Abstract
This thesis is about the relationship between industrial upgrading strategies and the export competitiveness of the Namibian seafood industry. Developing countries such as Namibia, that are dependent on seafood exports, tend to be trapped in uncompetitive exports with high levels of unprocessed products, insufficient value addition and low levels of industrialisation. Due to the backward and forward linkages between the seafood processing sector and other productive sectors, increasing competitiveness in seafood exports could potentially constitute an important driver of economic growth and a solution to the problems caused by an overdependence on exporting unprocessed natural resources. Therefore, improving the competitiveness of seafood exports can be a catalyst to improve market access, enhancing gains from trade and job creation (through increased productivity).
Since the independence of Namibia in 1990, numerous strategies and government intervention policies have been implemented as a direct response to market vulnerability shocks. Process shocks from more efficient and capable emerging competitors, in particular, could threaten the viability of the production process, as could product shocks from a collapse of foreign demand due to changes in consumer preferences or regulatory structures. These shocks may impede trade gains, export earnings and economic growth. The prevalence of vulnerability shocks compels developing countries to initiate industrial upgrades in order to transform their status quo operations. The literature and experience of several sectors and countries indicate that industrial upgrading can increase value-added generation capacity, participation in Global Value Chains (GVCs), export diversification, employment creation and economic growth. However, the literature on industrial upgrading, specifically an assessment of industrial upgrading strategies in mitigating uncompetitive seafood exports enabling the economy to withstand vulnerability shocks, has received little attention in the industrial upgrading literature of developing countries’ seafood exporting initiatives. This deficiency explains the rationale for the study.
In the Namibian context, the national agenda to increase competitiveness in the seafood industry is informed by the need to move from the export of primary seafood products to manufactured products with higher levels of value addition. As most developing countries' economies are highly dependent on the export of natural resources, such as fisheries, in the primary form, they are particularly vulnerable to external shocks that present, a limitation to potential export revenue and economic growth and development. Therefore, strategies to enhance export competitiveness can be central to improving these countries’ position in global value chains and economic resilience. Competitive seafood exports have become a prominent feature in advancing the trade and developmental interests of seafood-dependent economies in an increasingly globalised world. However, as most uncompetitive seafood exports emanate from developing and least developed countries due to inadequate value addition, it raises concern for export for re-processing, which threatens gains from trade.
When faced with inadequate value addition and uncompetitive seafood exports that drastically affect export revenue and contribute to a decline in the economic growth and development of a seafood-dependent economy, a large range of interventions is possible. One stream of such interventions is government policies designed to build export processing capacity thereby enhancing trade gains, export revenue and economic growth. Another stream of intervention relates to industrial upgrading initiated by the sector in direct response to market vulnerability shocks. In much of the literature on GVCs, lead firms – typically advanced buyers in the value chain initiate industrial upgrading in supplier countries. However, contrary to initial arguments that lead firms in the value chain initiate industrial upgrading in supplier firms located in developing countries, most developing countries initiate industrial upgrading in direct response to market vulnerability shocks.
The aim of this thesis is to assess the effectiveness of competitive export strategies employed by the Namibian seafood industry. Four strategies frequently explored in the literature on industrial upgrading are considered and discussed. The first strategy is service-oriented seafood exports. This strategy aims to increase global consumer demand for processed seafood, thereby improving export performance and sectoral contribution to economic growth. The second strategy is industrial policy, which employs the Growth-at-Home initiative to mitigate the negative impact of unprocessed seafood exports on trade gains and economic growth. The third strategy is to increase budgetary allocations to upgrade marine seafood processors in order to mitigate the negative impact of exchange rate volatility on export performance. The fourth strategy relates to the quality of domestic institutions as a proxy for governance in enhancing the GVC participation of not only the Namibian seafood industry but also other developing seafood exporting countries in global seafood value chains. Four methodologies and datasets are employed in this study to examine each strategy. The study consists of four empirical chapters, excluding the introduction and conclusion chapters, which provide a general introduction to the study and conclusion with policy recommendations. Each of the four chapters is a self-standing contribution, but they all contribute to collectively answer the overarching research question, which is: What is the impact of the selected industrial upgrading strategies in mitigating the effects of uncompetitive seafood exports? The first essay (Chapter 2) investigates the effect of service-oriented seafood exports on Namibia’s seafood export performance and trade potential. This study employed the gravity model of trade estimated with the Eicker-White robust covariance Poisson Pseudo-Maximum Likelihood (PPML) technique on aggregated seafood export data from Namibia to 29 trading partners from 2001 to 2019 and further estimated Namibia’s processed seafood trade potential.
