33.4 C
Lagos
Saturday, December 7, 2024

spot_img

Trade in intermediate goods on the rise in Africa

Trade in intermediate goods (IGs) is playing an increasing role in Africa’s economic development. In recent years, IG exports have risen much faster than imports, leading to a significant reduction in the continent’s IG trade deficit. Africa’s IG exports (excluding fuels) in 2022 were estimated at US$ 312 billion compared with US$ 196 billion in 2019.

Africa’s IG exports are mostly composed of raw or semi-processed materials and primary products supplied at earlier production stages in global value chains (GVCs). They cover a wide range of products, from ores, minerals and precious stones (e.g., iron, rhodium, non-monetary gold and diamonds) and agricultural inputs (e.g., cocoa, coffee and cotton), to manufactured parts, components and accessories (e.g., car wiring kits) used by industries to produce final products.

Africa’s IG exports (excluding fuels) in 2022 representedaround 77 per cent of total non-fuel merchandise exports from the continent, the highest share in the world.

Evolution of Africa’s trade in IGs

Between 2012 and 2019, prior to the COVID-19 pandemic, Africa’s IG exports and imports grew at a similar pace, with yearly average growth between 2 and 3 per cent.

Between 2019 and 2022, exports rose much faster than imports, increasing by 16.8 per cent annually. This led to a strong reduction of the IG trade deficit in the region, which reached US$ 11 billion in 2022 — a historical low since 2012.

South Africa was partly responsible for this change, as its IG trade surplus reached US$ 32 billion in 2022, compared to US$ 20 billion in 2019. Other factors affecting the reduction of the regional IG trade deficit included rising prices for commodities.

Africa’s main IG exports

Africa’s top 15 IG exports accounted for more than 50 per cent of total IG exports in 2022. This is a high level of export concentration compared to other regions in which IG export diversification is greater.

Non-monetary gold was Africa’s main exported commodity, accounting for 14.2 per cent of total IG exports in 2022 and mainly originated in Ghana, South Africa and Zimbabwe.

Cocoa beans, both raw and roasted, were the only food item among Africa’s top 15 exports, and were worth more than US$ 6 billion (2.1 per cent of Africa’s IG exports). They are produced essentially in Côte d’Ivoire and Ghana, the two top world producers of cocoa beans.

The impact of commodity prices on Africa’s IG exports

The trade value of raw or semi-processed ores, metals and agricultural products is linked to the evolution of prices on global commodity markets. The marked decline of Africa’s IG exports between 2012 and 2016 was essentially due to a general drop in prices for commodities.

More recently, the strong rise of commodity prices in the wake of the COVID-19 pandemic has largely contributed to the rise in the value of Africa’s IG exports.

This price increase has partly been due to heightened demand for iron ores and rhodium from China’s steel and automotive industries, as well as production shortages in platinum group metals (i.e., palladium, platinum and rhodium) further to power plant outages in South Africa. Platinum group metals are used in metal alloys by many industries to produce catalytic converters and mobile phones, and for other applications in the fields of dentistry or jewellery-making.

A focus on intra-Africa IG trade

Intra-Africa IG exports were estimated to be 12.8 per cent of total IG exports in 2022. This is a low rate compared to the level of industrial inputs that Africa traded with Asia (32.1 per cent) and Europe (31.1 per cent) during the same period and suggests low integration of production chains in the region.

Underlying factors leading to low intra-regional exports include poor transport infrastructure and a lack of financial and technological resources.

South Africa led intra-regional trade, registering a value of US$ 15.1 billion in 2022. This covered a wide range of industrial supplies, including raw minerals, parts and accessories, and food items, largely destined for neighbouring economies also members of the Southern African Development Community (SADC) and the Southern African Customs Union (SACU).

Mozambique was South Africa’s main regional destination, primarily for the transit of chromium, ferrochromium and iron — usually alloyed to produce stainless steel — via the local port of Maputo and destined for Asian industries.

Egypt, Ghana and Zimbabwe are the other most active contributors to regional supply chains.

Egypt exported IGs worth US$ 4 billion to African economies in 2022, amounting to 20.0 per cent of total IG exports. These IGs mostly consisted of construction materials (e.g., cement), fertilizer products (e.g., urea) and food products (e.g., wheat flour), which were shipped to neighbouring economies, including Libya and Sudan, and other ones in North Africa.

Ghana, Africa’s largest gold producer, exports gold in semi-manufactured form to South African gold refineries. This accounted for nearly two-thirds of Ghana’s IG exports to African economies in 2022.

In relation to its landlocked position and its membership in the SADC, Zimbabwe IG exports, which mainly consist of nickel mattes and ores, are essentially destined for South African neighbouring industries.

Conclusion

The participation of African industries in GVCs is characterized by worldwide exports of primary inputs, essentially in raw format.

However, the low share of intra-Africa IG trade (excluding fuels), estimated at 12.8 per cent in 2022, reflects a lack of integration of African economies into regional supply chains. It also suggests that there is potential for these economies to enhance their regional integration, upgrade their positioning in GVCs and better meet the needs of local markets. 

As the African Continental Free Trade Area (AfCFTA) expands, there are opportunities to develop regional value chains and improve inclusiveness by addressing barriers to the expansion of regional trade and challenges related to infrastructure, product diversification and low levels of investment and financing.

Source: WTO Blog. The WTO Blog is a forum for the views of WTO staff on pressing issues. The views expressed are those of the author(s) and do not necessarily reflect the opinions of members of the WTO.

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -spot_img

Latest Articles