a lead firm, we are unable to distinguish between GVC and non-GVC trade in the LACEX due to its sectoral level of aggregation. Instead, we focus on important GVC sectors globally: motor vehicles, textile and apparel, electronic equipment, and food products. We assess how South Africa’s level of GVC participation in these sectors has changed over the last decade, and link this to changes in the direct and indirect labor intensity (Figure 18), labor content (Figure 19) and the skills mix (Figure 20 and Figure 21) in South Africa’s GVC exports.

South Africa’s participation in these GVC-oriented sectors has been varied. Using data from the UNCTADEora GVC database, between 2001 and 2011 South Africa’s participation in the automotive GVC— measured by foreign content embodied in South Africa’s exports as a buyer and South Africa’s content embodied in foreign exports as a seller—more than tripled and GVC participation remained the second highest for manufacturing. In contrast, South Africa remained weakly integrated in the wearing apparel GVC, and GVC participation fell to one of the lowest for manufacturing. More generally, domestic apparel manufacturing has been in decline over the past 15 years due to increased import competition, a process that accelerated significantly when South Africa acceded to the WTO’s Agreement on Textiles and Clothing in 1994 (van der Westhuizen 2006). Nevertheless, it is classically one of the most GVC-intensive sectors globally, and an important sector for unskilled labor.

A high import content of exports is a key feature of GVC participation as a buyer, and as expected the labor intensity of motor vehicle exports declined sharply in South Africa. Automotive exports contributed around $37 of domestic labor per $100 of exports in 2001, and declined to below $30 in 2011, well below that of Brazil and China, where the labor content instead increased, and India, where it remained stable. Enhanced participation in the automotive GVC—as both a buyer and a seller—fueled rapid growth of South Africa’s motor vehicle exports (Engel 2015), and more than compensated the decline in domestic labor intensity: the total labor content of motor vehicles exports increased significantly, almost tripling from $862 million to $2.3 billion between 2001 and 2011. Nevertheless, the growth in total labor value added (in USD) between 2001 and 2011 in South Africa was also lowest among these countries, growing annually on average at 10.4%, compared to 33.0% in China, 30% in India, and 13.5% in Brazil.

The significant growth in wages supported by motor vehicle exports occurred primarily as a result of the sector’s extensive backward linkages to the domestic economy. Direct wages paid to produce automotive exports increased modestly between 2001 and 2011, averaging 3.6% per year, and the direct labor content per $100 of gross exports more than halved. Instead, wage growth was largely concentrated in upstream input sectors, including other manufacturing sectors but primarily services sectors. Indirect wages paid to produce automotive exports increased annually by 15.4%, causing the indirect-to-direct labor value added ratio to increase from about one-half to more than two-thirds over the decade.

This greater need for services is consistent with greater GVC participation. Exporters increasingly make use of foreign inputs (reducing the labor value added paid directly to motor vehicle workers). But coordinating these inputs requires more intensive use of (mainly domestic) services, including financial services, transport and logistics, and other business services (Farole 2015), and overall the net result for wage growth in South Africa was positive. This finding reinforces the importance of services for a competitive manufacturing sector, whose production is increasingly fragmented across countries (Lanz and Maurer 2015).

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