102850 Public Disclosure Authorized Public Disclosure Authorized Factory Southern Africa? SACU in Global Value Chains Summary Report Public Disclosure Authorized Public Disclosure Authorized © 2016 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW Washington, DC 20433 USA All rights reserved This report was prepared by the staff of the Trade and Competitiveness Global Practice. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank’s Board of Executive Directors or the countries they represent. ii Contents Acknowledgements ........................................................................................................................................ i Acronyms ...................................................................................................................................................... ii Executive Summary ...................................................................................................................................... iv 1. Context and Objectives .......................................................................................................................... 1 1.1. Introduction .................................................................................................................................. 1 1.2. Defining GVCs: outsourcing, offshoring, and governance ............................................................. 1 1.3. What’s different about GVC trade? .............................................................................................. 3 1.4. Why is this relevant for Southern Africa? ..................................................................................... 4 1.5. Objectives and structure of this report ......................................................................................... 6 Section 1: SACU in Global and Regional Value Chains .................................................................................... 7 2. Measuring SACU’s GVC Integration, Performance, and Positioning ....................................................... 8 2.1. Introduction: measuring trade in value added .............................................................................. 8 2.2. Global trade integration .............................................................................................................. 10 2.3. GVC integration ........................................................................................................................... 12 2.4. GVC positioning ........................................................................................................................... 19 3. Regional Value Chains in SACU ............................................................................................................ 21 3.1. Introduction and intraregional trade patterns ............................................................................ 21 3.2. Regional value chains in manufacturing ...................................................................................... 22 Automotive ........................................................................................................................................ 23 Textiles and apparel ........................................................................................................................... 24 3.3. Regional value chains in agribusiness ......................................................................................... 26 Agroprocessing (horticulture and sugar)............................................................................................ 26 Meat and related sectors ................................................................................................................... 27 3.4. Services supporting regional value chains .................................................................................. 29 3.5. Summary of key findings ............................................................................................................. 31 4. GVC Determinants and SACU Competitiveness .................................................................................... 33 4.1. Introduction and approach ......................................................................................................... 33 4.2. The capabilities that matter for GVC participation ..................................................................... 33 4.3. SACU country capabilities for GVCs ............................................................................................ 35 4.4. Mapping capabilities with specific GVCs ..................................................................................... 36 4.5. Conclusions ................................................................................................................................. 37 Section 2: Structural and Policy Challenges for GVC and RVC Integration .................................................... 38 5. Structural Challenges in SACU: GVCs in Small and Remote Countries .................................................. 39 5.1. Size and GVC participation .......................................................................................................... 39 5.2. Distance, remoteness, and GVC participation ............................................................................. 39 5.3. Opportunities and limits to overcoming scale and remoteness .................................................. 41 Nicaragua case ................................................................................................................................... 42 Macedonia case ................................................................................................................................. 43 5.4. Conclusions ................................................................................................................................. 45 6. Trade and Investment Policy for Value Chain Integration .................................................................... 46 6.1. Introduction—what’s different about trade in value chains? ..................................................... 46 6.2. Trade and investment policy in a GVC world .............................................................................. 47 Trade agreements and regionalism ................................................................................................... 47 Tariffs ................................................................................................................................................. 47 Nontariff measures ............................................................................................................................ 48 Rules of origin .................................................................................................................................... 48 Services .............................................................................................................................................. 49 Investment policy ............................................................................................................................... 50 6.3. SACU trade and investment policy and regional value chains .................................................... 51 6.4. Conclusions ................................................................................................................................. 52 7. Trade Facilitation for Value Chain Integration ...................................................................................... 54 7.1. Introduction and the importance of trade facilitation for value chains ...................................... 54 7.2. Intraregional freight movements in SACU ................................................................................... 55 7.3. The regional trade facilitation environment ............................................................................... 57 Trade facilitation supports competitiveness ...................................................................................... 58 Trade policy barriers spill over to trade facilitation ........................................................................... 58 Linking with GVCs and integrating RVCs—a comprehensive approach ............................................. 60 Scale at both the market and the firm level remains a fundamental challenge ................................. 61 Attention to interfaces at the SADC level is critical ............................................................................ 61 7.4. Implications for policies to promote value chain integration ..................................................... 62 Section 3: The Implications of GVCs and RVCs on Productivity and Jobs ...................................................... 64 8. GVCs as a Source of Productivity Growth ............................................................................................. 65 8.1. Introduction—spillovers from GVC participation? ...................................................................... 65 8.2. Trade, GVCs, and productivity—theory and evidence ................................................................ 65 8.3. Model and data ........................................................................................................................... 66 8.4. Main findings