Global value chains (GVCs) have played an important role in transforming economies in many developing countries by increasing their pace of industrialization, improving productivity, and creating new jobs in the private sector.
GVCs has become so important for the past two decades that they have provided the means for countries to overcome indigenous resources as multinational corporations (MNCs) are playing a vital role in the supply chains of global value chains.
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An investment perspective on global value chains investigates what developing economies can do to maximize their opportunities for GVCs integration. It focuses on how multinational corporations (MNCs) shape GVCs and highlights the role of their relationships with domestic firms.
To facilitate sectoral transformation through GVCs, the policymakers in developing countries need to better understand the strategies of MNCs, help domestic firms internationalize, and ensure their policies create a conducive environment for these firms.
GVCs formation has stagnated in the past decade due to saturation of possibilities for unbundling production, geopolitics, increasing local capacity and local sourcing in some developing countries, automation, and a global shift in demand away from goods toward services.
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The vital role of MNCs
Pakistan is an important country in the South Asian region and is connected with Central Asia, Middle East, and South Asia.
The China Pakistan Economic Corridor (CPEC), and the flagship program of the Belt and Road initiative (BRI) can play an important role in attracting foreign direct investment (FDI) in the country through (MNCs) integration with GVCs. Special economic zones are very important for increasing the export of any country.
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Through CPEC Pakistan can enhance export to neighboring countries like Iran, Afghanistan central Asian states, and India through value addition. Moreover, there is a dire need for good connectivity with the neighboring countries.
To create a conducive environment for economic activity in the region, MNCs can play a vital role to increase integration in the global value chain system in developing countries.
Most of the domestic companies are operating on old patterns, however, through value addition and partnership with MNCs, local companies can increase their revenue by adopting new trends of technology.
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Transport links and corridors
Pakistan has good connectivity with neighboring countries through strong cross-border transport links that make it easier to import and export goods. These linkages with neighboring countries can increase economic activities and boost the income of the people of Pakistan. Better transport links do much more than move freight faster.
The transport corridor in the other parts of the world creates an opportunity for commerce and invigorates communities, for example, a small business that processes agriculture and aquaculture crops is often owned by women benefits when located near transport corridors.
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Currently, neither Pakistan nor India allows each other’s trucks to cross the border and deliver freight — a major impediment to regional connectivity. Trucks must stop at the border where their cargo is manually transferred to a truck from the other country.
Not surprisingly, transport costs in South Asia are among the highest in the world. Delays and cumbersome border procedures force companies in Pakistan and India to pay up to 20 percent more to trade with each other than to trade with Europe.
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What should Pakistan do?
Pakistan can integrate the transport linkages with neighboring countries like Iran Afghanistan and India through modern custom processing systems and multi-model links to easily transfer cargo among trucks rail cars, boats and planes.
All these means can reduce the cost of imports and exports. These improvements would translate into a better life and more money for most people on all sides of the border.
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Furthermore, South Asia lags behind the rest of the world in regional trade integrations and transport links. Nations in the region maintain high tariffs, trade barriers, and other border restrictions. If MNCs are integrated through GVCs on the platform of CPEC it can help the regional connectivity and boost the conducive environment of trade and investments in the region.
Moreover, if Iran and Saudi Arabia are joining the CPEC project it can help the regional connectivity and can also increase the volume of trade and investment with Pakistan.
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Last but not least, if Pakistan regulates its trade with Iran, it can help the economy of Pakistan, and the level of inflation can be reduced, which will eventually improve the socio-economic conditions of the people of Pakistan.
The writer holds an MPP from KDI School of Public Policy and Management Seoul, South Korea, an MA in International relations, and an LLB from Shah Abdul Latif University KhairPur. Currently, he is working as an Assistant Director in the Board of Investment Pakistan. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.