The African Value Chain: Harnessing Local Talent and Opportunity

Published on 13th February 2018

When those in the West thought of Africa, all they conjured up were images of conflicts, epidemics and despots. While we still have reports of conflicts and outbreak of disease on CNN, BBC and Al-Jazeera, we also now have programs like ‘Inside Africa’, ‘African Voices’, ‘Marketplace Africa’, and ‘Africa Business Report’– that showcase entrepreneurial acuity, talent and innovation.

Some of us can still recall, with the obligatory shake of the head, the cover story of The Economistof March 11, 2000, with the title ‘Hopeless Africa’ – in which the magazine concluded that ‘for reasons rooted in their culture’, Africans cannot escape conflicts, corruption and disease. Remarkably, a decade later, the magazine carried another cover story, this time in its December 3, 2011 edition, with the bold header, ‘The Hopeful Continent: Africa Rising’ – in an apparent volte face. That effervescent phrase, ‘Africa Rising’, has been with us since.

Another interesting dimension to the Africa Rising narrative is that much of what is celebrated as economic growth on the continent was in fact serendipitous. Because much of Africa still relies on commodity exports, we are able to make a connection between its economic growth and the rise in global commodity exports, rather than any new thinking or deliberate planning.

I tend to align with those who reject this notion of Africa as a piggy-backer on the global economy as rather simplistic – especially given the remarkable political and social transformation that the continent had undergone by the end of the last century. Democratization and the more accountable governance system that comes with it, promote a way of thinking and doing things, which in turn create more conducive environments for business and investments. It was hardly a coincidence, therefore, that the Africa Rising mantra emerged about the time that almost all the countries of Africa had embraced constitutional democracy as the only legitimate form of government.

I believe, however, that this kind of skepticism is healthy. It forces us to continue to interrogate the markers of our growth, what it means, what policy options it places before us and what choices we must make if economic development is to yield real dividends for the people, and address the social and economic challenges that we face.

There are many indicators that assure us of the possibilities for taking African business prospects to the next level, but that is if we can grab and maximize the opportunities. The IMF has reported an annual growth rate of 7% for 10 African countries, including some like Rwanda, Sierra Leone, and Mozambique that had only recently suffered the trauma of conflicts and natural disasters. However, the grim reality is that about the Nigeria was celebrating itself as the largest economy on the continent with a GDP of USD 509.9 billion, the combined GDP of all the 54 African countries was almost equal to that of India alone. It is important to note that only about 100,000 individuals account for 80% of Africa’s GDP.

The GDP of the 46 Sub-Saharan Africa, including South Africa is about the same as that of Belgium or Chicago. Our share of global trade still hovers around 3% and Africa is only able to attract 5% of global FDI. This is not to say that we have not made progress but in the context of the overall global economy, this progress amounts to very little or nothing. Economic development must not be something that happens to Africa but something that is envisioned and deliberately planned to reflect the African worldview and the African condition. It must put our people at the very centre of our development agenda both as agents and agencies. It must responsibly exploit and harness Africa’s resources to the benefit of the majority of her people, especially the youth.

Africa is home to about 1.3 billion people and her population is expected to double by 2050, a mere three decades away. More than half of these would be between 18 and 35. This has been described as a great demographic opportunity that is unique to Africa. While the average age in Europe is 45; for Africa, it the scale tips to the side of the twenty-somethings. A large youth population means a huge market in terms of consumption, services and labor. However, for Africa to benefit from the demographic dividends, we must make the right investments in quality higher education and create the right conditions and opportunities for entrepreneurship and employment. A large market is only useful when the people have the necessary purchasing power; and a huge population is only an asset when it is productive. My country, Nigeria, is already a population powerhouse, the largest in Africa and the seventh in the world. Our population currently stands at 180 million and it has been rising at the rate of 2.7% since 2010. The UN predicts that Nigeria will close in on the 300 million people mark by the year 2050 – overtaking the United States as the third most populous country on earth.

