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Preliminary Global Value Chain Analysis:Maldives

Preliminary Global Value Chain Analysis:Maldives

Maldives Value Chain Analysis

Maldives Value Chain

Maldives  under  the  National  Development  Plan  2019-2023  plans  to  transform  the country to a prosperous, socially inclusive, climate resilient, equitable and connected island  nation  by  providing  access  to  social  services  and  economic  opportunities, promoting  social  justice,  ensuring  good  governance,  safeguarding  environmental sustainability  and  respecting  human  rights.  As  a  country  that  is  on  the  verge  of graduating  to  a  high-income nation and given the country’s strategic geographical location in one of the densesttrade routesin the world, there are huge opportunities within the Global Value Chains (GVC) that may untap new areas of competitiveness for the short to medium term.

In  the  past,  the  precondition  of  the  competitiveness in  a country  requiredhuge investments  and  transformation,  largely  focused  on  the  structural  transformation  of the public spheres of the economy. However, in the highly globalized world that we live in today, such preconditions can be accelerated, reduced, shared or even avoided, as globalization has brought about rapid progress in technology, capital mobility and the creation of common global standards, as well as trade liberalization.

As a result, countries do not necessarily need to address all market imperfections through  structural  transformation  but  rather  can  focus  on  areas  with  the  highest comparative advantage. The most effective way to successfully achieve this in many countries has been to plug into the global value chains. An economy that is integrated with  GVCs  will  be  able  to  create  jobs  and  achieve  broad-based  development  of  the population as well as the development of activities involved in the production of global-level supply, distribution and post-sales efforts. Similarly, from the market perspective, plugging into the GVC increases income in a more productive and sustainable manner while increasing exports and income for that particular economy.

According the World Bank Report “Pathways to Better Jobs in IDA Countries” (2018),the world’s labor force will grow by 620 million people from 2020 to 2035, and 38 percent will be in South Asia. In addition, the private sector will create nine out of ten jobs  in  developing  countries.  Therefore,  on  the  basis  of  this  trend,  the inclusivecompetitiveness  of  an  economy  that  increases  its  exports  by  integrating  into  GVCs should create jobs in the private sector, which would have a greater impact on reducing poverty than other forms of direct financial assistance. As the world moves towards the fourth industrial revolution with extreme levels of automation and connectivity, it could also potentially change the course of economic development and the distribution of wealth. For this reason, conventional development methods would only be effectiveif  dictated  by  the ever-changingmarket  or  private  sector,  depending  on  the  needs  of the Fourth Industrial Revolution.

Many highly integrated countries on the global value chain recognize the importance of  creating  productive  linkages  with  other  sectors of  the  economy  at  the  national, regional and international levels, as key drivers of successful economic development. By connecting to GVCs, the productive link not only promotes technological progress, but also offers the potential to improve productivity. The fragmentation of production in different parts of the world also allows countries to participate in GVCs at different stages  depending  on  the  level  of  technological  adaptation,  the  different  levels  of industrialization, the skills of the workforce and the situation.As a result, GVCs offer countries  the  opportunity  to  adopt  a  learning  experience  for  their  economies  and  to play a leading role in technology adoption.

Global value chains also promote stronger linkages upstream and downstream with the rest of the economy, which translates into knowledge and technology spillovers to other  sectors.  At  the  same  time,  GVCs  also  reduce  the  risk  of  market  shocks  for countries, as trade in intermediate goods is less influenced by end-market prices.

Integration  into  global value  chains  allows  countries  to  remain  in  relevant  sectors that  are  market-driven  and  at  the  same  time to  be part  of  an  interdependent  global production  network.  From  the  point  of  view  of  the  market  or  the  private  sector, integration into GVCs strengthens export growth, which is very important for promoting sustainable economic progress. Many empirical studies have shown that firms linked to  the  global  economy  through  exports  or  foreign  direct  investment  (FDI)  are  more productive than firms serving only the domestic market. The productivity gains of GVCs will  increase  the  competitiveness  of  enterprises  and,  at  the  same  time,  will  be accompanied  by  wage  increases,  upgrading  of  skills  and  technology  transfer.  Firms and  export-intensive  and  FDI-related  sectors  generally  enjoy  a  substantial  wage premium and have higher average labor productivity than domestic firms.

This report contains the preliminary global value chain analysis for the republic of Maldives.

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