Africa’s export of primary commodities keeps it as enrichment source for economies that add value – SA trade minister

…Continent’s 2014 coffee export worth $6bn rather yielded $100bn abroad in final products after processing

…Wants adoption of AAF SAP to transform continent than externally-imposed SAP

…Warns of dire consequences if continent is left behind in 4^th Industrial Revolution’s tech

Ben Eguzozie, in Port Harcourt

Rob Davies, former South African trade minister, said, as African countries chiefly continue to export primary commodities, without value addition, the continent remains an enrichment source for other economies (mainly developed) that add value to the raw materials from Africa.

As these developed economies package and brand the primary commodities from Africa, they in turn, reap heavily from exports to Africa, Davies noted.

Examples include Nigeria, Africa’s top oil producer, which exports its oil wholly as crude, only to import 100 per cent all its petroleum products from countries that refine the commodity into different products. The country has remained one of Africa’s biggest importers of everything from diesel to household items, thereby hugely depleting its dollar foreign reserves.

For instance, a study by KPMG in 2014 identified that Africa exported coffee valued at $6 billion but after the coffee was roasted, blended, packaged and branded by companies based outside the continent, the final products sold yielded $100 billion.

This translates that, 94 per cent of the value chain of a primary product produced in Africa was captured abroad.

The case of highly knowledge intensive products paints a more bewildering example, with the figures even more unambiguous. For instance, the iPhone 6 retails for $649 in the US. But the cost of the mineral products used in its manufacture totals a meagre $1,03 (0,16%).

The former South Africa trade & industry minister, giving the 2021 Adebayo Adedeji memorial lecture recently cited Adedeji’s seminal work, the “African Alternative Framework to Structural Adjustment Programmes for socio-economic recovery and transformation (AAF SAP), said, AAF SAP became a major beacon looked to by many then who doubted that externally-imposed Structural Adjustment Programmes were the best, or only, way forward for Africa’s development.

Davies, advocating for adoption of AAF SAP as framework to transform Africa, said, Adedeji’s AAF SAP had identified what it saw as the structural weaknesses in most African economies, which included: a weak productive base characterised by low productivity, and productive activities dominated by either subsistence or export-orientated primary product production.

He said, from this, AAF SAP identified the central task as structural transformation of African economies. One key element of this was, “…Africa has to break the apron strings of structural and relational dependence on producing a limited number of cheap primary commodities for export.”

“This is true even of products where little or no further physical transformation takes place,” Davies said. He believes that this highly pertinent observation remains as valid today in 2021 as it was in the 1990s.

“It speaks to a reality highlighted by the experience of those very few countries that have transitioned from low to high income, or from underdeveloped to developed economies. The vast majority of these achieved this transition by passing through a stage of economic diversification involving a shift to higher value-added production. In a word, they industrialised,” the Adedeji 2021 memorial lecturer said.

According to the former trade & industry minister, poor countries (mostly in Africa) have stayed poor because they have remained trapped in their colonially-defined role as producers and exporters of some primary products – agricultural or mineral –used in industrial production elsewhere.

Davies contended that developments that have unfolded in the period since the 1990s – including the rise of globally networked industries (or Global Value Chains), and the emergence of more complex and knowledge intensive products – have increased the imperative for Africa to break from what AAF SAP called “the apron strings” of dependence on primary commodity production and export.

He stressed that the value of the raw materials as a proportion of the price of final products is both small and declining. This is true even of products where little or no further physical transformation takes place. Example here points to Nigeria’s Bonny Light crude (which is equivalent to British Brent Crude) sold for $63.01 as of 5.08 pm Thursday 08 April. But the country imports premium motor spirit (PMS) one of refined crude products and sells to its citizens at N165 – N 172, with plans to jerk the price to N250 soon.

Davies highlighted that the few underdeveloped countries that have more recently emerged as high income or “moderately prosperous” countries have all followed the same path as earlier industrialisers. Whether they were the East Asian newly industrialising economies in the 1960s and 1970s (South Korea, Taiwan, Malaysia) – or more recently China – their governments pursued active industrial policies that promoted, nurtured and protected nascent industries.

“The industrialisation they experienced not only resulted in greater output and higher incomes for those directly involved in manufacturing, it also supported a host of related service activities that created higher quality, better remunerated and higher quality jobs than those that existed before. All of this created a generalised improvement in productivity that raised incomes throughout diversifying economies,” the former South African minister of trade said.

Davies therefore, called on African countries to break the dependency ties, acknowledging that the continent’s countries need to recognise that their efforts to industrialise are taking place in the context of two pre-existing global mega challenges, as well as the impact of the Covid-19 on socio-economic life and health sector.

The mega challenges are: that arising from the imperative to mitigate and adapt to human induced climate change, and the technological transformations associated with the Fourth Industrial Revolution.

Davies also said the impact of climate change on Africa and the transition to low-carbon economy has the potential to affect all forms of productive activity, amid move towards the Fourth Industrial Revolution. He specified that green industrialisation and the Fourth Industrial Revolution will both enhance the imperative and raise the bar for Africa’s drive to industrialise.

He warned of extreme consequences if the continent should itself to be “left behind,” as the negatives of exclusion will outweigh the benefits of the introduction of products or systems based on the new technologies.