Now, while it seems everyone in Nigeria views oil as the focus, it is actually not true – oil accounts for less than 15% of the GDP. Nigeria’s true asset is its teeming population, of which the youth demographic is surging forward. The anticipated youth-driven economic growth will be unprecedented and unbeatable, but it will only happen if we can harness the latent talent of the growing population. The golden population of youth will fulfil its destiny for the benefit of Africa and the world at large only if it is empowered, educated, better skilled and better prepared for the opportunities ahead. Africa’s share of global trade still hovers around a paltry 3%, and we are only able to attract 5% of global FDI.

As Akinwumi Adesina, President of the African Development Bank (AfDB), says: “If Africa has the youngest population, what do we do with the youth and how to develop their capacity to unlock their entrepreneurship? How does Africa take advantage of its diversity?” We should be asking ourselves whether government and private sector can hire the exponentially increased number by African youths by 2050. They are rising, they are hungry for success, and they want that success make an appreciable impact on their communities. All we as policy makers need to do, is provide them with the enabling environment, the tools and skills needed.

The 52ndAnnual Meeting of the African Development Bank Group which took place in Ahmedabad, India in May 2017, held that: “Africa needs to push for accelerated development by harnessing local resources to boost entrepreneurship and drive its industrialization.” What does this tell us? Big industries are all very well, but their survival depends on a good spread of Micro, Small and Medium Enterprises. Not only do MSMEs serve as a good source of raw material, they are also – crucially – incubation centers for technological development. And here is the clincher: MSMEs are run by indigenous people – the local talent and opportunities we are seeking to harness.

It is important, therefore, that African governments at all levels identify their areas of comparative advantage and build on them. In Agriculture, governments are becoming more attuned to the need to develop the value chain along the entire industry. Agro-Politan Development Strategy is now part of the sectorial lexicon. This simply refers to a strategy that provides multiple opportunities in Agriculture and Agri-Business – with emphasis on the localization of the entire value chain, namely: Plant-Process-Store-Package-Market-Sell. This is to ensure that Africans are fully involved in the Agricultural Value Chain.

When we look at Nigeria, which is seeking to diversify its revenue base from over-reliance on oil, it becomes apparent that we are not even close to tapping into the Agricultural Value Chain to any sustainable degree. Available statistics show that the country is currently producing below the recommended quantities. Take Dairy products: Nigeria spends $480.3 million annually on milk importation, since local production only accounts for 34% of our needs – that is 1.7million tonnes – about 10 litres per person per capita. This is in comparison to the global average of 40litres per person. When we even come to Africa, the average is 28litres. Sadly, Nigeria is the lowest on the Milk food chain. Of our estimated 20 million cattle population, only 2.3 million are used to produce Dairy. Nigeria:

In Poultry, our consumption per capita amounts to 1.41kg. And yet we consume 1.2 tonnes of Chicken annually, about 900, 000 metric tonnes of which are unfortunately smuggled in through our borders.  Our 1.41kg per capita is a poor second to Ghana’s 7.67kg/capita. South Africa stands at 32.98kg/capita; while Brazil and the USA are at 41.34kg and 45.49kg respectively.

Or rice, arguably is the most talked about food item in Nigeria. Even the BBC had to declare that, “Rice is a big deal in Nigeria” – and believe me, it is. But what of the production of this staple food? We consume over 5.151 metric tonnes of Rice – consider the fact that 2.1 metric tonnes of that, is imported. And for two years in a row now, we are the world’s second largest importer of Rice, which really makes you wonder. Why? Well, because there is absolutely no reason why Nigeria should not be self-sufficient in this product – and even supply to other countries.

There is  need to devise an economic model that produces and manufactures primarily for the African market, and then use that as a basis to engage and negotiate with the rest of the world. The value chain approach is based on the philosophy of comparative advantage and economies of scale. Burdens and benefits are distributed to increase efficiency and productivity, while adding value. Developing the African Value Chain potentially positions the continent to increase the quality and quantity of its participation in the global economy.

