Global value chains as an economic strategy
The Africa Continent Free Agreement AfCFTA is premised on existing regional economic blocs namely the COMESA, SADC, EAC, ECOWAS, IGAD, SEN-SAD, UMA and ECCA.
Research reveals that whereas these Preferential Treaty Agreements (PTAs) were driven by adjustments on tariffs on industrial, agricultural and border measures, not much was covered on subsidies, countervailing measures, anti-dumping duties and trade remedies.
The AfCFTA has covered more policies than in PTAs. This is reflective of modern deep trade agreements typified by the likes of NAFTA and the EU. This will enable AfCFTA member states to increase their participation in global value chains (GVCs) and regional value chains.
Regional value chains refer to cross border production within the same economic bloc while global value chains refer to joint production between countries of different economic bloc.
East Asia, Europe and North America are engaged in advanced manufacturing and services, sophisticated innovation GVCs, in comparison to Latin America, Africa and Central Asia who are engaged in commodities GVCs and limited manufacturing GVCs.
The World Bank reports that deep trade agreements encourage global value chain and regional value related trade. In addition, this type of agreement encourages harmonisation of customs procedures across borders, certainty and predictability in trade through the elimination of trade barriers.
It is the nature of the AfCFTA as a deep trade agreement that will encourage global value chains and regional value chains for Africa’s productivity and achieve increased economies of scale.
Statistics reveal that manufactured intra-Africa exports are at 36 percent in comparison to 24 percent to the rest of the world. The AfCFTA will stimulate MSMEs to manufacture and thus propel these businesses to participate in regional and global value chains to increase the volume of exports.
On the background of the Covid-19 that has almost wiped economies and increased conversations of protectionism, the AfCFTA has to encourage its members to take up value added manufacturing and innovative activities in order for Africa to effectively participate in global value chains.
Moreover, the success of the AfCFTA is hinged on vigorous export strategies to be pursued by member countries.
Studies by the World Bank reveal that global value chain participation can boost economic growth by 6 or 7 times more than traditional exports produced in a country. However, Sub–Sahara Africa GVC participation remains very low at 3 percent in trade of intermediate goods.
Furthermore, some Sub–Sahara African exports enter GVCs at the beginning realising a lesser share through the export of agricultural products and commodities with no value addition in contrast to countries that join the GVC at a higher share due to value addition that occurred on the exported finished product.
Tanzania, Kenya, Ethiopia, South Africa and Morocco have managed to be effective participants in the GVCs reaping positive benefits for their economies.
This has been achieved through value addition through importation of intermediaries for the finished products before export.
The integration into the GVCs by Ethiopia and Kenya has occurred in the agribusiness, apparel sectors.
Tanzania has integrated through the manufacturing sector, tourism and transport although in these last two sectors integration into GVCs has been very low.
Peugeot and Renault have set up shop in Morocco, making this African country one of the players in the automobile global value chain.
The mentioned African countries have scored highly on GVCs and actually mirror the GVC success stories of Vietnam and Poland.
It is important to know that firms drive integration into GVCs while governments create an enabling environment for such growth to occur.
An efficient customs administration among a host of other factors becomes a catalyst for seamless trade to occur.
Empirical evidence by the World Bank has shown that firms that import and export at the same time are likely to participate in GVCs.
It is common that the imports will comprise of intermediaries that will be an input into the finished product to be exported. Firms integrated in GVCs exploit economies of scale and comparative advantage as a strategy to contain costs.
The nature of the GVCs is such they are relational and largely driven by high specialisation among other attributes. GVCs foster co-operation between countries because of this interdependence.
This therefore, demands careful planning on trade policies that should reflect
the interest of other countries. How often does that happen? The current US and China tariff wars reveal the complexity of international trade.
The synchronisation of economic activity means that a trade shock in another country cascades to the other country.
This has been the case globally on the onset of the coronavirus. Inflation from the other trading partner can be imported into the country and to avoid this, Central Banks of countries in the GVCs have to work together to manage the inherent risk of importing inflation.
Special Economic Zones are a common feature found in GVCs and they largely employ women.
UNCTAD research reveals that some manufacturing processes in SEZ require repetitive tasks and women are said to have nimble fingers, which make them ideal for tasks like embroidery.
While hailed for employing women and reducing poverty, the downside of SEZ is that they perpetuate gender inequality.
The positions reserved for women working within SEZ have no scope for personal growth turning women into sources of cheap labour.
The impact of GVCs on the environment has been a major concern. International trade accounts for 7 percent of carbon emissions in the world and that has been associated with GVCs.
Zimbabwe has some of the requisites for the establishment of more GVCs and RVCS. These are a good physical infrastructure, a sound Customs Administration, a legal and regulatory business environment, educated and skilled human capital. Notwithstanding downside of GVCs and RVCs, these vehicles boost economies as evidenced by success stories of Morocco and Ethiopia.
The AfCFTA as a deep agreement, it will easily assist member countries to integrate in the regional value chains as well as global value chains.
Sitshengisiwe Ndlovu president of OWITZIMBABWE: MBA/UNCTAD: Trade and Gender Linkages/ IAC Dip/Cert: Trade in Services and SDGs: Robert Schuman Centre of Advanced Studies/IDEPCert: Making the African Continental Free Trade Agreement Work. She writes in her personal capacity. For more on trade matters visit her blog on website: owitzimbabwe.org