By Ahmed Ndyeshobola and Donald Mmari
Baseline definitions on productive capacities and productivity growth from the relevant multilateral agencies:
Productive capacities develop within a country through four closely interrelated processes: capital accumulation, technological progress, management and structural change.
Towards the productivity frontier—the promise of GVCs & RVCs participation
Higher global value chains (GVCs) and regional value chains (RVCs) participation—forward and backward participation associated with increased exports and imports of intermediate goods—, provides positive spill-overs to the economy.
The positive impacts are stronger for countries that are further from the productivity frontier. Participation in GVCs and RVCs may boost the productive capacity of local firms through several channels:
Several countries—Lesotho, Eswatini (formerly Swaziland), Tanzania, and Mauritius (in that order)—have the SADC region’s largest shares of foreign value added (imported goods used to produce intermediate or final goods for export) in light of their relatively large shares of imports for exporting textile and apparel products.
These and several other countries have succeeded in joining the textile manufacturing GVCs because of the preferential trade access—mainly the AGOA—that is exclusive to Sub-Saharan African countries.
More recently, several Eastern African economies (including Ethiopia, Kenya, and Tanzania) have raised their GVC participation in agro-industries and manufacturing exports—signalling the potential for participation in GVCs for other economies in the region.
Promotion of GVC and RVC participation is, therefore, a policy that Tanzania and other developing countries’ policy makers should consider as an instrument for enhancing productive capacities through capital accumulation, technology diffusion, and expansive access to regional and global markets.
These are essential for the sustained success of the country’s export-led growth strategy.
The promise of trade in services in strengthening RVCS and GVCS participation
Services are essential intermediaries in facilitating transactions and businesses, and in integrating producers and consumers through RVCs and GVCs, in addition to serving as inputs in the production processes. Services such as finance, transportation, energy, telecommunications, legal counsel, and distribution do foster productivity in manufacturing, goods trade and the overall economy—and, in doing so, improve a country’s competitiveness and economic status relative to the rest of the world.
Services also provide a mechanism for diffusing production innovations and technology spill-overs. The competitiveness of manufacturing firms relies in part on access to low-cost, high quality producer services—telecommunications, transportation, and distribution services—as well as on financial intermediation. Services are thus a vital input into the goods trade—the forward and backward participation in RVCs and GVCs.
Moreover, such services support the overall economy and effective forward and backward participation in the RVCs and GVCs in the following several ways:
In sum, the ability of firms to effectively participate in the RVCs and GVCs also depends on their access to telecommunications, transportation, financial services, and other business services such as accounting and legal services.
Not to mention that, conversely, high-cost, low-quality services act as a tax on the business community and especially the exporters. Services are thus a vital input into the goods trade.
The value added for policymakers of a focus on enhancing productive capacities
Governments seeking to sustainably enhance the growth of productivity capacities and effective participation in the RVCs and GVCs can:
Conclusion and policy recommendation
The enhancement of productive capacities of a country constitutes a potentiality for industrial and trade expansion and effective participation in the regional and global value chains.
Productive resources, entrepreneurial capabilities and production linkages are created and transformed over time through, inter alia, the country’s effective participation in the RVCs and GVCs.
As this occurs sustainably, the productivity capacities of an economy are also sustainably enhanced, thus making economic growth, industrial and trade expansion possible and sustainable.
It is recommended that this framework of analysis is adapted to inform policy analysts, private sector practitioners, and decision makers in public institutions responsible for promoting economic growth, industrial development, investments, trade expansion, and private sector development.
It is the ability of these actors to effectively address the various constraints to productivity growth that Tanzania can sustain its growth momentum, realize its development potential, sustain is competitiveness in the regional and global markets, and achieve significant poverty reduction.