South Africa’s industrial policies might be ignoring the importance of global value chains. The industry should focus on realistic competitive advantages, which might allow for the sustainable production of intermediate goods that dovetails with multinational, globalised supply chains.
This is one of the messages arising from North-West University’s (NWU’s) trade and development research entity roundtable held last month.
“Products are being designed, manufactured, assembled and distributed in different countries – a process known as ‘slicing up the value chain’. Yet, South Africa’s industrial policy aims to beneficiate raw materials and stimulate manufacturing that is labour intensive.
“Such a policy stance suggests a centralised production approach, which is out of sync with the move towards focusing on those elements of the value chain that deliver realistic competitive advantages,” says NWU World Trade Organisation chair and trade and development research entity head Professor Wilma Viviers.
Further, services hardly feature in the country’s trade policy, even though they play a significant role when global value chain participants attempt to upgrade to higher value-added production, either upstream or downstream, from fabrication, she notes.
However, devising an export promotion strategy could become complicated when significant multinational corporations are involved in the target sectors because these organisations will decide how and where to sell, says University of Antwerp international trade economist professor Ludo Cuyvers.
“The dominant role played by multinational corporations in global value chains has advantages and disadvantages because, while they generate capital, expertise and influence in global markets, they also have a tendency to come and go, and do not always build skills on the ground in their host countries.
“There is also the risk that multinational corporations will add lower-value ‘slices’ (portions of intermediate goods manufacturing) of global value chains, which reduce the ultimate economic benefits derived from global value chain participation,” he explains.
South Africa can be justifiably proud of its automotive industry, which has successfully linked production by foreign subsidiaries and domestic components manufacturers, as well as technology transfer, within a globally connected value chain, says NWU trade and development research entity extraordinary professor Peet Strydom.
“Cooperation with multinational corporations has been fundamental to the South African automotive industry’s success to date. However, a country needs to be in good shape at the macroeconomic and microeconomic levels to take advantage of the opportunities offered by global value chains.
“South Africa’s performance is lacklustre in this regard. Whether you like it or not, global value chains are driven by multinationals,” he notes.
Government and the private sector in South Africa need to work towards gaining a better understanding of each other’s concerns about the economy and trade so that they can achieve greater consensus on the way forward together, concludes Viviers.