Africa is a resource-rich continent, specializing in fuel, mineral and agricultural exports. Statistics on revealed comparative advantage (RCA) show that Africa exports proportionally more primary products than most other regions. Crude materials, which include ore, metal, wood, cotton and other raw textiles, are the continent’s dominant product category, followed by tobacco, various agricultural products and fuel. One consequence of specializing in primary product exports is that other countries get to enjoy the benefits of the value they add to these raw materials. These benefits can range from higher profits for their corporations to a more diversified industrial base and consequently better insulation from economic shocks, as well as a more highly skilled, higher-earning workforce.
The countries that benefit most from global value chains are those that buy raw materials, or partially beneficiated materials, and transform these into finished products. In the language of value chain analysis, these countries have a high level of backward participation in global value chains. African countries, by contrast, currently have a high level of forward participation in global value chains; they sell intermediate products to other countries, which add a far greater amount of value to the materials than their original cost.
The process by which countries advance from being mostly forward-participants to mostly backward-participants, is called upgrading, and it is the goal of manufacturing-driven development. When it comes to Africa, certain production sectors are in fact more backward than forward, such as textiles and clothing, transport equipment and an aggregate of smaller manufacturing sectors, according to the World Bank.
However, African countries currently do not have a competitive advantage in any of these backward-participating production sectors. Additionally, the size of these sectors is not significant when compared with Africa’s primary-producing sectors. This suggests that Africa could upgrade its manufacturing production by:
- Becoming more globally competitive in Africa’s more backward-participating sectors: textiles and clothing, transport equipment and ‘other manufacturing’.
Developing production based on African countries’ own primary resource sectors. Given that Africa is so abundant in natural resources, transport costs can be lower and supply chain shocks are less likely. Getting rid of non-tariff barriers within a country or the African Continental Free Trade Area (AFCFTA) will further facilitate the flow of these products.
The above may be good advice, and the time is ripe as the AFCFTA opens the door to free trade within the continent and with it, freeing-up movement of merchandise and raw materials. But it is much easier said than done. Upgrading involves myriad policy measures with desired (but not necessarily achieved) responses from investors and corporations. The global trading system is ruthless and competitive; unless revisited, laissez-faire policies will work to keep Africa as a primary product producer.
However, a number of policy actions will be required as a starting point.