Tapping the Potential of Global Value Chains for Africa

Abstract

CARLOS CONDE PHILIPP HEINRIGS ANTHONY O’SULLIVAN Organisation for Economic Co-operation and Development Africa’s economic performance over the last 15 years has improved considerably. After two decades of negative per capita growth, GDP growth has averaged 5 percent per year and GDP per capita has increased by 30 percent since 2000. Yet important competitiveness challenges remain—as explored in Chapter 1.1 of this Report. African countries would benefit from more intense trade and investment linkages, including higher intra-regional trade. The region’s participation in global trade and investment flows remains low when compared with other regions.1 While the numbers remain low in absolute terms—trade in sub-Saharan Africa stands at 2 percent of total world trade—developments are pointing in a positive direction. At US$60 billion, foreign direct investment (FDI) into the region is five times the level in 2000, and trade flows have expanded by 10 percent per year over that same period. These positive developments are taking place within a context of expanding participation in global value chains (GVCs).2 There is growing interest in assessing what determines engagement in GVCs, what the effects of such engagement may be, and what the implications are for policymaking. These questions are particularly relevant for many African countries where business environments are generally less competitive and where policy challenges need to be confronted with more limited public resources. They also highlight the importance of the ongoing debate about the extent and desirability of integrating into regional and GVCs and the benefits associated with wider participation for developing countries.3 Recent research shows that many developing countries are increasingly involved in GVCs, and that this participation generally brings economic benefits in terms of enhanced productivity as well as greater sophistication and diversification of exports.4 Yet the gains from value chain participation vary significantly between countries, and African countries are no exception. The objectives of this chapter are to assess Africa’s progress in connecting to GVCs, to highlight the main challenges to further integration, and to outline ways in which African economies can deepen their integration into GVCs in order to enhance their economic performance and achieve prosperity for their citizens. GVCs offer opportunities to transform Africa’s economies by developing and expanding new activities and building dynamic and competitive manufacturing, agriculture, and service sectors. Regional (African) value chains can also play a significant role in offering local producers, including smalland medium-sized enterprises (SMEs), opportunities to access fast-growing and more easily accessible markets across Africa. However, as previous