Home News Climbing the Value Chain: A Crucial Driver of the Global South’s Economic Rise

Climbing the Value Chain: A Crucial Driver of the Global South’s Economic Rise

by internationalbanker

By Cary Springfield, International Banker


On February 5, Bolivia’s Ministry of Foreign Affairs confirmed that the government had signed a $350-million financing agreement with China to construct the South American country’s first-ever zinc-refining plant. To be located in the city of Oruro in the west of the country, the plant is scheduled to commence operations next year, processing up to 150,000 tons of zinc concentrate per year and 65,000 tons of metallic zinc, yielding an estimated annual net income of $32 million. As such, the deal is one of the latest in a swelling wave of examples of how the Global South—that is, the grouping of the world’s developing countries and least-developed countries—is seeking to generate more value from its abundance of indigenous assets, move up the global value chain (GVC) and, ultimately, experience genuine economic development.

The notion of fostering greater trade and investment between Global South countries dates back to the late 1940s, when a wave of newly independent states started on the path of economic growth and development. A milestone along this path came in 1964 when the secretary-general of the United Nations Conference on Trade and Development (UNCTAD), Raúl Prebisch, delivered the landmark report “Towards a New Trade Policy for Development”. Through its advocacy for greater South-South cooperation, the report laid much of the foundation for the subsequent promotion of more independent, self-sustaining growth models for the Global South that sought to lessen exposure to changes in the economic climates of the more developed Global North.

While those growth ambitions abruptly stalled during the last couple of decades of the 20th century, a China-led resurgence of the developing world since the early 2000s has seen South-South trade and investment contribute significantly towards sustaining the Global South’s growth momentum. Chiefly responsible for this upward trend, moreover, has been the increasing participation in GVCs—that is, the full range of activities, typically carried out across different countries and corporations, associated with bringing a product from conception to end use, including processing, manufacturing, marketing and distribution—that is now proving to be a decidedly fruitful strategy for Global South countries to achieve meaningful economic development.

Bolivia provides one of many examples of this exciting transformation. Having historically relied on exporting unprocessed minerals such as zinc ore and precious-metal ore, the new refinery represents a crucial first in La Paz’s efforts to retain more of the value that can be extracted from such minerals within the country. By doing so, Bolivia can expect to cultivate a more diverse and sustainable economy that can involve—and reward—more skilled labour. If successful, it can serve as the “canary in the zinc mine”, so to speak, by triggering the greater proliferation of more value-added industries within the country.

Arguably, the most successful deployment of this strategy in recent years can be found in Indonesia, which, having been blessed with some of the most abundant nickel reserves in the world (around 21 million tons, or 22 percent of global reserves, according to the United States Geological Survey), has developed a hugely impressive domestic nickel-processing industry. Indeed, Jakarta’s insistence on moving up the nickel value chain has been so successful that it has gone from being the world’s leading nickel-ore exporter to becoming an importer, with the massive expansion of the country’s smelting capacity in recent years the result of government pressure on mining companies to invest in the metal’s domestic processing.

The crucial catalyst for this triumph was the 2020 decision by President Joko Widodo (commonly known as Jokowi) to ban the exports of certain raw materials—nickel included—in a bid to draw in global investments to bolster Indonesia’s processing capabilities and thus produce more valuable finished products within the country, retaining more value onshore. The government also invested in a state-owned holding company, MIND ID (Mining Industry Indonesia), which became a sizeable shareholder in many of the largest mining companies operating in Indonesia.

The strategy has thus turned Indonesia into a nickel-producing behemoth, with Southeast Asia’s biggest economy accounting for some 40.2 percent of the world’s nickel in 2023, according to S&P Global Market Intelligence data. Figures from the Indonesian Investment Coordinating Board (BKPM), meanwhile, showed that foreign direct investment (FDI) in the country totalled $47.34 billion last year, a mighty 13.7-percent rise from 2022, with the base-metal industry the top recipient at $11.8 billion and the mining industry in fourth position at $4.7 billion. A March 2023 report by S&P Global Ratings stated around $30 billion had been invested in Indonesia following the export ban, mostly from China, greatly expanding its nickel-processing operations.

