Conclusion and Policy Options

Prospects for Developing Regional Value Chains

The low levels of regional integration and high levels of resource endowments of countries in Sub-Saharan Africa offer enormous opportunities for building regional production networks and developing regional value chains in manufacturing, which would facilitate the processing of raw materials and value addition to exports, enhance the production of manufactures for regional markets, and propel integration into manufacturing GVCs while strengthening existing links.

For example, the continent is endowed with sufficient resources to become both self-sufficient and a net exporting region for fertilizer. However, despite its substantial reserves, primary fertilizer production is confined to 10 countries, of which 6 are in North Africa. In addition, more than half of African ammonia imports are sourced from the Russian Federation, with the remainder coming from the Caribbean, the Middle East, and the United States. There is enormous potential for future fertilizer demand growth as a result of projected population growth and the need for food security, and increasing fertilizer self-sufficiency is likely to boost future fertilizer demand potential.

Thus, there is an opportunity to develop regional value chains by leveraging regional trade agreements, bilateral agreements, or public-private partnerships. As a case in point, under the partnership between Togo and the Dangote Group, Togo processes phosphate before export to Nigeria (value addition) instead of exporting in raw form. The output then becomes an input to the production of fertilizer in Nigeria, which would be both supplied to the domestic market and exported to the region.

Conclusion and Policy Options

Sub-Saharan Africa accounts for a tiny fraction of the volume of trade in manufactures as compared to China, Western Europe, and the United States, with linkage rates to manufacturing GVCs consequently being extremely low. However, linkage rates across manufacturing GVCs vary significantly between countries in Sub-Saharan Africa, driven by various factors including resource endowments and other country-specific characteristics that matter for participation and upgrading in GVCs (Kummritz, Taglioni, and Winkler 2017).

Trade policy, investments in infrastructure and connectivity, and education and skills strategies, among others, are associated with strengthening competitiveness in manufacturing.

Trade policy could play an essential role in driving participation in manufacturing GVCs by enhancing preferential access to the export markets of

developed economies, mainly Asia, the EU, and the United States. Access to these markets would have implications for manufacturing GVC participation, particularly in textiles and apparel exports, in addition to the potential in agro-processing and processing of natural resources before export. Among the types of policy support that developed countries can provide, facilitating access to exports from developing countries is a straightforward proposition (Van Biesebroeck and Zaurino 2019). Light manufacturing, especially laborintensive production of textiles and apparel products, is a prime example of the types of industries in which developing countries have a natural comparative advantage and are likely to enjoy great gains.

Higher tariff rates are negatively associated with GVC participation, and higher tariffs on imports of capital goods are even more restrictive for value chain participation (Abudu and Nguimkeu 2019; Slany 2019). For instance, upgrading and adding value to the natural resource exports of resource-rich economies requires that production equipment and intermediate inputs be imported at lower costs.

The labor force in most Sub-Saharan African countries is predominantly low skilled or unskilled, which partly explains why most of the countries in the region are not linked to high-value-added activities in manufacturing GVCs. Cognitive skills, such as literacy, numeracy, and problem-solving, and noncognitive skills, including management and communication skills, information and communications technology skills, and readiness to learn and think creatively, have been identified as critical factors in a country’s capacity to thrive in GVCs (Grundke et al. 2017). Therefore, effective engagement in GVCs and upgrading within GVCs would require policy makers in Sub-Saharan Africa to align their industrial and trade policies with formal education policies and programs, as well as with training and reskilling programs to reinforce and build their workers’ skills, not just in one area but in improving the overall set of skills of workers.

GVCs have become increasingly important for manufacturing activities. Thus, policy makers’ efforts aimed at promoting job growth through industrialization would succeed only to the extent that they facilitate entry of domestic firms into manufacturing GVCs at links deemed to maximize the expected gains in jobs and productivity.

See box 4.2 for a discussion of the effects of COVID-19 (coronavirus) on GVCs.