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Africa must move up value chain with cross-border trade

Africa must move up value chain with cross-border trade

Apr 13, 2015

By IT-Online

In order to succeed in the 21st century, African countries need to focus on cross-border trade while rising up the value chain.

The 2015 edition of the Economic Report on Africa (ERA), Industrialising through Trade, was launched by Dr Ekow Spio-Garbrah, Minister of Trade and Industry, Ghana and Dr Arkebe Oqubay, Minister and Advisor to the Prime Minister of Ethiopia, during the Conference of African Ministers of Finance and Economic Development in Addis Ababa.

This year’s report builds on the key messages of the previous editions of ERA and focuses on industrialisation and structural transformation.

Dr Spio-Garbrah comments: “Africa needs to focus on cross-border trade and it must rise up the value chain.”

He calls on policy-makers on the continent to translate the ERA recommendations into actions. “We need to focus on three issues to engage in the global market,” he says. “One, improve and deepen exports. Two, ensure the domestic market is integrated. Three, be cautious on the overshooting of the service sector while manufacturing is yet low.”

His sentiments are shared by Abdalla Hamdok, deputy executive secretary of the ECA. He highlights the importance of addressing the challenge of being stuck in bottom of the global value chain.

Hamdok says: “There is empirical evidence of bi-directional relationship between industrialisation and trade. It is important to gear trade policies towards national development objectives and be selective in specific sectors as the endeavour is costly.” He also indicated that trade could reverse the course of industrialisation, unless carefully designed.”

Adam Elhiraika, director: macroeconomic policy division at the ECA, adds: “Africa’s growth prospects remain positive despite strong headwinds, with increased private consumption and investment being the key drivers of growth in 2015.

“The current account deficit is expected to remain high owing to trade deficits and increased demand for capital goods. Stable inflation underpins Africa’s economic performance as it is expected to decline from 6,9% in 2015 to 6,7% in 2016. Private capital inflows are expected to remain strong in 2015, thanks to improved business climate and profit prospects.”

However, he cautions: “Innovative strategies to mobilize domestic and external resources are needed for Africa to bridge the domestic resource gap.”

Some of the challenges that Africa faces in the mid-term are the slowdown in oil and commodity prices, slow recovery in developed countries, tighter global monetary policies, weather-related shocks, and political instability.

“However, Africa’s underlying fundamentals for long-term growth remain robust. To ensure resilient economic performance through industrialisation, Africa must adopt social development strategies that are consistent with the expansion of modern services and industrial sectors,” he says.

Explaining that trade can be a tool to promote industrial development and structural transformation, Stephen Karingi, director: regional integration and trade division at the ECA, says: “A successful trade-induced industrialization should be interactive and coherent with a country’s development strategy.

“African firms appear to be increasingly connecting to global value chains, but are mainly confined to the lower-end activities with limited domestic value addition. The scope for global value chains to support structural transformation is, hence, largely untapped, particularly for what pertains to regional value chains and intra-African trade.”

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