Increasing the participation of developing countries in global value chains (GVCs) is now an accepted G20 priority that features prominently on the Chinese government’s agenda for the 2016 summit. However, there is disagreement over a simple question: how can multinational corporations (MNCs), which drive GVCs, be persuaded to incorporate small and medium enterprises (SMEs) from developing countries into the GVCs they co-ordinate?
|“To fully reap the benefits and opportunities that can be created through SMEs’ participation in GVCs, African states need to address key constraints that limit SMEs growth as whole”
- Peter Draper and Chiziwiso Pswarayi
The debate over this question is first explored in broad outline. It comes down to a decision by each country on whether it wishes to utilise GVCs in its growth strategy and, if so, what measures it wishes to adopt to promote the incorporation of its firms into MNCs’ GVCs. The choice ranges from conscious industrial strategies oriented towards coercive measures designed to force MNCs to integrate SMEs into their value chains, to facilitative approaches designed to attract MNCs to invest and, over time, incorporate domestic suppliers into their value chains where it makes business sense to do so.
Next we turn to the analyses and prescriptions being proffered by key international institutions in relation to the evolving G20 agenda on including SMEs in GVCs. What clearly emerges is consensus on a number of key constraints that inhibit the growth of SMEs in general and their inclusion into GVCs in particular. These can be summarised in three broad areas:
- transaction costs (import tariffs; border procedures; logistics; trade finance);
- network infrastructure (information and communications technology [ICT]; transport; energy); and
- capacity (of firms, to meet GVCs’ standards; and of supporting government institutions).
We conclude by noting that the most controversial aspect of this agenda relates to market access policies, whereas the rest is likely to enjoy support in both South Africa and sub-Saharan Africa. Such support is already built into the Aid for Trade agenda being co-ordinated by the World Trade Organization (WTO) and other institutions. Therefore, our key recommendation is that market access considerations should be removed from G20 deliberations so as not to obstruct progress on the broader, horizontal agenda identified above. Finally we proffer a high-level framework for the South African government’s consideration, summarised in Table 1.
Authors: Peter Draper and Chiziwiso Pswarayi
See more work on Value Chains.
Interview: G-20 Summit and Global Value Chains, Implications for Africa.
Scoping workshop: Global Value Chains and Small, Medium Enterprises: What Role for the G20?
Media Alert: The G-20 Summit and Global Value Chains: Implications for Africa.
SMEs and GVCs in the G-20:Implications for Africa and developing countries.