Policy briefing: SMEs and GVCs in the G20: implications for Africa and developing countries

Policy briefing: SMEs and GVCs in the G20: implications for Africa and developing countries

Published Jan 2016

Authors

P. Draper, C. Pswarayi

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Increasing the participation of developing countries in global value chains (GVCs) is now an accepted G20 priority. However, there is disagreement over how multinational corporations (MNCs), which drive GVCs, can be persuaded to incorporate small and medium enterprises (SMEs) from developing countries into the GVCs they co-ordinate. The choices range from conscious industrial strategies oriented towards coercive measures designed to force MNCs to integrate SMEs into their value chains, to facilitative approaches designed to attract MNCs to invest and, over time, incorporate domestic suppliers into their value chains.

Nonetheless, there is consensus on the key constraints that inhibit the growth of SMEs in general, and their inclusion into GVCs in particular: transaction costs; access to network infrastructure; and the capacity of firms and supporting institutional arrangements. Accordingly, this brief offer a high-level framework of recommendations for G20 states’ consideration.

Recommendations:

  • transaction cost reductions: G20 states should support the ratification and implementation of the WTO TFA and capacity-building initiatives in African countries designed to help their SMEs access logistics supply chains and the host states to reduce regulatory compliance costs; and task the Financial Services Board with investigating ways to reduce trade finance costs for SMEs
  • network infrastructure establishment: Building on the outcomes of the Brisbane summit, development partners should leverage Aid for Trade and broader external funding support for infrastructure development in Africa
  • capacity to participate in GVCs: G20 states should build support mechanisms to assist African SMEs, particularly medium-sized companies with the capacity to export, to integrate into GVCs, such as helping them to build capacities to meet international standards. Support for SME representative institutions, to enable their participation in international economic governance forums, should also be prioritised

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