Costed Action Plan for SADC Industrialization Strategy and Roadmap Ownership and Embeddedness As illustrated in Lesotho, Madagascar and Mauritius, different patterns of ownership give rise to different value chain strategies. As ownership changes – the relative pullback of some Western investors and their replacement by Asian, Latin American, Central European as well as African investors, both domestic and foreign – embeddedness characteristics change and with them their value chain strategies. Value chain participation may start regionally and graduate to the global level or work in the reverse direction, from global to regional. However, because the majority of SADC Member States have broadly similar industrial structures, the scope for the relocation of labour-intensive tasks to low-wage economies is limited, though there are cases where South African and Mauritian firms outsource such manufacturing activities to other countries within the SADC Free Trade Area. For further dimensions see Box 2.1. Box 2.1: Country Specificities All countries engage in value chain activities to some extent, though in SADC the bulk of participation is forward rather than backward and global rather than regional. The strategies outlined in the SADC Industrialization Strategy and Roadmap focus on enhanced domestic value-addition leading to reduced backward integration and enhanced forward integration. This follows from the fact that as backward integration declines due to greater domestic value-addition, forward integration increases because of the enhanced domestic value addition. There is a direct link between the pattern of resource endowment and the nature and extent of value chain participation. Within SADC, because exports are overwhelmingly resource-based with limited domestic value-addition, forward integration is dominant. Similarly, because regional usage of unprocessed and semi-processed primary products is limited, the volume of intra-regional trade is small as also is the extent of regional value chain participation. Typically, backward linkages develop in the earlier stages of industrialization as countries reduce dependence on agriculture and mining. Forward linkages become dominant again as economies shift towards service-driven growth and the evolution of Headquarter as distinct from Factory economies. Accordingly, value chain participation is U-shaped in nature with forward integration declining as countries industrialize and backward integration increases. Thereafter, forward integration levels off and starts to increase again with the transition to services-led growth. Countries with higher per capita incomes tend to have higher forward participation rates. This is certainly the case in some SADC economies – notably Angola, Botswana and South Africa. The share of MVA in GDP is positively correlated with value chain participation. In SADC, the share of MVA in GDP has fallen significantly over the last 20 years, which helps to explain the underdevelopment of cross-border value chains in the region. 25