AFRICAN PRODUCTIVE CAPACITY INITIATIVE (APCI)

A Review

SADC Expert Group MeetingJohannesburg, South Africa

5-8 December 2006

Chibo Onyeji, Ph.D. UNIDO Consultant on the APCI

Origins of the APCI

• MDGs (2000):– 1. Eradicate extreme hunger and poverty– 3. Promote gender equality and empower women– 7. Ensure environmental sustainability– 8. Develop global partnership for development

• NEPAD: common vision for robust economic growth

• CAMI-16: sub-regional meetings 2002-2003

• African Union: adopted the APCI in 2004 as the sustainable industrial development component of NEPAD

Approach of the APCI• Build an African common vision of Productive Capacity

– based on the value chain approach

• Highlight sectoral priorities as part of specific segments of the value chain

– based on comparative advantage

• Harmonize industrial policies/strategies at national/regional levels

– based on cooperation/ collaboration

• Facilitate implementation of the African Peer Review Mechanism on industrial performance/competencies

– based on benchmarking

• Suggest sub regional programmes for productive capacity upgrading

– backed by a financial facility (APCF)

WHAT IS PRODUCTIVE CAPACITY?

• The ability to– Produce goods that meet the quality

requirements of present markets;– Upgrade in order to meet the requirements

of future markets

• This ability is determined by– Productive resources, entrepreneurial skills,

production linkages, etc.

Characteristics of the APCI

• Collaborative (envisions ppp at different levels: continental, sub-regional, sectoral, individual)

• Comprehensive (develops a common African vision, harmonizes industrial strategies and policies)

• Based on the value chain concept.

Drivers of productive capacity

Present level / Upgrading potential • Skill level of workers• Infrastructure: physical, soft• Intermediate inputs availability• Available technology• Patterns of joint action• Benchmarking practice

Productive Capacity

oPresent leveloUpgrading Potential

Infrastructure

Benchmarking

Skills

Joint Action

Technology

Intermediate Inputs

Drivers of Productive Capacity

Adapted from McCormick and Kinyanjui, 2003

Influence on the Drivers• Enhancing technological diffusion and

innovation• Harnessing information and communication

technologies• Optimizing industrial energy systems• Improving human capital formation• Improving environmental protection• Building capacity for market access and

development• Reducing poverty and achieving the MDGs.

The Value Chain• A value chain is the sequence of production, or value

adding activities leading to and supporting end users of a particular product.

• The production process is simply a process of adding value, where value added is the sum of wages, profits and natural resource rents. Thus for each good sold a ‘value chain’ could be constructed as a decomposition of its price into the value added in each stage of production.

• But creating value is not confined to production alone because there is a combination of other activities that are integral to bringing products to the market.

• Value chains have a geographical dimension.

A Simple Value Chain

Design and product

development

Raw materials

Processing/

Manufacturing

Distribution

Traders and other

industrial users

Infrastructure

Producer services

Machiney

Final Consumers

Labels &

packagig

Source: Adapted from UNIDO 2002

Types of Value Chain Gereffi is credited with identifying two basic types of value chain

• buyer-driven – Large retailers, marketers, branded manufacturers

play central roles in setting up decentralized production networks (e.g., Garments, footwear, etc.)

• producer-drive– Large, usually transnational manufacturers play

central roles in coordinating production networks(capital- and technology-intensive industries e.g., automobiles, aircraft, computers, etc.)

Analytical Uses of the Value Chain

• Identify factors that influence competitiveness.

• Analyze the role of policy in enhancing or reducing chain competitiveness.

• Understand particular economic problems e.g., remuneration of workers or distribution of profits.

• Benchmarking

POLICY USES OF VALUE CHAIN ANALYSIS

• Enables us learn what can be done to increase the returns to individuals and firms

• Enables us understand the changes involved in the nature and mix of activities within each link in the chain, and in the distribution of intra-chain activities

• Enables us understand the possibilities and probabilities of upgrading productive capacities;

• BENCHMARKING

Benchmarking the Performance of

Productive Capacity The systematic use of comparisons

• Industrial capacity benchmarks– How strong is industrial capacity?

