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Africa Needs Regional Value Chains to Increase Sourcing Competitiveness

Africa may be ripe with opportunities, but the continent still seems to be missing out on most of it.

Speaking during a Destination Africa session in Cairo this month, Dr. Medhat El-Helepi, economic affairs officer for the United Nations Economic Commission for Africa (UNECA), stressed the considerable opportunity Africa could be tapping into but hasn’t yet.

“Africa has exported less in billions of dollars than single country Bangladesh,” he said. “Africa has a huge opportunity. Africa is the only place in the world that 60 percent of the land is uncultivated land.”

According to data from the United Nations Conference on Trade and Development (UNCTAD), the average global export value of textiles and apparel between 2010 and 2015 was $265.8 billion in China, $23.5 billion in Bangladesh and $17.2 billion in all of Africa.

The continent as a whole could benefit from ramping up sourcing to help create jobs, improve livelihoods and increase export revenue, and some countries have already started making inroads.

Egypt is one leader in Africa, employing one million workers in its textile and apparel sector. In Mauritius, the textile sector contributes 9 percent to the country’s GDP, and in Kenya, the apparel manufacturing sector there accounts for 7 percent of export earnings.

One problem hampering further growth, however, according to El-Helepi, is that the value add in Africa is nearly nil. Availability of inputs has been a challenge, but the key for the continent will be moving up value chains.

Part of what has contributed to the lack of value addition is scarcity of skills, limited technology, substandard infrastructure and logistics, difficulties accessing finance and stiff competition in the industry.

One solution, however, as El-Helepi explained, would be incorporating regional value chains.

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“The timely and cost-effective sourcing of intermediate inputs is crucial for Africa’s industrialization,” El-Helepi said. “If African businesses had access to competitive inputs from neighbors, they could be more cost competitive.” The landlocked countries—of which there are many on the continent—in particular, would benefit from the regional trade.

It’s a similar model to what happened in South Asia, he explained. Regional trade would build capacity and competitiveness to export globally. Then consumers would benefit from cheaper local products.

Further down the line, regional trade would channel technological and managerial innovations.

“Many African countries are small. Reducing barriers to intra-regional trade increases market size—and therefore incentives—for African businesses,” El-Helepi explained. “Many African countries are far from big consumer markets in Europe, North American and Asia and need to reach local demand.”

By 2020, it’s expected that 17 percent of the world’s population will live in Africa, the middle class is quickly growing there, and consumer spending in Africa is forecast to reach $1.4 trillion by 2020, up from $680 million in 2008.

To capitalize on this, El-Helepi said Africa needs to improve links between different segments of its textile value chains, invest in new technologies, increase worker and management training, diversify product portfolios and comply with social and environmental standards.

“Rising consumer spending in Africa is a huge opportunity that local companies need to seize,” El-Helepi said.

From there, with the capacity to export globally, Africa’s cheap labor costs and certain countries’ duty free access to the U.S. and EU markets stands to position it to replace Asia as a global manufacturing base in the not-too-far future, El-Helepi said.