By Themba Mkhize
If the level of global economic uncertainty was the size of a party balloon last December, by the end of January this year it had grown to the size of a blimp. The blimp’s exaggerated size became more apparent when, wide eyed, and at the last second, we realized the intention was to perform a crash landing onto our heads. Much of the upward trend in uncertainty is directly related to the COVID-19 pandemic. However, this trend would have likely continued whether there was a pandemic or not, and forces us to reexamine our relationships with Global Value Chains (GVCs).
The effects of the Great Recession which ended in 2009 have weighed heavily on global investment and trade liberalization, and thus, on GVC expansion. The ramifications are so serious that the World Economic Forum referred to the 2010s as “the lost decade of global productivity”.
Despite the role GVCs played in stimulating global growth rates across the 1990s and 2000s, GVCs have been contending with significant downward pressures caused by global economic uncertainty. The drivers of such uncertainty include rising trade protectionism, populist leaders and their isolationist rhetoric and unpredictable policies, obscurity surrounding the trajectory of post-BREXIT United Kingdom, the US-China trade war, China-India tensions, the need for more drastic climate action and technological advancement with its potential displacement of workers.
Nobody can say exactly what the world will look like in thirty years.
In this climate, the strengthening of GVCs may be the best response to global economic uncertainty, but only if there is more predictable policymaking, a greater alignment with sustainable development goals and stronger linkages being formed between lead firms and hyper-specialized firms in multiple countries to create more efficient production systems.
The World Development Report 2020, subtitled Trading for Development in the Age of Global Value Chains, defines a GVC as a series of value adding stages in which multiple countries, sectors and businesses participate for the production of products or services for sale. Despite the potential of perpetuating global “core vs. periphery” economic dynamics, wealth inequality and environmental degradation, the report explores GVCs in such a way that meaningful productivity growth, job creation, and increased living standards are attainable for prudent stakeholders.
Jamaican and Caribbean stakeholders can unlock significant value through productivity growth, economic growth and job creation and increased standards of living if GVCs are successfully exploited.
Respected past Grace Kennedy executive, Douglas Orane, in his series “Baking a Bigger Pie rather Than Fighting over How to Slice It,” reported that Jamaica’s average labour productivity per individual employed declined by 12.76% between 1970 and 2018. In other words, the same resources spent in 1970 would have delivered 12.76% more value in the labour market than they did in 2018. This is largely because Jamaicans, while working hard, are working inefficiently and are producing products and services which are less valuable to the global economy.
Increased GVC participation can boost productivity in Jamaica, allowing Jamaica’s resources to be spent producing more valuable products and services (outputs) for resources expended (input). Jamaican businesses may use hyperspecialization – that, is the mastery and performance of specific tasks which enable the delivery of final products and services – to achieve a competitive advantage. The establishment of a logistics hub is one such opportunity which taps into the value chain of international distribution, but more traditional manufacturing industries can also be targeted.
If Jamaican firms can identify and leverage opportunities presented by GVCs, the potential benefit includes the formation of more durable firm-to-firm relationships which foster technology transfer and access to capital and inputs, making business more efficient and profitable on both sides.
Productivity growth is regarded as being closely related to economic growth and job creation. As businesses become more efficient and generate more wealth, there is more capital for expansion, distribution and then consumption. The creation of better jobs in more productive sectors as the population becomes increasingly and better educated, aligns with national and sustainable development goals – creating decent work and quality education – and will raise the living standards of an entire generation. The potential of increasing government revenues also opens the door for better education, health and social security systems which reproduce development potential.
Better integrated regional value chains present opportunities in the Caribbean context. If Caribbean governments can mobilize the CARICOM framework to enable multiple Caribbean firms to either lead the convergence onto regional and global value chains, or to support this convergence through hyperspecialization, the regional bloc would have succeeded in delivering unrivaled value to its constituent nations and the sectors within them.
Economic uncertainty can never be totally abated. In the face of uncertainty, there are also opportunities which may be shrouded by discord. Prudence becomes paramount. Jamaica has considerable economic potential, but must actively seek out opportunities and innovative approaches to ensure this potential is realized. The limitations of the domestic market restrict the amount of value and wealth which can be generated locally, and thus regional and international markets have to be targeted. GVCs offer a high potential Segway into international markets for both established businesses and MSMEs, and so must be explored and exploited in a sustainable manner to enhance the medium to long term developmental prospects where possible.
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