Decoupling from GVC towards creating LVCs and RVCs

This piece follows the last blog where I argued that mainstream economists define development in terms of growth, but growth is not the same as development. I went on then to give my definition of “development”.

A recurrent theme in mainstream “growth” literature is that in this “globalised world”, countries must produce tradable goods and services in which they have a comparative or competitive advantage in the “global value chain” (GVC). This strategy has effectively deindustrialised most of Africa and pushed the continent back into the ice age – as producers and extractors of largely unprocessed raw materials for countries in the North and now also some of the “newly emerging” countries in the South.  In other words, the GVC policy has been counter-developmental for practically the whole of Africa.

In contrast to the GVC strategy I argue for “local value chain” (LVC) and the “regional value chain” (RVC) – the processing of local resources for value-addition to provide for local or national industrialisation and wage employment, and either sequentially or in parallel, to regional industrialisation.

What is the evidence on the ground for the above thesis?

In 2013, the United Nations Economic Commission for Africa (UNECA) produced its annual Economic Report for Africa (ERA2013) called “Making the Most of Africa’s Commodities”.  It gave several examples of GVC linked commodities. One of these is the cocoa-chocolate industry. And this is what it says: “Developing countries’ contribution to value added in the GVC fell by half between the early 1970s and the end of the 1990s. In Africa, producing countries are excluded from control over global logistics and marketing, and from intermediate and final product manufacturing.”

But why has the developing countries share of this industry fallen by half within two decades? And why is Africa “excluded” from the industry when it is among the world’s largest cocoa producers?

 

ERA2013 offers the following explanation: “Two types of lead firms dominate forward linkages in the cocoa GVC: grinders and chocolate manufacturers. They control the links characterized by the highest value added and profitability: trading and marketing. Supermarkets … account for an estimated 54 per cent of the global chocolate retail sector… Since the 2000s, a handful of grinders have dominated the intermediate stages of the cocoa GVC: Cargill, Archer Daniels Midland and Barry Callebaut. They control R&D and technologies in food processing, and bulk logistics. This has created very high knowledge and capital barriers to entry.”

 

Here is another example from ERA2013, this one from Kenya’s horticulture sector. “Kenya’s upgrading has been impressive in agro-products, as fresh-vegetable firms have moved into high value added exports. … Success has been highly selective, however, as many smaller farms and exporters have failed to keep up with global market requirements and have exited the value chain“.

 

So why have the smaller farms “exited the value chain”? 

 

I carried out a survey of this industry in Kenya in 2009.  Kenya is Europe’s major source of cut flowers. The UK alone imported 18,000 tons of flowers from Kenya in 2006, up from about 10,000 tons in 2001. I found that the flowers that ten years ago were produced by hundreds of small producers are now produced by a handful of multinationals. I also found that the industry draws water out of the Lake Naivasha on an average of approximately 20,000 cubic meters a day. As a result, the Lake is dying. Officially 130 square kilometers, it shrank in 2006 to about 75% of its 1982 size. The papyrus swamps that were the breeding grounds for fish have almost gone. Thousands of peasant producers and fisher folk have been alienated from their means of survival. People are facing severe problems of food and water insecurity. Into this already very fragile socio-ecological condition, the Alliance for a Green Revolution in Africa (AGRA) has made massive investments. AGRA is funded by the Rockefeller and Gates foundations. It claims that it is providing Africa to “grow” high standard exportable food crops and flowers to help its “development”. It employs certified agro-chemical crops under multi-genome patents. The end result is plain to see: the control (in the name of “growth”) over Africa’s plant biomass to generate super profits for mega-chemical and seed corporations, and in this case, for the “charities” called Rockefeller and Gates” Foundations.

 

Let us take one more example – from the mining sector.  The ERA2013 says: “Ghana has 13 large mining companies producing gold, diamonds, manganese and bauxite, and more than 300 registered small mining groups and 90 mine-support service companies. Large mining is dominated by foreign multinationals from South Africa, Canada, Australia, US, UK and Norway. Small mining is dominated by Ghanaians, largely as a result of the Minerals and Mining Act of 2006 that keeps it for locals. …  A worrying trend is the growing antagonism between small and large mining companies, as they compete for concessions and their operations“.

 

But why so? Why this “antagonism” between small (usually local) companies and large (usually global transnationals)?

 

I can go on to give examples – commodity after commodity to show how this hype about GVCs dangerous. It is de-industrialising Africa and impoverishing its people.

 

Call for Resource Sovereignty … or face existential extinction

In recent years the calls across Africa in favor of “resource sovereignty” are getting louder.  It is clear that as long as the multinationals control Africa’s economic decisions they will force GVC-linked production and trade. And as long as this goes on Africa might show impressive “growth” figures, but these will not translate into Africa’s “development”.  No wonder millions of people in Africa vote with their feet to escape from the hardships in their own countries. It is what in an earlier blog I called an aspect of “Global Nakbah” – de-rooting and dispossession.

 

It is clear that Africa must decouple from the GVCs.  They must use their natural and human resources first to produce for the “home market” through creating LVCs and then for the regional market through encouraging RVCs.

 

There is no other way out of Africa’s otherwise existential extinction.

A landmark victory of Kenya farmers against European imperial domination

Elaborating on the scope of Intifada and Chimurenga