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African Commodity Strategy: Value addition for global competitiveness

by kenya-tribune

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Africa’s great commodity wealth has created challenges as well as opportunities.

The African Union’s Commodity Strategy will ensure a more collaborative process of developing and managing the continent’s natural resources.

Africa has about 12 per cent of the world’s oil reserves, 42 per cent of its gold, 80–90 per cent of chromium and platinum group metals and 60 percent of its arable land, in addition to vast timber resources.

Africa experienced a commodity boom during the early 2000s which translated into the unprecedented growth that was only disturbed by the onset of the global financial crisis of 2008.

While the continent was able to recover from this global shock by 2010, and rebounded with a strong growth rate of 4.6 per cent on average, this boom did not translate into consummate economic diversification that would have led to faster social-economic development for Africans.

In addition, most African economies still rely heavily on commodity production and exports, with minimal value addition and even fewer forward and backward linkages to other sectors of the economy.

The challenges arising from continually fluctuating commodities prices and Africa’s limited value addition to its natural resources render Africa vulnerable to the external shocks derived from export dependency and therefore necessitate a holistic rethinking and a new approach to the question of how Africa’s commodities wealth can drive the continent’s development.

The recognition of the challenges and opportunities from Africa’s commodity wealth has been reflected in different decisions by the African Union (AU), including the Arusha Declaration on African Commodities, as well as other frameworks such as the Comprehensive Africa Agriculture Development Programme (CAADP), the Africa Mining Vision (AMV) and the strategy for the Accelerated Industrial Development of Africa (AIDA).

With the adoption of Agenda 2063 as the strategic framework to guide Africa’s inclusive economic growth, the AU undertook to consolidate and guide the development of an Africa-wide commodities strategy that will ensure a more coherent and collaborative process of African states developing, managing and benefiting from their natural resources and collectively positioning the continent to live up to its potential as an economic powerhouse.

What does the continental Commodities Strategy propose?

The continental Commodities Strategy is a flagship project of the AU’s Agenda 2063 and envisions a commodity-led industrialisation: developing Africa’s commodities as a driver for achieving the structural, social and economic transformation of the continent.

The strategy aims to identify, formulate and drive the implementation of policies and programmes that will enable African countries to add value, extract higher rents from their commodities, integrate into global value chains and promote vertical and horizontal diversification anchored in value addition and local content development.

To achieve these objectives, in its formulation, the Commodities Strategy will address several key issues including:

• Reviewing the state of play for high-priority commodities sectors in Africa, namely agriculture, mining, and energy, including the examination of current trends and outlooks, to identify sector-specific opportunities and how to address any existing challenges.

• Addressing commodity price volatility, which continues to be a critical feature of international commodity markets and thus creates challenges for macroeconomic management and exposes developing countries to greater macroeconomic uncertainty.

• Driving commodity-based industrialisation, which can serve as a Launchpad for long-term diversification in new non-commodity sectors, if well supported by robust industrial policies.

These goals are achievable given that Africa boasts significant human and natural resources that can be used to promote industrialisation and structural economic transformation through value-addition strategies in all sectors.

With Africa’s growing, predominantly young, skilled and urbanising population, as well as the continent’s endowments in many natural resources, including plentiful land and fertile soils, oil and minerals, commodities can play a crucial role in the drive to industrialisation.

However, a key challenge for African countries is to ensure the design and implementation of effective policies that promote industrialisation and economic and structural transformation.

The Commodities Strategy is therefore of paramount importance in assisting Africa to realise the full benefits from its natural resources for the betterment of its people.

Positioning Africa as a global player in trade

A clearly articulated Africa Commodities Strategy will ensure the continent takes a stand and becomes a significant player in global trade by addressing some of the activities of transnational corporations which have been fragmenting their production processes, so as to efficiently exploit different countries’ comparative advantages along (regional, subsequently global) value chains, forming a global division of labour.

This has led to an increase in international trade in intermediate goods, which now accounts for about half of global trade, of which Africa accounts for 2–3%. Despite its small size, intra-African trade in intermediates is far more diversified than the corresponding trade with the rest of the world.

This therefore offers an opportunity for the continent to position itself strategically in line with its resource endowments to actively participate in the global value chains, as compared to what is obtaining currently, thereby effectively putting itself on a sure path towards industrialisation.

For Africa to take full advantage of and participate effectively in global value chains, it will need to effectively address its regional value chains and address other barriers that have led to low levels of intra-regional trade, such as its inefficient trade-related infrastructure and logistics, among others.

Some ongoing initiatives by the African Union to address Africa’s commodities include agro-processing and value chain development within the framework of the CAADP, harnessing the blue ocean economy and benefiting from Africa’s marine resources through the development of the Africa Integrated Maritime Strategy, and using mineral resources to catalyse broad-based growth and development through the African Mining Vision.

In addition the implementation of a Continental Free Trade Area (CFTA), which is also being led by the AU, will support the development of intra-African trade which is key to boosting trade and the development of Africa’s commodities.

Find out more about the AU, Agenda 2063 and the Commodities Strategy by visiting www.au.int.

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