There is broad stakeholder support for South Africa’s desire to increasingly extract economic value from its infrastructure programmes by raising local-content levels.
There is also a commitment from large companies, such as miners and manufacturers, to interrogate ways of doing likewise, parti- cularly when embarking on new projects or when spending stay-in-business capital.
However, in pursuing such a strategy, government leaders and policymakers will also need to be alive to the fact that value chains are increasingly globalised – a reality that is changing the patterns and structure of international trade.
This point has been highlighted in a new report, prepared jointly by the Organisation for Economic Cooperation and Development, the World Trade Organisation and the United Nations Conference on Trade and Development ahead of the G20 Summit, which took place in Saint Petersburg, Russia, earlier this month.
Titled the ‘Implication of Global Value Chains (GVCs) for Trade, Investment, Development and Jobs’, the report concludes that GVCs have become a dominant feature of world trade and investment.
It also asserts that success in international markets depends as much on the capacity to import high-quality inputs as on the capacity to export, with intermediate inputs accounting for over two-thirds of the goods and 70% of the services traded worldwide.
GVC participation has also increased in almost all G20 economies over the past 20 years, including South Africa. It has been driven by changes in the business and regulatory environment, new technologies, shifts in corporate strategies, particularly among multinationals, and the systematic liberalisation of trade and investment.
In effect, this fragmentation of production has increased interdependence, with between 30% and 60% of the exports from G20 countries currently comprising imported inputs.
“The whole process of producing goods, from raw materials to finished products, is increasingly carried out wherever the necessary skills and materials are available at competitive cost and quality,” the report notes.
For this reason, the trade and investment policies of individual countries will need to take account of GVCs, which can be associated with both opportunities and threats.
The report errs on the upside potential, highlighting the fact that developing economies with the fastest-growing GVC parti- cipation have growth rates that are 2% above average.
It also notes that GVCs can provide important avenues for developing countries to build productive capacity where local firms can capture a significant share of the value added. However, such benefits will not flow automatically and will depend materially on whether significant investments are made into technology dissemination, skill building and upgrading are not automatic and require significant investment.
“Individual countries will want to carefully weigh the costs and benefits of proactive policies, carefully tailored to the country’s specific situation and coherent with its overall development strategy,” the report concludes.
Without question, the analysis has implications for South Africa, which has an active industrial policy that encourages localisation. It appears that extracting maximum benefit could be far more nuanced and complicated than first imagined.