Manufacturing is key to boosting intra-Africa trade

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Trade and building manufacturing has the ability to turn Africa into a global economic force. Picture: istock
Trade and building manufacturing has the ability to turn Africa into a global economic force. Picture: istock

BUSINESS


The Covid-19 pandemic continues to dramatically affect economies globally, and those in Africa even more so. The pandemic halted production on the continent and also significantly reduced trade among countries.

This has left African economies in danger of even further marginalisation as a result of the economic damage that is being inflicted on their developing economies.

The World Economic Forum (WEF) – in collaboration with Deloitte – released its white paper titled Connecting Countries and Cities for Regional Value Chain Integration, Operationalising the AfCFTA (African Continental Free Trade Area) this month in which it emphasised that the implementation of lockdowns by many states has seriously affected supply chains.

The report looks at pathways to unlock manufacturing and to leverage integration and regional value chains in Africa.

It also looks at ways to deepen intra-African trade and unlock production capacity to meet local and global demands in strategic sectors.

Børge Brende, the president of the WEF, said AfCFTA is a new window of opportunity for Africa to ramp up its manufacturing sector.

READ: Increased trade - exactly what Africa needs post-Covid-19

“There is no sector that creates jobs, deepens local value chains, encourages the growth of a service economy and embeds intellectual property quite like manufacturing.

“An expanding manufacturing sector has been the backbone of economic take-off everywhere since the industrial revolution.

“The AfCFTA provides potential for forward-looking African countries to replicate previous experiences in Asia and emerge as new manufacturing nodes,” said Brende.

He added that the success of many Asian economies, including China, was fuelled by manufacturing.

The African Union (AU) launched the African Continental Free Trade Area (AfCFTA) on January 1 this year – a programme referred by many analysts as the most ambitious free trade project since the World Trade Organisation.

NEED TO INCREASE INTERGRATION

Research shows that for the past five years, intra-African trade hovered at around 15%, reflecting a pressing need to increase economic integration on the continent.

It shows that the current insufficient and inert interlinkages between African economies have exacerbated the effect of the Covid-19 pandemic on the continent’s supply chains.

However, if successfully implemented, the AfCFTA can stimulate trade as well as deepen and create new regional value chains that could result in competitive value chains and resilient supply chains on the continent.

This highlights the limited production capability in Africa to meet the needs of the continent given that African countries predominantly export primary goods and unprocessed goods
Ebrahim Patel

According to the department of trade, industry and competition (dti), intra-African trade totalled $137.6 million in 2019, approximately 4.7% less than in 2018.

The department adds that only 16% of total African exports and 12% of total African imports were to and from African countries in 2019.

“This highlights the limited production capability in Africa to meet the needs of the continent given that African countries predominantly export primary goods and unprocessed goods,” said DTIC minister Ebrahim Patel in a statement.

Patel said intra-African trade has been low for the past five years, showing that the continent is, to a large extent, dependent on raw materials. He said this was mainly due to this the low levels of industrialisation in Africa.

Patel said it is envisioned that, by reducing barriers to trade, the economic prospects of a continent of over 1.3 billion people with a combined gross domestic product (GDP) of $2.5 trillion – almost identical to India’s – will be boosted.

BOOST INCOME

“It has been calculated that if Africa were to increase its share of global trade from 2 to 3%, this one percentage point increase would generate approximately $70 billion of additional income per annum for the continent,” he said.

The WEF report states that approximately 27% of Africa’s total exports come from South Africa and amounted to $24.1 million in 2019 compared to 20% of Nigeria’s exports to African markets which amounted to $11 million in the same year. The report also notes that South Africa’s total exports were 4% less than the value recorded the previous year while Nigeria’s exports increased about 57% more than the preceding year.

South Africa, Nigeria and Namibia are the main suppliers of the top five exported products in the African continent. South Africa being the prime supplier of most machinery, vehicles and their parts in Africa.

Equally important, intra-African key importing markets are South Africa, Namibia, Ghana and Botswana, respectively accounting for 15%, 7%, 7% and 7% of aggregated Africa imports from African-supplying markets, reads the report.

The DTIC shows that approximately 12% of South Africa’s world imports come from African-supplying markets and these imports amounted to $10.2 million in 2019, approximately 13% less than in 2018.

TRADE ACROSS POWERHOUSES

“The key concerns are the declining trend of intra-African trade across these powerhouses and declining investment in local production capacity,” said Brende.

This is why 54 African states have supported and promoted the implementation of AfCFTA.

The AfCFTA agreement presents Africa with an opportunity to boost intra-continental trade and harmonise African trade arrangements across regional economic communities in order to improve governance.

READ: Africa's free trade area can lift continent out of poverty

These are 54 sovereign nations, with a consumer base of 1.2 billion people and a combined GDP of more than $2 trillion.

The AfCFTA agreement is also expected to yield economic gains for the African continent, including $16.1 billion welfare gains, employment growth of 1.2%, intra-African trade growth of 33%, and a 50% decline in Africa’s trade deficit.

“Equally important, the 97% of tariff-free trade across African markets together with reduced trade barriers and the liberalisation of services trade instigated by the AfCFTA agreement will potentially unlock lucrative benefits for investors and businesses operating in Africa,” said Patel.


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