Regional value chains in East Africa

Since the mid-1990's, many East African countries have enjoyed relatively high economic growth rates and made substantial progress in poverty reduction. Nevertheless, firm productivity remains low across sectors, and the region remains highly dependent upon foreign aid as a source of foreign exchange. Trade flows remain low in East Africa relative to other world regions, and the process of industrialisation has seemingly stagnated or even reversed since the 1980's. Most of the region's exports take the form of raw materials sent on to industrialised countries in global markets; exports of manufactured goods and intra-regional trade remain limited. Therefore, in spite of current optimism, it is not certain that East Africa will continue to grow without substantial transformations in regional networks of production and trade. Within this context, academics and decision-makers in the public and private sectors have considered the potential for regional integration to drive growth. However even as organisations such as the East African Community and Trademark East Africa have sought to promote greater integration, a number of obstacles remain in the realms of policy, infrastructure and productive capacity.

This project will apply the global value chain (GVC) framework in order to systematically identify these opportunities and barriers, as well as policy responses which will maximize the benefits of regional integration, through a focus on the firm-level. Over the course of the last decade, scholars and practitioners of economic development have grown increasingly attuned to the importance of global value chains -- production networks that span multiple countries and are characterised by complex inter-firm governance - in structuring the productive economy and driving international trade at the global and regional levels. The ability firms (including small and medium-sized enterprises) to build and participate in value chains is today an important dimension of export competitiveness. Participation in global and regional value chains can also promote the upgrading of firm capabilities, as enterprises learn new technologies, skills and organisational strategies through interactions with other actors in the chain.

The proposed research project will use the GVC framework to understand the role of East African firms within regional value chains and the opportunities and constraints that firms face in participating and upgrading their positions in regional chains. Given that governance structures, regulations and production technologies differ substantially across industries, this project will focus on three key value chains in different major sectors, one each from the agricultural, manufacturing and service sectors. The research will be guided by the following research questions:

1. 1. What capabilities (cost thresholds, ability to meet particular standards, access to finance, access to particular technologies, among others) are necessary conditions for firms to compete within key segments of the selected value chains?
   2. In the three chosen industries, does foreign investment in downstream (packaging, retail), upstream (R&D, inputs), or core production activities drive increases in regional trade?
   3. What are the key barriers to regional integration for the selected value chains? What is the role for national and regional policy-makers to overcome these barriers? What is the role for leading firms in the private sector?