Global value chains are the new Silk Road

Global value chains have become a dominant feature of world trade, with the whole process of producing goods being carried out wherever the necessary skills and materials are available at competitive cost.

At the Annual Investment Meeting in Dubai in April, a number of world leaders from emerging markets, investors and experts came together to share experiences in an era of complex trade flows.

A key takeaway of the meeting was the need to create global value chains (GVCs) through policy reform that encourages the private sector and international entities to participate in a coordinated, mutually-beneficial exercise of trade.

Global value chains have become a dominant feature of world trade, with the whole process of producing goods – from raw materials to finished products – being carried out wherever the necessary skills and materials are available at competitive cost.

To put it in perspective, the old Silk Roads and Spice Routes were the founding blocks of today’s global value chains.

Today the GVC discourse is focused on how to utilise these new and expanding economic belts to accelerate growth, and even to offset a potential slowdown.

With non-oil trade valuations of Dh1.63 trillion, according to the World Trade Organization’s 2015 figures, the UAE has emerged particularly successful in creating sophisticated GVCs across sectors.

The efforts towards this end began four decades ago, when it became the first country in the region to enter the formal cargo trade industry, through the development of the Sharjah Container Terminal (SCT), by the private sector initiative of port operator Gulftainer.

By the mid-1960s, the world had moved from bulk cargo trading to containerised shipments and by 1976, SCT was able to enter this sector, giving the UAE a head start in trade innovation.

Today, the UAE ranks 16th in commodity exports and 20th in commodity imports, according to WTO figures. In the area of service trade, it ranks 19th as a service importer, and 42nd in service exports.

The success of the UAE as a base in the global supply chain is largely thanks to the planning, policy reform and timely investment in technology and logistics infrastructure.

Over the past two decades, the nation has been able to forge valuable linkages and global supply chains in sectors ranging from food processing to petrochemicals.

In the food supply chain, the UAE’s strategic location between Asia, Europe and Africa makes it an important player.

According to the Arab Forum for Environment and Development, the UAE imports 85 per cent of its requirements in food commodities and uses local resources to repackage and re-export food material to other nations.

For instance, major retail chains in the UAE source halal products from far-flung locations such as Canada, Australia, Malaysia, and Ningxia in China.

This high demand for pre-packaged food, health and organic products provides a major boost to food processing and plastic packaging sectors in UAE.

Smooth transaction between wholesalers, importers, distributors and re-exporters makes this a well-coordinated market, catering to the local and re-export segments.

Being part of the global value chain, the UAE is also an important participant in the trade in services.

Trading is essential for the efficient functioning of GVCs, not only because services link activities across countries, but also because they help companies to increase the value of their products.

The flow of goods and services through the UAE from across the world has come about solely due to continuing investment in logistics.

The UAE has allocated Dh31.7 billion to build and develop infrastructure and improve logistics facilities in the run up to the Expo 2020, according to the Middle East logistics industry outlook 2015 by Transport Intelligence.

Heavy investments are being made in air transport in the GCC region. Saudi Arabia, UAE and Oman remain the biggest market contributors – with a combined market share of 85 per cent – to the value of the logistics sector.

The GCC-wide rail network will also be a game changer in the regional transportation network.

Coordinating this complex ecosystem is a perpetual work in progress.

Issues related to port congestion, customs procedures and knotty negotiations over free trade agreements will continue to throw a spanner in the supply chain network.

A key challenge for planners is to ensure that trade policy reflects the rapid changes in the global landscape, where sourcing of products may easily shift from one country to another.

The writer is the executive director at Sharjah-based Crescent Enterprises.

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