Climbing value chains: Options for African policy makers

Africa’s economic landscape has changed considerably over the last 20 years. After two decades of sustained economic growth, sub-Saharan Africa’s GDP is almost US$1.5tr. Its middle class rose to 350m people in 2010, up from 126m people in 1980 and in 2010, consumer spending stood at approximately $600bn.

Yet, despite all these improvements, Africa’s position in the global trading system places the continent at a great disadvantage in terms of trade dynamism and developmental potential. The continent’s predicament is usually characterised by African firms being stuck at the bottom of global value chains, primarily exporting raw materials while importing finished goods.

In 2011, Angola produced 1,785,000 barrels of crude oil per day but its refinery capacity represented a meagre 39,000 barrels a day, half of its daily consumption rate of 88,000 barrels. The difference is met through a costly import bill. Another example of inefficient integration in global value chains is in the coffee sector where Germany alone, a non-producer of coffee, exports more coffee than the whole of Africa combined, with the value of its exports almost doubles that of Africa.

The reasons for Africa’s failure to participate more effectively in global value chains are numerous. They range from inadequate transport, energy and telecommunications infrastructure to cumbersome border procedures, poor business environments, lack of technology, skills and low institutional capacities.

In this article, the objective is not to focus on the challenges but on the opportunities presented to African firms by the rise of regional and global value chains. The argument put forth is that in the short to medium term, most opportunities for African firms to integrate into regional and global value chains are likely to be within agro industry, trade in tasks (for goods or services) or industrial migration.

Opportunity 1: Agro industry

Agro industry may present the most straightforward opportunities for Africa to link to regional and global value chains. This is primarily because population growth, increased dietary changes, rising incomes and urbanisation in many parts of the developing world (particularly Asia) shall continue to drive up demand for agro-based products. In this market environment, Africa has great potential for increasing agriculture-based exports.

Opportunities exist for value chains upgrading in many sectors especially rice, maize, sugarcane, dairy, cocoa, cotton, tea, coffee and oil palm. However, constraints to value chains upgrading are difficult to pinpoint since they are specific to each value chain and its corresponding markets (local, regional or global). This highlights the need for policy makers to remain vigilant and to deepen their understanding of relevant value chains so as to ensure that policy interventions are targeted and efficient.

With more than 450m hectares of land, the continent is home to nearly 50% of the world’s arable land. Private sector’s interest in African agriculture is at an all-time high. This is evidenced by the massive increases in agriculture related land acquisitions over the last few years. With the right policy mix, negotiations of better land deals and investments in technological upgrading and standards infrastructure, Africa could commercialise its agriculture sector and position itself to capture many higher segments in regional and global value chains for a wide range of agro-based products.

To achieve this goal, governments and business leaders will need to revamp their policy frameworks in support of agriculture, farmers and agribusinesses. Scaling up agricultural research and facilitating access to affordable capital, water, energy, transport and inputs will also be key.