Costed Action Plan for SADC Industrialization Strategy and Roadmap 2.3 The Role of Services in Value Chains Arguably in the SADC region, insufficient attention has been paid to service sector engagement in value chains. Domestic service providers may be contracted by regional or international firms to provide services within Member States – IT, banking, retail, hotel chains etc. This is forward integration. 2.4 a) There are opportunities also for domestic service providers to access competitive inputs from abroad (backward integration), as in the case of vehicle hire, financial and accounting services and IT. b) High quality services – domestic or foreign – may enhance competitiveness of local industry. The OECD estimates that up to 30 percent of value-added in manufacturing exports is accounted for by services. Although this is not specific to value chain development, it can be an important influence in the growth of value chains. Innovation and Export Diversification A qualitative measure of value chain integration is the diversification of export baskets. One crude measure is the number of export products which, in recent years, has declined in all SADC states for which there are data, with the exception of Tanzania. Export sophistication data suggest that since the mid-1990s the quality of exports has improved in the SADC countries for which there are data. 2.5 The Skills Dimension The SADC Industrialization Strategy and roadmap pinpoints the scarcity of skills essential for accelerated industrial development as one of three major constraints. Recent research highlights changes in income distribution in value chains in favour of capital and high-level skills, in emerging as well as in mature economies. Income shares of medium-skilled personnel decline, on average, by one percentage point while those of low-skilled workers fall by five percentage points. 2.6 Key Messages a) Natural resource exporters such as Angola, the DRC, Mozambique, South Africa, Zambia and Zimbabwe can enhance their already-high levels of forward integration by adding value (upgrading) exports of unprocessed and semi-processed products. Indeed, this is one of the three growth paths – raw 26