Value chains have changed the world and are rapidly changing and evolving due to the increasing rate of technology innovation, communication technology, and computer integrated technology. UNCTAD defines a global/regional value chain as, ‘the sequence of all functional activities required in the process of value creation involving more than one country’.
Regional and Global value chain benefits
When firms enter into value chains across borders an amount of trust is established and increased across borders. This trust is built through mutually beneficial linkages among these firms in order to take advantage of market opportunities. These mutually beneficial relationships create an environment where firms can share innovation, information and skills in order to become more productive in their endeavour. Thus, firms who form part of a regional or global value chain have constant process upgrading, product upgrading, functional upgrading, intra-sectoral upgrading and inter-sectoral upgrading.
SSA Regional value chains
SSA has grown its share in the global value added process from 1% in 2002 to only 2% share in World value added in 2012. The contribution to the lack of participation in value adding for SSA, is attributed by the high transport costs and high amounts of Non-tariff measures (NTM) and Non-tariff barriers (NTB).
The tariff structure for African RECs are aligned with the objective of stimulating intra-regional trade within Africa, but high transport costs and barriers to trade creates an economic environment where African production chains become uncompetitive. De Melo and Collinson (2011), did an analysis to calculate the tariff equivalents of Non-Tariff Measures (NTMs) in the East African Community (EAC) in order to indicate quantifiably their restrictiveness. They found that for example in Kenya the average tariff on the product lines is 14%, but the prohibition of these specific product lines, because of NTMs are between 40% and 58%. Thus, the NTMs in Kenya have a greater affect than tariffs applied to the same product lines.
Regional co-operation in Asia – example of a successful vehicle for value chain promotion
East Asia is the most successful and most active in the mobilisation of regional co-operation as a means of promoting production networks and promoting fragmented trade. The main driver for regional co-operation in Asia has been market based. FTAs are used as a means to increase the amount of FDI flows in order to deepen the existing production chains, as well as to create new ones. Furthermore, from the starting of the integration into the global economy in the 1980s, the ASEAN countries have started to liberalise their economies.
The way forward (Agricultural Value Chains)
Employment creation is one of Sub-Saharan Africa’s biggest challenges with the largest proportion of its people being employed within the agricultural sector. Furthermore, approximately 60% of SSA’s people live in rural areas and predominantly live off of agricultural goods. SSA has approximately 200 million hectares of uncultivated land, which is close to half of the Worlds availability. Thus, Africa is in the competitive position to expand agricultural production. The removal of trade barriers through trade liberalisation and further regional integration, can provide the means to create value chains in SSA. The costs to trade will lower and provide an enhanced competitive marker within African regions, which can become more competitive in the global context.