GLOBAL COMMODITIES FORUM
7-8 April 2014
GVCs in Commodity-dependent
Developing Countries: Patterns of
Involvement and Policy Implications
by
Masataka Fujita
Head, Investment Issues and Trends Branch
Division on Investment and Enterprise
UNCTAD
The views expressed are those of the author and do not necessarily reflect the views of
UNCTAD.
GVCs in Commodity-dependent
Developing Countries: Patterns of
Involvement and Policy Implications
UNCTAD Global Commodity Forum 2014
7-8 April 2014
Masataka Fujita,
Head, Investment Issues and Trends Branch
Division on Investment and Enterprise
UNCTAD
Geneva, 7 April 2014
1
GVCs’ two important findings
(World Investment Report 2013)
There is correlation between growth in
GVC participation and GDP per capita
There is correlation between inward FDI
and GVC participation
GVC Participation vs GDP per Capita
Developed Countries - logs
Developing Countries - logs
4
7
6
8
GDPpc
9
GDPpc
8
10
10
11
12
GVC Participation vs GDP per Capita
10
12
14
16
18
GVC participation
20
10
12
14
16
GVC participation
18
20
Source: UNCTAD, World Investment Report 2013.
2
Contents

Value added trade in commodity-dependent
developing countries
▪
GVCs: the trade-investment nexus
▪
Policy options to upgrade value chains
3
How much value added does global trade actually generate?
Global value added in trade (goods and services), 2011
$ trillions
~23
ESTIMATES
~7
30%
~16
Global gross exports
“Double counting”
(foreign value added in
exports)
“Domestic value added”
(Value added in trade)
Source: UNCTAD-EORA GVC Database, UNCTAD estimates.
4
How about commodity-dependent countries?
Value added in trade, 2011
$ trillions
Commodity-dependent developing regionsa
Non-commodity dependent developing regionsb
~6.2
~1.8
29%
~4.4
~1.4
~0.2
Gross exports
a
15%
~1.2
Foreign value
added in exports
Domestic value added
Includes Africa and South America.
Source: UNCTAD-EORA GVC Database.
Gross exports
b
Foreign value
added in exports
Domestic value added
South, East and South-East Asia and Central America.
5
Which sectors have the most segmented value chains?
Share of foreign value added in exports, by sector, 2011
Primary
10.5%
Secondary
Tertiary
32.5%
15.1%
Source: UNCTAD-EORA GVC Database.
6
Which industries have the most segmented value chains?
Share of foreign value added in exports, top 10 industries, 4 primary industries and some resources-based manufacturers, 2011
1 Manufacture of office, accounting and computing machinery
2 Coke, petroleum products and nuclear fuel
3 Manufacture of radio, television and communication equipment and apparatus
4 Manufacture of wearing apparel; dressing and dyeing of fur
5
Manufacture of motor vehicles, trailers and semi‐trailers
6
Manufacture of electrical machinery and apparatus n.e.c.
7
Manufacture of textiles
8
Manufacture of other transport equipment
9
Other manufacturing
10
Rubber and plastic products
12
Metal and metal products
20
Food, beverages and tobacco
32
Forestry and fishing
34
Mining and quarrying
36
Agriculture and hunting
50
Petroleum
0
10
20
30
40
50
60
%
Primary industries
Source: UNCTAD-EORA GVC Database.
Resources-based manufacturers
Note: Based on 50 industries at various levels of industry classification (ISIC 4).
7
How much does trade really contribute to GDP in
commodities dependent countries?
Non‐commodity‐dependent developing countries
Commodity‐dependent developing countries
Domestic value added in trade as a share of GDP, 2011
30.3%
Africa
South America
15.4%
South, East and SouthEast Asia
Central America
29.9%
17.1%
World average
Source: UNCTAD-EORA GVC Database.
22.2%
8
How much do they participate in GVCs?
GVC participation: the share of a country’s exports that is part of a multi-stage trade process, by summing the foreign
value added used in the country’s own exports and the value added supplied to other countries’ exports.
