Strengthening Fragile States with Value Chains

Value chains are easy to take for granted. In developed economies, the practice of many smaller businesses cooperating with a larger, lead firm with goods or services is commonplace. 

The production and distribution of everything, from tea or trousers to mobile phones and automobiles, relies on value chains, which are complex yet often seamless systems whereby individual businesses (suppliers) add value until raw materials are turned into finished products.

In fragile or conflict affected situations, however, the difficulties of establishing even basic value chains can be enormous. 

Small businesses operating in FCS often lack the access to training or financing they need to work confidently with large firms and meet their high, professional standards. These smaller businesses might also struggle to access electricity, while contending with limited transport infrastructure or a weak regulatory environment that makes leasing equipment or obtaining permits difficult.  

Without effective local value chains, larger companies operating in FCS are forced to source internationally, usually increasing their costs and complicating their production schedules. And once larger businesses have established routines for importing goods and services, local small businesses in FCS are weakened even further. 

For these reasons, establishing and supporting value chains is a priority for IFC in FCS, where the private sector can contribute to peace and stability by creating jobs and offering opportunity.   

Michel Botzung, IFC Manager for FCS Africa, said, “Value chains are a very good, very impactful intervention that combines IFC’s large corporate partners with smaller, local businesses. This creates increased revenues and increased employment while nourishing and developing local talent, helping a fragile economy grow stronger.” 

In Guinea, for example, IFC is partnering with Rio Tinto to create an extensive value chain at the mining giant’s Simandou iron ore mine, one of the largest private sector investments in Africa.

Even before production has started at the mine, IFC has already trained over 600 local businesses in Guinea, helping them win $9 million in transport, construction, catering, and other contracts with Rio Tinto. 

IFC’s local supplier development strategy also involves working directly with the large, ‘lead’ firm. In this case, IFC has helped Rio Tinto develop its “Guinea Buy Local Program” which encompasses Rio Tinto’s local procurement policies, procedures and activities to meet its commitment to increase local sourcing in Guinea. 
Cote d’Ivoire is another good example of IFC’s support for value chains. The West African country is the world’s top producer of cocoa, a coveted product that provides excellent opportunities for local firms to benefit. 

As part of its value chain development strategy in Cote d’Ivoire, IFC helped cocoa processor Cargill launch a business skills program that aims to train at least 400 cocoa cooperative managers in the country. IFC is also helping Cargill improve its environmental and social risk management systems, and through a risk-sharing facility is allowing cooperatives to lease trucks to transport raw cocoa. 

This combination of working with smaller businesses and a larger firm again illustrates how IFC lends its support across the whole value chain, making it possible for small businesses to gain the skills they need, while helping larger firms find and procure local support.  

The strategy highlights another benefit to establishing value chains in FCS, one that is increasingly important in African economies. Local procurement requirements mean that foreign firms must source at least some goods and services locally. In many cases, without the creation of value chains, this would be all but impossible. 

For more information on the value of value chains, and how IFC and other development groups are supporting them in Africa, please click here to watch a short video.

For more information contact Jason Hopps,

First Published: 12/14/2015