AFRICA MUST MOVE UP VALUE CHAIN - AfDB

The Africa Development Bank is advising African economies to cut down their dependence on price-sensitive primary exports and come up with ways of drawing in investors wary of the rising labour costs in China.

AfDB, in its 2014 African economic outlook released last week, said the focus on moving up the value chain — the process of transforming raw materials into finished products and selling them — could further grow the continent’s export earnings and increase its share of manufactured goods from the current 2.2 per cent.

“In the medium- to long-term, the opportunity for participating in global value chains should be viewed as part of the strategy for achieving strong, sustained and inclusive growth,” said Mthuli Ncube, the AfDB chief economist.

Rising labour costs in China, which is seen as the global manufacturing hub, have prompted investors to start seeking alternative production centres, an opportunity that experts say the continent must seize not only to create jobs but also for the know-how.

Springboard
The report argues that more effective participation in regional and global value chains could serve as a springboard for Africa in economic diversification, domestic resource mobilisation and investments in critical infrastructure. Also, experts argue, getting more integrated in the value chain breaks entry barriers.

“The upward movement through the value chain erodes the amount of capital required to get into a sector, and also makes it easier to grow the market,” said Pascal Lemy, the former director general of the World Trade Organisation (WTO).

Over the past 20 years, emerging markets — India, China and Brazil — have become key manufacturing countries as Western companies keen on cutting costs transfer their operations to these countries.

In the process, the latter have claimed a bigger share of global manufacturing output while at the same time getting billions of dollars’ worth of skill.

For example, Chinese companies that have for years been contracted part manufacturers for western technology firms are now launching their own branded devices.

Closer home, Ethiopia, a key producer of hides and skins, moved up the value chain by producing leather and shoes for some of the world’s leading brands.

AfDB said investing more in regional infrastructure as well as adding more value to goods for export could help improve the continent’s share of global trade which has hovered at under 3.5 per cent in the past decade.