AFRICAN PRODUCTIVE CAPACITY INITIATIVE (APCI)

1. AFRICAN PRODUCTIVE CAPACITY INITIATIVE (APCI) A Review SADC Expert Group Meeting Johannesburg, South Africa 5-8 December 2006 Chibo Onyeji, Ph.D. UNIDO Consultant on the APCI

2. 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

3. 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)

4. 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.

5. 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.

6. Drivers of productive capacityPresent level / Upgrading potential • Skill level of workers • Infrastructure: physical, soft • Intermediate inputs availability • Available technology • Patterns of joint action • Benchmarking practice

7. Infrastructure Benchmarking Skills • Productive Capacity • Present level • Upgrading Potential Joint Action Intermediate Inputs Technology Drivers of Productive Capacity Adapted from McCormick and Kinyanjui, 2003

8. 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.

9. 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.

10. A Simple Value Chain Design and product development Infrastructure Raw materials Producer services Machiney Processing/ Manufacturing Labels & packagig Distribution Traders and other industrial users Final Consumers Source: Adapted from UNIDO 2002

11. Types of Value ChainGereffi 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.)

12. 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

13. 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

14. 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?

15. Indicators of Industrial Capacity Benchmarkscapacity 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

16. Indicators of Industrial Capability Benchmarkscapability 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

17. 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

18. Indicators of Industrial Upgrading Benchmarks • Changes over time in any or all of capacity, capability, complexity.

19. TYPES OF UPGRADINGUpgrading 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

20. DEVELOPING A PROGRAMME for CHAIN UPGRADING • Knowledge of context • Choice of chain • Chain knowledge • Knowledge of support systems

21. Developing a Programme of Chain Upgrading Chain Upgrading Programme Knowledge of Context Chain Knowledge Knowledge of Support Systems Choice Of Chain Adapted from McCormick and Atieno 2003

22. 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

23. 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

24. 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.

25. 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

26. THANK YOU!!!Chibo Onyeji, Ph.D.UNIDO Consultant on the APCI