New SAIIA Paper on Regional Value Chains in Africa, and the Digital Economy

Michelle Chivunga and I have submitted another Occasional Paper to SAIIA (https://saiia.org.za/research/why-regional-value-chains-in-africa-need-to-go-digital/). See the event (https://www.youtube.com/watch?v=RdaLZtxGUwo&t=2s) The paper points out that Africa has been dependent on foreign aid and the revenue generated by a limited export basket, comprising mainly primary goods. The continent has also been de-industrialising. The African Continental Free Trade Area (AfCFTA) provides an excellent opportunity for countries to re-energise and diversify their economies and expand their markets through regional value chains (RVCs).

While global value chains (GVCs) often comprise complex networks of international companies trading across many borders, RVCs provide an important foundation and ‘training ground’ for more extensive GVC structures. The more RVCs that take root and leverage digitalisation opportunities in Africa, the more successful Africa’s (re)industrialisation efforts will be. Trade on the continent is being given added momentum by the 8 regional economic communities (RECs), each striving to increase trade between members. The creation of RVCs within these RECs is a logical way to stimulate economic growth. Digital transformation is key to the successful implementation of the AfCFTA, which is intended to break down barriers to trade on the continent and unleash untapped import and export potential. This calls for significant investment in infrastructure, technologies, and human capital. Digital transformation also goes hand in hand with well-functioning RVCs.

Micro, small and medium enterprises (MSMEs) should be engines of growth in Africa, but they often lack the finance, skills, and technological tools to engage in efficient cross-border trade. Many African MSMEs are led by women and young entrepreneurs, who face the greatest hurdles in running sustainable operations. Given the right support, investment, and business tools, MSMEs have the potential dramatically to boost economic development on the continent. Value chains can either have positive or negative effects on Africa. Kenyan company Twiga Foods, for example, reduced the cost of fresh food for urban consumers by cutting out the middleman and delivering foodstuffs directly from the farm to buyers. In contrast, the coffee industry in Africa (which is predominantly export-oriented) is restricted to low-value activities in the coffee GVC, which does little for African producers’ profitability and growth prospects. African countries should take advantage of the opportunities presented by the digital age (propelled by COVID, the launch of the AfCFTA, and the shift towards efficiency-enhancing technologies in RVCs) to diversify their exports and strengthen regional ties. In this regard, the synchronisation of data and technology interoperability between countries is vital.