This discussion paper examines the roles of South Africa and Kenya as regional gateways for global value chains (GVCs) coordinated by multinational corporations (MNCs), and the obstacles small and medium enterprises (SMEs) face in entering those value chains, owing to the voluntary sustainability standards (VSS) enacted by MNCs. As SMEs play a significant role in the formal and informal sector, both of which are crucial to the two countries’, and their neighbours’, economies, integrating them successfully holds developmental gains. However, standards can be a barrier to such integration, raising developmental challenges. Accordingly, the paper reviews the standards framework in each country, building on case studies to discern patterns of MNC incorporation of SMEs into their value chains and the constraints SMEs face in this regard.
The paper focuses on sustainability standards, particularly in relation to environmental and social standards, and how these have developed into requirements for participating in cross-border value chains. Participation in these value chains is already stringent for SMEs, hence the legitimacy of these sustainability standards is examined to assess whether they are ultimately beneficial to SMEs or act as barriers to entry. The obstacles SMEs face in relation to sustainability standards are examined, particularly those regarding: lack of awareness, limited technical assistance and training, costly implementation and certification, lack of adequate financing, and changing VSS and the market structure that constitute the SME landscape. The support institutions available to assist SMEs to overcome the specified challenges are similarly reviewed.
Insights from two case studies highlight the role MNCs can play to nurture sustainable supply chains and contribute to the development of both regional value chains and GVCs. The paper concludes with recommendations for the G20 to assist SMEs’ ability to participate in GVC development and advance South Africa and Kenya as regional gateways.
Authors: Anna Ngarachu, Peter Draper and Kwame Owino