Unlocking Africa’s Potential to Beneficially Participate in Global Supply Chains

1. Introduction

Despite most African countries joining the World Trade Organization in 1995 and a few more acceding to the organisation thereafter, the significance of their membership is yet to translate into tangible economic growth. Within the African continent, several continental and regional economic integration schemes abound, albeit falling short of paving a trajectory defined by corresponding trade-led economic growth. This raises a question concerning the role Africa plays in global and continental supply chains. It is, therefore, important to contextualize African trade in the wider global economy and interrogate Africa’s role and relationship with global supply chains.

     2. Global and Continental Economic Integration of the African Continent

Prior to the economic growth decimating effect of the Covid-19 pandemic on the global economy, Africa’s trade integration prospects remained bleak, and this has been so for decades. In this context, total trade from the African Continent to the rest of the world reportedly averaged US$760 billion in current prices in the period 2015–2017 relative to $4,109 billion from Europe, $5,140 billion from America, and $6,801 billion from Asia. The share of exports from Africa to the rest of the world ranged between 80% and 90% in 2000 –2017. Intra-African exports were at a meager 16.6% of total exports in 2017, compared to 68.1% in Europe, 59.4% in Asia and 55.0% in America. Generally looking at intra-African trade, defined as the average of intra-African exports and imports, it hovered around a disappointing 2% during the period 2015–2017, relative to America, Asia, Europe and Oceania that respectively registered 47%, 61%, 67% and 7% levels of intra-regional trade. These statistics imply that Africa’s participation in international trade is particularly far below its potential.

       3. Africa’s Role in Global Supply Chains

Africa is a major global exporter of commodities like oil, gold, cocoa, coffee, iron ores, and copper. Primarily, this implies that Africa is increasingly taking part in global supply chains at the least value-added level of the chains. Moreover, the participation of the continent is regionally skewed with Europe (the EU and the UK) appearing to account for more than 60% of African value-added in global exports to be particularly important in the integration of African firms into global supply chains. Consequently, close integration of African firms within Europe‐led supply chains corresponds to the rise and fall of Africa's participation in the pace of European production. Furthermore, in respect of backward and forward linkages as indicated in figure 1 below, Sub-Saharan Africa’s participation in global value chains is dominated by exports of primary products rather than imports of foreign value-added or intermediates for further upgrading for export.

This implies that Africa’s integration in global value chains is defined by low integration of global supply chains by virtue of being limited to primary products and regionally undiversified markets. This renders Africa's engagement in the lowest level of the global supply chain in terms of value, vulnerable due to being regionally undiversified.

 Figure 1 Trends in Sub-Saharan Africa’s Participation in GVCs, 1990–2015 

Source: Abudu and Nguimkeu 2019.
Note: DVX = indirect value added; FVA = foreign value added; GVC = global value chain.

        4. Conclusions and Recommendations

The role of Africa in global supply chains is generally confined to forward linkages while being trapped in the commodity curse of producing primary products bound for undiversified markets. In this context, remedial and innovative measures must be implemented to ensure the beneficial participation of the continent in global supply chains. These are as follows:

1. Industrial policy must shift from the traditional stance aimed at developing entire industries domestically to focus on moving into higher-value-added tasks associated with manufacturing industries. 
2. Small markets that characterize boundaries between countries must be consolidated through trade policy to rationalize meaningful domestic and foreign direct investment.  
3. Rationalizing sectors that could benefit from being linked with transnational companies and those that can compete with international firms
4. Extending strategic and non-traditional market access defined by revealed benefits and multisectoral coverage of areas of interest. This is opposed to blanket market opening not based on revealed sectoral and or related cross-sectoral interests. 
5. Rationalizing import tariffs meted against intermediate inputs to foster high-value participation in global supply chains
6. Reducing trade costs through infrastructural development to build relevant ecosystems.
7. Put in place supportive policies such as competition policies to reduce and eliminate barriers to market entry, ease capital requirements providing access to credit, investing in skills education and skills development.
8. Building cross country and cross-regional infrastructure as well as shared institutions aimed at fostering the smooth provision of services and movement of goods across borders.

References

1. Abreha et al (2021) Industrialization in Sub-Saharan Africa: Seizing Opportunities in Global Value Chains. International Bank for Reconstruction and Development / The World Bank, Washington 
2. Abudu, D., and P. Nguimkeu. 2019. “Public Policy and Country Integration to Manufacturing Global Value Chains: The Roles of Trade, Labor Market Regulation and Tax Incentives.” World Bank, Washington, DC. 
3. Banga, K et al (2020) Africa trade and Covid‐19 - The supply chain dimension https://cdn.odi.org/media/documents/Africa_trade_and_Covid19_the_supply_chain_dimension.
4. UNCTAD (2019) Economic Development in Africa Report 2019: Made in Africa: Rules of origin for enhanced intra-African trade https://unctad.org/press-material/facts-figures-0