Some 60% of Africa’s involvement in the global value chain is limited to supplying raw materials and inputs for other countries’ exports production. It is time we recognised that any efforts to create jobs and improve the economic condition of our people must mainstream agriculture in a way that underlines value chain within Africa itself. Adopting the value chain approach will enable us to focus on areas of comparative and competitive advantage; clarify relationships among businesses within our continent; as well as adopt common policies that facilitate efficient production across borders. The global value chain as exemplified in ‘Factory Asia,’ in which many Africans are active participants, can be replicated on our continent, but only if we are prepared to embrace a new way of thinking about ourselves, the challenges we face and the possible solutions.

Another sector that provides value addition and comparative advantage is the Entertainment industry, which has grown tremendously over the last 20 years – especially in Nigeria, Kenya and South Africa – as our artists have risen from local champions to global recognition. Nigerian musician Wizkid recently sold out London’s prestigious Royal Albert Hall, and is much sought after for collaborations with major American Music artists. Whilst interacting with Wizkid recently, he told me he ‘filled a stadium of 40,000’ in Gabon a French-speaking country where they didn’t understand a word of his lyrics; and he himself was astonished. The Shoki dance movement went from the back streets of Lagos to galactic heights in the music video of U.S. Hip-Hop artist, Missy Elliot.

In my younger days, if you went to a disco party in Nigeria, the deejay would play 100 per cent American RnB like Shalamar, The Whispers and Earth Wind and Fire. Now, no such thing. Nigerian musicians like Davido and Phyno are all the rage. My own kids listen to Nigerian musicians at their parties. I would never have thought in my lifetime that I would see this happen. We have come full circle. Our contemporary music industry, by the sheer dint of youthful creativity and innovation, has indigenized.  This is now creating new opportunities, new artists are springing up, new studios are coming onstream, records are being made, talents developed. As far as South Africa and beyond, Nigerian music is being played. When we were young, it used to be that you had to be a lawyer or an engineer, but now creativity is really changing the game.

The same can be said of Nollywood, which is the second largest movie industry in the world; and is another bold example of people creating a value chain as though from nothing. When the first video feature in what would become known as Nollywood, a film called ‘Living in Bondage’ was released in the mid-90s, few could have imagined the huge industry it would spawn, but here we are today. Nollywood stars are known the world over, and the industry employs thousands of Nigerians. So influential are these stars that, when news spread recently a major Nollywood star had been cast in a small role in a Hollywood film, Marvel’s ‘Avengers: Infinity War’, Nigerians went wild. It turned out to be fake news, but maybe we are on to something. Marvel Studios, if you are listening, if you want an audience of millions in Africa for your upcoming film, then there is a casting decision you need to make.

In fashion, Nigerian designers are now major players on international stage. Apart from the PR benefits, in real economic terms, the fashion industry holds a huge potential for job creation within the continent. The Commonwealth study mentioned earlier identified some key activities in the textile and clothing value chain. These include: design, component manufacture, which includes yarn, fabric, buttons, zippers and sundry accessories; assembly of finished garments, transport to the market, marketing and sales and distribution.

If we scan through these, we would find that with exception of some categories of fabrics, almost all other inputs are imported into Africa. If we consider that in terms of mass sales, the Africa fashion designers are hardly exporting off-the-rack clothing lines to the global market, we may reach the conclusion that other economies outside the continent are deriving greater benefits from our homegrown talents than Africa itself. What would be really interesting to consider is how the African fashion industry has boosted the production of fabrics, buttons and zippers in China or Europe.

