Global Value Chains, Industrial Policy and Economic Upgrading in Ethiopia's Apparel Sector

Abstract

This article examines whether low‐income countries can still benefit from participating in manufacturing global value chains (GVCs) in terms of broader industrial development in a global context of greater competition and higher requirements. It contends that developing internationally competitive local firms and domestic linkages, in addition to upgrading, is crucial for participation in GVCs to drive industrialization. The study focuses on Ethiopia's recent experience with developing an apparel export industry through strategic industrial policy. Based on original empirical data collected through firm‐level surveys and interviews with government officials, industry experts and buyers, the article analyses the upgrading and localization trajectories of foreign and local apparel‐exporting firms. It argues that value‐capture benefits in assembly positions in apparel GVCs have become more difficult. The potential for localization benefits depends on the type of global buyers and foreign producers and their levels of embeddedness, but whether this potential is realized also depends on local firm characteristics and related industrial policy. Ethiopia's industrial policy has been relatively successful regarding national economy linkages, but less successful in developing competitive local export firms due to a weak local manufacturing tradition combined with a global context that has led to a supplier squeeze.

Understanding regional value chains through the interaction of public and private governance: Insights from Southern Africa’s apparel sector

“…To date, AfCFTA has given no consideration to differential labour standards across the continent, and there is no social clause in the agreement. Whilst its implementation will likely benefit South African apparel retailers as they can source from Ethiopia where labour costs are amongst the lowest in the world (Whitfield et al, 2020), it will also put enormous pressure on labour market institutions as well as employment, not only in South Africa but in Eswatini and Lesotho as well.…”

“…Conversely, recent research by Chang and Lohre (2016) in Ethiopia and Rwanda shows how protectionist trade policies introduced by national governments can screen local manufacturers from global competition, effectively enabling firms' participation in global export markets. Similarly, according to Staritz and Whitfield (2017, 3;Whitfield et al, 2020), what sets Ethiopia's apparel sector apart is the parallel presence of a protected national market along with liberalised global exports 'as firms make profits in the protected domestic market while they are learning how to meet the cost, quality and delivery standards of export market.' Third, comparative labour regimes matter.…”

“…Recently, various scholars from across the GVCs, global production networks and international business fields have argued for a better understanding of the influence of public policy in shaping value chain dynamics (Coe et al, 2008;Horner & Alford, 2019;Van Assche, 2017). There is growing evidence, for example, that industrial, trade and labour policies have significant impacts on the geographies of GVCs (Curran et al, 2019;Whitfield et al, 2020). However, investigating how public and private governance interact to inform lead firms' and suppliers' strategies in RVCs in the global South remains limited (Krishnan, 2018;Pickles et al, 2015).…”

Global value chains, import orientation, and the state: South Africa’s pharmaceutical industry

“…Nevertheless, emerging research has focused on the state buyer role in terms of public procurement (Hughes, Morrison, & Ruwanpura, 2019 ). More broadly, growing attention has been placed on the active ways states are shaping their engagement with global trade (Evenett, 2019 ), including through industrial policy (Hauge, 2020 ; Kaplinsky & Morris, 2015 ; Whitfield, Staritz, & Morris, 2020 ).…”

Local supplier firms in Madagascar’s apparel export industry: Upgrading paths, transnational social relations and regional production networks

“…Despite foreign direct investment driving the emergence of apparel exports in Kenya, Lesotho and Swaziland around the same time as in Madagascar, these countries had less than a handful of local export firms (Morris et al., 2016). In Ethiopia, the sector began in the late 2000s, supported by strategic industrial policy, and grew in the 2010s based on foreign direct investments; it still has to be seen to what extent local firms will succeed in entering and remaining in the apparel export sector (Whitfield et al., 2020b).…”