Why Regional Value Chains in Africa Need to go Digital

Workers produce face masks at KICOTEC in Kitui, Kenya. Image: Getty, Luis Tato
Workers produce face masks at KICOTEC in Kitui, Kenya. Image: Getty, Luis Tato

After years of de-industrialisation and limited intra-regional trade, which have been serious constraints to inclusive growth and development, African countries have an opportunity to leverage the potential of the African Continental Free Trade Area to accelerate their industrialisation efforts and greatly improve their economic well-being.

Summary:

  • For years, Africa has been dependent on foreign aid and the revenue generated by a limited export basket, comprising mainly primary goods. The continent has also been de-industrialising. The African Continental Free Trade Area (AfCFTA) provides an excellent opportunity for countries to re-energise and diversify their economies and expand their markets through regional value chains (RVCs).
  • While global value chains (GVCs) often comprise complex networks of international companies trading across many borders, RVCs provide an important foundation and ‘training ground’ for more extensive GVC structures. The more RVCs that take root and leverage digitalisation opportunities in Africa, the more successful Africa’s (re)industrialisation efforts will be.
  • Trade on the continent is being given added momentum by eight regional economic communities (RECs), each striving to increase trade between members. The creation of RVCs within these RECs is a logical way to stimulate economic growth.
  • Digital transformation is key to the successful implementation of the AfCFTA, which is intended to break down barriers to trade on the continent and unleash untapped import and export potential. This calls for significant investment in infrastructure, technologies and human capital. Digital transformation also goes hand in hand with well-functioning RVCs.
  • Micro, small and medium enterprises (MSMEs) should be engines of growth in Africa, but they often lack the finance, skills and technological tools to engage in efficient cross-border trade. Many African MSMEs are led by women and young entrepreneurs, who face the greatest hurdles in running sustainable operations. Given the right support, investment and business tools, MSMEs have the potential to dramatically boost economic development on the continent.
  • Value chains can either have positive or negative effects for Africa. Kenyan company Twiga Foods, for example, reduced the cost of fresh food for urban consumers by cutting out the middleman and delivering foodstuffs directly from farm to buyers. In contrast, the coffee industry in Africa (which is predominantly export oriented) is restricted to low-value activities in the coffee GVC, which does little for African producers’ profitability and growth prospects.
  • African countries should take advantage of the opportunities presented by the digital age (propelled by COVID, the launch of the AfCFTA and the shift towards efficiency-enhancing technologies in RVCs) to diversify their exports and strengthen regional ties. In this regard, the synchronisation of data and technology interoperability between countries is vital.
18 Oct 2021
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Research by
Series
SAIIA Occasional Paper No 331, September 2021
SAIIA Programme
Economic Diplomacy
Tags
African Continental Free Trade Agreement (AfCFTA), Global Value Chain
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