C HAPTER 5: E CONOMIC N ATIONALISM
5.3 Contesting Vulnerability and Climbing Value-Chains
The government has focused on processing primary commodities and capturing increasing portions of the value-chain to reduce its vulnerability to fluctuations in international commodity prices.362 Achieving value-addition makes traditional export sectors more productive and contributes to achieving self-reliance.
Hirschman (1981) described how export-oriented development could be understood in terms of linkages derived from its staple.363 Hirschman proposed three types of linkages: fiscal linkages, consumption linkages and production linkages.364
Production linkages included both forward linkages (processing commodities) and backward linkages (Producing inputs to be used in commodity production).
Literature has developed around Global Commodity Chains (GCC) and Global Value Chains (GVC). Such literature is a response to shifts in the behaviour of global capitalism. This literature identifies economic structure and behaviour in
“the core” Organisation for Economic Cooperation and Development (OECD) countries as determining the limits and potential of economic activity and change in
“the periphery” countries (Cramer 1999). Such literature is concerned with industrial
362 Diversification is an urgent priority. “Diversification has failed in the rest of Africa but it is prioritised in Rwanda because our history shows how important it is.” (Interview, Williams Nkurunziza, then High Commissioner to India, October 2011).
363 Linkages or linkage effects refer to “investment-generating forces that are set in motion, through input-output relations, when productive facilities that supply inputs to that line or utilise its outputs are inadequate or non-existent” (Hirschman 1981, 65).
364 Fiscal linkages refer to taxes that are collected from resource rents. Consumption linkages refer to the demand for other goods that is generated from the incomes earned in the commodities sector.
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Figure 5.5: Property Taxes (Million RwF): 1990-2011
Property Taxes Property Taxes (% of Total Tax Revenue)
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upgrading i.e. “a process of improving the ability of a firm to move to more
profitable and/or technologically sophisticated capital- and skill-intensive economic niches” (Gereffi 1999, 52). Upgrading fosters the creation of forward linkages and deepens backward linkages.365
A distinction is drawn between buyer-driven and producer-driven value chains (Gereffi 1994). In buyer-driven chains, retailers and marketers of the final product exert the most power because of their ability to shape consumption patterns through their brand names. In producer-driven chains, power is driven by final product manufacturers and is characteristic of capital, skill or labour intensive industries. Commodity chains are analysed through the relationship of inter-firm behaviour – particularly, in relation to how “lead firms define and manage quality”, and maintain entry barriers along the chain (Gibbon and Ponte 2005, 177). The firm is the centre of analysis and is conceptualised as the locus of activity for investment decisions where lead firms seek to maximise profitability by specialising and expanding into activities that would ensure the highest profits. Such work offers a framework to examine the power relations within these chains.
But GVC, GCC and other strands of commodity studies literature are often perceived as “fatalistic” (Cramer 1999), ignoring the importance of labour and class relations (Selwyn 2012), conflating the ‘nationality’ of African capital and its effects (Bernstein and Campling 2006) and ignoring ‘linkages’ one commodity may have with others, the multiplier effects for the rest of the economy and for state-building.
Endogenous constraints – “power-cuts and shortages of key inputs are rife, firm organisation is weak, and infrastructure is absent and unreliable” – are rarely recognised (Cramer 1999, 1249). A positive role for state intervention has been neglected in favour of what Bernstein and Campling (2006, 240) call “globalisation, and the novelties.” For example, Daviron and Ponte (2005, 246) show that the coffee sector has moved away from a “public-controlled system” to “one that is more private and buyer-dominated” where few players control the bulk of international trade and roasting. National coffee agencies have been suppressed and local actors are forced to ally with international players or disappear. They conclude that the best
365 Value-addition spurs a cluster of supplier industries, which feeds beneficially into other sectors (Kaplinsky et al. 2011). Beneficiation in the South African diamond sector was an example of such success (ibid).
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that can be hoped for are comprador firms that are acquiescent to foreign capital.
Thus, commodity studies have restricted the possible role of state regulation, which can “lower entry barriers to local producers” (Gibbon and Ponte 2005, 160). This is symptomatic of the ‘jaundiced’ and ‘pessimistic prognosis’ of African economic development (Sender 1999).
In Rwanda, “adding value” is a priority in every sector. On the Frontier Group (OTF) – a consultancy group inspired by Michael Porter’s work on value-chain analysis and competitive advantage – drafted sector strategies.366 Porter’s work has become a powerful analytical tool in corporate strategic planning and has also gained popularity in the development practitioner community. His primary concern is how individual firms can create and sustain competitive advantage by outperforming their rivals, using the value-chain as a tool to analyse firm competitiveness. The development practitioner community has been influenced by Porter’s work to seek out large, multinational firms as partners in intervention. These firms are used to develop their supply chains back to farm-gate, as evidenced in International Finance Corporation (IFC) and United States Agency for International Development
(USAID) examples from Indonesia (Neilson 2014). Such efforts have often been plagued by a myopic focus on firm-level competitiveness, which ignore broader structural themes of how inequality is reproduced in the global economy (Bair 2005).
The tendency to view the world as a global marketplace reduces actors to economic agents, all driven by a similar utilitarian logic. Like commodity studies, there is no place in this analysis for discussions of power relations between actors other than firms. Porter’s analysis has encouraged donors to charge the most powerful
companies with responsibility to find ‘ethical’ ways to make profits.367 However, the
‘ethical’ way is founded on simplistic assumptions around empowerment of ‘small farmers’ and using certification schemes (e.g. fair trade). The first step is to contend with contextual realities in the nations that are the subjects of study and the complex interests that motivate actors in these societies.
366 CEO Michael Fairbanks’ OTF Group has led projects in 35 countries and 20 sectors. Their work is based on Porter’s influential research on the importance of industry clustering, which emphasises that regional clusters of related industries (rather than individual companies or single industries) are the source of jobs, income and export growth in developing countries.
367 Porter and Kramer (2011, 65) argued that there is growing convergence between business and social needs. “Shared value is not social responsibility, philanthropy or even sustainability, but a new way to achieve economic success.”
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Nations are a part of Porter’s (1990) analysis. However, he ignores the importance of politics. Porter builds a step-by-step procedure for increasing competitiveness. He lists factors such as physical knowledge, capital resources including national infrastructure and cultural institutions. He simplifies these
problems to a ‘diamond theory’, which is assumed to be a scientific and rational way of solving a nation’s social problems. Such management strategies are built on the technocratic tradition of the value of experts and are incorporated into state-centred engineering (Kantola and Seeck 2010). The RPF government used Porter’s
credibility and popularity to model the image that the government is run in a similar management style.368 Pursuing such policies does not mean that politics has
disappeared. It simply means politics is geared to fit into these narratives.
This thesis explores the RPF narratives of ‘upgrading’ in the three traditional sectors. Government interventions have contributed to some success in achieving these goals. However, further growth is impeded by difficulties in incentivising and supporting firms to be loyal to these strategies.