This brings me to the burgeoning tech hubs of Yaba in Lagos and Nairobi in Kenya; and the role of technology. Naturally, a continent with a fast growing population that enjoy good music, movies, media and content production – and are eager to pay in order to stay abreast of information concerning their social entertainment – would not take long to be a continent to reckon with. The advent of apps and entertainment platforms aided by strong broadband technology spearheaded by young African investors, took the industry to exponential heights. In Lagos, tech start-ups not only weathered the recession unscathed, they are attracting major seed funding, driving business growth and are impacting in every value chain imaginable, from agriculture to blood banks.

We cannot say it enough that Nigeria has some of the most talented, hardworking and innovative young people in the world. This much was attested to by Mark Zuckerberg when he visited Nigeria some time ago. He said: “I was highly impressed by the talent of the youths in the Co-Creation Hub in Yaba. I was blown away by their talent and the level of energy.” Something tells me we have not even scratched the surface of what the movie industry alone can contribute to the economy of Nigeria and the entire African continent. All these would challenge us to plan and implement far reaching reform, especially in the higher education sub-sector, so as to ensure that our youths are market ready in the entire value chain of identified economic drivers; agriculture, construction, ICT, entertainment, sports and fashion industries.

Nevertheless, the contribution of these new sectors like the telecommunications, entertainment and retail have been great pointers to what was possible if the policies were right and the general condition for investment is provided. Within 16 years of the liberalization of the telecommunication sector in Nigeria, tele-density has grown from less than 1% to 108%, making Nigeria one of the fastest growing telecommunications sectors in the world. Nigeria Telecommunication  Commission estimates that investments in the sector is now in excess of $68 billion and has contributed up to N15 trillion to the Federation Account. Perhaps, more importantly, the sector has created hundreds of thousands of career and ancillary jobs and has impacted directly in driving businesses and innovations in the ICT sub-sector.

Explosion of the telecommunications economy in Nigeria is clear evidence of Nigeria’s huge market with a population of 170 million people, half of which are in the 15-35 age bracket category. Perhaps we are yet to fully estimate how much direct and indirect impact this single revolution has had in developing other economic sectors, including retail, business and commerce, banking and a lifestyle that has continued to expand opportunities for further investments in this sector. Regardless of the challenges that may exist, the liberalization of the telecommunications sector in Nigeria has changed lives, created millionaire and would remain a proud symbol of what is possible on our continent if we get it right. However, while it is encouraging that seven out of 10 Africans own a mobile phone it is worth highlight the fact that in Nigeria, for example, only 15.5 million own a smartphone – 23.3% of the population. Internet penetration is still less than half in the country; at 46.50%, it translates into 91.6 million of the populace.

African governments must provide an enabling environment for the nurturing of raw talent. Our education system ought to move away from a theory based approach and paper certification to inculcating practical skills that support apprenticeship and boosts innovation and industry. This is the place of Vocational and Technical education which provides that the youth inculcate practical skills that will not only make them employable but will also help the continent in building an army of job providers

Without doubt, the vision and philosophy of the African Union is for a continent whose strength and prosperity are based on greater cooperation and partnership among our various countries and peoples. We are still far from realizing the full vision of the Union, which includes a common currency and common Central Bank, among others. However, we need to demonstrate that we remain committed to achieving this vision no matter how long it takes.

Speaking of challenges, there are quite a number of factors that militate against productivity in the short term. These include: infrastructural challenges, Insecurity, Power or the lack of it, Lack of Education, Lack of access of funds for MSMEs.

A Commonwealth Office study found that it is more cost efficient for Tanzania to trade in agriculture and manufactured goods with United Kingdom and the United States than with fellow African nations like Ghana or Botswana. The overall report holds out hope for greater regional integration, while also highlighting some issues we must address for real progress to be made. Some of these are policy related, while others are infrastructural challenges. Existing tariff based barriers significantly hinder trading across the region. In developing a regional value chain perspective, it is critical that these barriers are removed, because fragmented production processes involved in value chain production implies multiple border crossing and can therefore amplify the effect of tariffs. Free trade and inter-regional trade agreements are crucial to keeping tariffs low, to increase participation in the development of a regional value chain.