The key findings reveal that Namibia's comparative advantage in seafood export processing promotes consumer preference for service-oriented seafood exports despite trade distance. However, seafood exports to African countries have a muting effect on export performance. The trade potential analysis reveals that while Namibia’s trade potential with most African trading partners is exhausted, trade potential exists with European partners and can dictate policy for further trade expansion. In answering the overarching research question, the results reveal that Namibia’s comparative advantage in seafood export processing enhances the import preference for service-oriented seafood exports, thereby enhancing market access and export competitiveness in European markets.
The second essay (Chapter 3) investigates the effectiveness of Namibia’s industrial policy on processed seafood export outcomes with a balanced panel of 29 importing countries spanning the period 2001 to 2019. The study employed the Difference-in-Difference (DID) panel regression model to evaluate the global pre and post-policy intervention1 outcomes. The findings indicate that
1 Three interventions were highlighted for the seafood industry. (1) Technology and transformation, which includes industry-specific research and development as well as technological advancement incentives. (2) Product distribution and trade - this entails marine-resource processors increasing value generation by entering new markets, increasing current market sales prices, and improving traceability in the local distribution chain. (3) Business environment - this entails improving public support for infrastructure, investment and innovation in order to create an enabling environment for Namibia's seafood manufacturing industry's long-term growth.
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policy intervention increased processed seafood exports, indicating that Namibia's processed seafood exports are characterised by value addition, which improves export competitiveness. The empirics further reveal the heterogeneity of policy intervention on global market outcomes. In European markets, policy intervention improved differentiated product outcomes, however, African importers prefer unprocessed seafood products. Nevertheless, Namibia's overall export performance and the effectiveness of its industrial policy are not hampered by African market preferences. In answering the overarching research question, the results reveal that policy intervention opened new markets through product differentiation and innovation. The enhanced demand and market access, especially in European markets, mitigated the previously high levels of unprocessed products for export re-processing, thereby improving the export competitiveness of the Namibian seafood industry.
The third essay (Chapter 4) investigates the short and long-run relationships between exchange rate volatility, investment in industrial upgrading, and export performance of Namibian processed seafood products, taking into consideration the role of the exchange rate in industrial upgrading. The study uses the Gregory and Hansen (1996) cointegration method and a Vector Error Correction model (VECM) on quarterly data spanning 2008 to 2020. The results show that investment in industrial upgrading has a higher impact on export performance than exchange rate volatility. As a result, industrial upgrading can help to mitigate the negative impact of exchange rate volatility on export performance. In response to the overarching question, the findings suggest that future shocks to industrial upgrading can be mitigated in the long run by higher export prices, thereby improving sustained export performance. As a result, taking advantage of currency depreciation can reduce barriers to industrial upgrading by increasing budgetary allocations.
The fourth essay (Chapter 5) investigates the determinants of GVC participation in developing seafood exporting countries and the impact of the quality of domestic institutions as a proxy for governance on GVC participation indices on a sample of 32 countries from 2009 to 20182. The study employed the System Generalised Method of Moments (SYS-GMM) and Hausman-Taylor estimation techniques. The quality of domestic institutional governance is accounted for using data on six indicators: government effectiveness, control of corruption, political stability, regulatory
2 The study period is limited due to data availability on value added exports in participating counties.
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quality, the rule of law, voice and accountability obtained from the World Bank governance indicators, while the extent of GVC participation was computed using the UNCTAD EORA MARIO (2018) database. The key findings indicate that developing seafood exporting countries’ economic potential drives backward participation. While the low levels of forward participation might not only lead to lower trade gains, it can restrain countries to the supply of primary products with little or no value addition. The empirics further reveal that the quality of domestic institutional constraints GVC participation is mostly driven by corruption and unaccountability. In answering the overarching research question, the findings suggest that extent of GVC participation is critical to mitigating the negative effects of uncompetitive exports and gains from trade. Overall the results indicate that the quality of domestic institutions matters for the GVC participation of seafood exporting developing countries.
