UNCTAD Reports Developing Countries Score Big in Global Value Chains

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The United Nations Conference on Trade and Development (UNCTAD) issued a report on February 27 that will be of great interest to all trading and producer nations, particularly to developing nations that are exercising themselves about resource nationalism, adding value to supply chains, and beneficiation of ore and raw materials. It will be of equal interest to developed nations that work and trade with the developing segment.

It says that the value chains administered by transnational corporations (TNCs) now account for 80% of the $20 trillion in annual trade, and that the developing countries' share of value-added trade is growing rapidly. The global value chains (GVCs) offer opportunities for poor countries to gain access to international markets, just as they offer opportunities for statistical confusion to economists, the report notes.

The report, titled "GVCs and Development: Investment and Value-Added Trade in the Global Economy," covers the ever-more complicated web of investment and trade, by which raw materials extracted in one country may be exported to a second country for processing, then exported again to a manufacturing plant in a third country, which may then export to a fourth country for final consumption.

The relentless zigzagging of goods and services across borders as they are upgraded means that some 28% of the value of this trade, or about $5 trillion, is overstated through double counting. The export value of copper ore extracted in one country, for example, counts once as a contribution to that country's GDP, but then is counted again--possibly several times--as it progresses from raw to upgraded to finished good as it is exported after processing by other countries.

Among other findings reported:

• While the share of services in gross exports worldwide is only about 20%, almost half (46%) of value added in exports is contributed by service sector activities, as most manufacturing exports require services such as engineering, software development and marketing in production. More than 60% of foreign direct investment (FDI) is channeled to services activities, with only 26% going to manufacturing and 7% to primary goods.
• The developing countries' share (including the poorest) in global value-added trade increased from 20% in 1990 to 30% in 2000, to more than 40% today, with TNCs playing a crucial role.
• GVC links in developing countries can play an important role in economic growth, where value-added trade contributes some 28% to countries' GDPs on average. Countries with the fastest-growing GVC participation have GDP per capita growth rates some 2% above average.
• Developing countries can use various GVC development paths, including engaging, upgrading, leapfrogging and competing via GVCs.

"Global value chains are everywhere," said UNCTAD Secretary General Supachai Panitchpakdi. "They show that investment and trade are two sides of the same coin. Policymakers have to take into account both sides when thinking about economic growth and development."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.