Invest in Africa, Invest in Global Growth

By Arancha Gonzalez & Fetlework G/egziabher

ADDIS ABEBA – It may be a legend that an Ethiopian goat herder named Kaldi discovered coffee when his flock was energized by nibbling on a coffee bush a thousand years ago. But no one can deny that coffee, now the planet’s most popular beverage, is Ethiopia’s gift to the world. 

Ethiopia is expected to export a record 4 million 60-kilo bags of coffee in 2019/20, just over half of total production.

Coffee is Ethiopia’s most important export, but despite this year’s bumper crop, it is also a symbol of some of the fundamental challenges afflicting Africa’s trade with itself and the rest of the world.

Africa largely depends on the export of agricultural or mineral commodities with which others create value through processing. From oil-hooked Algeria and Angola and in the north and south, fish-and-agriculture reliant states in the west like Senegal and Guinea Bissau, to mineral-dependent Mozambique in the east, nearly 90% of countries in sub-Saharan Africa depend on unprocessed commodity exports as their main export earners.

Despite progress made in improving yields, Ethiopia’s smallholder coffee farmers struggle to match the performance of Latin America competitors. Outdated production techniques, old plants and unstable prices have beleaguered the industry for years. Only 2% of its coffee is processed inside Ethiopia and most of this leaves Africa.

Perhaps the virtuous cycle of investment, innovation and prosperity that the Ethiopian industry needs can be satisfied by exporting processed coffee products within Africa? The rise in an urban middle-class across the continent, with city populations set to triple by 2050, would suggest so, and the Ethiopian Coffee and Tea Authority is exploring these possibilities.

In Africa, the level of processed goods traded with the rest of the world is low compared to other regions like Asia and Latin America at about 30% of all trade. However, when Africa trades with itself, the level of processed goods traded rises to 60%, according to an analysis by the International Trade Centre. This suggests that when countries produce higher-value processed goods it can boost intra-regional trade.

For policymakers seeking to create jobs and incomes, this means removing impediments to intra-African trade so that labor-intensive, higher-value sectors can expand in scope and productivity. That is why the leaders on the continent have supported the African Continental Free Trade Agreement, brokered by the African Union, in 2018.

The agreement establishes a free trade area that becomes operational in 2020 by progressively removing tariffs and non-tariff measures between African countries, promoting investment in sectors and skills, and tackling shortcomings in trade infrastructure like air routes, roads, ports and border crossings.

The United Nations Economic Commission for Africa claims that the AfCFTA has the potential to boost intra-African trade by 52% by removing tariffs alone. Today, Africa’s inter-regional trade is only 16% of its total exports, compared to around 60% and 70% for Asia and Europe.

Alongside trade-easing measures, African countries will need activist industrial and manufacturing policies to help businesses to produce goods “Made in Africa” for intra-Africa and global trade and to help build more value addition.

Ethiopia is set to take advantage of the new conditions, and is already achieving growth of nearly 10 percent a year on average between 2008 and 2018, thanks in part to energy and transport infrastructure programs that have laid the groundwork for value-added sectors to grow. In a new plan unveiled two months ago, Prime Minister Abiy Ahmed said the initiative “aims to propel Ethiopia into becoming the African icon of prosperity by 2030” by privatizing state-held sectors and liberalizing the economy. Ethiopia is increasingly turning to agro-processing and light manufacturing to help keep up double-digit growth.

For example, earlier this year, KPR Mill Ltd, an integrated textile manufacturing company from India, opened its first overseas garment unit in Ethiopia’s Mekelle Industrial Park. KPR was assisted by ITC’s Supporting Indian Trade and Investment for Africa (SITA) program, which builds trade and investment links between India and East Africa.

The factory will be able to make 10 million items of clothing each year and has given well-paying jobs to almost 1000 people, the majority of whom are women. Meanwhile, Chinese companies are set to invest as much as $2.3 billion in Ethiopia to set up export-oriented plants in the pulp and paper, pharmaceutical and meat processing industries. Productive factories, even those geared toward exporting goods outside Africa, have beneficial knock-on effects locally.

The name of Prime Minister Ahmed’s new plan – “Homegrown Economic Reform” – reflects very much the spirit of the African Continental Free Trade Agreement – designed in Africa, for Africans. And when the value of trade rises in Africa, it can add to global trade volumes and boost sluggish growth elsewhere. In a period when other countries are turning away from multilateral and greater integration, countries in Africa are showing the value of regional and global cooperation. Open trade could become Africa’s gift to the world.

*Arancha Gonzalèz is the Executive Director of the International Trade Centre and *Fetlework Gebre-Egziabher is the Minister of Trade and Industry of Ethiopia.

The African Union’s Africa Industrialisation Week and the International Trade Centre’s World Export Development Forum, supported the Government of Ethiopia, take place in Addis Ababa on 18–22 November.