Paved with Good Intentions: Global Value Chains and Industrialisation in Africa

Despite the divergent views on what it means and what it should and should not imply, “Global Value Chains” is a concept that strongly emerged in recent years especially at the World Trade Organization.   

The nexus between global value chains and industrialisation means a lot, especially for emerging economies and least developed countries (LDCs) in Africa, whose economies are export-oriented. "Industrialisation has a large role to play in Africa’s development, given the fact that it is an indispensable tool in development ethos and practice".  It also helps an economy to develop its local value chains, which promote it to join both regional value chains and global value chains at a competitive edge. The now developed countries advanced due to industrialisation, and thus for Africa to develop, it has to develop its industrial base. To do this, Africa has to radically transform its agricultural sector as no country has ever made the transition to industrialisation successfully without first developing its agrarian sector.(1)

In order to significantly transform the economies of Africa from the current low-income level to middle-income status, value must be added to Africa's large reservoir of natural and agricultural resources through processing and manufacturing activities - implicit in the transition process from predominantly agrarian to industrial economies. 

The paradox of global value chains and industrialisation: lessons from Africa

In a bid to foster structural transformation of their economies, African governments, and more especially sub-Saharan Africa, have embarked on private sector-led development strategies, with prior focus on attracting foreign direct investments (FDIs). In a bid to attract FDIs, African governments have been granting favourable conditions to foreign investors whom they believe will create jobs and boost export earnings, with little efforts used to promote domestic investment. In East Africa, competition for FDIs has led to the granting of numerous tax exemptions and concessions to investors. This has however resulted in revenue losses. The estimate of the cost of tax incentives and exemption for the five countries in the East African Community (EAC) is about US$2.8 billion a year, a sum that is higher than the annual tax revenue of Uganda, which is about US$2 billion.(2) Amidst these numerous revenue losses, which have not been regained, FDIs have subsequently failed to deliver on their promises, i.e. promoting technology and skills transfer, employment creation, and local sourcing among others.

Their efforts notwithstanding, most African countries have had to contend with the challenge of industrial development. Most of Africa’s economies are still driven by commodity production and the exportation of agricultural and mining products. Africa remains the least industrialised continent in the world. Indeed, the growth of manufacturing value added during the structural adjustment programmes (SAPs) period was disappointing, with several countries actually suffering de-industrialisation. From 1980 to 2009, the share of manufacturing value added to GDP marginally fell from 16.6% to 12.7% in the rest of Africa, excluding North Africa.(3) Thus, over half a century after independence, while other regions have increased their share of manufactured exports, the continent still depends on the export of raw materials to the industrialised world. "These raw materials are processed and sold back to Africa at much higher prices, thus preventing Africa from moving up the higher end of the global value chain".

In conclusion, there is a need for Africa to ensure that all investments are directed towards developing its domestic value chains so as to enable it to compete favourably in global value chains. To achieve this, the need for African countries to develop standards that meet international standards remains crucial if they need to connect to global value chains at a level that is of economic significance to them. The building of capacity to improve, certify and assure the quality and standards of industrial products is important for taking advantage of access to the global market and sustaining the process of industrialisation. The inability of some African countries to meet technical standards set by the developed countries has been a barrier to taking advantage of the benefits of market access for processed and manufactured goods.  Thus, if domestic value chains are developed, then African products can easily join the global value chain at a higher end of the chain. Also, debates on enhancing global value chains should be aimed at strengthening the ability of Africa’s local value chains to be coherent with global value chains. Minus this, global value chains and industrialisation will only remain a legendary devil’s road paved with good intentions.

Africa Kiiza is Program Officer for Influencing Multilateral and Bilateral Trade Negotiations at SEATINI-Uganda.