Therefore, the quality as well as absence of critical infrastructure across the continent, coupled with the geographical location of some countries, present an even more critical challenge to participating in the African Value Chain. As a result, many African countries are saddled with some of the highest trade costs on the planet. According to the 2015 World Bank Ease of Doing Business Report, the cost of exporting a standard 20-foot container is more than twelve times higher in Chad (US$6,600), six times higher in Rwanda (US$3,200) and three times higher in South Africa (US$1,532) than it is in China (US$500). While China enjoys economies of scale from shipping, it is important to note that it has also invested heavily in infrastructure.

We must develop a very comprehensive regional trade agreement with deep integration measures, providing for non-tariff barriers to trade—including investment and competition policy, intellectual property protection, and dispute settlement—that can support value chain integration, in particular regional value chain integration.

Governance issues around the trading systems around can also create significant encumbrances and add to cost. For many industries that rely on just-in-time production, delays and unpredictability can be as strong an impediment to participation as costs.  In many African countries, trading across borders is burdensome and costly, although there is wide variation between countries. According to the World Bank Doing Business indicators, it takes 51 days and requires seven documents to export a container from Zambia, 40 days and ten documents from Angola, and 26 days and six documents from Mali – but only 10 days and four documents from Morocco.

The East African Community and South African Development Community (SADC) has achieved a significant reduction in barriers to trade, but generally across the continent, tariffs are still high and sometimes even higher than between Africa and other parts of the world. The UN Conference for Trade and Development in 2013 found that an African firm’s export outside of the continent faces an average protection rate of 2.5% while exporting the same goods to other African markets would gulp about 8.7%.

In short, that the quality of Africa’s participation in the global value chain cannot improve unless we first achieve the development of the African value chain based on greater economic and social integration of Africa itself. Without the demonstrable commitment by African countries to think beyond their immediate borders, Africa will remain on the lower rung of the global production ladder, as our individual countries labour in vain to create conditions to enable participation in the global value chain. Let me emphasise that the exploitation of our continent does not become more acceptable simply because it is done by China, India or Brazil. It is visionless leadership that strips its own country of local content or indigenization laws to benefit foreign investors, but to the impoverishment of its citizens.

The opportunity to integrate into any value chain is fostered by the ease, cost and reliability of international flow of goods and services. Therefore, African countries that are able to remove the main non-tariff barriers and make trade facilitation process faster, and more reliable, and cost less will be more successful in harnessing the opportunities in regional value chains.

It is heartening to note that some serious efforts are already going on in this direction. The Lagos to Tangiers highway project; the Trans Sahara gas pipeline project, as well as the Chinese-backed railway projects that would connect East African countries, are all remarkable in many respects. We now have fast trains running between Ethiopia and Djibouti, moving people and cargo. It has reduced a journey of three days to just eight hours; and 3500 tonnes of cargo can now be moved from the port of Djibouti to the heart of Ethiopia within 10 hours. Before this project, it would take 70 trucks driving for up to four days to move the same quantity.

It is important to note however that infrastructure in Africa today is still largely financed by government, with limited private sector participation.  Many of these infrastructures are therefore poorly managed. The massive upgrading of infrastructure that we need will also require us to develop and strengthen regulatory framework for procurement and public-private partnerships in infrastructure developments in addition to developing the capacity of relevant government agencies to manage these infrastructure contracts. In terms of planning, we also have to pay more attention to intra-regional connections and spatial planning. This is very important because increasing links between countries and between growth poles and growth secondary cities will unlock growth opportunities even between rural and urban areas.

