reflect the distribution of added or relative value

Africa as a continent is abundantly blessed with resource wealth and yet historically has not always been able to capitalise on that abundance to build

material wealth for its citizens. Globalisation offers that possibility, but without an adequate analysis of how global value chains are built, those benefits may

remain tiffany out of reach.Global value chains reflect the distribution of added or relative value at

each stage of a product's manufacturing and the chain of activities that bring that product or service to market.For instance, consider the value chain of the

diamond industry. The steps in the chain are: tiffany jewelry, mining, sorting, cutting and

polishing, jewellery manufacture and finally retailing.


Using aggregated industry figures, the value of the rough diamonds from producers is approximately $9bn. The value then rises to $11bn after sorting and

to $14bn after polishing. Wholesalers then purchase the diamonds for $15bn and sell them to jewellers $28bn. Retail sales of diamonds for 2002 were around

$57bn.To illustrate more clearly the way in which value is added, let us index the value of the tiffany jewelry on

sale
stage at 100. Sorting takes the value to 115, polishing to 127, wholesaling to 133, jewellery manufacturing to 166 and retailing to 320.


What is striking is not so much that value has risen 3.2 times between extraction and the tiffany

sale
price as that the final link in the value chain, from wholesale to retail customer, has more than doubled the value of the item.Lead firms, often

multinational companies located in developed countries, play a key role in the tiffany sale of such

chains. The chains, through vertical integration, may be largely internal to one large company. Henry Ford, for instance, owned steel mills, railways, car factories

and dealerships at one point. This meant a large proportion of the value chain related to the production of cars was all under one ownership.


Additionally, developed countries benefit from "clustering". There is the physical infrastructure to transport goods and labour efficiently. There is

also the institutional infrastructure, such as universities to train staff essential to economic growth, such as lawyers and engineers and even other high added-

value activities such as market research and advertising creatives. The notion is that "clustering" together of these firms and institutions creates a

virtuous circle which aids firms both collectively and separately to both innovate and operate.

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