Infrastructure Development

The large economies and the relatively industrialized economies in the region can institute policies to drive investments in technology and capitalintensive sectors. Small economies and economies with weak industrial bases can leverage low costs and proximity to large regional markets to build capacity in specialized GVC niches in the context of a regional production system (Gereffi 2014). Such a negotiated system would not only resolve the issue of coordination failures but also help build domestic industrial capacity according to each country’s comparative advantage and productive capacity. For this system to be successful, the region should negotiate as a unit, as well as invest in connectivity and infrastructure (Odijie 2018; Oqubay 2019).

Infrastructure Development

Reducing Overall Trade Costs

The quality of infrastructure is a key factor in determining how GVC participation affects economic upgrading because infrastructure can influence the predictability, reliability, and timeliness of GVCs (WEF 2013). Many countries are unable to integrate into GVCs because low-quality infrastructure makes them unable to meet the requirements for timely production and delivery. For example, slow and unpredictable land transport has kept most of Sub-Saharan Africa out of GVCs for electronics and fruits and vegetables (Arvis, Marteau, and Raballand 2010; Christ and Ferrantino 2011).

Studies suggest that reducing trade barriers such as border administration, transport and communications infrastructure, and related services would have a greater impact on trade and growth of gross domestic product (GDP) than the complete elimination of tariffs (World Bank 2020). Transport costs in developing countries remain the main obstacle to entering, establishing, or moving up in GVCs (OECD and WTO 2013). For example, port congestion and access to rail and port services are critical factors for GVC competitiveness among countries in the Southern African Customs Union (Farole 2016).

Improving the quality of infrastructure and promoting international connectivity, therefore, would enhance forward and backward links within GVCs by securing the flow and lowering the costs of inputs and outputs, increasing speed, and minimizing uncertainty. Higher-quality infrastructure and better connectivity at the border would have a positive impact on GVC integration as well as on GVC upgrading. Policies pertaining to infrastructure investments and operations should be a critical part of any industrial policy strategy (Kummritz, Taglioni, and Winkler 2017).