Occasional Paper

Why Regional Value Chains in Africa Need to go Digital

After years of de-industrialisation and limited intra-regional trade, which have been serious constraints to inclusive growth and development, African countries have an opportunity to leverage the potential of the African Continental Free Trade Area to accelerate their industrialisation efforts and greatly improve their economic well-being. The aim of this free trade area is to prise open African markets through reductions in tariffs and non-tariff barriers and to allow regional value chains to emerge that will expose new product and market opportunities and minimise countries’ dependency on foreign imports (and foreign aid). Global value chains are typically characterised by complex production processes and extensive networks of companies (often with headquarters in developed countries) trading across multiple borders. Producers invariably have to compete with the best in the world, which requires excellent production and marketing capabilities as well as ample financial resources. Regional value chains enable producers and service providers in developing countries to experience the benefits thereof (access to raw materials and components, economies of scale in production, expanded market opportunities, technology and skills transfer, and so on) but on a more limited scale. The authors of this paper strongly advocate the development of African regional value chains as a prelude to more active global value chain participation by small and larger firms alike, as regional value chains allow African countries to capitalise on both import and export opportunities. The key to well-functioning regional value chains is the use of digital technologies that improve information flows, enhance productivity and competitiveness, and streamline cross-border trade procedures. Many African countries lack the fundamental building blocks to build and sustain a modern, connected economy (from internet connectivity problems and out-of-touch education systems to an unattractive investment climate and a stifling regulatory environment). Added to this is the problem of high trade costs – the result of a poor transport and logistics environment and onerous customs procedures. All these problems need to be addressed at the policy level and through innovative and practical initiatives. Ultimately, whether regional value chains flourish or flounder is dependent on how well stakeholders collaborate with one another and turn their respective visions into viable blueprints for regional trade and development. With reference to a number of case studies, the authors illustrate that value chains can have either positive or negative effects on African countries. Where African producers and service providers are confined to low-value-added activities (that deliver low returns), then Africa does not benefit to any significant degree. However, where African producers and service providers are involved in more value-added activities (that generate higher returns), then more benefits accrue to Africa. Investing in Africa’s future in the form of sound infrastructure and transport corridors, streamlined border procedures, knowledge and skills, and regulatory frameworks – all with a strong digital flavour – requires substantial funding. With most African countries facing fiscal constraints (particularly in the wake of the devastation caused by COVID-19), it is essential that public–private partnerships are used as additional funding sources and that all stakeholders are consulted when negotiating trade rules and standards.