“G20 members should facilitate SME participation in trade and global value chains (GVCs) by systematically including their voice and needs in trade agreements.” [from the B20 Germany Recommendations Summary, available here]
Limitations and Opportunities for African SMEs
Diversification out of natural resources into other economic activities provides an opportunity for African SMEs to be integrated into global value chains. Working with multinationals is a great solution to promote growth of SMEs and inclusion in the value chain.
Attraction of multinational investors is an opportunity for the inclusion of SMEs in global and regional value chains. Domestic and regional policies should favor multinational investment in transfer of technologies and capabilities. Policies should focus on the protection of domestic and regional firms from import competition in order to build regional value chains.
The first challenge and main area of constraint is the high transaction costs which include logistics, border procedures, and import tariffs. These transaction costs make it very difficult for SMEs to be competitive in order to participate in regional and global value chains. Reducing the transaction costs should be a priority.
The second challenge is the great difficulty for African SMEs to meet the rigorous requirements of global value chain management and standards which multinational companies impose on SMEs. Multinational companies can assist African SMEs in upgrading their capacities. Tailor-made mentorship programs will be a great solution to this challenge.
In order to get good results and opportunities that can be achieved through SME participation in global value chains, African states need to make determined efforts in order to reduce major obstacles that limit the growth of SMEs. It would be important to identify how developed countries could assist them in tackling these challenges. If these challenges and constraints are addressed properly, it will also help boost regional value chains.
The focus should be on designing policies that are more inclusive, especially for developing countries.
The recommendations of B20 to G20 on SME issues under Germany’s presidency with its famous Mittelstand (SME sector), which represents the backbone of the country’s manufacturing achievements, are worth leveraging to the maximum extent.