Regional Trade & High Potential Value Chains

Increased participation in high value global value chains can drive growth and help developing countries meet both their economic and their development goals. However, not all value chains are created equal, and countries’ abilities to participate in global value chains (GVCs) is determined by each chain’s specific characteristics and requirements. A new report from ICTSD examines West Africa’s potential for participation in more lucrative global value chains and makes several recommendations regarding which value chains and value chain policies should be the center of policymakers’ focus.

Upgrading to participation in higher potential value chains requires an understanding of a region’s existing capabilities. The report highlights that successful upgrading also requires the identification of value chains that offer (i) dynamic markets, (ii) potential to support Sustainable Development Goals (SDGs) and the most vulnerable countries in the region, and (iii) concrete upgrading opportunities in the near term.

Based on these benchmark criteria, the report identified six global value chains which hold the highest potential for successful participation by West African countries: processing of cacao beans to chocolate; cashew nuts; fish; other processed foods (such as tomato paste, pasta, and beer, for example); information and communications technology (ICT) services; and upstream linkages to extractive industries (minerals, oil, and natural gas). From these six, the report further narrows the list to value chains which should be top priority: fish products, processed foods, and ICT services.

These value chains were highlighted because evidence shows that there are already dynamic markets for these products both regionally and globally. In addition, these value chains have strong backward linkages to the agriculture and fishery sectors and potential forward linkages to modern retail chains. Thus, these value chains can thus provide significant employment opportunities for multiple skill levels within the region.

Each of these value chains has its own characteristics, but there also exist several cross-cutting themes across all of the value chains. The report uses these themes to make some general recommendations for increasing participation in GVCs throughout West Africa.

First, quality needs to be an important component of the region’s value chain upgrading policies. Ensuring that the goods and services produced in the region are of high quality will increase the rents able to be procured from participation in GVCs; this includes engaging in certification processes that guarantee markets and final consumers a certain level of quality. The report highlights that cashew nuts and cacao beans in particular have substantial intraregional quality differences. Policies to close these quality gaps and support the production and certification of high quality goods should be a priority.

Second, and related, successful upgrading will require well-designed and effectively implemented multi-sectoral policies. These include agricultural development to ensure a reliable supply of affordable, quality primary commodities; industrial development to stimulate investment and build technological capabilities; infrastructure improvements to make sure firms and producers have adequate facilities and utilities; education to help value chain actors develop the skills needed for more sophisticated activities; and labor laws to ensure health and safety standards and decent work conditions. All of these policies will require strong political will and increased government investment.

Third, policymakers need to understand how each value chain functions and is governed in order to create effective policies. For example, the report finds that cacao grinders in the region are relocating intermediate manufacturing in cocoa-producing countries; policymakers in producing countries can leverage this existing trend to support their overall value chain upgrading strategies. On the other end of the spectrum, the report finds that retail supermarkets are not promoting cashew nuts or fish processing in producing countries; in this case, governments could focus on policies to incentivize leading supermarket firms to support their upgrading strategies, or to penalize firms that do not.

Fourth, attention needs to be paid to regional value chains in addition to global value chains, as regional chains offer significant upgrading opportunities as well. Intra-regional trade in West Africa has lower export values than global trade, but products exported to regional markets are of higher value. More processed foods, plastic and metal fabricated products, and higher value added segments of soft commodities (fabrics, chocolate, and roasted peanuts) and many ICT services are exported to regional markets. One explanation for this could be that regional markets have lower barriers to entry. Including these intra-regional markets in value chain policies can help developing countries expand their value chains more sustainably.

Fifth, value chain policies need to include a focus on development, specifically the achievement of the Sustainable Development Goals (SDGs). Global value chains have the potential to reduce poverty and increase gender equity and environmental sustainability; however, to do so, governments need to establish appropriate policies for labor and environmental regulations, education, and improved access to services, financing, and markets for women. Constraints (both social and economic) to participation in high potential value chains can best be addressed through cooperation among all key stakeholders, from firms and government agencies to NGOs and trade unions. Governments can play a key role in bringing these stakeholders together by establishing fair, transparent policies and regulations.

Incorporation of these recommendations could help developing countries work with the specific characteristics of prioritized value chains and ultimate upgrade their domestic production to participate in higher value economic activities.

By: Sara Gustafson, IFPRI


Photo credit:Francesco Veronesi