STATEMENT BY HIS EXCELLENCY YOWERI KAGUTA MUSEVENI AT CHOGM BUSINESS FORUM
HIS EXCELLENCY YOWERI KAGUTA MUSEVENI
PRESIDENT OF THE REPUBLIC OF UGANDA
RT.HON. REBECCA KADAGA
AT THE COMMONWEALTH BUSINESS FORUM
THEME: ECOSYSTEMS: REDESIGNING GLOBAL VALUE CHAINS IN A POST COVID WORLD
JUNE 22, 2022.06.23
INTARE CONFERENCE ARENA
His Royal Highness Prince Charles (representing Her Majesty the Queen)
Your Excellency President Paul Kagame, President of the Republic of Rwanda,
Excellencies, the Presidents and Heads of Government,
Distinguished Business Leaders,
Ladies and Gentlemen,
The day’s session is titled “Ecosystems: Redesigning Global Value Chains in a post –Covid World.”
I would like to introduce an economic ecosystem as a dynamically stable network of interconnected firms and institutions within a bounded geographical space. Suppose you take Regional economic networks as ‘ecosystems’. In that case, you assess the advantages gained from belonging to a region or regional grouping, the role of entrepreneurs in regional development, and the determinants of resilience in regional economic systems. We can frame regional economic change in terms of ecosystem dynamics, with reference to ecologically derived concepts of succession, speciation, diversity, resilience, and adaptation.
We have for long, lived with the Global Value Chains (GVCs), seeing the international production sharing, where production is broken into activities and tasks carried out in different countries dating back to Adam Smith’s time.
We are witness to production becoming fragmented into networks across many locations, with implications for industrial development.
In the famed example attributed to Smith, the production of a pin was divided into a number of distinct operations inside a factory, each performed by a dedicated worker. In GVCs, the processes are spread across national borders (instead of being confined to the same location), and the products made are much more complex than a pin.
In the Global value chain, we see a full range of activities (design, production, marketing, distribution and support to the final consumer, etc.) that are divided among multiple firms and workers across geographic spaces to bring a product from its conception to its end use and beyond. Cross-border production has been made possible by the liberalization of trade and investment, lower transport costs, advances in information and communication technology, and innovations in logistics (e.g. containerization). While cross-border production may not be new, it has expanded rapidly in many industries in recent decades. This development has primarily been driven by transnational corporations (TNCs) in industrialized economies, which continuously restructure their businesses and reorganize/ relocate their operations for reasons of competition. We have also witnessed situations where the procurement of material inputs or services by a firm from another, the outside supplier being located in another country in the case of international outsourcing.
Countries can participate in GVCs by engaging in either backward or forward linkages. Backward linkages are created when country A uses inputs from country B for domestic production.
Products cross several borders in GVCs in different stages of production before they are turned into final goods. As such, trade in intermediate goods, which require further processing and are used as inputs for production – is often used as a proxy measure of GVCs. Since 1995, intermediate manufacturers have consistently accounted for around half of manufactured exports and imports globally, providing evidence of the existence of GVC trade.
Covid-19 pandemic, however, disrupted the GVC, adversely affecting the World economy and reversing the hard earned economic gains. In the thick of events, we recall that Governments across the World adopted mobility restrictions that have continued in one form or another as an alternative to containing the virus.
However, these restrictions further stimulated serious ramifications on the complex production-sharing literally referred to as Global Value Chains. It also became a stack reminder of the vulnerabilities associated with these global value chains. We saw countries coming up with vaccine nationalism tendencies to try to serve their people before others. African countries could not access the Vaccines, and they had to go through the EU, particularly the Covax Facility and other countries that bilaterally donated to us. Uganda could not be able to place an order even if we had the money! It created a dependency on those ready to donate!
Uganda as a country realized the need to be creative and innovative. The vaccine Nationalism sort of awakened us to stop dependency on outside pharmaceuticals. When Uganda could not get even the Sanitizer and face masks from China and elsewhere, we turned our industries producing alcohol to produce Sanitizers that we sold in the region. Equally, we started to make face masks. Uganda also begun to produce therapeutics like Covidex and others that helped many people heal very fast. We recalled age-old cures that kept our forefathers disease-free and the need to give them attention.
Moreover, Uganda started efforts to produce her own Vaccine. But in this process, we found the Global value chains were not helpful. Because the researchers soon found they needed cells from Green monkeys to grow the virus but found problems accessing the raw material which those that had gotten the cells and multiplied them were not ready to share. We eventually got them and proceeded but soon also found that it was impossible to get some reagents which we eventually got and proceeded. Therefore, we are encouraging our regional scientists to work together and create a united front. We, therefore, request the whole of the Commonwealth to find a way of working together in this and to help encourage regional approaches in this regard as the Commonwealth.
