Global and regional value chains (GVCs) are an important way of organizing production, trade, and investment in a wide variety of sectors. The term “value chain” refers to the full range of processes involved in the design, production, and distribution of a final product. It stretches from upstream activities (e.g. research and development) to downstream activities such as assembly, distribution, marketing, and after-sales service. The distinctive property of GVCs is that these activities are spread across multiple countries, often neighbouring, but sometimes in different parts of the world. Each firm in a GVC specializes in a particular task, while the lead firm brings all the various tasks together through the supply of headquarters services, coordinating all inputs of goods and services to produce the final product and get it to the consumer.
This offers a new model to developing countries looking to build up their industrial base. In themselves, GVCs are neither wholly good nor wholly bad for development. On the positive side, they offer relatively low-cost ways of linking to international trade networks, and allow countries to specialize in activities that are aligned with their comparative advantage. Developing countries can benefit through income and employment effects, even if they specialize in low-value-added activities, such as assembly. However, concerns have been expressed that GVCs risk locking countries into those activities, and not promoting industrial or social upgrading over time. Clearly, the challenge of moving up a value chain into higher-value-added activities (which typically have important economic spillovers) looms large for many developing countries.
This paper does not seek to resolve the ongoing debate over the development merits of GVCs. Instead, it starts from the position that GVCs can - under the right circumstances, with appropriate complementary policies - offer important economic and development benefits to developing countries. Against that background, the motivating question for this paper is: how can traditionally marginalized countries in Sub-Saharan Africa (SSA) join GVCs, and improve their position in the global network of value-added trade? In particular, what is the role of regional approaches to infrastructure and trade facilitation policies?
Among the conclusions drawn are that SSA countries are relatively marginalized for GVCs, while being reliant on external markets as sources of demand for their exports, with weak intra-regional links. More encouragingly, improving infrastructure and trade facilitation do help African countries to connect better to GVCs. There is a clear positive association between both sets of policies and value chain connectivity, particularly in textiles and clothing, and maritime and air connectivity are especially important determinants of value-added-trade performance. Finally, the regional dimension matters: a strong positive association exists between infrastructure and trade facilitation improvements in neighbouring countries, and greater value chain connectivity at home. It is therefore not just what a country does that matters for its connectivity, but also what its neighbours do.
Shepherd, B. Infrastructure, trade facilitation, and network connectivity in sub-Saharan Africa. ODI, London, UK (2015) 37 pp.