Investing in export value chains should be a priority
Trade Forum talked with Adrian Njau of the East Africa Business Council (EABC) about the importance of value chain integration in the region, trade barriers that prevent exports, as well as solutions to overcome these barriers.
As the Executive Director explains, investment in value addition and making use of trade market intelligence tools is key to shift away from commodity dependence to economic independence.
Export value-chain development holds enormous potential to boost regional trade, diversify our economies, promote the growth of manufacturing and agro-processing, enhance economic resilience, and promote value addition and job creation.
It improves the quality and competitiveness of EAC exports in both regional and global markets. More importantly, stronger value chains enable exporters to meet the required standards by importers and ultimately allows East Africans to benefit of preferential trade agreements, such as the EU-Economic Partnership Agreement, the African Continental Free Trade Area (AfCFTA) or the African Growth and Opportunity Act (AGOA).
According to the Economic Development in Africa Report 2024, Africa remains highly vulnerable to external shocks due to its dependence on primary commodity exports, with over 60% of Africa's export earnings coming from oil, gas, and minerals. The EAC seeks to shift from this dependency by promoting value-added exports across priority sectors such as agriculture, manufacturing, and services.
In addition, the African Economic Outlook 2024 states that Africa’s GDP is projected to grow by almost 4% in 2024, with East Africa leading at over 5%, which is primarily thanks to trade and industrialization efforts in the region.
This growth is an opportunity to improve regional production networks, reduce non-tariff barriers, and enhance infrastructure connectivity.
The EAC priority investment sectors (agriculture, manufacturing, energy, and infrastructure) highlight the need for value-chain development. For instance, our region has millions of hectares of arable land and rich mineral deposits including oil and gas, offering significant potential for commercial farming, agro-processing, and value addition.
Finally, in 2022 the EAC Heads of State set a target of increasing intra-EAC trade from 15% to 40% by 2030.
The top 3 would be 1) trade barriers and inconsistent regulations; 2) low industry capacity and limited value addition; and 3) limited access to trade finance and market information. Let me explain more:
Non-tariff barriers, such as unharmonized standards, excessive documentations, customs delays, and licensing requirements, continue to hinder intra-EAC trade and exports outside the region. According to Trade Mark Africa, they have a disproportional impact on sectors and enterprises and are worsened by inconsistent policies and regulations across EAC countries.
Solutions to fighting these barriers include for all countries to implement the Single Customs Territory programme, as well as harmonize trade policies and procedures including digitizing trade procedures.
In addition, most of EAC exports are agricultural products and minerals with little or no value addition. The manufacturing industries are limited by high production costs as electricity is expensive, infrastructure poor, and technology outdated.
To address this challenge the EAC Regional Infrastructure Master Plan identifies 112 priority projects across roads, railways, ports, and energy, requiring $78 billion in investment by 2030. Public-private partnerships and regional collaboration are crucial for closing this gap.
Finally, youth-led small and medium-sized enterprises and women entrepreneurs struggle to access affordable finance and real-time market data. High-cost credit makes it difficult for businesses to invest in value addition exports while most small businesses are not aware of international market opportunities.
Possible solutions require expanding financial products, strengthening platforms like the EAC Trade Helpdesk, improve market intelligence and trade promotion and invest in digital trade systems.
Addressing the above challenges will unlock the potential of export value chains, increase competitiveness, and boost economic growth in the EAC.
The private sector plays a critical role in advancing regional value chains. For instance, businesses can invest in agro-processing, manufacturing, and services to add value to raw materials, making exports more competitive. Agro-processing alone accounts for 40% of the manufacturing value added in the EAC.
Then, through platforms like the EABC–EAC Technical Workgroup, the private sector can advocate for policy reforms to ensure a conducive business environment.
Dialogues and fora organized by EABC such as the Business and Investment Summit are critical to unlock the potential of the region in the areas of trade and investment.
Finally, through digital platforms and tools for market intelligence and integration, companies can strengthen value chains by sourcing from youth- and women-led enterprises, fostering inclusive economic growth.
Indeed, we are partnering with ITC under the European Union-East African Community (EU–EAC) Market Access Upgrade Programme (MARKUP) Phase II. This collaboration aims to enhance market access and export competitiveness for over 400 entrepreneurs across selected regional value chains like avocado, cocoa, coffee, essential oils, French beans, gum Arabic, horticulture, leather, packaging, spices, and tea. As part of this partnership, we are:
- Conducting awareness-raising campaigns to use national and regional trade information portals.
- Promoting the use of EAC quality platforms and support its Quality Awards.
- Facilitating the regional value chain review mechanism.
- Implementing capacity-building programmes such as ITC’s SheTrades Initiative, which focuses on gender-responsive procurement, investment, and services provision.
- Organizing bootcamps to train youth on how to trade under the AfCFTA.
Through MARKUP II, EABC empowers businesses across the EAC region, so far equipping over 150 stakeholders with the skills to navigate global markets using ITC tools such as the EAC Quality for Trade Platform, and opening doors to new opportunities via trade information portals like the EAC Trade Portal.
By championing gender-responsive business practices, EABC is paving the way for a more inclusive and thriving trade environment, driving sustainable growth across the region.