Bilal, S. 2014. Thematic focus: Global Value Chains and Industrialisation. GREAT Insights, Volume 3, Issue 5. May 2014.
Global value chains have become a key feature of the globalisation process, thus attracting increasing attention and scrutiny. The nature of trade has been changing as a result of technology and interconnected production patterns, with intermediary goods and services now accounting for the majority of world trade. As a result, countries are seen to increasingly trade in tasks rather than in goods, and increasingly in “knowledge-intensive” goods and services, as just reported by the McKinsey Global Institute.
For developing countries, the challenge is to harness the potential benefits from better integrating international value chains for their development endeavours. Due to their current production structures and multiple capacity constraints, African countries run the risk of being marginalised and of remaining trapped at the low end of the value chain. Yet, while there is a growing consensus on the relevance of value chains for development, views differ on the strategies to adopt to pursue such development.
Some emphasise the need to provide a conducive business environment and open economy, so as to allow countries to build on their natural comparative advantages. Accordingly, government interventions should focus on providing the appropriate regulatory, institutional and infrastructure frameworks to connect domestic and international market forces that will ultimately determine the geographical constellations of global value chains. Trade facilitation, as endorsed last December in the Bali package at the World Trade Organization, has an important role to play in this regard.
Others stress the need to adopt more proactive policies to allow countries to break into and sustainably supply regional and global value chains, with higher value added products and exports. The issue is not simply to attract foreign direct investment from multinational companies, but to promote linkages that help move away from exporting mainly raw commodities and stimulate exports diversification towards more processed goods. The challenge is thus to enhance the domestic production capacity, to create higher value, more and better quality jobs and increase linkages between national, regional and global economies. This requires avoiding short-lived footloose industries to the benefit of a structural transformation of the economy on equitable and sustainable national and regional growth strategies. It also entails pursuing a pragmatic approach to industrialisation, to foster the upgrading in global and regional value chains.
This issue of GREAT Insights brings together a number of key insights on the dynamics of moving towards better integration into regional and global value chains, focusing on a range of opportunities, challenges and policy recommendations. While these remain country and context specific, the balance in unleashing market forces and harnessing them to sustainable and inclusive development objectives stands as a critical concern for all stakeholders. We hope the range of articles in this GREAT Insights will further contribute to inform and stimulate your reflection. As always, we welcome comments and suggestions.
This article was published in GREAT Insights Volume 3, Issue 5 (May 2014).