Industrialization and Global Value Chains in Guinea-Bissau |

Written by: Editorial Team on July 28, 2014.G

enerally speaking, Guinea-Bissau is only weakly integrated into global value chains GVCs. With an industrial and commercial fabric that is structurally underdeveloped, the production of goods and services in the country contributes little value added. Industrially, after significant growth in recent years pushed value added in manufacturing up from 8.8% of GDP in 2002 to 13% in 2005, this share fell to 11.7% of GDP in 2012. Apart from the low levels of value added, the industrial sector represents only a tiny portion of the country’s exports less than 5% of total exports, with a trivial amount of FDI supporting its development. This final point is partly linked to Guinea-Bissau’s political instability in recent decades, as well as to a lack of the infrastructure needed for production. Similarly, extractive resources are scarce, with no prospects for the short or medium term.The only sector which can claim to be integrated into GVCs is that of the cashew nut. Guinea- Bissau is indeed a major producer: in 2013, cashew nut production amounted to 150 000 tons 16% of total African production, accounting for 11.9% of the country’s GDP and 87.7% of its exports. Less than 5% of the cashews produced are processed in Guinea-Bissau, however; the rest is exported raw, mainly to India more than 80%, where it is mixed with local production or that imported from other countries and processed. In order to capitalize on this resource, in 2011 the government created a fund to promote the industrialization of agricultural products FUNPI to encourage processing, research and development. This fund is financed by an export levy that has fluctuated between XOF 10 and XOF 50 per kilo several times since its implementation. The government collected the equivalent of 2.1% of GDP from the FUNPI, but this has yet to be employed in such a way that it effectively contributes to the sector.In addition to the cashew nut, the agricultural and agri-food sectors have great potential. Guinea-Bissau enjoys an abundance of natural resources with good quality land, extensive biodiversity, significant fishing resources and ample rainfall, receiving an average of 1 500 to 1 900 mm over 112 days. Productivity nonetheless remains weak with low yields around 1.7 tons per hectare for rice and 0.8 tons per hectare for millet and sorghum. The use of these resources has not led to economic progress that matches the existing potential, due to a lack of hydro-agricultural improvements, inputs and infrastructure to support production. In addition, the land law approved in 1998 has been only partially implemented, preventing the sector from developing. The annual grain requirement exceeds annual production by 100 000 tons, the gap mainly being plugged with rice imports. In addition, political instability and logistical problems have slowed agri-food investments. There are only a few isolated cases of foreign investors, mainly involved in rice cultivation production and processing and in horticulture in the Bafatá region.There are several main obstacles preventing Guinea-Bissau’s integration into GVCs. First, the political situation over the past 20 years has hindered investment. The country has inherited an unfavorable business environment, heavy regulatory burdens and obsolete physical infrastructure. In addition, the general lack of resources has prevented Guinea-Bissau from gaining any competitive advantage in terms of the workforce – by investing in training, for example – or from stimulating research and development so that it might benefit from the favorable regional trade policies in the WAEMU area.Successive governments have drawn up a variety of sectoral policies with a view to boosting production levels and attracting investment that could potentially promote the integration of the country’s production base into GVCs. These strategies have been interrupted a number of times, however, due to a lack of resources for their implementation. Overall, these strategies are set out in the poverty reduction strategy paper, which advocates: i strengthening the rule of law and greater security for investors; ii a stable macroeconomic environment to guarantee a framework for growth; iii promoting inclusive and sustainable economic development to support growth sectors; iv improving human capital, thus boosting levels of production and of productivity. These are the conditions that will allow sectoral policies, in particular for cashew nuts, to bring about successful participation in GVCs.Excerpt from Guinea-Bissau Country Note, African Economic Outlook 2014Post Published: 28 July 2014

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