Incentivise firms to invest across multiple countries, says AfDB lead

Despite sustained efforts to boost regional trade, African countries still trade more with the rest of the world than among themselves. Rectifying this imbalance calls for strategic investments in cross-border value chains in priority sectors across the continent, argues Joy Kategekwa, the director of the regional integration coordination office at the African Development Bank.

“Regional value chains are really a way to democratise who can participate in intra-African trade. We are no longer talking about a production dispensation where you have to make the whole product within a single jurisdiction. We’re talking more trade in parts,” she tells African Business in an interview on the sidelines of the African Economic Conference in Gaborone, Botswana. 

Firms investing across multiple jurisdictions should know that there are financial incentives for doing so, Kategekwa argues.

“With the AfCFTA, we’re saying if you add value on this continent, using products made on the continent, we shall consider them made in Africa for the purpose of preferential tariff treatment. The signal that sends to the market and to the producers is make it, and we’ll buy it.”  

“In its simplest form that is what the promise of the AfCFTA is and when you try to unpack that you are talking about jobs, raising incomes, structural economic transformation and opening a new page for Africa.”

Kategekwa argues that agriculture tops the list of sectors that offer the greatest promise for developing regional value chains.

“When you look at the list of the WTO’s net food importing countries, there’s a disproportionate representation of African countries there. It is a contradiction,” she says. “The Bank is going big in investing in special agricultural processing zones.”

Pharmaceuticals is another sector in which Kategekwa sees immense potential, especially in light of recent pandemics such as Covid-19 and Mpox that have highlighted the need for Africa to boost its own capabilities in vaccine development. 

“The Bank has been investing strongly in the African pharmaceutical manufacturing initiative based out of Kigali, Rwanda. And the idea really is to build the capacity of Africa to produce those pharmaceutical products that are critical for the continent.”

While the Bank can help to lay the groundwork, Kategekwa stresses that the private sector is critical to cross-border value chains.

“The state does not trade. These opportunities are for the private sector. The private sector industrialises, the private sector creates jobs, the private sector innovates. We have to see the private sector as the driver of growth in Africa.”

Policy improvements needed

However, Kategekwa says that for investments in multi-country value chains to take off, policymakers must ease restrictions on the free movement of people.

Traveling across Africa remains notoriously cumbersome, with high travel costs and byzantine visa regulations deterring many from exploring cross-border opportunities. The need for reform in this area cannot be overstated, she asserts.

“That Africans continue to require visas for the most part to enter other African countries is one of the most profound contradictions to the continent’s aspirations on regional integration,” she said during the launch of the ninth edition of the Africa Visa Openness Index, held in collaboration with the African Union.

“Think of tourism. There is no single country that does not want to reap the dividends of tourism – given the continent’s abundance of some of the most historic attractions. And yet, visa restrictions make it difficult for Africans to contribute to each other’s tourism revenues.” 

Ethiopian Airlines grows cross-border network

Samson Arega, group vice president of customer experience at Ethiopian Airlines, notes that cross-border integration offers a major opportunity for the aviation industry.

“The AfCFTA has the potential to significantly boost air travel by increasing demand for both passenger and cargo services. Enhanced mobility will drive economic growth, create jobs, and foster regional integration,” Arega tells African Business.

But he says the airline has to grapple with challenges such as restrictive bilateral air transport agreements, underdeveloped infrastructure, and protectionist policies. The lack of harmonisation of aviation policies across multiple jurisdictions also remains a major impediment to the industry’s growth, he says.

But Arega says Ethiopian Airlines has entered into joint ventures with other African airlines to build its footprint and benefit from economies of scale – an example of the cross-border model that Kategekwa is keen to promote.

“Our joint ventures with airlines such as Asky Airlines, Zambia Airways, and Malawi Airlines reflect our pan-African vision. These partnerships not only expand our network but also share our operational expertise with other airlines, enhancing aviation standards across the continent. This strategy ensures regional connectivity, supports local economies, and aligns with the goals of AfCFTA by facilitating trade and mobility,” he says.