Developing agricultural value chains, efficient transport, and logistics are key to achieve resilience of the African regional market beyond the COVID-19 pandemic
PhD Student of Integrated Coastal Zone Management at University of Cape Coast
As the COVID-19 pandemic swells in cyclic thrusts of its demise, African countries must learn from the lessons of economic disruption to develop local industries and engage in South-South partnerships to emerge resilient in the post-pandemic era. Throughout the history of African trade, it is unarguable that Africa is least integrated into Global Value Chains (GVCs) due to low value-added manufacturing across all sectors. Even today, Africa has the most disintegrated regional value chains as manifested by a low intra-African trade of 16% according to the Standard Bank (2021). Consequently, the region is less affected by global value chain disruptions, but experiences significant knock-on shocks due to dependence on commodity exports, and overreliance on imports of manufactured goods from global suppliers, largely the European Union (EU), China, and the United States. The EU (2021) observed that 70% of exports to Africa in 2020 were manufactured goods while the EU imported over 61% in primary goods.
The lack of commodity value addition and undiversified portfolios affect the trade participation and competitiveness of African countries. Additionally, trade barriers, numerous supply-side constraints, political and regulatory risks compound the situation and render African economies vulnerable to any kind of disruption. COVID-19, however devastating, triggered a “wake-up call” for African countries to stop trade dependence on developed countries and establish South-South trade partnerships, to build confidence in regional trade and boost intra-African trade.
The timely inception of the African Continental Free Area (AfCFTA) in January 2021 presented a golden opportunity for African countries to develop and strengthen African value chains. In its entirety, the AfCFTA represents not only an economic blueprint or continental free trade master plan but a robust supply chain resilience initiative to achieve inclusive trade-led economic growth among African countries. To achieve the AfCFTA objectives, individual governments must commit to industrialize and develop and diversify value-added and export-oriented agricultural production. Importantly, to stimulate industrial development, governments must provide a favorable investment climate for private investors.
Infrastructure development, especially transport and communications infrastructure is key to achieve regional trade integration and trade-led economic growth. Regional integration should be harnessed as a shield against vulnerability during disruptions. Presently, transport and communication infrastructure represents one of the most daunting constraints hampering African trade. KPMG (2013) estimated the cost of transportation in Africa to be between 50% and 175% higher than other regions. By the same token, many studies confirm that poor transport infrastructure adds between 30% and 40% to the cost of goods traded in Africa. Therefore, governments must resolve political and regulatory risks and speed up investments in transport and communications infrastructure to stimulate efficient logistics, reduce transport costs and increase intra-African trade.
Observing that small and medium enterprises (SMEs) are the powerhouse of African economic development, governments must support SMEs. According to the African Economic Brief (2021), SMEs constitute at least 90% of businesses and almost 80% of employment. To become competitive, SMEs must collaborate, scale up production, and diversify portfolios to increase market share. In addition, SMEs must leverage payments solutions, such as Afreximbank’s Pan-African Payment and Settlement System (PAPSS), and credit finance like Factoring towards trade participation in the AfCFTA and beyond. In addition, innovative technology-based financial platforms by Fintechs are growing exponentially and future collaborations between Fintechs and banks will catalyze onboarding SMEs into supply chain finance (SCF) programs, simplifying SMEs' access to trade finance. To mitigate regulatory risks and avoid conflicting compliance rules, there is need to mutually harmonize regulatory and policy frameworks among African countries.
There are many opportunities for South-South and Triangular Cooperation (SSTC) since South-South value chains are still underdeveloped. According to the International Fund for International Development, IFAD (2019), SSTC plays an important role to develop initiatives embedded in the 2030 Agenda for achieving sustainable development goals. SSTC plays an important role to steer development cooperation among developing countries, through training, agricultural and rural development, digitization, and technology transfer. Bilateral and multilateral trade agreements can be used to steer South-South cooperation, and leverage trade facilitation instruments like Afreximbank’s Fund for Export Development in Africa (FEDA) to catalyze foreign direct investments and tap infrastructural development support from other development finance institutions like the African Development Bank and World Bank.
It is prime time African countries stop overreliance on the export of raw agricultural commodities and mineral ores. As governments endeavor in haste to conclude the pandemic with a jab, the vaccine should not be a recipe to fall back to the old habits of yesteryear. In the AfCFTA era beyond the COVID-19 disruption, developed agricultural value chains and efficient transport and logistics are key to achieve resilient value chains in Africa. African countries must leverage the AfCFTA and available trade facilitation instruments towards regional economic growth which, surely, cannot be an impossible task. Or is it?