An in-depth look at African trade flows reveals two weaknesses in continental value chains: ‘missing links’ and low use of inputs from the continent. This according to a new report by the International Trade Centre – titled Made by Africa: Creating Value through Integration – which shows while Africa is rich in natural resources, many intermediary or final production steps occur elsewhere, limiting local value addition.
In some manufacturing value chains, African countries are important producers of initial inputs but do not participate much in intermediary steps required to produce the final product. Such missing links force African producers to import crucial intermediary inputs from other continents. This trend is evident in several value chains, such as automotive (copper wire) and cotton clothing (yarn and fabric).
Missing links occur in the automotive value chain around the production and use of automotive wires, for example. Africa has a trade surplus in copper alloys, the first step of the value chain. Net exports, mainly from the Democratic Republic of Congo and Zambia, amount to €6.7 billion. However, 93% of these copper alloys are exported to other continents, mostly Asia and Europe. The second production step, transforming copper alloys into copper wire, occurs there.
For the third production step, African producers, mainly Morocco, Tunisia and Egypt, import copper wire from Asia and Europe and transform it into insulated wire. They export it, chiefly to Europe, with a trade surplus of €1.9 billion. Insulated wire is used in various car components, including electric motors, sound systems, lighting systems and brakes and safety systems. In these, as well as in cars, Africa has a trade deficit, with net imports of €1.8 billion and €5.9 billion, respectively.
African producers of final and intermediate goods in different value chains source most imported inputs from other continents. Missing links occur in different value chains, such as infant food, cotton apparel and vehicles.
Limited sourcing within the continent
Although many African countries produce the raw inputs used in the manufacturing of baby food – foodstuffs (fruits and vegetables, cereals, dairy products and more) as well as packaging items (jars, lids and cartons) – African producers source just 16% of inputs in this value chain from the continent. Transforming locally sourced inputs would not only add value in Africa, but it would also increase the production of infant food, reduce the continent’s import dependency and respond to the steep increase in demand expected over the coming years.
This is also the case in the automotive value chain, notably the production of vehicle seats. African countries can provide almost all key inputs needed to produce seats – from leather, synthetic textiles, bolts and screws to propylene polymers and polyvinyl chloride – but African producers import only 9% of such inputs from other African countries. Using more African inputs would strengthen regional value chains, create jobs and boost Africa’s export potential.