Pharmaceuticals, baby food, cotton clothing and cars to boost intra-African trade

As Africa looks to unlock its potential through the African Continental Free Trade Area, new research found pharmaceuticals, baby food, cotton clothing and cars could increase intraregional trade in the continent, reduce imports, diversify economies and create jobs.

The sectors are part of 94 promising value chains and reflect African goals to improve food security, health and tech skills – making them strategic choices for governments and investors.

Dubbed "Creating Value through Integration", the report was released on Tuesday during the African Union summit on Industrialization and Economic Diversification in Niger's capital Niamey.

It said the four sectors are promising even for small businesses, which make up 90 percent of companies and more than half of jobs worldwide.

The report said investing in the pharmaceutical sector would improve health and reduce dependence as Africa emerges from the COVID-19 pandemic.

Currently, only 3 percent of imported inputs are being sourced from Africa and 65 percent of the current export potential of $1 billion remains unrealized.

The report said seven African countries could competitively export pharmaceuticals, while Morocco and South Africa could competitively export inputs for the pharmaceutical value chain.

It concluded infant food production has huge potential, noting Africa has an abundance of fruits and vegetables, cereals, pulses and other ingredients used in infant food preparations.

Currently, Africa imports $589 million of food preparations for infant use every year, and this figure is projected to exceed $1.1 billion by 2026.

The report found the automotive sector presents a wealth of investment due to the continent's growing market, its potential to connect with value chains such as leather and electrical machinery and growing collaboration with foreign multinationals.

The African automotive sector has an export potential of $9.3 billion by 2026, nearly 10 percent of which is on the continent. Cars are Africa's fourth most important export product, accounting for 2.1 percent of total exports.

The report projected intra-African export potential in the sector could rise by $3.8 billion under full tariff liberalization.

The cotton clothing sector offers many opportunities for Africa to move up the global value chain and develop markets within and beyond the continent.

Currently, Africa accounts for 10 percent of the world trade in cotton, and the sector has a huge scope to add value in the middle steps of the value chain, such as yarn and fabrics.

The report said Africa has the potential to export $6 billion of cotton garments by 2026, of which almost 15 percent would be on the African continent.

Currently, Africa exports 90 percent of its raw cotton to Asia and is a net importer of cotton fabrics and yarn.

Despite the potential, limited technical know-how and weak processing capabilities stifle pharmaceutical production in Africa. Low-cost producers in Asia and the counterfeit medicine market also weaken the competitive position of African manufacturers.

The automotive sector remains highly fragmented due to lack of a continent-wide strategy. The influx of cheap, imported secondhand cars and a weak regulatory environment to control the sector have kept investments low.

Despite Africa's place as the top cotton producer in the world, the report said a lack of technical know-how, modern production machinery and qualified personnel have left the continent dependent on imports of cheap yarn, fabric and secondhand clothes.

The report found limited production capacity and low consumer trust in local brands hinders the growth of infant foods.

"Quality is a key consideration in the production and packaging of baby foods, but lack of modern production machinery and a weak quality infrastructure have curtailed growth," the report said.