The persistent uncertainty related to the shift of the epicentre of the pandemic from region to region, and the parallel instability affecting production costs, further exacerbated the situation, making it difficult to resume business on a global scale, leading many firms to reduce or stall their production activities.
At the same time, temporary surges of demand for certain critical commodities have not been met by increased supply since, under the current model, dramatic changes in the scale of production might not be easily absorbed after a return to normality.
This notwithstanding, harnessing the full potential of international trade for LDC’s Uganda inclusive faces considerable challenges, as is witnessed in the uneven distribution of gains from GVC and foreign investment. This has primarily been propagated by inter-alia Commodity Dependency of these countries, and even those in manufacturing or services have remained tied to the lower value-added activities.
Furthermore, supply chain and travel disruptions caused by COVID-19 have potentially undermined economic integration and encouraged self-sufficient economic systems, at least in strategic sectors such as medical equipment and drugs or the production of inputs for assembling sophisticated machines, the final production of which still occurs in high-wage countries. This tendency is reflected in the growing number of temporary export bans and restrictions on critical goods enacted by numerous countries after the outbreak.
It does not come as a surprise, therefore, that most analysts concur that the current pandemic will reinforce relocation and reshoring trends.
How do we redesign the ecosystem to build resilience for equitable and fair distribution?
GVCs have proven resilient and will play a significant role in the recovery. In addition, they have played a vital role in producing personal protective equipment and vaccine components as COVID-19 recedes. But shall require a fit-for-purpose re-modification to bring about the prosperity of those countries in most need without leaving anyone behind. Some of the solutions to this end shall include:
1.Reinvigorating a trading system that serves and improves the lives of everyone and ensures that everyone gets a fair share from trade. As stated in the Global Value Chain Development Report 2021: Beyond production, understanding where value is created in these chains and how it is distributed among participants is central to ensuring fair distribution since small-scale farmers in developing economies are connected to multinational corporations and consumers in advanced economies by GVC.
2.Addressing the Digital Divide. The physical distancing policies brought to the fore the role of the Digital economy anchored on new ICT development platforms have boosted the participation of MSMEs, developing countries and other players. Search engines such as google and market places including Alibaba, Jumia etc. and application platforms such as android have scaled the connection of business, consumers and suppliers. UNCTAD 2021 placed the estimated value of online shopping, facilitated by a number of these platforms to steadily having grown in recent years, at $26.7 trillion in 2019 or some 30% of global gross domestic product. Digital platforms further reduce time and financial costs providing an enabling environment. Moving forward, we should prioritize investment in ICT and skills development to harness this potential.
3.Structural transformation and building of productive capacities to fully harness the linkages in manufacturing, services and Agriculture. That is to say, strive to move from lower manufacturing activities to the next level as a country. This also calls for investing in infrastructure such as energy and transport network. For example, facilitating rail interconnectivity from Cape to Cairo and West Africa to Kinshasa on top of accessible and cheaper energy is set to reduce business costs.
4.Access to markets and doing away with NTBs. Building regional economic blocks to expand market outreach, such as EAC, COMESA, and SADC are pragmatic solutions to promote intra-Africa trade, including import substitution and forging acceptable standards. The concept of the Africa Continental Free Market Area (AfCFTA) is premised on a more significant market and trade on the continent. It offers a good bargaining ground for future economic negotiations, in this case, with the external World. UNCTAD estimates AfCFTA to bring in 16 billion dollars in its first year of initiation.
The global response to climate change has also created challenges for low- and middle-income countries. As high-income nations implement policies to reduce carbon emissions, less developed economies dependent on carbon-intensive GVCs will have to adapt quickly. The EU’s Green Deal, for example, could result in a 75 per cent reduction in coal imports.
As I conclude, I wish to state that Global Value Chains have played an essential role in driving recovery from the Covid-19 induced global trade collapse.
It is also true that many high-income countries, including China, are realizing the need to reshoring production. Still, this approach is likely to hurt both advanced and developing economies alike and this might push further many into extreme poverty by 2030. Yet, on the other hand, if trade costs are lowered, over 200 million people will be lifted out of this extreme poverty.
Therefore, there is a need to redesign the global value chains in post-Covid19 to address the challenges identified. The Commonwealth forum could be the starting point in these efforts. We need to make these Global Value Chains work for all of us. The Commonwealth could help spur an industrial revolution among its members; while some parts of the World are on the verge of the 4th Industrial Revolution, many parts of Africa have not yet entered the 1st Industrial revolution. Hence, we cannot relate well to the Global value chains. Let’s have a win-win for all by adopting the best approaches to deliver the best rewards.
I thank you!
YOWERI K MUSEVENI
P R E S I D E N T