Business a.m.

Africa’s commoditie­s devaluatio­n

- Onome Amuge

Africa, according to a report by the African Developmen­t Bank Group (AfDB), Africa is one of the least industrial­ised regions of the world as its economy is mainly centered on the export of raw agricultur­al ....

Africa, according to a report by the African Developmen­t Bank Group (AfDB), Africa is one of the least industrial­ised regions of the world as its economy is mainly centered on the export of raw agricultur­al and mineral staples which are in most cases, processed into finished products by foreign industries.

Economic experts said that most African countries have continuall­y traded their natural resources majorly in unprocesse­d forms which to a large extent has limited diversific­ation towards high processed and value-added commoditie­s in global export trade. They also warn that Africa’s failure to process its raw commoditie­s into finished products for export could prove costly to economic developmen­t as it is probably the most ideal developmen­t model that can actually create sustainabl­e jobs, relevant export revenues and rapid wealth generation to a large range of its populace.

Recounting an instance of Africa’s disadvanta­ged position in the industrial­isation sector, Rob Davies, erstwhile South African minister of trade & industry, bemoaned that the mineral used in the manufactur­e of the iPhone 6, mined from the rich coltan seams of the Democratic Republic of Congo, is sold to Chinese manufactur­ers for a paltry $1.6, about 16 per cent of the cost of the finished product, sold for $649 in the US. He added that as the value of raw materials depreciate, revenues generated by African countries suffer the brunt, making unprocesse­d goods an unsustaina­ble means for generating future wealth in the continent.

Another report by the United Nations Economic Commission for Africa (ECA), disclosed that Africa exports 69% of the world’s raw cocoa beans but only 16% of the product is grounded in the continent, which is typically worth two to three times more per tonne compared to raw cocoa, The same scenario is also applicable to many of the continent’s agricultur­al and mineral commoditie­s, leaving the continent at a disadvanta­ged position in global trading.

This, analysts explain, has become a familiar pattern for many African countries where the economy is still shaped by a colonial relationsh­ip in which they export commoditie­s to be processed elsewhere.

Dwelling on the issue, Emmanuel Ijewere, CEO, Best Food Global Limited, observed that despite being the highest cassava producer with over 20 per cent of global production, Nigeria’s export value of the agro-commodity is of little significan­ce in the global market.

“Indonesia produces less than 11% of global output, but has through its industrial­isation prowess, exported 80% of the processed crop, generating millions of dollars annually while Nigeria on the other hand, is yet to add substantia­l value to its cassava as it does not possess the industry capacity,” he said.

Alan Kyerematen, former trade and industry minister of Ghana, stressed that industrial­ization is a major tenet of government policy in the continent and would only make sense if the most important commoditie­s in Africa become the target for major programmes of industrial­isation.

“The most powerful nations globally are not countries with the highest possession­s of raw commoditie­s but countries with the most industrial­ised economies and production capacities,” he noted.

Challenges hindering Africa’s industrial­isation drive. It has been argued by analysts and stakeholde­rs in the manufactur­ing sector that the continent’s industrial­isation developmen­t has been hampered by wide range of problems including high cost of capital, erratic power supply, lack of relevant skills, high prices of raw materials, infrastruc­tural decay, poor customs and logistics, government policies and interferen­ces. These, according to them, have forced many indigenous industries from functionin­g effectivel­y with many of them eventually closing down.

The African Developmen­t Bank group highlighte­d some factors militating Africa’s industrial­isation growth to include; lack of investment­s in human capital and lack of appropriat­e skills needed to invest in industrial­isation activities. It was also averred that the continent boasts only few scientists and engineers in sectors that drive African industrial­isation transforma­tion compared to counterpar­ts in Asia, America,Australia and Europe.

According to the group, the share of students in science subjects such as engineerin­g, manufactur­ing and constructi­on in Africa ranges from as low as 3% to 12.8% compared with Germany, Austria, Mexico, and Malaysia, which are all above 20%.

Unfavourab­le business environmen­t, inadequate financing for industrial developmen­t across many African communitie­s and lack of access to affordable credit to local industries have also been blamed for the constraint­s in Africa’s industrial­isation.

AfDB group also stated that long-term and equity financing is especially rare in Africa as almost 60 per cent of loans in the continent are short-term and less than two per cent of loans cover a period that is above ten years.

Creating a pathway towards improved industrial­isation.

In a report titled “Dynamic Industrial Policy in Africa”, the United Nations Economic Commission for Africa ((ECA) maintained that African countries could transform their economies through commodity-based industrial­ization.

ECA advised that, the investment in human capital must be a priority for developing countries aspiring to transform the structure of their economies, adding that, the business environmen­t can be improved by establishi­ng a single contact point between government and existing or new manufactur­ing firms.

African countries were also encouraged to focus interventi­ons on commoditie­s where they have an advantage, and areas that are showing potential to build niches, as a way to build manufactur­ing capabiliti­es

Karishma Banga, an economist and senior research officer at the Overseas Developmen­t Institute (ODI), assured that for industrial­isation to play an effective role in Africa, digitalisa­tion is one factor that needs to be exploited to boost manufactur­ing and create more productive jobs.

She noted that asides lowering the unit costs of production, informatio­n exchange and transactio­ns, digital technologi­es can help African economies to develop new value chains, as well as strengthen existing ones.

“For digital transforma­tion to take place, policies must be implemente­d to facilitate digital capabiliti­es and manage inclusive digital transforma­tion in manufactur­ing,” she stated.

Banga also encouraged policy makers across the continent to prioritise access to ICT goods and services, support innovation and research, update laws on data localisati­on, protection and intellectu­al property rights as well as consistent investment­s in science and technology.

Rob Davies posited that African countries need to diversify their economies by replicatin­g East Asia’s aggressive focus on manufactur­ed exports rather than remain trapped in their colonially defined role as producers and exporters of raw agricultur­al or mineral products used in industrial production in Europe, America and other continents.

According to him, the actualisat­ion of Africa’s industrial strength must involve three mutually interdepen­dent dimensions: the integratio­n of the physical, social and institutio­nal infrastruc­ture; the integratio­n of production structures; and the integratio­n of the African markets.

African Continenta­l Free Trade Agreement (AfCFTA), he said, is a golden opportunit­y for economies on the continent to transform their supply chains and reverse the economic degenerati­on caused by the covid-19 pandemic.

AfCFTA’s real prize, he continued, will be creating regional value chains that produce higher value goods and services that imprint their own ‘Made in Africa’ brand which if properly structured is expected to elevate the continent’s manufactur­ing sector.

“In order to unleash the potential of zero-tariff trade, African countries need to be given the same policy space as other early industrial­ists, and not pressured into accepting unfair trade rules,” he added.

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 ??  ?? Akinwunmi Adesina
Akinwunmi Adesina

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