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China and Commodities: Does A Southern Engine of Growth Lead to Disruptive Development?

China and Commodities: Does A Southern Engine of Growth Lead to Disruptive Development?. IDC Seminar; 23 rd September 2009 Raphie Kaplinsky  Masuma Farooki Julia Tijaja Anne Terheggen  Vuyo Mjimba Zeferino Teka . The Drive to Industrialisation.

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China and Commodities: Does A Southern Engine of Growth Lead to Disruptive Development?

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  1. China and Commodities: Does A Southern Engine of Growth Lead to Disruptive Development? IDC Seminar; 23rd September 2009 Raphie Kaplinsky  Masuma Farooki Julia Tijaja Anne Terheggen  Vuyo Mjimba Zeferino Teka

  2. The Drive to Industrialisation • Close association between incomes and industrialisation • The terms of trade favour manufactures

  3. UNIDO World Industrial Development Report 2009

  4. Commodities-Manufactures Terms of Trade

  5. The Drive to Industrialisation • Close association between incomes and industrialisation • The terms of trade favour manufactures • Manufactures are (relative to agriculture) income elastic and price inelastic • Synthetic substitutes for natural products • Manufacturing embodies rents – agriculture does not • Manufacturing can be labour intensive – primary commodities are very capital intensive

  6. A Southern Driver of Growth:Challenging Development Orthodoxy? Masuma Farooki

  7. A Southern Driver of Growth • China: The Large Country Impact • Volume of Demand • International Sourcing • China: The Developing Country Impact • Resource Intensive Growth • Years to maturity

  8. A Southern Driver of Growth % Share of Costs of Minerals/Extractive Sector in Industrial Production and Per Capita Income (PPP). 2004 Source: Author’s calculations from GTAP and World Development Indicators.

  9. A Southern Driver of Growth Changing Traditional Relationships: • Income Elasticity of Demand for Commodities • Resource Intensive Growth and Higher Elasticity • Commodity Price Volatility • Active Financial Interests and Dampening of Fluctuations • The Mining Industry • Supply Inelasticity and Super Cycles

  10. A Case Study of the Cassava Industry in Thailand Julia Tijaja

  11. Outline • The Thai Cassava Value Chains • Restructuring of Markets • Implications

  12. The Thai Cassava VC (simplified) Roots Chips Native starch Modified starch Pellets Ethanol Food Non food Feed

  13. Thai Dried Cassava Exports (FRE) Calculated from TTTA Annual Report 2003 to 2008

  14. Implications • A New Market Option • Change in Nature of Demand

  15. Implication 1: A New Market Option • Cushion impact from shrinking EU market BUT • Hamper pellet market diversification • Disrupt growth of Thai chips users • Restrict input into Higher Value Subsectors

  16. Implication 2: Demand Changes • Change in Quality Specifications • Change in Standard Certification • Change in Value Added >

  17. Export unit price (by Sub-sector) Calculated from TTTA Annual Report 2003 to 2008

  18. The Tropical Timber Industry in Gabon Anne Terheggen

  19. Background • Gabon: • High GDP p.c. (USD 9,969) but poor social indicators • Exports: oil (84.4%), timber (8.3%), manganese (3.1%) • Oil-dependent, little economic diversification

  20. Background • Timber Industry: • Export-orientated industry with focus on logs (okoumé) • Among the top ten producers and exporters globally • Traditionally towards EU, now to China Source: own calculations based on FAO ForesSTAT extracted June 2009

  21. Background • Timber Industry: • State-controlled concession system • State ‘intervention’ = Forest Code Source: World Resources Institute: Interactive Forest Atlas for Gabon (2009)

  22. Relegation of EU-Standards • Buyer-specific Standards (CSFs) • Stage of processing, species variety, quality, volume, product specifications, and price • International Standards • Fewer applications and these less important (phytosanitary certificate) • Private Standards • No requirements of environmental production methods and adherence of national legislation

  23. Restructuring of Domestic Industry • Change of Ownership of Productive Assets • Influx of Chinese & Malaysian (Chinese descent) companies and traders • In addition to and replacing EU and Gabonese owned companies Source: World Resources Institute: Interactive Forest Atlas for Gabon (2009)

  24. Restructuring of Domestic Industry • Activities • Increase of intensive + extensive margin • Management ‘style’ • Easy cash vs. value-added ‘hurdle’ • Certification vs. lack of skills + capital • Slow change of attitude • Clash of (political) Interests at Given Opacity • Gabon vs. EU vs. China

  25. Making the Most of Commodities (The MMCP Programme)

  26. Making the Most of Commodities (MMCP Programme) • The Resource Curse • Dutch Disease • Corruption • Violence • Sachs-Warner • But US, Canada, Australia experience

  27. OU and UCT Programme • Sectors • Copper, diamonds, gold, offshore-oil, oil, LNG,support service sector, infrastructure • Countries • Algeria, Angola, Botswana, Nigeria, Tanzania, South Africa, Zambia,

  28. Core MMCP Hypotheses: Linkages affected by • Ownership • Employment spillovers • National Systems of Innovation • Regional links • Infrastructure • Policy

  29. The Nature And Determinants Of Linkages In A Remote Minerals Commodity Sector:A Case Study Of Gold Mining In Tanzania. Vuyo Mjimba

  30. Gold Prices Trend 1960-2008 Source: FinFacts 2009

  31. The Scene • Poverty • Royalties and Taxes • Ownership • Globalization Canada Australia South Africa Tanzania

  32. Theories • Value Chain • Outsourcing • The NSI • The Resources Curse Thesis

  33. Impact of firm strategy on upstream and down stream linkages. Themes • Firms Strategies • The Local Economy Impact of the local economy on linkages

  34. Spillovers between gold mining industry, upstream/downstream suppliers and the wider economy Questions • Spillovers • Policy Impact of policy regime upstream and downstream linkages

  35. Maintenance and Repair Services Market in Offshore Oil and Gas Upstream Industry on the West African Coast:The Chain of Labour and Rents Zeferino Teka

  36. Oil & Gas Industry Value Chain

  37. What About?

  38. KEY ISSUES Structure of the Market • Power & Governance Structure of the Market • Mapping out the value chain • Identify LEAD firms • Rules of participation

  39. KEY ISSUES Determinants of Rent, Division of Labour, & Entry Barriers 2. Procurement & Outsourcing • Criteria & incentive for outsourcing • Ownership • Inputs sourcing: local & foreign distribution • Types of contracts & distribution

  40. KEY ISSUES Status of Dynamic & Technological Capabilities 3. Upgrading & Learning • Form of chain governance • Absorptive capacity • Upgrading strategy • Knowledge producers & brokers

  41. KEY ISSUES Context Determinants 4. NSI Trajectory • Macro Policy • Meso (horizontal) Policy • Micro Policy

  42. KEY ISSUES Backward & Forward Linkages 5. Spillovers • Skills & Technology • Labour • Capital • Infrastructure

  43. Thank You

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