Alaska. It has,
however, been lying idle since the 1990s when nickel prices began to fall. This has led to the
closure of Mhangura and other copper mines. Also, the collapse of nickel mining has resulted in
the Empress Nickel refinery being decommissioned.
The development potential of the mining sector can be maximised through building resource
linkages with the rest of the economy. This includes revenue linkages, backward linkages (supply
chains), forward linkages (value addition/beneficiation) and knowledge and spatial linkages to
create new industries associated with mining. This is particularly important in that economic
recovery in Zimbabwe hinges on the mining sector.
Zimbabwe can borrow from the Africa Mining Vision (AMV) of 2008 and the International
Study Group (ISG) report of 2009. These argued for the creation of strong and diverse linkages
between mines and the immediate economy to maximise the growth, development and
employment potential offered by mineral resources.
Zimbabwe is currently the largest cotton producing country in southern and eastern Africa.
The cotton produced in Zimbabwe is renowned for its high-quality, uniform lint. The country’s
competitiveness in cotton production arises mainly from favourable climatic conditions, as well
as the availability of manpower to process the cotton through its various stages of the cotton
value chain. The country has an installed ginning capacity of approximately 600 000 tonnes,
more than double the cotton seed production. There is limited value addition in the industry,
with spinning capacity currently at less than 30% of the total lint available. The country has an
installed spinning capacity of 39 000 tonnes of lint per annum and an average annual lint output
of 160 000 tonnes. Such installed capacity can no longer be used at 100% productivity, as most
of the equipment is now old and even obsolete. The weaving and knitting industry processes
fewer than 39 000 tonnes of lint output, with dyeing, printing and finishing processing less than
weaving and knitting.
Sugar-cane is one of the most important agricultural export crops in Zimbabwe, along with
cotton and tobacco. The sugar sub-sector is concentrated and dominated by two companies.
Production of sugarcane in Zimbabwe is based on the plantation system of production. Under
this system of production, each sugar company owns a sugar estate and mills, permitting the
companies to efficiently manage the cycle of cane production and processing. The sugar industry
provides direct employment to 25 000 workers and indirect employment to more than 125 000.
Tongaat Hulett owns the Triangle Sugar estate and has a 50.4% stake in the Hippo Valley estate.
Triangle estate is the biggest sugar estate in Zimbabwe, with an annual crushing capacity of
2.5 million tonnes of cane. It can produce up to 300 000 tonnes of raw sugar. Hippo Valley is the
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second largest sugar operation and has a mill of almost the same capacity as Triangle. In addition,
there are small-scale out-growers at Mkwasine estate, cultivating about 10 hectares each, plus a
group of 17 cultivating 35 hectares each. The two estates, including out-growers at Mkwasine,
have a potential production capacity of 600 000 tonnes.
After processing, sugar has different products (e.g. raw sugar, molasses and ethanol) that
are traded in the domestic and export markets. In October 2013, Zimbabwe passed legislation
requiring that imported petrol be blended with 10% of locally produced ethanol (mandatory
blending). There are two independent sugar refineries located in Bulawayo and Harare that
produce white sugar, with a capacity of 260 000 tonnes per annum. In addition, brown sugar
comes from the two mills at Triangle and Hippo Valley. Around 65% of the sugar is produced
for the domestic market, and the remainder is exported to the southern Africa, the EU and the
United States. About 148 000 tonnes of raw sugar were exported to the EU in 2009, and the market
is secure from 2010-15, as it can be exported duty and quota free.
Several initiatives currently in place to strengthen agricultural value chains include: the
Zimbabwe Agricultural Competitiveness Program (ZimACP), the Zimbabwe Agricultural Income
and Employment Development Program (ZimAIED) and Credit Fund.
ZimACP is a USAID-supported programme that started in September 2010 and will run for
4.5 years. The programme aims to provide support to the agriculture and agribusiness sectors
through dialogue with their representative bodies to reach a consensus on policy issues that
affect the competitive environment of agribusiness in Zimbabwe. More specifically, ZimACP
seeks to support market dynamics and players to achieve improved access to capital and services.
ZimAIED, which is also supported by USAID, seeks to increase the incomes of rural households
across the country through the commercialisation of small-scale farming. The programme works
with a wide range of domestic, regional and international buyers to create reliable and profitable
marketing systems for small-scale commercial farmers. ZimAIED also works with rural agritraders to ensure that all farmers have access to competitively priced inputs, allowing them to
sell their products at fair prices.
The major constraints to effective participation within the GVCs are poor infrastructure,
liquidity constraints, deindustrialisation, technology gaps, lack of competitiveness, the high
cost of doing business and uncertainties related to indigenisation and economic empowerment
regulations.
The government needs to build capacity and support private sector participation, especially
in SMEs. It also needs to develop an institutional framework for public-private partnerships, in
particular to develop world-class infrastructure.
180
African Economic Outlook - Thematic Edition
© AfDB, OECD, UNDP 2014
Global Value Chains
and Africa’s Industrialisation
African Economic Outlook 2014
The full report is available at:
www.africaneconomicoutlook.org