Africa’s Development Through Value Chains: The Way Forward

Illustration by Anna Galvan

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By Beru Lilako

Imagine a continent where value chains thrive, people can trade freely across borders, businesses can access new markets and opportunities, where farmers can earn significant income from their produce, consumers can enjoy a variety of high-quality goods and services, and where poverty, unemployment and inequality are reduced. This is the AfCFTA’s promise to spearhead economic transformation in Africa.
 
To most Africans, the AfCFTA is more than a trade agreement, It is instrumental to Africa’s development. By driving the continent’s integration, the AfCFTA will contribute towards the development of wider and deeper regional value chains thereby laying the foundation for a “Made in Africa Revolution,” ensuring market access to several stakeholders. This means more value addition, innovation, creativity, productivity, competitiveness, growth and job creation.
 
The sectoral composition of trade is important in providing insight into the impact of the AfCFTA on specific regional value chains. A report by the World Bank highlights significant growth in trade in agriculture and manufacturing exports, but also provides a more granular view identifying textiles and clothing; manufactured goods; wood and paper products; processed foods; and chemicals as sectors where exports to AfCFTA state parties will increase significantly. 
 
Baker McKenzie (2021) identified industrial products and manufactured goods as drivers of intra-African trade including mineral products, machinery, motor vehicles and parts, chemicals, and fertilisers. John Stuart categorically highlighted the value of the automotive industry  to regional value chain development in his 2020 analysis.
 
There should therefore be more effort placed towards substantially reducing tariffs, developing and enforcing Rules of Origin, liberalising services-particularly trade enabling services- harmonising national and regional standards, reducing Non-Tariff Barriers, and enhancing trade facilitation of the AfCFTA to enable widening and deepening of regional value chains. This is necessary to ensure that there is greater trade within the continent and that there is greater value addition and structural change towards higher productivity sectors which generate more jobs.
 
    Credit: OECD

The AfCFTA will also play a fundamental role in the growth of regional value chains by reducing the time and cost of transacting across borders, enabling resources and skills to be shared across the continent, creating new market opportunities, and an enhanced regulatory environment for business. The level of opportunity varies based on Tariff and Services Offers, as stated in a 2021 tralac update fact sheet.

The private sector has identified strategic priority value chains that could increase intra-African trade, production, and employment. The key areas are:

  1. Agriculture and Agro Processing
  2. Pharmaceuticals
  3. Transport and Logistics
  4. Automotive Industry

These four sectors are filtered on the basis of the value of trade and then assessed for feasibility, economic growth, and inclusivity. There are many other opportunities in Africa for value chain expansion like cocoa, wheat, rice, nuts, and coffee. Through increased collaboration with the private sector, value chain development can increase the benefits for the poor and increase the chances for sustaining operations. For example, for small-scale traders involved in agriculture, benefits could include higher income, improved market linkages, and access to new tools and services for production.

Other downstream actors may benefit from improved quality and flow of raw material, lower transaction costs, and enhanced environmental and social credentials. Here, the farmers get more income, secure market linkages, and are afforded access to better services.

As stated by a UNDP report, meaningful value chain participation requires access to land, inputs, technology, knowledge, organisation, capacity, skill and infrastructure, which may not exist in some communities or some groups of asset-poor producers which makes technical assistance a necessity from all both local and regional stakeholders.

Ultimately, more effort is needed to foster innovation and investments in resilient livelihoods and value chain development. This will be achieved through partnerships with the private sector by offering incentives and de-risking solutions that make the case for private investment strong in a field traditionally overlooked by the private sector.

Beru Lilako is a policy analyst specializing in Regional Integration, Investment and Trade

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