VIAS CULTURALES DECLARADAS

as, “The full range of activities that firms and workers do to bring a product from its conception to its end use and beyond” (Duke, 2016, p.1). These activities can be contained within a single firm or divided among different firms. The term ‘global value chains’ emerged as value chains gradually started dividing themselves among multiple firms and spread across countries and continents.

From the GVC lens (mostly so by international organisations that have published material on GVCs, development and industrialisation issues in recent years), a popular view is that through the ‘insertion’ into, ‘upgrading’ within and ‘specialisation’ within GVCs, developing countries have new avenues for development that didn’t exist before. A recent World Bank brief states that “countries that embrace GVCs grow faster, import skills and technology, and boost employment” (World Bank, 2015, p.1). One of the few substantial reports in recent years that analyses the impact of GVCs on industrialisation in Africa, the African Economic Outlook 2014: Global Value Chains and Africa’s Industrialisation, writes,

“The country-centric view of trade no longer reflects reality...Global value chains offer new opportunities for structural transformation in Africa” (AfDB-OECD-UNDP, 2014, p.124).

However, when one starts studying closely what really has changed in the GVC era, the whole buzz around this new phenomenon—and how it’s often talked about, as exemplified above—appears to be hyperbolic. There has definitely been a change, but from the perspective of developing countries, it boils down to two closely interrelated developments: 1) increased offshoring by firms in more developed countries, resulting in tremendous increases in FDI inflows, alongside with (2) increased control of global production systems by TNCs based in more developed countries, particularly in the West. Below, these two developments will be explained, before some of its challenges and opportunities will be analysed in detail in section 3.3.

3.2.1.1 Offshoring and FDI

The proliferation of GVCs has largely been driven by TNCs purchasing more of their raw materials and intermediate inputs from abroad, either through outsourcing parts of their production to companies in the targeted country, or establishing their own production plant abroad to trade within the confines of their own corporation.

This became visible as early as the 1960s, when international companies sliced up their supply chains in search of low-cost suppliers in other countries (Gereffi, 2014b). It started with manufacturers offshoring their activities, typified by American outsourcing to Mexico (Maquiladoras) and German outsourcing to Central and Eastern Europe, by setting up export processing zones (EPZs) for apparel assembly (Fröbel et. al., 1981). In the 1970s and 1980s, US retailers and brand-name companies joined manufacturers in search for offshore suppliers of consumer goods, expanding operations to most notably East Asia.

Although the motivations for offshoring have largely remained the same to date (i.e. the search for cost savings, like cheap labour, land and energy), the scale of offshoring started intensifying first in the 1990s, driven by the factors already mentioned in the introduction. From 1990 to 2015, FDI inflows into developing countries increased from $35bn to $764bn (from 17 per cent to 43 per cent of world FDI inflows), which represents a change in FDI inflows into developing countries as a share of developing country GDP from 0.08 per cent to 2.5 per cent (UNCTAD STAT, 2017). Internationalisation of production of goods and services are now commonplace in practically all product categories, ranging from apparel, footwear, vegetables, fruits, beverages and flowers to computers, mobile phones, automobiles, aircrafts

and professional services.

As seen from Figure 3.1, the most explosive growth in FDI inflows in developing countries has taken place in Asia. This is partly due to the vast population of the region—led by a populous and fast-growing China—but also the massive amounts of FDI attracted into Hong Kong, which stood at $175 billion in 2015 (UNCTAD STAT, 2017). Although Africa accounts for a relatively small share of FDI inflows to all developing countries, its proportional increase has been 20-fold since 1990 (from 1.4 per cent to 4 per cent of world FDI inflows), with all sub-regions experiencing a significant increase, as seen from Figure 3.2.38

38 _{As the figure shows, Africa didn’t attract much FDI before the early 2000s. In the 1990s, civil wars were still} rife and the business climate was largely underdeveloped, an image that was exacerbated in the business media (e.g. The Economist (2000)).

0 100 200 300 400 500 600 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: UNCTAD STAT (2017)

Figure 3.1: FDI inflows into developing regions, billion $

3.2.1.2 Increasing power of TNCs

The study of power structures in production networks is essential to GVC analysis, as it shapes the distribution of profits and opportunities for development. In this respect, a seminal contribution to the GVC literature in the mid-1990s distinguished between buyer-driven value chains (BDVCs) and producer-driven value chains (PDVCs) (Gereffi 1994, 1999). In BDVCs, large retailers and brand name merchandisers, like Wal-Mart and Nike, typically control the value chains and specify products to be produced in independent factories in developing countries. PDVCs, on the other hand, are characterised by power being held by final-product manufacturers, like the aircraft producers Boeing and Airbus, and are commonplace in industries with higher capital intensity and skill barriers.

However, the distinction between BDVCs and PDVCs is not useful in all contexts. In the apparel industry, GAP is a good example of a typical lead firm in a BDVC, without its own manufacturing facilities, but Levi-Strauss governs a vertically integrated chain (see Kaplinsky and Morris, 2001), more in line with the PDVC structure. The food industry value chain is typically classified as a BDVC, but in Africa, big companies, such as Nestle, are setting up their own production facilities, so it is increasingly acquiring the characteristics of a PDVC.

As case studies of GVCs proliferated, it became clear that the BDVC-PDVC dichotomy 0 2 4 6 8 10 12 14 16 18 1990 1995 2000 2005 2010 2015 Source: UNCTAD STAT (2017)

Figure 3.2: FDI inflows into Africa, billion $

Eastern Africa Middle Africa Northern Africa Southern Africa Western Africa

failed to capture the full complexity of GVC governance structures. The framework introduced by Gereffi et. al. (2005) has helped mend this issue; it introduces 5 degrees of power exercised by lead firms through its coordination of suppliers, without direct ownership of the firms. As opposed the BDVC-PDVC framework, this framework is less prone to typifying certain industries into a set power structure. In fact, scholars have been drawing on it to show how the form of governance can change as the industry evolves and matures.

While the GVCs that have a foothold in Africa fit into many different typologies, the common feature is that large TNCs with home bases outside the continent are gaining increasing shares of the African market. Recent major deals include Total S.A.’s (France) $16bn investment to develop the Kaombo offshore oilfield in Angola, Skypower’s (Canada) $5bn investment to establish a solar power plant in Nigeria, and Mac Optic’s (Greece) $4.8bn investment to establish a petroleum refinery in Egypt (TIA, 2015).

The increasing presence of TNCs in Africa follows from a steady global expansion of TNCs, which has in fact been nothing short of immense. From 1990 to 2015, total assets of foreign affiliates increased from $5 trillion to $106 trillion (from 18 per cent to 145 per cent of world GDP), and employment by foreign affiliates increased from 21 million workers to 80 million workers (UNCTAD, 2016). Clark (2010) calculated that Wal-Mart, the world’s largest retail company, ranked as China’s seventh largest trading partner in 2010, ahead of the United Kingdom (Clark, 2010).

But not only have TNCs expanded across the world and grown in size, their power has also been consolidated significantly. Since the early the 2000s, practically every global industry has had only a handful of firms accounting for 50 per cent or more of the industry’s global market share (Nolan, 2007).