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Understanding Global and Regional Value Chains – A focus on services sector

Komi Tsowou Economist, African Trade Policy Center

Regional Integration and Trade Division

United Nations Economic Commission for Africa

Measuring the contribution of financial services to regional value chains in Nigeria

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Measuring the contribution of financial services to regional value chains in Nigeria

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OUTLINE

• Basics on Global Value Chains (GVCs) /

Regional Value Chains (RVCs)

• Trade policy space and the AfCFTA

• Role of Services sector in GVCs/RVCs

• Project on Services Trade : an overview

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Basics on Global Value Chains

(GVCs) / Regional Value Chains

(RVCs)

Basic concepts in trade, GVCs/RVCs ECA

Gross trade flows: gross value of exports/imports

Trade in Value Added: approach to quantify the sources (by country and industry) of value that is added in the production of traded goods and services;

GVCs/RVCs : International structure/organization of production, trade and investments of goods and services located across various regions/countries/firms

Value Added vs. Gross measures of trade ECA

Illustration: cocoa to chocolates

Nigeria Belgium China

Gross Exports (X) of intermediates (100)

Gross X of final goods/services (300=100

+ 200)

Value added X = 200

Value Added X = 100

An illustration of the GVCs: Nutella chocolate ECA

Source : C. Degain and V. Kummritz. WTO-Chair Workshop on GVCs and TiVA (2017)

Basic concepts in trade, GVCs/RVCs ECA

Backward linkages: import of foreign inputs to produce goods/services for export

Forward linkages : exports of intermediates/inputs to GVC partners to produce their goods and services for exports

African countries GVC participation by sector, backward and forward integration, 2011

Source : UNECA, Economic Report on Africa 2015

Why do GVCs/RVCs matter ? ECA

• GVCs/RVCs weight on trade policy space

• US-China “trade war”

• Soft versus hard Brexit

• Free trade areas and their implications for economies

• GVCs/RVCs/trade/labors nexus

• Labor markets competition across countries worldwide

• Political pressure in advanced economies;

• Finer division of labor by firms, countries, regions

•Competition, business profitability, etc.

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Case of trade policy space : the

African Continental Free Trade Area

(AfCFTA)

Picture from 2018 Africa Trade Forum concluded in Lagos, Nigeria

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Chart TitleCase of trade policy space : AfCFTA ECA

• African economies are fragmented : difficulties to build

competitive productive capacities and RVCs

• 22 African countries have populations under 10m

• Trade frustrated by more than 100 unique land borders

between 54 countries

• AfCFTA to consolidates Africa into $2.3tr market of

1.3bn people and to allow scale economies, improved

competition, lower business costs and promotion of

RVCs

African countries by population: 2015 estimates

Case of trade policy space : AfCFTA ECA

• AfCFTA Scope : trade in goods and services, investment, intellectual property rights, competition policies

• Removal of non-tariff barriers, including burdensome customs procedures or excessive paperwork for traders and Cooperation between customs authorities ;

• Progressive liberalization of services;

• Easing of trade (for both inputs and outputs) and services to facilitate the establishment of RVCs;

• Private sector to access trade remedies strategic domestic industries can be safeguarded;

• Dispute settlement mechanism for the resolution of any disputes that may arise between State Parties of the AfCFTA agreement;

• Integrated markets to boost trade and industrialization --- addressing fragmentation of African economies and creation of RVCs/ Better integration to GVCs

AfCFTA scope… trade in goods, services… ECA

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Role of Services sector in GVCs/RVCs

Role of services sector ECA

Source : C. Degain and V. Kummritz. WTO-Chair Workshop on GVCs and TiVA (2017)

Dynamic services sector : critical for the success of Africa’s behind the border Agenda

Categorization of services in the modern

productive systems ECA

Standalone Services --- Embodied Services ---Embedded Services

Standalone Services

Services that are offered independently, or which constitute the main core of a productive structure.

Embodied services

Services inputs consumed as intermediates in the production of final goods or services

Embedded services

Non standalone services that can only be used in conjunction with a manufactured goods (but not embodied : their value is not typically included in the value of good)

“Servicification” of production systems (for goods and services)

E.g: Financial services used by a manufacturer to sources inputs; transport services: a manufacturer uses domestic and international transport links to ship their goods to consumers.

Example : apps or software that can be purchased and used on a personal electronic device;

E.g: a Bank which provides loans to

consumers; a restaurant, which offers diners hospitality services

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Project on Services Trade : an

overview

SERVICES TRADE IN AFRICA

Why a Project on Services Trade ? ECA

• Services are an important category of economic activity and trade, as well as critical enablers for trade in goods

• Services constitute increasingly important inputs for global and regional value chains and are thus key for benefiting from global trade

• Services foster inclusiveness (services are strong employment generators, create an enabling environment, enable better access)

• Address data gaps in services sector to assess its contribution and maximise its full potential

• Specific countries requests

Why a Project on Services Trade ? ECA

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Ethiopia Gambia, The Kenya Mali Nigeria Togo

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Country

Services Employment % Total Services % GDP Services Trade % GDP

Services employment as a percent of total employment, services value added as a

percent of GDP, and services trade relative to GDP, project countries, 2014.

Why a Project on Services Trade ? ECA

Financial sector’s contribution (direct) to GDP in Nigeria …

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Overview ECA

Donor: UN Development Account

Implementing agencies: UNCTAD and UNECA

Project countries: Ethiopia, Gambia, Kenya, Mali, Nigeria, Togo

Duration of project: 2018-2021

National Implementing partners for Nigeria : Federal Ministry of Industry, Trade and Investment and the Bank of Industry

Country Focal person : Mr Leonard Kange, General Manager, Large Enterprises– Bank of Industry, Nigeria

National Consultant (project lead): Ms Chinwe Egwim, Economist & Project Lead for Nigeria

Value of the project ECA

•Measuring regional services value chains

• Use of input-output tables (from national statistical offices and international data sources)

•Use of surveys to compile data

•Analysing selected RVCs (financial services sector in Nigeria) and developing action plans for better integration into GVCs/RVCs --- maximise the full potential of the private sector

•Strengthen linkages and reduce leakages

Measuring the value added contribution of financial services sector

How much content is domestic and how much is foreign value added ?

How strong are the linkages within financial sub-sectors and between financial sector and other economic sectors (or sub-sectors) at national and regional levels ?

How can the target countries further develop their financial sectors to position themselves as regional hubs while learning from success stories ?

TransportFinancial

serv.

Trade

Dom. VA

Foreign VA

Dom. VA

Foreign VA

Agriculture

Dom. VA

Foreign VA

Manufact.

Dom. VA

Foreign VA

Dom. VA

Foreign VA

Focus on Financial services Sector

In country activities ECA

Quantitative and qualitative analysis of regional value

chains in services (selected services sector)

National capacity building activities on the contribution

of services to regional value chains

Measurement and analysis of specific services RVCs

National seminar and advisory services to develop

action plan to design and implement policies which

promote integration into value chains and fully benefit

the private sector

Borderless Activities ECA

Online knowledge sharing platform to exchange

experiences, lessons learned and best practices on

measuring and analysing services value chains

Guidebook on best practices and experiences in

services value chains analysis in Africa (documenting

experiences from project)

THANK YOU!

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