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Value addition can give economies a competitive edge

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JULIANS AMBOKO

By JULIANS AMBOKO
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The World Bank Chief Economist Pinelopi Goldberg spoke on the global trade environment and the lender’s World Development Report 2020. She spoke to Julians Amboko.

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The World Development Report 2020 says that global value chains can accelerate employment and wealth creation and alleviation of poverty. How is Africa fairing on this front?

If you look at history, global value chains have been associated with very fast growth especially when you look at what countries like China, Vietnam and Korea have experienced. When it comes to countries like Kenya, or even Ethiopia which is deemed to be a great success, the contribution of value chains to growth has been a lot more modest.

So, the results in Africa have been rather disappointing. One of the reasons which explains this is that African countries participate in global value chains largely through agriculture whereas Asia did so mainly through manufacturing.

We are still at a point where there is no empirical evidence that participating in the value chains through agriculture and commodities helps economies grow fast. There is stable growth but it isn’t fast enough.
So, we end up not seeing the rapid increase in per capita income which we saw in Asia for instance.

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The transition to manufacturing will not happen overnight. So how can African economies best position themselves within global value chains given their agricultural base?

What we find is that these days consumers across the globe care for a lot more than just price. Consumers care about where the product was produced, how it was produced, the labour standards adhered to in production as well as environmental consciousness.

We have found that in many countries farmers who adopt certification standards are better placed at accessing the global markets because their products witnessed increasing demand. This is one concrete step that can be taken.

You say trade can be a catalyst for growth and development, at a time when there are heightened trade tensions between the US and China and uncertainty around Brexit. What’s your assessment of Africa’s vulnerability to potential spillovers from these?

The short-run effects of these tensions have been rather modest for Africa at large simply because the continent is not that integrated into international trade. Now that cuts both ways. On the one hand, Africa has not reaped large gains from trade. On the other, when trade retreats, Africa is not hurt as much.

In the long-run developing economies and especially those in Africa pay the highest price and this is because they need investment more than anyone else and investment responds to uncertainty by declining.

How then can Africa strengthen its buffers to counter the effects?

We are at a time when we have seen escalating protectionism in advanced countries and it is not clear that countries in Africa can tap into the very lucrative market in developed country markets as East Asian economies have done in the past. What is still feasible is to tap into the African market especially if it is an integrated market. Gladly we have seen positive steps such as the Africa Continental Free Trade Area which should strengthen integration.

On Africa’s performance within the global context, labour costs tend to feature every so often with the argument being that markets such as Kenya are unattractive to investors compared with some peers in Asia. What is your assessment?

Labour costs in Kenya are actually very high. They are high in absolute terms compared to other developing countries but also relative to GDP and that puts Kenya at a disadvantage. This is not to say that labour regulation is not needed.

It is important to guarantee good labour practices but at the same time from the employer’s side it makes producing in a market such as Kenya expensive when compared with a country such as Bangladesh and this is a challenge. We cannot forget, however, that firms care about a lot more than just wages and labour and that perhaps presents one way in which economies such as Kenya can angle its competitiveness.

This month the IMF downgraded its global growth projection for 2019 from three per cent to 2.9 per cent citing “negative surprises in economic activity in a few emerging economies”. This would push global growth to lows we have not witnessed since the 2008/09 global financial crises. What is your assessment at the World Bank and where does this leave Africa?

In general, the outlook is rather pessimistic and no one expects relatively fast growth. However, these aggregate numbers mean very little for individual economies and even less for individual people within the countries.

The average growth forecast of about three per cent is an average across countries such as the US, India and Kenya and these are countries that have very different realities on a day-to-day basis.

So, while such forecasts are important, we need to bear in mind that they do not provide the full story of how individual countries fair.

The question we need to ask, especially in developing economies, is whether the aggregate growth being reported trickles down.

Good policy should ensure that growth numbers translate into better welfare for the citizens.

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