The Andean region is at a turning point, trying to get back on the path to sustainable growth after the economic slowdown that began in 2014 and the recent crisis triggered by the COVID-19 pandemic. In addition to these challenges, the region must adapt to the digital transformation, global geopolitical tensions, and climate change. These circumstances underscore the importance of cooperation among the Andean countries at a time when Latin America and the Caribbean has one of the lowest rates of trade openness among developing regions.
Is participating in global value chains a worthwhile pursuit?
Participation in global value chains (GVCs) is a strategic opportunity to increase productivity, diversify trade, promote the transfer of knowledge and technology, and create quality jobs with gender equality. However, the Andean region still faces the challenge of integrating properly into these GVCs. It should focus on developing sustainable value chains that comply with global environmental commitments, such as those established in the Paris Agreement. This integration is essential not only for environmental sustainability but also for economic growth.
Productive integration and decarbonization
In our publication Sustainable Value Chains for the Andean Region: Opportunities and Challenges for Advancing Integration and Decarbonization in Colombia, Peru, and Ecuador, we identified opportunities for integration into GVCs that could be implemented most quickly in these three countries. The sectors with the greatest potential are fisheries, textiles and apparel, and plastics and rubber, for two main reasons. The first is the economic importance of these industries. In 2022 alone, exports will reach US$14 billion, representing 10% of total exports. The second reason is environmental, as these industries are currently major sources of emissions and thus present clear opportunities for decarbonization.
Although these sectors represent opportunities for Colombia, Peru, and Ecuador, each of them presents a specific set of challenges that need to be addressed if they are to integrate successfully into GVCs. In the textile value chain, for example, the supply of natural fibers is limited, and cotton production is constrained by scale and quality factors. It is therefore essential to support access to finance so that local companies can compete globally. In the fisheries sector, the Andean countries need to invest to optimize energy efficiency. However, access to finance is a significant obstacle. Finally, in the plastics sector, promoting guarantees and investing in companies that can produce inputs competitively is crucial. This strategy would allow the sector to integrate better into value chains.
To strengthen these three countries’ integration into regional and global value chains, they need to build their trade support ecosystems, develop the skills of firms and their workers, consolidate local supplier networks, adopt best practices to access global markets, and facilitate financing for machinery and production equipment.
How can we build GVCs that respond to current climate challenges?
Achieving productive integration into sustainable value chains implies a double challenge for the region. On the one hand, about 17% of total greenhouse gas emissions in the Andean countries are associated with their export matrix. On the other hand, Andean countries export a significant percentage of goods that are vulnerable to trade restrictions based on importing countries’ sustainability policies. These restrictions include barriers such as tariffs, permits, and special certificates that hinder trade in certain products.
To reduce the carbon footprint of value chains, it is essential to strengthen institutional and regulatory capacities to promote decarbonization, provide financial support for the implementation of clean energy and circular economy projects, adopt best practices for sustainability, finance access to decarbonization technologies and equipment, and strengthen capacities and processes for the collection and recycling of materials.
This Inter-American Development Bank publication explores ways to decarbonize the plastics, textiles, automotive, and fisheries sectors in Colombia, Ecuador, and Peru (text in Spanish). In other words, it identifies specific actions that can be implemented throughout the production and marketing process to reduce the carbon footprint of the goods in question. This suggests that integration into sustainable value chains is possible.
The region is seeking to overcome the challenges associated with the global transformation of production. Increasing its participation in GVCs could generate growth, sustainability, diversification, and development, but there are difficulties that need to be addressed through comprehensive public policies that are articulated effectively among the Andean countries. Focused, strategic regional cooperation is key to moving in the right direction.
For more information, download our publication: Cadenas sustentables para la Región Andina: Oportunidades y desafíos para avanzar en la integración y descarbonización de Colombia, Perú y Ecuador [Sustainable Value Chains for the Andean Region: Opportunities and Challenges for Advancing Integration and Decarbonization in Colombia, Peru, and Ecuador].
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