AU and OECD point to regional value chains as key to Africa’s rebound

Last week, the African Union and Organisation for Economic Co-operation and Development launched the 2022 Africa’s Development Dynamics report, which charts a path for the continent’s economic recovery from the COVID-19 pandemic. The report — which has yet to be released, despite the launch — found that the pandemic is setting back Africa’s economic convergence with the world economy. Africa’s economic growth will reach 3.9% in 2022, one percentage point lower than the growth rate for the rest of the world. In 2022, Africa’s gross domestic product as a share of world GDP is also expected to fall to 4.7% — the lowest level since 2002. To counter this downward trend and ensure that the continent rebounds, the report recommended strengthening African countries’ productive capacities. Jeffrey Schlagenhauf, deputy secretary-general at OECD, said the first step to recovery is ensuring adequate access and distribution of vaccines. The second is to ensure better access to finance as African economies faced higher borrowing costs during the pandemic. The third is strengthening value chains and regional integration in a bid to make growth more sustainable and lasting. Schlagenhauf said African countries' participation in regional value chains hovers at roughly 3% of their participation in global value chains, compared with over 40% for developing Asia and 26% for Latin America and the Caribbean. Almost 80% of intra-African exports were processed and semi-processed goods, while 60% of exports destined outside the continent were unprocessed goods. “We do not only need free trade, we need fair trade. We must make sustainability the basis to global and regional trade.” --— Gerd Müller, director general, United Nations Industrial Development Organization “What these numbers tell us is that the potential to build regional value chains within Africa is huge,” he said, adding that intra-African trade can create opportunities for firms to move into higher value-added market segments. Arthur Minsat, head of the OECD unit for Africa and Middle East, added that “there is huge room for improvement.” In 2015, two-thirds of African countries were importing foods, he said, adding that though the agricultural value chain in West Africa is now worth $250 billion and accounts for 35% of West Africa’s GDP and 66% of employment, there are immediate improvements that can be made. For example, only 10% of irrigable land is irrigated and changing this could increase productivity by 15% to 35%. Minsat said in order to make such improvements African countries need to overcome obstacles such as high trade costs, limited competitiveness, and a fragmented investment landscape. Albert Muchanga, commissioner for trade and industry and mining at the African Union Commission, said African firms have been operating at the lowest rung of the ladder in regional and global value chains. “This is Africa's key challenge,” he said. “If the continent is to get to the next level we must accelerate the speed of transformation through value chain integration. That is what will reduce the level of commodity dependence by African countries.” Gerd Müller, director general at the United Nations Industrial Development Organization, said the African Continental Free Trade Area presents a great opportunity for African countries, as it creates a market valued at $3 trillion with over 1 billion consumers. Müller said strengthening regional value chains and market access within Africa and at the global level will not only help to create jobs and income but also reduce dependencies and strengthen competitiveness. He added that organizations need to work together to develop standards to ensure fair prices and knowledge transfer along supply chains. “Exports of basic commodities and low-value products cannot be the future for Africa,” he said. “We do not only need free trade, we need fair trade. We must make sustainability the basis to global and regional trade. The future must be for the processing of coffee, cocoa, and many other products to take place in the producer countries.”