• Industrial capability benchmarks– How strong is industrial capability?

• Industrial complexity benchmarks– What is the level of complexity?

• Industrial upgrading benchmarks– What is the potential for upgrading?

Indicators of Industrial Capacity Benchmarks

capacity is the ability to perform

• Availability/reliability/cost of electricity

• Availability/quality/cost of water

• Availability/reliability/cost of communications

• Cost of key means of transport

• Availability/quality/cost of production

Indicators of Industrial Capability Benchmarks capability is the ability to operate capacity

• Average education level of workers• Workers' technical skills• Training opportunities available• Level of intellectual capital• Quality of product conformity and quality

infrastructures

Indicators of Industrial Complexity Benchmarks

• Number of producing firms• Types of products and their markets• Number of local suppliers• Number and type of distributors• Formal support organizations• Associations, sectoral networks, and other

linkages

Indicators of Industrial Upgrading Benchmarks

• Changes over time in any or all of

capacity, capability, complexity.

TYPES OF UPGRADING Upgrading replaces low-paid activities with activities that

command higher returns

• Process upgrading– Increases efficiency of internal processes

• Product upgrading– Introduces new products faster than rivals

• Functional upgrading– Increasing value added by changing the mix of activities

within the chain, or moving from low-return to high-return activities

• Chain upgrading– Moving from one chain to a new, more profitable chain

DEVELOPING A PROGRAMME for

CHAIN UPGRADING

• Knowledge of context

• Choice of chain

• Chain knowledge

• Knowledge of support systems

Chain Upgrading Programme

Chain Knowledge

Knowledge of Support Systems

Choice

Of Chain

Adapted from McCormick and Atieno 2003

Knowledge of Context

Developing a Programme of Chain UpgradingDeveloping a Programme of Chain Upgrading

SOME CAVEATS AND THE CASE FOR REGIONAL

VALUE CHAINS

• External obstacles to industrial upgrading– barriers to greater intra-regional trade– trade distorting policies: e.g., high

tariffs/subsidies to farmers– non-tariff barriers: e.g., complex rules of

origin– chain specific limitations

TO MAKE SIGNIFICANT PROGRESS TOWARD ACHIEVING

THE MDGs BY 2015• develop and cultivate ability to diversify exports, and

integrate into appropriate marketing and global production networks (supply/conformity capacity)

• comprehensive regional programmes are needed to guide the productive capacity upgrading process and actualize the APCI

• as the productive sectors necessarily benefit from new market opportunities inherent in the globalization process, the long-standing conditions of poverty and deprivation will be substantially alleviated

URGENT NEED TO MOBILIZE RESOURCES FOR

IMPLEMENTING THE APCI

• The African Productive Capacity Facility (APCF) is the funding mechanism envisioned for the APCI, dedicated to supporting regional productive capacity initiatives

• The APCF was to be endowed with €5 million from the defunct Industrial Development Decade for Africa Fund

• APCF consists of loans, loan guarantees, grants, technical assistance, fiscal measures, contributions in kind, etc.

CONCLUDING REMARKS• African countries can make significant progress in

achieving the MDGs by diversifying exports, and integrating into global production networks

• Toward these ends CAMI-16, in 2003, undertook to redirect the economic development path of Africa and agreed the APCI

• In 2004 the African Union adopted the APCI as the sustainable industrial development component of NEPAD

• The APCI is based on the value chain approach• The APCI is centered on collaboration/cooperation

including PPP at all levels• The APCI has a funding mechanism, the APCF • The APCI is evolving into the policy framework for

Africa’s industrialization effort

THANK YOU!!!

Chibo Onyeji, Ph.D.UNIDO Consultant on the APCI