Accelerating Africa’s industrialization through trade

Africa is rich.

The continent is rich in natural resources, from arable land to renewable energy sources to tropical forests and wildlife. Most of all, it is rich in human resources: Africa has the youngest population in the world and will be home to at least a quarter of the world’s population by 2050. The world population passed eight billion this week.

Just like anything else, the continent’s natural endowments and burgeoning population can be used for good or otherwise. Rushing waters can be harnessed as energy or can become a destructive force.

It’s time now for Africa to identify and seize the wealth of opportunities on the continent, to take its place as a recognizable economic power, with an equal seat at global negotiating tables. And the way to get there is to unite policymakers and businesses to achieve a common goal: putting the African Continental Free Trade Area, or AfCFTA, into action.

Going back to the basics

As this piece goes out, tens of thousands are returning home from this year’s United Nations Climate Change Conference, COP27, in Sharm El-Sheik, Egypt. This conference was dubbed the “Implementation COP” and the “African COP”, the first COP back on the continent in six years, with arguably the strongest-ever focus on the needs of developing countries.

Big on the agenda, alongside climate finance, was the need to ensure the low-carbon transition is a just one for countries most vulnerable to climate damage – countries that have done the least to get us in this situation. This includes African countries which home only 3% of global emissions, but together make up half of the most climate-vulnerable countries.

Balancing the low-carbon transition with industrialisation may not be easy, but the AfCFTA offers a continent-wide, united response to climate change crisis – as well as other crises, namely COVID-19, conflict and cost of living – to put Africa on a path to sustainable development and economic growth.

To get there, focus on the basics: Prioritize areas of investment using data-backed research, channel interventions in the right direction and remove barriers in vital sectors.

Investing in intra-African trade

ITC data show intra-African export growth potential to be US$22 billion, prior to targeted value chain development efforts.

While the opportunities are great, so is the need for action. Africa’s footprint in the international market is still small, accounting for just 2.3% of global exports, with an export basket heavy on primary commodities and natural resources. About 14% of the continent’s exports are destined for other African countries, and much of this trade is in transformed products. What may come as a surprise is that intra-African trade is more diversified and technologically advanced than Africa’s trade with the rest of the world. Strengthening regional trade therefore plays a crucial role in supporting greater value addition, diversifying supply chains, boosting resilience to crises and industrialization – ultimately contributing to job creation and better livelihoods on the continent.

In short, investing in diversification and stronger regional value chains, under the umbrella of the AfCFTA, is key to unlocking Africa’s full economic and development potential.

There is no better time to look at this than now, on the eve of the African Union (AU) Industrialization Summit in Niamey, Niger.

Prioritizing promising value chains

The theme of this year’s AU Summit is “Industrializing Africa: Renewed commitment towards an inclusive and sustainable industrialization and economic diversification”.

In line with this theme, we at the International Trade Centre (ITC) worked with the AU Commission and the European Commission to examine value chains to identify sectors with high potential for sustainable development and the bottlenecks that prevent businesses from fully realizing this potential.

Through extensive data work, we’ve identified 94 value chains as promising and feasible at the continental level. Drilling down further, four sectors emerge as especially promising, including for small businesses, which make up 90% of companies and more than half of jobs worldwide: pharmaceuticals, baby food, cotton clothing and automotives.

Each of these value chains link at least five African countries from different regions. They reflect African goals to improve food security, health and tech skills – all key to building resilience and therefore making them strategic choices for governments and investors.

Pharmaceuticals is a critical sector, in particular emerging from the pandemic, to improve health and reduce imports.

Baby food draws on the agricultural sector, contributing to sustainable food security and nutrition, at a time of global supply chain disruptions.

Cotton clothing offers opportunities for millions of people in Africa’s least developed countries to find jobs through value chain integration.

Automotives has high potential for intraregional trade growth, with links to other value chains, such as leather and electrical machinery, as well as foreign multinationals looking to invest.

Interviews with thousands of businesses, business support organizations, industry experts and other stakeholders in Africa confirm that these sectors are feasible for intra-regional growth, as highlighted in a new report, Made by Africa: Creating Value Through Integration.

The interviews show that the transformation is already happening. Take the example of a Ghanaian electric vehicle company, where 60% of engineers are women. Or the fact that 77% of surveyed companies along the four value chains are already greening their production processes, from reducing energy and water use to recycling waste, investing in recyclable or biodegradable packaging and developing circular business models, for example, by producing high-quality clothing from fabric waste and unusable second-hand clothing. 

Industrializing through small businesses  

Helping small businesses to compete and connect to value chains is central to ITC’s mission, with our current project portfolio covering 50 African countries. We support awareness-raising of the AfCFTA through online platforms, public-private dialogues and training courses, and we work to strengthen business support organizations and facilitate business-to-business connections.

Through our One Trade Africa Initiative, we work closely with African policymakers and businesses to ensure that regional integration opens doors not only for large companies such as Dangote and Ethiopian Airlines, but also for small businesses, including those owned by women and youth and those operating informally.

To integrate small businesses in regional value chains, we have to understand who they are, where they work, who runs them, whether they export – in short, their detailed profiles. This is a difficult task due to large data gaps, which is why earlier this year we set out to map Africa’s private sector.

This mapping is a joint endeavor with the AfCFTA Secretariat, covering not only the characteristics and competitiveness of African firms, but also the performance and interconnectedness of regional business support institutions. The intel gathered will support the sensitization, advocacy and training efforts to be done as part of the ambitious AfCFTA Private Sector Engagement Plan. Also with the AfCFTA Secretariat, we have prepared an AfCFTA glossary – in English, French, Arabic and Portuguese – for small firms to better understand what the Agreement means for them.

Underlying all our efforts to support the smooth, practical implementation of the continent-wide free trade area is a focus on what works for Africa, by Africa. ITC is here to support small businesses and policymakers alike, from identifying areas of collaboration to providing data to support decision-making and implementing solutions alongside key partners.