Value addition will rev up Africa’s economic growth


Hillary Onsongo plucks ripe coffee berries from his farm in Kisii County. FILE PHOTO | NMG

Africa is home to abundant mineral resources, including 30 percent of the world's reserves, such as oil, natural gas, gold, and valuable metals like chromium and platinum.

The Continent also holds the largest reserves of cobalt globally, with the Democratic Republic of Congo (DRC) alone accounting for nearly half of the total global cobalt reserves of 8.3 million metric tonnes.

However, despite this resource abundance, Africa has predominantly relied on commodity production and exports, with limited value addition and weak linkages to other sectors of the economy.

Without immediate action, Africa's manufacturing industry is likely to remain small in the coming years.

In the 1990s, high commodity prices driven by foreign market demand for natural resources fueled rapid economic growth on the continent.

Unfortunately, this boom, which policymakers hoped would revive Africa's manufacturing industry, proved to be unsustainable.

If African leaders had reinvested the profits from natural resource sales into the manufacturing sector, it could have stimulated production and yielded different results.

Fortunately, over the past decade, some countries have focused on entrepreneurial innovation and channelled funds to facilitate private-sector investment in value-adding sectors.

Countries like Senegal, Ethiopia and Tanzania have made notable progress in shifting away from an export-dependent economy toward value-adding sectors.

The Africa Development Bank (AfDB) published the Africa Industrialisation Index in 2022, revealing the countries that have made the greatest progress since 2011.

Senegal moved from 14th position to 7th, Ethiopia from 31st to 25th, Benin jumped 14 slots to 18th, Uganda rose five places to 20th, and Tanzania rose six places to 21st.

These countries have all made efforts to move toward value addition in their economies.

For example, Senegal's Diamniadio industrial park, established in 2018, has paved the way for vehicle assembly, food and garment processing, and the production of pipes and packaging.

The park also hosts a pharmaceutical plant and a data centre. Similarly, Ethiopia has made significant progress in its airline industry, generating $3 billion annually, and has witnessed growth in agricultural value chains such as soybeans, goat meat, potatoes, and legumes.

Uganda has seen a rise in pharmaceutical exports, while Benin has experienced growth in cotton oil cake, cottonseed oil, and woven cotton fabric exports.

In Tanzania, rice has become the second-largest goods export after gold, with the prized kilombero rice exports increasing from $14 million to $302 million since 2010.

To further enhance value addition, regional blocs like the East Africa Community (EAC) play a vital role in making local products competitive in global markets.

The EAC, consisting of Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan, and the DRC, aims to create economies of scale and drive productivity growth.

Measures such as eliminating non-tariff barriers, harmonising standards and procedures, and developing infrastructure are being implemented to foster the growth of value-adding industries and facilitate the movement of goods and services across borders.

The establishment of industrial parks and special economic zones within the EAC provides infrastructure, tax incentives, and other benefits to attract investments and promote industrialisation.

Moreover, African countries can leverage the African Continental Free Trade Area (AfCFTA) to boost value addition. AfCFTA, established in 2021, creates a single market for goods and services, allowing free movement across the continent.

By eliminating tariff barriers and expanding market access, African countries can diversify their economies and enhance their value-addition capacity.

For instance, Kenya can leverage AfCFTA to increase exports of processed agricultural products such as coffee, tea, and horticulture.

Additionally, Africa can benefit from developing policies and strategies that promote value addition for resources like cobalt.

As the global demand for electric vehicles and renewable energy increases, the need for cobalt grows.

Despite having the largest cobalt reserves, Africa predominantly exports it as raw material, missing out on potential benefits such as job creation, skills development, and economic diversification.

By enhancing value addition for cobalt within the continent, African countries can bolster their industrial development and competitiveness in the global market for EV batteries and renewable energy.

The success of the AfCFTA and EAC efforts depends on establishing a robust pan-African logistics framework that facilitates smooth cargo flow and boosts trade across the continent, as well as linking Africa's value-added goods to global consumer markets.

Africa possesses significant mineral reserves, but its heavy reliance on commodity production and exports limits its value-addition potential.

However, initiatives like the EAC and AfCFTA provide opportunities to promote industrialisation, diversify economies, and enhance value addition.

By leveraging regional integration, investing in infrastructure, fostering innovation, and strengthening cooperation, Africa can move away from commodity dependence and foster a more diversified and value-adding economy, leading to job creation, poverty reduction, and increased prosperity on the continent.

The writer is the CEO & MD of Siginon Group.

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