Regional value chains are key to Africa’s prosperity

By providing the framework to establish robust regional value chains, the African Continental Free Trade Area will help to develop the continent's industry and agriculture and drive prosperity.

Opinion by

Image : sabino.parente / Adobe Stock

The establishment of the African Continental Free Trade Area (AfCFTA) has been hailed, rightly, as having the potential to very considerably alter the continent’s fortunes for the better.

A good deal of this conviction is based on the AfCFTA’s principal mandate which is to forge regional value chains (RVCs).

Likewise, just as the AfCFTA fosters the establishment and consolidation of RVCs, so do strong RVCs provide the web of interconnected cogs and springs that keep the AfCFTA going deeper and further. The AfCFTA and RVCs are mutually reinforcing factors in the pursuit of Africa’s integration and development agenda.

African economies have been characterised by a heavy reliance on the export of raw materials, often failing to capture the full value of these resources. This traditional export model not only limits economic diversification but also perpetuates vulnerability to external shocks.

The AfCFTA offers a unique chance to reverse this trend by fostering intra-regional trade and encouraging the creation of RVCs.

The development of RVCs involves a multi-step process that encompasses various stages of production within a region, from raw material extraction and processing to production of intermediate goods, to final product assembly.

By focusing on these interconnected processes, African nations can collaborate to enhance their production capacities, technology sharing, and skills development, leading to a more robust and integrated economy.

The power of the AfCFTA to boost sustainable development by fostering RVCs comes out clearly in modelling by the UN Economic Commission for Africa, which has demonstrated that full implementation of the AfCFTA by all AU member states could boost intra-African trade by over a third ($196bn) by 2045 compared with a situation without AfCFTA.

Importantly, the impact of the AfCFTA is felt the most in the industrial sector, where ample opportunities exist for different state parties to specialise in the production of specific parts and components of the final product, seamlessly connected by RVCs.

ECA analysis has confirmed that, with a few exceptions, the bulk of the absolute gains in national exports to the rest of Africa following AfCFTA implementation is concentrated in industrial products.

Among the most promising RVCs are those for pharmaceuticals, baby food, textiles and apparel, and automobiles. The development of these industries transfers skills, creates jobs, reduces demand for hard currency to finance imports, etc.

Importantly, this also reduces Africa’s vulnerabilities due to its excessive dependence on imports for such essential products as medicines and food, which were laid bare by the Covid-19 pandemic and the Russia-Ukraine crisis recently.

As noted earlier, one of the most significant advantages of RVCs is the potential for job creation. As countries specialise in specific stages of production within a value chain, they not only increase efficiency but also generate employment opportunities. This is particularly crucial for a continent with a burgeoning youth population, where unemployment rates remain alarmingly high – while informal women-owned businesses are hit especially hard.

By participating in RVCs, African nations can harness the energy and creativity of their young workforce, effectively channelling their talents towards productive and sustainable economic activities.

Technology transfer

Furthermore, the development of RVCs can contribute to technology transfer and knowledge sharing among countries. As African nations collaborate on different production stages, they can pool resources and expertise, fostering innovation and the adoption of advanced technologies. This shared learning will not only lead to improvements in productivity but also strengthen the continent’s overall technological capabilities.

In the agricultural sector, where the opportunities for RVCs are relatively more modest, its potential has been further limited by market fragmentation, inadequate infrastructure, and market access barriers.

Harnessing the power of a well-developed agribusiness value chain holds the key to unlocking food security and rural development across the continent.

Creating a robust and integrated value chain requires collaboration among various stakeholders, including farmers, agribusiness enterprises, processors, distributors, and retailers. By connecting these actors, African nations can foster a more efficient, inclusive, and resilient agribusiness sector.

One of the foremost benefits of a well-functioning agribusiness value chain is the potential to enhance food security and reduce post-harvest losses.

In many African countries, a significant portion of agricultural produce is lost due to inadequate storage and transportation facilities. A comprehensive value chain approach can address these challenges by improving infrastructure, cold storage facilities, and transportation networks. This, in turn, ensures that more produce reaches consumers, stabilising food prices and reducing the risk of shortages.

Furthermore, a robust agribusiness value chain can drive rural development and poverty alleviation. By strengthening value chains, rural communities can benefit from increased access to markets, higher income opportunities, and improved living standards.

Additionally, value chain development can encourage the adoption of modern farming techniques, technology, and knowledge transfer, enabling farmers to enhance their productivity and overall wellbeing.

Raw material database

The development of robust agri-food value chains at the national level is a prerequisite for the establishment of RVCs that can serve the regional and continental food security imperatives.

Similar opportunities exist in other sectors such as pharmaceuticals, automotive, textiles and apparel. ECA works closely with its partners in supporting the development of RVCs in several areas, such as the project to set up an Africa-wide database of raw materials and inputs for the textile industry in the context of the AfCFTA.

The AfCFTA creates unique opportunities for businesses in different parts of the continent to specialise in the production of components in which they have the competitive advantage.

When those parts are put together to produce a final product, everyone benefits. The AfCFTA makes this possible – and profitable – for everyone involved. What is often forgotten is that, these RVCs that are made possible by the AfCFTA also provide the network of industry and commercial relationships that oils and propels the AfCFTA project, taking the integration of national markets deeper, further and faster. This way, the AfCFTA and RVCs reinforce each other.

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Melaku Desta

Melaku Desta is coordinator of the African Trade Policy Centre at the UN Economic Commission for Africa.