The African Continental Free Trade Area (AfCFTA) is seeking to build regional supply chains in industries including automobiles, agriculture, pharmaceuticals and logistics as it works to reduce Africa’s reliance on imports and attract investment into higher-value production.
The AfCFTA Secretariat has identified the four sectors as priority value chains where deeper integration could allow African businesses to exploit economies of scale, expand manufacturing and create jobs across multiple countries, according to Themba Khumalo, director responsible for value chains at the AfCFTA Secretariat.
The strategy is aimed at moving beyond individual countries trying to develop complete industries on their own, Khumalo said in an AfCFTA podcast, arguing that companies can instead operate across borders with different countries supplying components and inputs into regional production networks.
“We needed to prioritize four key value chains, one on the automotive sector,” Khumalo said. The other three are agriculture and agro-processing, pharmaceuticals, and transport and logistics.
The approach reflects a broader push to use the AfCFTA’s single-market framework to make Africa more attractive to manufacturers by creating larger markets and allowing investments to serve consumers across several countries.
Automotive opportunity
The automotive industry illustrates the potential of the regional value-chain model, according to Khumalo.
Africa imports large numbers of vehicles, including second-hand cars, despite having automotive investments and assembly operations in countries including South Africa, Morocco, Egypt, Ghana, Nigeria, Kenya and Rwanda. The fragmented nature of African economies has limited the ability of those investments to achieve the scale needed to serve the continent, he said.
Under a regional production model, individual countries would not necessarily need to manufacture an entire vehicle. Instead, components could be produced in different markets and supplied to assembly plants elsewhere on the continent.
Khumalo cited the example of a plant in Lesotho producing leather seat covers for vehicles assembled in South Africa. A broader African supply chain could involve leather production in one country, processing in another and final vehicle assembly elsewhere, creating jobs and investment at multiple points in the chain.
He also pointed to a South African company producing vehicle lights as an example of the investment opportunities available beyond final assembly. The company, which supplies lights for Toyota Hilux vehicles, represents an investment of about 400 million rand and employs roughly 2,000 people, he said.
The Secretariat wants such opportunities replicated across the continent, with African suppliers producing more of the components required by vehicle manufacturers.
“It’s for that reason that we then want to ensure that we increase local content for the benefits under the FCF tape because it enables us to localize those things,” Khumalo said.
Rules of origin
The success of the automotive strategy depends partly on rules of origin that determine which products qualify for preferential treatment under the AfCFTA.
Khumalo said the automotive rules of origin have now been agreed, following lengthy discussions with governments and industry. Manufacturers had pushed for rules that would encourage investment and industrialisation, while also seeking better access to finance and support for research and development.
“We need to be able to look at whether can we be able to invest in R&D in the continent,” he said, adding that the objective includes developing vehicles suited to African conditions.
The rules are intended to increase local content and encourage investment in component manufacturing, rather than concentrating the benefits of the automotive industry in final assembly.
That could create opportunities for businesses far removed from vehicle factories. Khumalo cited the possibility of rubber produced in Liberia being used for tire manufacturing in Nigeria before ultimately supporting vehicle production or assembly in Kenya.
Agriculture and pharmaceuticals
Agriculture and agro-processing are another priority because Africa continues to face a large food import bill despite having substantial arable land, Khumalo said.
The Secretariat is developing an agricultural trade action plan focused on commodities with the potential to strengthen regional and continental integration. The plan seeks to address non-tariff barriers that make it difficult to move agricultural products between African markets.
“There are countries that are able to produce rice, countries that are able to produce maize, cotton in the continent but it becomes difficult to move these things around because of that standard or that technical barrier,” Khumalo said.
The pharmaceutical sector presents a similar opportunity. Africa imported more than $16 billion of generic medicines even before the Covid-19 pandemic, according to Khumalo, while several countries have developed pharmaceutical and vaccine investments.
The AfCFTA is working with initiatives led by Africa CDC to ensure that trade policy supports greater pharmaceutical production. That includes efforts to create procurement systems and harmonise product registration and standards so companies do not have to navigate separate systems in every African market.
Smaller companies
The regional value-chain strategy is also intended to bring smaller businesses into industrial production, rather than leaving the benefits of continental integration to large multinational companies.
The Secretariat is implementing a program focused on small and medium-sized businesses owned by women and young people in agriculture and agro-processing, with an emphasis on facilitating cross-border exports.
Khumalo said smaller companies often lack the influence and resources available to large corporations when they encounter difficulties at borders, making targeted support necessary if the AfCFTA is to deliver broad-based economic benefits.
The Secretariat’s engagement with the private sector is also shaping policy. Automotive companies have pushed for rules of origin that support investment, while businesses and other partners have contributed to the development of interventions in agriculture and agro-processing.
Scale remains key
The underlying objective is to use the continental market to overcome the limitations of Africa’s fragmented economies.
Khumalo said the AfCFTA can allow companies to participate in regional production networks without having to establish complete manufacturing plants in every country.
In West Africa, for example, countries with automotive assembly investments could serve as production hubs, while neighbouring economies supply components and other inputs. That would allow businesses to participate in automotive manufacturing without requiring every country to build its own full-scale vehicle factory.
The model could help turn the AfCFTA from a framework for reducing tariffs into a platform for coordinating investment, production and supply chains across borders.
“We have just agreed on the rules of origin and the issue is how do we then look at those investment opportunities financially supported them by our IDFIs and see job creation as an outcome of such policy decisions,” Khumalo said.
For the continent, the challenge now is to translate the agreement’s rules into actual factories, suppliers and cross-border trade. The Secretariat’s focus on regional value chains suggests the next phase of AfCFTA implementation will increasingly be measured not only by how much trade crosses African borders, but by how much production and investment takes place behind those goods.
