Just because a country can grow coffee beans it does not mean it can run Starbucks, says Professor Robert Lawrence from Harvard University Kennedy School of Government Trade and Investment.
“I don’t want to be quoted as saying beneficiation is always a bad idea, but there is a tendency to think vertically,” he said. “The assumption is then made that because it is in the ground in the country that is where value should be added. Just because a country has bauxite it does not mean it can or even will be competitive in aluminium.”
He said in Africa, for example, energy was a scarce or costly resource. “And aluminium requires huge amounts of energy. “There is a chain of thought that as transportation costs decline one should automatically progress along a value chain and that is not correct,” said Lawrence. “The economics need to be right.”
Speaking at a seminar hosted by Wesgro and the Centre for Development and Enterprise in Cape Town recently, Lawrence emphasised that for South African exports to be internationally competitive the processes had to be efficient.
He said beneficiation or just adding value to a product for the sake of it was not necessarily the solution or the way to go.
“Take copper as an example,” he said. “If you are dependent on copper ore as an economy then you are already vulnerable to commodity prices. If you beneficiate and become a copper refiner, you are simply becoming more vulnerable to the copper price. It is ironic that people talk about diversification through beneficiation. In fact all they are actually doing is causing the country's economy to be more concentrated and more dependent on the national resources they are wanting to diversify from.”
Lawrence said if one looked at the iPhone and broke it down by value one would see that Apple made the bulk of the profit from its intellectual property rights, but that added value in countries like Germany, South Korea and Japan was higher than in China where the product was assembled.
INSERT
Just because a country can grow coffee beans it does not mean it can run Starbucks. – Prof Robert Lawrence