The value chain approach is also based on supply chain efficiency, which is aimed at lowering transaction cost, minimizing delays and reducing imbalances. Therefore, if we do not make the necessary investments in transportation and remove the current restrictions that make it easier for Africans to travel across Europe than within Africa itself, we would not be able to take full advantage of the opportunities that abound within our continent. Development of critical transport and logistics infrastructure must complement trade policy as a priority intervention, to enhance the integration of countries into the African Value Chain. A research conducted by OECD in 2014 on Base Erosion and Profit Shift found that 0-10 percent of total trade cost is accounted for by tariffs, 10-30 percent by physical trade cost while 60-90 percent is by non-tariff related costs such as trade procedures, regulatory environment, currency fluctuations and availability of communication services.

Perhaps the most remarkable progress in improving African interconnectivity so far, was announced last week when 23 African countries launched the Single African Air Transport Market (SAATM). The International Air Transport Association (IATA) had earlier estimated that liberalizing air transport routes for only 12 African countries would create more than 150,000 jobs and boost the continent’s GDP by $1.3billion. We can therefore estimate that the benefits of this particular initiative, which is in fulfillment of the African Union 1999 decision, would even yield greater dividends with the added benefit of direct flights between African countries, which, believe it or not, hitherto involved stopovers in the Middle East or Europe. This single air market is coming not long after several African countries agreed to ease visa requirements for African nationals. By the time the remaining 32 countries join up in the open air agreements, the benefits to the African economy would be immense.

In the National Assembly, our Legislative Agenda has a very strident economic focus, to help remove impediments to the value chain, and some of these efforts have already seen Nigeria move up 24 places in the World Bank Ease of Doing Business Report 2018. The Nigerian Senate’s Made-In-Nigeria Initiative is intended to help stimulate the production of goods locally, and to get Nigerians to embrace the same, thereby moving away from the previous fixation on imported good. The Public Procurement (Amendment) Bill makes it compulsory for all government agencies to procure products and services from Nigerian manufacturers and vendors in the first instance; they may only go to a foreign supplier when local options have been exhausted. The Companies and Allied Matters Act (CAMA) makes provision for the regulation of SMSEs as well as greater access to credit. These are just a few of the many legislative interventions of the National Assembly so far, with many more in the works. 

Fashion, construction and ICT are all massive job creation sectors. However, unless we develop real capacity for value addition in a way that enables Africa to take charge of the production process, others would continue to derive greater benefits from the talent and opportunities that abound in our continent while our youth go without. One of the major issues in this regard is access to credit, which remains critical in entering, establishing, or moving up value chains. The various regional and sub-regional development banks are markers of Africa’s commitment to home grown credit. However, broad based financial inclusion remains a challenge, and limited access to credit and financial services will continue to threaten any efforts at poverty eradication and promotion of real entrepreneurship among our youths. Strengthening financial inclusion must therefore remain at the top of our regional political agenda. Although the financial sector in Africa has witnessed remarkable improvement over the past decade especially in countries like South Africa, a lot of countries are still very limited. SMEs are less likely to have access to loans than their counterparts outside of the continent. As governments, our focus should be to increase access and lower cost of financing as well as ensuring that we develop functioning financial systems that can increase the number of potential trading partners and volume of trade. In addition, we must begin to think of financial system development strategies that will encourage further competition between players in the sector as well as introducing policies that limit collateral requirement and reduce credit information gaps.

Harnessing the opportunity that comes with participating in regional production networks can accelerate African economic transformation, particularly through the gains associated with enhanced productivity, skills development, and diversification of exports. However, the gains from Regional Value Chains and GVC participation are not automatic. Opportunity only means what is possible and not what will happen. These would require a broad set of policies with a particular focus on trade facilitation, investment, transport infrastructure, and access to finance. But beyond these, it would require a critical mass of political leaders on the continent with capacity to think globally, act locally and understands what it truly mean to be a leader on the African continent in a globalized world.

The continent is yearning for leadership not only in government but also in commerce. Local talent is yearning for partnership and collaboration with talented, capable people such as yourself to realise the hopes of the growing youth population.

By Dr Abubakar Bukola Saraki

President of the Senate, Federal Republic of Nigeria.


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