- Four feasible value chains, namely pharmaceuticals, cars, cotton apparel and baby food, could drive intra-Africa trade
- A new report said the four areas link at least five African countries from different regions and have the potential to add value, reduce imports, lift trade and diversify economies for women and youth
- Despite the potential, several challenges stand in the way of using the four areas to boost intra-Africa trade, including lack of trust in product quality
New research has shortlisted four feasible value chains that could drive intra-Africa trade out of more than 415 possibilities.
According to the ‘Made by Africa: creating value through integration’ report, the four areas are pharmaceuticals, cars, cotton apparel and baby food.
What can Africa do to boost the value of intra-Africa trade?
The report said the four areas link at least five African countries from different regions and have the potential to add value, reduce imports, lift trade, diversify economies and open opportunities for women and youth as part of intra-Africa trade.
For instance, only 3% of imported pharmaceutical inputs are sourced from Africa. The report shows a large trade deficit for the commodity and high and increasing import dependency. There is also a massive policy push to strengthen Africa’s pharmaceutical sector. Global pharmaceutical companies are eyeing Africa, and initiatives to set up production facilities are underway.
At the same time, the value chain for cars has a high potential for intra-Africa trade. According to the report, there is a large and growing continental market with the potential to connect with value chains such as leather and electrical machinery and grow collaboration with foreign multinationals. This means that the sector presents a wealth of investment incentives.
The report also found that Africa accounts for 10% of the world trade in cotton. It further noted that the continent has a huge scope to add value in the middle steps of the value chain, such as for yarn and fabrics, making it a sector worthy of investment.
Additionally, the intra-Africa trade report states that African reliance on baby food imports despite an abundance of locally available food sources makes this a strong choice for regional sourcing and production.
“It is also a good sector for small businesses and for job creation for women,” the report said.
Interestingly, the report noted that in the four pilot value chains, only 7% of total sales, on average, stem from intra-africa exports. Yet, the African business community supports efforts to develop sustainable regional value chains.
What challenges does intra-Africa trade face?
Despite the potential, several challenges stand in the way of using the four areas to boost intra-Africa trade.
In the pharmaceutical field, for instance, there is limited technical know-how and weak processing capabilities that stifle production in Africa. This is compounded by low-cost producers in Asia and the counterfeit medicine market that also weakens the competitive position of African manufacturers.
“Further obstacles include the absence of a continent-wide regulatory framework and limited knowledge of existing opportunities in Africa,” the report on intra-Africa trade said.
Further, the report noted that the lack of a continent-wide strategy had kept the African automotive sector highly fragmented. As such, the influx of cheap, imported second-hand cars and a weak regulatory environment to control the sector have kept investments low.
“Poor processing capabilities due to limited technical know-how and lack of access to modern technologies have made it challenging to attain economies of scale.”
Africa also faces the challenges of lacking the technical know-how on modern production machinery for cotton apparel, despite being the top producer of the commodity in the world. The continent also lacks qualified personnel, which leaves the continent dependent on imports of cheap yarn, fabric and second-hand clothes. Additionally, networks of input producers and output suppliers in Africa are limited, mainly due to insufficient market information and weak marketing capabilities of businesses.
Using baby food to boost intra-Africa trade will also be hindered by the fact that there is the limited production capacity of the commodity and low consumer trust in local brands.
“Quality is a key consideration in the production and packaging of baby foods, but lack of modern production machinery and a weak quality infrastructure have curtailed growth.”
To mitigate the challenges, the report recommends a raft of measures, including defining a continental strategy for promising value chains, translating it into regional and national contexts, and creating an enabling environment for value chain integration by addressing everyday challenges.