Global Value Chains – five factors for export success
Last week, I attended a couple of sessions at the WTO Public Forum including a highly informative High Level Expert Panel on Value Chains and Trade. It included three chief economists, a trade minister, a GEC executive and the WTO's Chief of Staff.
The two main export success factors that came out of the discussions were educating the workforce and ensuring good governance.
Costa Rica's Trade Minister Anabel Gonzalez described how her country had moved from mainly an agricultural commodity exports to a more service orientated export sector over the last 30 years. This was not an exercise in picking low hanging fruit but a strategic decision 30 years ago to invest in skills and infrastructure. She offered five tips for a developing country to move up the global value chain.
Education: plenty of trade benefits too…
- Invest in an educated workforce. Costa Rica's success is a product of many years of investing in education, both technical and equipping people with English language skills.
- Have a long term strategic vision for attracting FDI and take coordinated agency approach. Part of a trade minister's job was setting supportive trade policies but also chasing other ministries to help create competitive conditions for the countries exporters, for example in investing in infrastructure.
- Ensure a sound business environment
- Make free trade agreements
- Benefit from your geographical location: she noted that Costa Rica benefits from its location in the middle of the Americas and close to the US. This is enhanced by robust air hub network and supply chain facilities.
She said that "the limitations (for export growth) are in the country, not outside". She qualified this by saying some in fact are outside (e.g. NTMs)
Another competitiveness factor offered by Ken Ash of the OECD was keeping imports open as GVCs are increasingly about composing different inputs from around the world.
GEC's Karan Bhatia provided the multinationals' view saying that an educated workforce and good physical infrastructure are key factors determining where the corporation invests. Other factors include good governance and proximity of markets, i.e. they need to have a strong regional market to tap into. He remarked that labour cost per hour was not the most important, but productivity, for this reason, skilled workforce so important.
For the World Bank's Bernard Hoekman, whilst governance and infrastructure is key, the type of products being traded need to be "unpacked" as value chains are very diverse and needed different support policies e.g. agriculture vs electronics. He highlighted the increasing specialization of firms feeding into GVC and the trend towards greater regional trade. This was driven by the increased costs of trade (fuel and policy induced) and so GVCs are a "misnoma".
The sub Saharan Africa perspective was provided by Peter Draper of the South African Institute of International Affairs. He highlighted that Africa faces a resource curse, where it exports commodities, mainly to China, that means it is difficult to diversify and capture more value in the chain. He saw no quick fix, but observed that labour intensive manufacturing was looking to relocate from coastal provinces of China whose cost structures were increasing. Attracting these companies to Africa depended on "getting our story right" i.e. good policies, institutions, governance and improving trade facilitation.
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