How can Africa reap the benefits of global value chains?

As world trade and investment have increasingly become organized around “value chains” – production lines that cross borders – Africa has struggled to reap the benefits of this trend, even as Asian and Latin American countries churned out cars, microchips, and textiles for consumers across the globe.

Some modern developments suggest that this could be changing – as global production networks have become more sophisticated, encompassing a wider variety of products and processes, they could provide new opportunities for African economies. But critical to success in this new environment are a good business climate, political will, and ease of trade on the continent.

We are issuing a call to action: On Thursday, as part of the World Bank-IMF Spring Meetings, the World Bank Group and Africa investor will host a panel discussion with African entrepreneurs, government officials, and other experts that you can watch online here: “Building African Participation in Global Value Chains.” The discussion will focus on how the different stakeholders – including businesses, banks, and governments – can work together to build African brands capable of creating jobs and increasing the continent’s role and influence on the global economic stage.
Value chains, whether they are regional or global, offer developing countries new opportunities to engage bigger markets, gain new skills, and innovate. As developing countries participate in increasingly complex production processes, they gain knowledge and modern techniques from foreign companies. When Toyota makes car parts in Thailand, for example, Thailand imports the company’s technology, managerial and business practices, and more.

Historically, GVC-related opportunities for economic development have come in the form of manufacturing: East Asian countries saw tremendous growth and poverty-reduction as a result of their engagement in electronics and automobile production. Observers have long lamented – and studied – Africa’s difficult relationship with manufacturing. Currently, the continent’s share of manufacturing in GDP is lower than most developing countries, and it is declining. In “Can Africa Industrialise?” John Page postulates that the steep manufacturing decline in the 1980s and 1990s happened because the continent shed protectionist and import substitution policies that had propped up manufacturing. With these policy changes, African economies shifted to producing more in sectors in which they were internationally competitive, including natural resources and agricultural products.

In recent years, global value chains have become much more diverse than manufacturing: no longer are offshore workers in developing countries just soldering microchips or sewing t-shirts. They are using advanced technology to package locally grown fruits and vegetables, and they are providing back-end administrative support to US companies. Take flowers – they might be grown in Colombia or Kenya, but they are sold in the US or Europe. They must be kept cool and fresh through sophisticated cold-chain logistics and be transported quickly to market.  Or take shared-services centers in India. They must have fast internet technology and an educated workforce. This business-driven modernization drives development.

These processes and services may not invoke traditional factory-setting images, but they are segments in global value chains, too. As Page puts it, “industry no longer requires smokestacks.” With this greater variety in products and processes, there is more room for technology and knowledge-sharing to boost the production of goods and services that the continent already makes well. The world may be shifting in a way that allows an important opening for African economies.

Let’s take the example of a maize farmer in Uganda. That farmer might use seeds from Zambia, extension services from Kenya, testing services from South Africa, and bags from China. The farmer might sell bags of maize to supermarkets in Saudi Arabia and Tanzania, but also to a domestic firm that supplies national and international markets. Though selling maize may seem simple, a lot of learning and transfer of skills and technology happens in those interactions. That farmer makes use of critical goods and services that enable him or her to be more efficient in selling to regional and global markets. And that experience can be multiplied. The idea is this: with the increasing diversity and sophistication of value chains – agricultural and others – Africa can develop not only by industrializing and moving away from existing activities, but also by improving its performance in areas of existing comparative advantage, such as the agricultural sector.

But for that farmer and other participants in African GVCs to succeed, the continent would do well to improve its trading environment. That means increasing integration between neighbors, building more efficient borders, and making finance more accessible to burgeoning entrepreneurs. In the World Bank Group’s Trade and Competitiveness Global Practice, we are working with countries across the continent to make these improvements. We hope you willjoin us as we discuss the potential for African participation in GVCs and as we work to set the stage for it to happen.

This article is published in collaboration with The World Bank’s The Trade Post Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Anabel Gonzalez has been Senior Director of the World Bank Group Global Practice on Trade and Competitiveness since July 1, 2014.

Image: A container ship departs. REUTERS/Andy Clark.