Business Development Science and Technology

AfCFTA presents Africa opportunity to reposition its industrial production frontier: Muchanga

African Union

By Byron Mutingwende in Addis Ababa, Ethiopia

Ambassador Albert Muchanga, the Commissioner of Trade and Industry of the African Union Commission has said the African Continental Free Trade Area (AfCFTA) presents an opportunity to the continent to reposition its industrial production frontier.

The Commissioner made the remarks today at the African Union Headquarters in Addis Ababa, Ethiopia while opening the Africa Auto Industry Value Chain High-Level Panel Session, a flagship forum for the 2019 Africa Industrialization Week celebrations (Aiw2019).

The hosting of the Aiw2019 comes against a background of major milestones on the continent’s quest to build self-reliance, which has been capped by the launch of the Operational Phase of the AfCFTA on the 7th of July 2019, at the Africa Union Extra-Ordinary Summit of HoS/G, in Niamey, Niger.

The Ambassador said that with the AfCFTA ushering in a market space of at least US$3.4 trillion, and a consumer base of 1.27 billion, moving the continent’s industrial production frontier, becomes critical, as enterprises tap into large scale opportunities on the back of free trade. Africa has undergone through considerable economic growth since the turn of the century. Industrialization has been associated with rapid economic growth elsewhere but this link is very weak on the continent.

“Growth has been hinged on commodity price booms, despite the risk of focusing on commodity exports, in the wake of ever-changing global market conditions. Thus, the low level of industrialization remains the continent’s biggest challenge, and according to the AfDB (2017), the lack of structural change during the phase of economies expansion since 2000 will impede future growth prospects, due to reliance on commodities. There is no excuse for the current weak manufacturing capacity of the continent, if we all rally our efforts to leverage the diverse and rich natural resources that Africa is endowed.

“Thus, the AfCFTA presents an invaluable opportunity to the continent to reposition its industrial production frontier, as enterprises respond to the demand dynamics of the large and liberal US$3.4 trillion market,” Commissioner Muchanga said.

He said the development of an African Automotive Value Chain presents a huge potential and opportunities for the continent to industrialise in the medium- to- long-term.

According to a Report by Delloite & Touche, 2018, the rise of income levels in many African countries and the emergence of a middle class, makes the continent the final frontier for the global automotive industry.

Given Africa’s population size and its positive economic outlook, Muchanga said automotive companies will be able to gain a competitive advantage by adopting a medium- to long-term view towards the continent.

The market for vehicles is growing rapidly in Africa, however, this demand is being met by imports especially used vehicles, with the continent standing out mainly as a retail-dominated automotive market. Thus, due to limited disposable incomes and the high cost of new vehicles, second-hand vehicles dominate the continent’s automotive retail sector, with the bulk of these mainly imported.

Imports of vehicles grew rapidly from 2003 onwards, coinciding with GDP per capita growth and a growing middle class on the continent. This was supported by high commodity prices at the time. The continent imports four times more automotive products than it exports, with automotive imports worth US$48 billion in 2014 and exports worth only US$11 billion that year. Key sources of used vehicles are the United States (US), Europe and Japan. For instance, in a survey conducted by Delloite and Touche, in Ethiopia, Kenya, and Nigeria in 2017, at least 8 out of 10 imported vehicles are used vehicles, with the Middle East serving as a notable transit route for vehicles into East Africa. The continent’s automotive market remains quite small, with 42.5 million vehicles being registered as in use during 2014, despite a huge population in excess of 1 billion.

The rapid growth in demand for vehicles on the continent gives an opportunity for local producers to exploit this market and especially with the launch of Africa Continental Free Trade Area (AfCFTA), there are even more opportunities to supply this bigger market.

“The positive investments o the auto value chain at member, state, regional and continental level are laudable developments that we need to ride on as we cart a course for the development of an African Auto Value Chain Development Initiative in the short- medium- to- long-term.

“The greatest opportunity for success in this direction is the economies of scale production possibilities presented by regional integration that provides a wider market reach to allow for large scale production and investment. With the AfCFTA, we have already passed the mark for unlocking the Auto value chain market potential, by creation of a wider and liberal market. The success of the sector hinges much on economies of scale (i.e. requires large markets and long production runs), and thus regional linkages will be key to guarantee volumes. Another requirement would be strong cross border infrastructure investments to ease logistics and thus promote extensive trade networks (in both parts and fully assembled units), within and between countries. Important therefore to have efficient ports, logistics, customs regulations and comprehensive trade agreements,” Commissioner Machanga added.

He reiterated that optimal development of the auto – value chain will be an entry point for the development of intra-Africa industry and trade links, a stimulus for industrialisation and shared and balanced regional growth in Africa – a major aspiration of Agenda 2063.

Moderating the session, Mr. Rongai Chizema, the African Union’s Chief Technical Advisor in the Department of Trade and Industry said that by promoting intra-African trade, the AfCFTA is expected to nurture a more competitive manufacturing sector and promote economic diversification. The removal of tariffs, he said,  will create a continental market that allows companies to benefit from the economies of scale.

“The success of the AfCFTA hinges on the continent to expand and modernize its productive capacities to effectively supply the market that is estimated to be over 1.3 billion consumers and over US dollars 3 trillion of combined Gross Domestic Product (GDP). Its success also hinges on the effective participation of all groups especially women and the youth in line with the demographic composition of the continent,” Mr. Chizema said.

Given the importance of industrialization for structural transformation, 20th November was set aside annually as Africa Industrialization Day (AID). The day was adopted by the assembly of heads of state and government of the organization of African Unity at its Twenty-fifth Ordinary Session held on 26 July, 1989 Addis Ababa, Resolution AHG/res. 180 (XXV), which was followed by the UN General Assembly “UNGA” Resolution 44/237 of 22 December 1989.

 

 

About the author

Byron Adonis Mutingwende