By Deiniol Brown
Dr Elvis Avenyo is an Associate Professor of Development Economics at the DSI/NRF South African Research Chair in Industrial Development at the University of Johannesburg. Dr Avenyo’s research focuses on the topics of innovation, technologies, industrial development, value chains and green industrialisation in developing countries. He has previously held posts as a research officer at the Technology and Management Centre for Development (now the Technology and Industrialisation for Development Centre) at the University of Oxford’s Department of International Development, and as a senior researcher at the Centre for Competition, Regulation and Economic Development at the University of Johannesburg. In this interview, we discussed Dr Avenyo’s research on innovation and global value chains in African countries and their implication for development strategies, as well as the changing politics surrounding value chains and the new industrial development agenda.
What are the implications of your research on the positive relationship between innovation and exporting in Africa for theories of development?
In this publication which I co-authored with Fiona Tregenna, we revisited the literature concerning the relationship between innovation and exports, focusing on countries that are not at the frontier of innovation but are highly integrated in the export market. African countries are integrated at the lower levels of global value chains, exporting mostly low-value primary goods. However, there is literature demonstrating that there is incremental innovation underway on the continent in these activities, and we wanted to re-examine the bi-directional relationship between innovation and exports in African firms. Our research demonstrated that there is a two-way relationship in which innovation enables firms to ‘learn to export’, while firms also ‘learn by exporting’.
This means that countries that trade in low value-added commodities, but that also introduce incremental innovation, improve their export competitiveness, implying that African economies need to engage in both activities to ensure development. This conforms with the broader literature on development, that innovation and international competitiveness are linked.
In another article you state that global value chains are important for ‘solving resource constraints’ as well as ‘knowledge diffusion’. How central are these two respective factors?
This is the paper ‘Global Value Chains and the Innovativeness of Firms in Africa’ which I co-authored with Gideon Ndubuisi, Emmanuel Mensah and Daniel Sakyi, which also discusses the dynamics between global value chains and innovation in Africa. The importance of these two factors is down to two main mechanisms; the provision of intermediate inputs for production that GVCs bring to drive innovation, and GVCs as a conduit for knowledge and technology transfers. In GVCs, we have seen how knowledge, technology and even practices around quality assurance and environment are passed down the chain. We also see how lead firms tend to drive innovations by improving the standards of the firms lower down the chain and inducing their innovativeness. This, more than the mere input provision, allows for the upgrading of firms in the GVC.
What are the trade-offs for African firms pursuing integration with GVCs? Do states end up surrendering their control over their resources?
The success of the Asian tigers has demonstrated that economies’ abilities to integrate in GVCs and export contributed to the development of these economies. The literature indicates that these Asian tigers followed the ‘in-out-in’ strategy, where states integrate in GVCs for economic growth, then exit their market position and build greater domestic capabilities, and then re-enter the GVC at a higher level.
What we have seen in African states is that there is more of a forward linkage than a backward linkage in terms of their integration in GVCs. That is, African countries have so far been integrated at the lowest level of the GVC, exporting primary commodities, which are generally low in price, volatile, and don’t develop the productive capabilities of the states. This has been twinned with the influx of low-cost manufactured goods from countries like China with large economies of scale, which has undermined the production of low-cost manufacturing goods in these countries. Therefore, we have seen a large amount of African states’ manufacturing capabilities being decimated, and the remaining manufacturing capacity becoming almost ‘warehouses’ for imported manufactured goods.
There has been a lot of discussion about how these deindustrialising states can (re)industrialise and combat this trend. One suggestion is that African states need to increase intra-regional trade of goods, but this is an issue because most African states produce and export the similar goods. Another suggestion is that some countries that already have manufacturing capabilities, such as South Africa, become regional hubs for manufacturing to drive intra-regional trade. There are lots of barriers to this, such as political conflicts between states, and the question of distributing growth across the region. Despite this, there is increasing recognition of the need to industrialise, and for countries to collaborate more and leverage their comparative advantages to foster industrialisation, trade and the prosperity of their citizens.
How would a regionally coordinated development project be achieved?
I think the African Continental Free Trade Agreement (AfCFTA) is a step in the right direction for solving these issues. We know that African countries trade more with other countries than with themselves, and there are conversations about how to reverse these trade patterns through improving regional trade. For example, if we look at cocoa, with production dominated by Ghana and Cote d’Ivoire who largely export their raw cocoa beans largely to Europe. The regional development agenda would be look to reroute this exports to countries like South Africa and Egypt which have the capacity to manufacture and export chocolate.
The AfCFTA is looking to foster regional trade, but we know that these states are still sovereign, and that the initiative will need to be taken by individual states on a bilateral or regional basis to properly pursue this. Fundamentally we need a multi-pronged approach, with the regional level harmonising things like trade tariffs and financial platforms, and the national level working to realise these opportunities on a win-win basis. This project also has a moral aspect to it – countries fundamentally need to pursue an inclusive development plan which will improve standards and outcomes across the region, not just for one state or firm.
How feasible do you think your suggestion of a ‘regional approach’ to developing the solar industry in Africa is? And if African states partnered with an external state, who would it be in the current environment?
This is a working paper with Gideon Ndubuisi. Firstly, a key point to underscore is that African states currently contribute only about 4% of global emissions, so switching to green energy is not necessarily their first priority. However, this industry is important because of the mineral resources African states have and the opportunity they have to leverage these minerals for industrial development.
In this paper, we argued that African states that are looking to develop a solar manufacturing industry don’t currently have the comparative advantage (mineral and technology). However, the continent has a lot of sun. Instead, what African states could do is strategically partner with China to import solar PVs, and develop the domestic capabilities to assemble and install them to generate solar energy. This would not only address the energy poverty in much of the African continent, but could also foster solar energy driven industrial development through a regionalized solar PV industrial strategy.
How has the instability and polarisation of the global economy in recent years impacted Africa’s regional economy and its relationship with different economic blocs?
I think that covid revealed the high level of instability surrounding GVCs, and how they can be easily disrupted. Trump’s tariff scheme is hoping to rearrange a whole host of GVCs and bring manufacturing back to the US; whereas before it was more about friend-shoring and near-shoring, from China to Vietnam to Bangladesh.
Another important point is that most African countries now trade more with China than the US, although the US remains an important trading partner for many. There will be impacts for sure, but it’s currently too short-term to know the full impact that they will have, however we can imagine that exports to the US will heavily fall, and African economies will need to look for emerging markets elsewhere.
These dynamics have threatened the traditional logic of export-driven development and GVC-led growth, and states need to look regionally to source and produce goods without reliance on these global networks.
Do you think that African states will be able to come together regionally or will they be forced to align with extra-regional strategic partners like the US, Europe and China for economic collaboration?
I think that the regional approach is very important for mobility, for harmonisation of policies and for the African Union Agenda 2063. At all levels, the pan-African perspective is existential, but at the same time each country is a sovereign state and bilateral discussions are underway as states look to solve their economic issues short-term. In the long term, we need to move towards a more harmonised industrial development and trade strategy. There will always be benefits to bilateral cooperation, and many states have ties to partners outside of Africa, due to colonisation for instance, and this impacts how African states do business, but we need to overcome this and work regionally in order to pursue regional industrial development, obtain value from trade and generate wealth for Africa.
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