This investment uptick also coincided with the China-led surge in global demand for electric vehicles (EVs), the batteries of which require significant amounts of refined and alloyed nickel to extend overall battery life. As such, Indonesia now has its own lofty ambitions to seize a sizeable chunk of the global EV-battery and EV-manufacturing markets, with many of its thriving nickel-processing operations intended to produce battery-grade intermediate products. “The extrapolation of the trend of onshoring the battery value chain by Indonesia suggests that it is possible that the government will put forward legislation to encourage the production of Indonesian batteries made with Indonesian nickel and cobalt,” Daniel Croft, precious metals analyst at consulting firm SFA (Oxford), told S&P in mid-February.

Key developments in this endeavour include Hyundai Motor’s EV plant launched within the country in 2022, a Hyundai and LG Electronics battery plant due to launch later this year and Chinese EV giant BYD Company’s recent confirmation that it will invest $1.3 billion to build a manufacturing plant in Indonesia with a capacity of 150,000 units. China’s battery manufacturer CATL (Contemporary Amperex Technology), meanwhile, has partnered with two Indonesian state-owned companies to invest $5.97 billion in an integrated battery supply chain, while a partnership involving Volkswagen (VW), Vale, Ford Motor Company and China’s Zhejiang Huayou Cobalt will build a major EV-battery ecosystem in Indonesia.

Such developments underscore what is achievable for Global South countries by seeking to move up GVCs, with the country’s nickel-export value skyrocketing around tenfold in just five years. As such, not only is it greatly helping Indonesia realise its goal of becoming a high-income economy, but it is also inspiring Jakarta to replicate its nickel model in several of its other important export industries, including copper, bauxite, tin and even fish. As a fervent proponent of this strategy, President Widodo has pointed to Taiwan and South Korea as examples of successful indigenous developments of key industries (semiconductor and digital hardware, respectively)—crucial stepping stones towards high-income status. “They are focused, strategic and competitive; this is the system we need to keep emulating,” the president said in December 2022, adding that the first lesson to take from those examples is “making other countries reliant on us”.

Soon to be replaced by a new government under Prabowo Subianto, who won the presidential election on February 14, the outgoing administration has also issued a rallying cry to other developing countries to follow in its footsteps and continue to climb the GVC ladder. “I see how in developed countries there are those who believe that if this is where we are, this is where we should stay—I say, no, it won’t be that way,” Indonesia’s coordinating minister for maritime and investment affairs, Luhut Binsar Pandjaitan, told Bloomberg in May 2023. “We want developing countries to not only export raw materials. There has to be added value for your country and for your people.”

Many Global South countries are heeding Jakarta’s call, moreover. November saw the launch of Burkina Faso’s first refinery for gold, the country’s biggest export. The refinery will have a production capacity of around 400 kilogrammes of gold per day, according to Ismael Siby, chief executive officer of the refinery’s co-managing company, Marena Gold, with the first 22-carat gold bars expected to go online around October 2024. Siby also confirmed that the project would create 100 direct and 5,000 indirect jobs.

“There’s no longer any question of us taking our gold abroad for refining. We’ll refine it on site, because we know the real content of the raw gold that comes out. That’s very important,” Burkina Faso’s military leader, Captain Ibrahim Traoré, declared at the project’s launch ceremony, adding that much gold leaves Burkina fraudulently, fuelling terrorism. “For some time now, gold has been (Burkina’s) leading export product. But we have no control over gold…today we have decided to put a whole network in place.”

As Africa’s top lithium producer, Zimbabwe followed in Indonesia’s footsteps by banning raw lithium exports in 2022 to acquire more onshore value from the highly sought-after mineral. Again, Chinese firms have notably supported this endeavour by spending more than $1 billion in recent years to acquire and develop lithium projects within Zimbabwe. Today, lithium is the country’s third-biggest export after gold and platinum group metals. “The revenue generated from the export of lithium grew from $1.8 million in 2018 to $70 million in 2022. By September 2023, a total of $209 million had been realised from lithium exports” (nearly triple last year’s earnings), Minister of Mines and Mining Development Hon. Soda Zhemu noted.


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