Global value chains offer African countries potential for structural transformation
Global value chains hold the promise of boosting employment and structural transformation in Africa the 2014 African Economic Outlook (AEO) shows. In particular, global value chains can allow Africa to set up the type of new and more productive activities that are behind structural transformation.
The latest edition of the publication – a joint effort by the African Development Bank (AfDB), the OECD Development Centre and the United Nations Development Programme (UNDP) – was launched on Monday in Kigali during the AfDB Annual Meetings. Themed “Global Value Chains and Africa’s Industrialization”, the 2014 report uniquely highlights how Africa’s engagement in the global economy can foster industrialization.
Like its predecessors, this year’s AEO takes an analytical perspective covering all 54 African countries by highlighting recent economic performance and providing medium-term growth projections.
The continent’s growth is projected to accelerate to 4.8% in 2014 and 5 to 6% in 2015, levels which have not been seen since the global economic crisis of 2009, the report says.
Africa’s economic growth is more broad-based, argues the report, driven by domestic demand, infrastructure and increased continental trade in manufactured goods.
“In order to sustain the economic growth and ensure that it creates opportunities for all, African countries should continue to rebuild shock absorbers and exercise prudent macro management. Any slackening on macro management will undermine future economic growth,” said Mthuli Ncube, Chief Economist and Vice-President of the African Development Bank.
“In the medium- to long-term, the opportunity for participating in global value chains, should be viewed as part as part of the strategy for achieving strong, sustained and inclusive growth,” he added.
While presenting the key note address at the launch of the report, Pascal Lamy, former Director General, World Trade Organization (WTO), noted that African countries have capacity to leapfrog and integrate into a value chain without having all the other steps of the chain in place.
Through participation in a value chain, he argued, countries and firms can acquire new capabilities that make it possible to upgrade
However, Lamy cautioned that African countries must be prepared to deal with emerging issues in global trade in particular the non-tariff barriers (NTBs) to facilitate the development of global value chains.
“There is need to consider these changes in trade policy,” he said, underscoring that trade barriers as a result of NTBs can no longer be solved by preferential trade agreements.
In his remarks, Mario Pezzini, Director of the OECD Development Centre, emphasized that the challenge for most African economies is to ensure that greater insertion into global value chains is achieved and has a positive impact on people’s lives.
“Public policies need to be articulated in a targeted strategy that promotes more equitable economic and social transformation and an environmentally sound development,” he said.
The AEO also shows that there has been remarkable progress in human development, with lower poverty levels, rising incomes and improving rates of school enrollment and health coverage.
However, Angela Lusigi, Policy Advisor, Strategy and Advisory Unit at the UNDP, argued that achieving real human development gains requires empowering people and ensuring environmental sustainability, so that economic growth can yield benefits for all.
“In order for value chains to effectively integrate the poor and marginalized, often including women, targeted public policies and inclusive business models should facilitate access to productive assets such as land and financing, enhance productivity, and improve the resilience of small producers.”
For her part, Amb. Valentine Rugwabiza, Chief Executive, Rwanda Development Board, underscored the role of regional integration in facilitating value chains.
Reduction in transport time, she argued, has impact on competiveness.
“Regional integration requires a pragmatic approach. If we cannot harmonize at least we should have mutual recognition,” she said, pointing out that reducing the transit time for trucks between Mombasa and Kigali under the Northern Corridor Framework in the East African region has reduced costs for businesses.
The report argues that more effective participation in regional and global value chains – the range of activities in different countries that bring a product from conception to delivery to the consumer – could serve as a springboard for Africa in economic diversification, domestic resource mobilization and investments in critical infrastructure. In order to do so, however, the continent needs to avoid getting stuck in low value-added activities.
For instance, Africa’s exports to the rest of the world grew faster than those of any other region in 2012, but they remain dominated by primary commodities and accounted for only 3.5 percent of world merchandise exports in 2012.