The thesis and each essay provide a unique contribution to the literature. The unique contribution of this thesis lies in its combination of four different methodologies to analyse the industrial upgrading export competitiveness nexus in the Namibian seafood industry. The strength of using four different methodologies is that they combine institutional and industrial development aspects. The combination of institutional development approaches – service-oriented seafood and comparative advantage analysis; and industrial methods – policy, governance and exchange rate – adds to the literature because this topic has not been explored previously, especially in seafood exporting countries such as Namibia. Thus, this approach offers a broader and richer analysis of Namibia’s export competitiveness as opposed to using only one method. The contributions of the different essays are presented below.
First, the relationship between value addition and the export performance of Namibian seafood products has been extensively examined; however, the connection in terms of trade costs and consumer preferences is yet to be investigated. Furthermore, the impact of industrial upgrading, proxied by the Revealed Comparative index (RCA) on consumer import preferences for processed seafood, has not been undertaken before. Although the gravity model is a commonly used approach for analysing trade in terms of a country’s export performance, estimating the gravity model using the PPML estimation controls for heteroskedasticity and accounts for endogeneity inherent in trade data to produce unbiased estimates has not yet been undertaken for the Namibian seafood exports.
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Second, to the best of my knowledge, no econometric method incorporating government intervention to investigate the effectiveness of Namibia’s industrial policy on processed seafood export outcomes has been previously conducted, especially a comparison of the pre and post-intervention periods. The absence of studies on the efficacy of the policy intervention on seafood export outcomes in Namibia has resulted in a dearth of information regarding the extent to which industrial upgrading strategies and initiatives restrict the growth of uncompetitive seafood exports. In light of this gap, this study investigates the impact of Namibia’s industrial policy on processed seafood export performance by adopting the panel DID estimation technique.
Third, the existing seafood trade literature is inconclusive on the direction of causal relationships between seafood export performance, exchange rate volatility and investment industrial upgrading. An empirical analysis of the relationship, especially in a seafood-dependent economy like Namibia, has not been investigated before. The VECM is a commonly used approach to determine the direction of causality between variables, however, an analysis of the causal relationship as a strategy to enhance the export performance of Namibian processed seafood outcomes is yet to be investigated. Finally, the GVC participation index of developing countries exporting seafood has not been estimated. The impact of the quality of domestic institutions as a proxy for governance and other determinants on the GVC participation index in analysing the role of GVC participation in mitigating the effect of uncompetitive exports on trade gains has yet to be investigated.
The findings of this research study suggest that industrial upgrading strategies play an important role in mitigating uncompetitive seafood exports and enhancing the growth and development of seafood-dependent developing countries. To protect the economy from the negative effects of uncompetitive exports, these measures will require a concerted effort by government, lead firms and sectoral strategies. Industrial upgrading policies must find ways to integrate rather than limit industrial strategies. This, practice, however, is only possible if the quality of domestic institutional governance is improved. For the foreseeable future, while such reform remains elusive, Namibia’s seafood exports are likely to rely on domestic industrial upgrading strategies. The study’s findings enhance an understanding of how: (i) industrial upgrading in the seafood industry responds to exchange rate shock; (ii) effective industrial upgrading and consumer preference are effective in enhancing export performance and market access, and (iii) the industry and economy can be protected against revenue loss from uncompetitive seafood products. This study, therefore
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contributes to developing economic models to assess the relationship between the industrial upgrading strategies of Namibia’s seafood export performance and competitiveness.
Keywords: comparative advantage; difference-indifference; domestic institutional governance; exchange rate; export competitiveness; export performance; export processing; gravity model; GVC participation; industrial policy; industrial upgrading; Namibia; system generalized method of moments; seafood; trade potential.