africa

Africa at a Fork in the Road: Taking Off or Disappointment Once Again?
• Other incentives: These include the granting of offshore status to foreign investors
or firms participating in value chains; tax cuts; reduced administrative or legal
constraints; or special customs procedures. Some 60 percent of the developingcountry-government
respondents to the OECD-WTO survey noted that they used
export processing zones (EPZs) as a policy tool, with these EPZs accounting
for more than 40 percent of their countries’ exports by value. Investment and tax
incentives are an important factor in sourcing or investment decisions for about
one third of the lead firms in the different sectors covered by the survey.
16.3.1.4 Fostering innovation, workforce development, and production capacity
A country that connects to value chains on the sole basis of its low production costs
risks falling into the “middle-income trap” once its salaries adjust and its competitors
can offer a better deal. To achieve sustainable participation in value chains calls for
adaptability to the lead firms’ requests, responsiveness, and capacity to innovate.
Workforce development and innovation capacity are essential to remain competitive
and move up the value chain.
16.3.2 Building capacities through participation in GVCs
Participation in GVCs is potentially a source of important transfers from lead firms
to suppliers along the value chain. Such transfers benefit the functioning of a specific
value chain but also have spillover effects. For example, the construction of a
road or an electrical plant to service a specific production facility also benefits other
users of the infrastructure (Kurtz and Schmidkonz, 2005). Multinational companies
sometimes invest in public goods such as road safety, education, or anti-corruption
to improve the overall business environment in the country. Companies involved in
such capacity building efforts primarily do so because it serves their core business
strategy (61 percent of the lead firms surveyed) or their corporate social responsibility
principles (46 percent of the lead firms surveyed) (OECD-WTO, 2013b). These
transfers and spillover effects contribute to reducing the cost of capacity building
and development that is usually borne by the local government and firms. They
should be therefore encouraged by the government, whether or not they are linked
to foreign direct investment.
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