Commodity-dependent developing countries
Non-commodity dependent developing countries
South America
Central America
1995
10.0 %
2005
14.2 %
2011
14.0 %
0
31.5 %
1995
36.0 %
9.3 %
26.4 %
40.7 %
2005
37.5 %
10.1 %
27.0 %
41.0 %
2011
40.6 %
21.5 %
15
30
45
60
0
Africa
32.9 %
47.5 %
1995
30.1 %
2005
14.6 %
39.9 %
54.5 %
2005
29.8 %
2011
16.9 %
56.1 %
2011
27.7 %
39.2 %
30
30
45
47.6 %
51.6 %
60
South, East and South-East Asia
14.5 %
15
11.1 %
15
1995
0
45.3 %
45
60
0
50.8 %
20.7 %
24.4 %
54.1 %
53.3 %
25.6 %
15
30
45
60
Foreign value added share
Value added incorporated in other countries’ exports
9
Source: UNCTAD-EORA GVC Database.
Is GVC participation influenced by the export structure?
The foreign value added share in exports (upstream part of GVCs) and the intensity of commodity exports have a
negative relationship, while the share of value added incorporated in other countries’ exports (downstream part of GVCs)
and the intensity of commodity exports have a positive relationship.
Relationship between the share of value added incorporated in other countries' exports and
commodity exports sharea, 2011
Relationship between foreign value added share and commodity exports sharea, 2011
120
100
90
100
Commodity export share
Commodity exports share
80
70
60
50
40
30
20
80
60
40
20
10
0
0
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
80
Share of value added incorporated in other countries' exports
Foreign value added share
a) The share of primary products and resource based on manufacturing exports in the total exports of goods and services.
a) The share of primary products and resource based on manufacturing exports in the total exports of goods and services.
Source: UNCTAD-EORA GVC Database.
10
What is the impact of GVCs on economic growth?
Correlation between growth rates of GVC participation and growth rates of GDP per capita: commodity-dependent
developing countries have less clear-cut relationship between them.
GVC participation and GDP per capita
Commodity‐dependent developing countries (31 countries)
6
Non‐commodity dependent developing countries (30 countries)
GVC participation growth rates, 1995‐2011
5
Non commodity‐dependent developing countries
4
Commodity‐dependent developing countries
3
2
1
0
‐6
‐4
‐2
0
2
4
6
8
10
12
14
16
‐1
Growth rates of real GDP per capita, 1995‐2011
Source: UNCTAD-EORA GVC Database.
11
Impacts of FDI on GVC participation are not uniform between
commodity-dependent developing countries and noncommodity dependent developing countries
TNCs increase less GVC participation in commodity-dependent countries than in non-commodity dependent countries.
GVC participation and FDI inward stock
50
Commodity‐dependent developing countries (31 countries)
GVC participation growth rates, 1995‐2011
45
Non‐commodity dependent developing countries (30 countries)
40
35
Non commodity‐dependent developing countries
30
25
20
Commodity‐dependent developing countries
15
10
5
0
‐1
0
1
2
3
4
5
6
Growth rates of FDI inward stock, 1995‐2011
Source: UNCTAD-EORA GVC Database.
12
FDI shapes patterns of value added in trade, but less in
commodities-dependent developing countries than noncommodities dependent developing regions
Key value added trade indicators (median values), by size of FDI stock relative to GDP, 2011
(Per cent)
Noncommoditydependent
developing
countries
Commoditydependent
developing
countries
Foreign value added in trade
Countries with high FDI
stock relative to GDP
Value added contribution of trade to GDP
20 %
20 %
Countries with low FDI
stock relative to GDP
14 %
13 %
Countries with high FDI
stock relative to GDP
43 %
46 %
Countries with low FDI
stock relative to GDP
23 %
0
10
20
19 %
30
40
50
0
10
20
30
40
50
Note: 30% is the criteria for high/low FDI stock relative to GDP.
Source: UNCTAD-EORA GVC Database.
13
Contents

