The return journey for exports involves a second round of costs compounded by the infrequency of outbound shipping services from East African ports.<sup>51</sup> These are not the only factors constraining growth of light manufacturing and participation in GVCs. The business environment is discouraging for local and foreign investors alike in Uganda and Malawi (ranked 122<sup>nd</sup> and 110<sup>st</sup> by the Doing Business report for 2018).<sup>52</sup> It is substantially better in Rwanda (ranked 41<sup>st</sup> ), which is also has 58<sup>th</sup> place in the WEF’s competitiveness ratings for 2017<sup>53</sup> however, given locational<sup>54</sup> and other handicaps, further improvement would be helpful. Uganda (114<sup>th</sup> ) and Malawi (132<sup>nd</sup> ) lag far behind with respect to competitiveness and have a lot more catching up to do.

A more business-friendly environment could stimulate private entrepreneurial investment in tradables, which is low in all three countries.<sup>55</sup> The studies conducted by John Sutton and his collaborators for several African countries<sup>56</sup> showed that the dearth of mid-sized and large firms affects both growth and trade because bigger enterprises are frequently more productive and have the resources to engage in exporting. Sutton et al (2013) found that only 51 of the 200 leading firms in the four African countries, which they studied, started out as domestic, privately owned enterprises. More critically, as John Page (2016)<sup>57</sup> has noted, start-up activity is not resulting in an increase in the number of bigger firms – in fact the average firm size appears to be declining. The quality of management could be partly to blame as management scores for African countries are below the average for developing countries.<sup>58</sup> But it is only one of several factors – policy related, institutional and infrastructural - that are holding back development.

Can the three countries enlarge the benefits from participation in GVCs? Increasing the returns from participation requires some form of upgrading be it process, (increased productivity in existing activities), functional (more activities and steps including various pre-and post-production services), product (increasing variety) or 51 Cargo ships outbound from Dar to Europe transit via Salalah Port in Oman that increases the duration of the journey.

> 52 <u>http://www.doingbusiness.org/rankings</u>

> 53 - WEF (2017) <u>http://www3.weforum.org/docs/GCR2017</u>

– <u>2018/04Backmatter/TheGlobalCompetitivenessReport2017 2018AppendixB.pdf</u> 54 The LPI rankings for Uganda and Rwanda were 58th and 62nd respectively in 2016. World Bank (2016) http://lpi.worldbank.org/international/global 55 Page (2012) shows that private investment in low-income African countries falls well short of investment in low-income East Asian countries – 11.8 percent of GDP vs. 15.4 percent. <u>https://www.brookings.edu/wp-content/uploads/2016/06/10-africa-strategy-page.pdf</u> 56 <u>http://personal.lse.ac.uk/sutton/</u>

> 57 <u>http://set.odi.org/wp-content/uploads/2016/01/John-Page-slides-140116.pdf</u>

> 58 - - - - Page (2013) <u>http://www.theigc.org/wp content/uploads/2014/08/John Page Industry AGF2013.pdf; See Newman et al (2016); Bloom et al (2016) present scores for two African countries</u> Tanzania and Zambia. http://www.hbs.edu/faculty/Publication%20Files/16-133_57bdc522-5c6f- <u>4f26-8155-0f67b4de4f76.pdf; van Reenen (2016) https://www.fbe.hku.hk/file/upload/72822/Management-and-the-Wealth-of-Nations-HKUFBEKELecture.pdf</u>

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