Value added trade in commodity-dependent
developing countries

GVCs: the trade-investment nexus

Policy options to upgrade value chains
14
GVCs are typically coordinated by TNCs
Global gross trade (export of goods and services), by type of TNC involvement, 2010
(Trillions of dollars)
ESTIMATES
TNC-related trade:
~ 19
~80%
~4
~ 15
~ 6.3
~ 2.4
~ 6.3
Global trade in goods and
services
Non-TNC
trade
Source: UNCTAD World Investment Report 2013.
All TNC-related
trade
Intra-firm trade
NEM-generated
trade, selected
industries
TNC arm's length
trade
15
Trade structure and investment patterns
Trade structure, 2011
Main trade and investment patterns
(Distribution share)
Goods
Primary
products and resource‐based
manufacturing
Low‐technology
manufacturing
Services
Medium‐
technology
manufacturing
High‐
technology
manufacturing
Knowledge‐
based services
Non‐knowledge
based services
Trade patterns: Exports remain predominantly within sectors
and industries with limited need for imported content and
limited domestic productive capacity
Investment patterns: Relative high share of natural
resources oriented FDI
N o n ‐c o m m o d it y d e p e n d e n t d e v e lo p in g c o u n t r ie s
C o m m o d it y ‐d e p e n d e n t d e v e lo p in g c o u n t r ie s
1.2
Africa
4.1 6.5
71.2
11.1
2.1
6.5
Trade patterns: Exports remain predominantly within sectors
and industries with limited need for imported content and
(limited) domestic productive capacity
Investment patterns: Relative high shares of natural
resources oriented FDI and import-substitution FDI
8.8
Trade patterns: Rapid development of domestic productive
capacity for exports competing successfully at high value
added levels
Investment patterns: FDI acts as a driving force of trade
integration and domestic productive capacity building
2.1
South America
South, East and South-East Asia
3.8
67.7
20.7
17.3
19.9
11
5
24.7
6.2
1.2
Central America
26.7
8
35.1
21.9
4.2
Note: The sum of individual sectors does not necessarily add up to 100% due to unclassified products. Note: The sum of individual sectors does not necessarily add up to 100% due to unclassified products.
Knowledge‐based services include insurance, financial services, computer and information services, royalties and licence fees, and other business services.
Trade patterns: Composition of exports shifts towards
processing industries requiring higher imported content
Investment patterns:
- Increased FDI in processing industries
- M&As become an important mode of entry
Source: Trade data from UNCTAD GlobStat.
16
Contents

Value added trade in commodity-dependent
developing countries

GVCs: the trade-investment nexus

Policy options to upgrade value chains
17
Policy options to increase GVC participation and create more
domestic value added for commodity-dependent developing
countries
More GVC participation: integrating more into
GVCs
Enter (increase relative importance of) more
fragmented GVCs
More domestic value added creation: capturing
more value added
Functional and chain upgrading: Move to (or expand
to) higher value segments in GVCs; Move to (or
expand to) technologically higher value GVCs
Product and process upgrading: Increase
productivity and value added produced within
existing GVC segments
18
Factors and conditions conducive for promoting GVC development and
policy measures for commodity-dependent developing countries
NOT EXHAUSTIVE
GVC development path
Required factors and conditions
Enter more fragmented GVCs
• Conducive investment and trading environment
• Basic infrastructure provision
• Pool of relatively low‐cost workers
Product and process upgrading
• Availability and absorptive capacities of domestic
supplier firms and partners
• Reliable basic infrastructure services (utilities
and telecommunications)
• Pool of relatively low‐cost semi‐skilled/skilled workers
Functional and chain upgrading
• Presence of domestic supplier base fully integrated in multiple GVCs (reduced reliance on individual GVCs)
• Absorptive capacities at higher technology levels, capacity to engage in R&D activities
• Presence of TNCs capable of GVC coordination and a domestic and international supplier base Policy measures
Embedding GVCs in development strategy and enabling participation:
• Incorporating GVCs in industrial development policies
• Creating and maintaining a conducive environment • Putting in place infrastructural prerequisites for GVC participation
Building domestic productive capacity:
• Supporting enterprise development and enhancing the bargaining power of local firms • Strengthening skills of the workforce
Providing a stronger governance framework:
• Supporting local firms in complying with international standards
• Effective national innovation system, R&D policies and intellectual property rules
19