Market opportunity in africa.docx

8/12/2019 Market opportunity in africa.docx

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Market opportunity in Africa

To tap into trade-growth opportunities, sub-Saharan Africa (SSA) needs to diversify in several

ways: it needs to become less dependent on the stagnating markets of its traditional trading

partners in the developed world. At the same time it needs to lower its dependence on the

export of commodities vulnerable to price shocks.

This analysis addresses how SSA can achieve sustainability in export revenues by integrating

deeper into sector value-chains and thereby increasing the share of value-added products

within its exports. The analysis also identifies strategic options and policies for sub-Saharan

African countries to maximize their trade-related economic growth through 2025 by tapping

into growth markets in Asia, Latin America and their own continent, and invest in trade-related

infrastructure and trade facilitation.

The reorientation of SSA exports away from stagnating OECD markets towards Asia, and China

in particular, has already begun. Trade between Western Africa and Asia, for instance, is

forecast to increase by 14% annually over the next decade, significantly outpacing the overall

growth in world trade.

But, since the large majority of SSA products destined for Asia are commodities, a reorientation

to growth markets is by itself not sufficient to achieve future sustainability. Furthermore, the

share of raw materials in Africas exports to Asia is still growing. Thus by simply turning towards

Asia, this analysis shows that the SSA region runs the risk of leaving itself even more vulnerable

to commodity price shocks than it is today.

In addition to increasing their share of exports to Asia, SSA countries increasingly trade within

their own region too. In this intraregional trade, though, it is the share of value-added products

that contributes to rising exports. The share of value-added products in SSAs exports to Europe

is also growing. In this context ITCsanalysis finds that by improving trade-related infrastructure

and reducing procedural bottlenecks through trade facilitation initiatives, SSA countries stand

to increase their trade particularly within the region, which is likely to favour the production of

value-added goods. Thus the mix recommended to optimize trade-related economic growth for


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SSA is diversification towards emerging markets, including in products with higher added

value, combined with investment in trade infrastructure and simplified customs procedures

to reduce the time and cost required to get products to market.

The expected benefit for SSA of investing in trade-related infrastructure alone is an increase in

exports of up to 51% beyond the baseline growth forecast, along with a gross domestic product

(GDP) gain of US$ 20 billion per year by 2025.

In order to assess the magnitude of potential trade and the economic benefits to SSA from

various trade related strategies and policies, this paper addresses the following questions:

What are the general trends in African trade with other emerging regions? What is thelevel of integration along the value chain? To which extent are individual sectors and

countries already vertically integrated? In summary, in which sectors and regions have

African exporters recentlyperformed well?

What is the future level of trade between Africa and other emerging regions, like Asiaand Latin America? Which sectors show the highest trade potential? What is the impact

of Asian trade initiatives in Africa? And, how could improvements in African trade

infrastructure affect trade?

In summary, what should policymakers do to maximize future trade potential?

Both SSA countries and Asia are forecast to grow rapidly in the coming decade, which will

further fuel intraregional trade in SSA and trade between the two regions. Increased Asian

demand is expected to particularly favour SSAs exports of primary products, such as oil, coal

and gas. Against this baseline of forecast trade growth, driven by economic growth alone, this

ITC analysis simulates the potential effects of three types of policy changes:

a) Reducing the time and cost of transporting goods on the African continent by improvingtrade infrastructure such as ports and roads;

b) Simplifying customs procedures in sub-Saharan Africa; andc) Simplifying customs procedures with Asia.


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The results of these simulations suggest that infrastructure improvements on the African

continent will achieve the greatest welfare and trade gains, and since this policy favours

intraregional trade, it is expected to be favourable to the export growth of value-added

products.

In which sectors and regions have African exporters recently performed well? SSA exports are

already being reoriented to growing Asian markets and these exports are increasingly raw

commodities. Efforts are needed to integrate sectors along the value chain. Success stories are

emerging in intra-SSA trade e.g. in leather.

Exports to Asia have grown rapidly in the past 15 years and Asias share of African exports

continues to rise. Asia is now the third-biggest destination for sub-Saharan Africas non-oil

exports after sub-Saharan Africa itself and Europe (the European Union and the countries of the

European Free Trade Agreement).

In 1995-2010, SSAs exports of processed goods (such as bread, textiles and furniture) and semi

processed goods (such as flour, yarns and industrial alcohol) have grown faster than exports of

non-oil raw products. In the case of intraregional exports, processed and semi-processed goods

comprise the largest share of non-oil exports, at 46% and 41%, respectively. The ratio of SSA

exports of processed goods to Asia, however, stands at an abysmal 5%, leaving much room for

improvement.

Splitting trade by level of processing provides important information on the structure of

exports, but doing so misses insights related to the import side of trade, where a country

transforms imported goods in order to use the end-products domestically. ITCs analysis

assesses Africas ability to move up the value chain, both on the import and on the export side

in the following two ways:

a) By assuming that an increase in the share of intermediate goods in total SSAimports is a sign that transformative industries are being set up in the country,

processing foreign inputs for domestic use or re-exportation;


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b) By assuming that an increase in the share of transformed goods in total SSAexports is a sign that transformative industries are being set up in the country,

processing domestic or foreign inputs for export.

Overall, the share of transformed products in total exports from SSA has increased, but the

share of intermediate inputs in total imports has remained stable. Individual success stories are

notable. The leather sector is a good example of vertical integration, where a number of

countries have established leather processing industries and increased their exports of finished

leather articles. Less successful has been the cotton and textiles industry, where only three

countries Burkina Faso, Chad and Mali increased the share of textiles in the sectors total

exports. Promising markets for these well-performing SSA countries and sectors are mostly

found within Africa itself, as well as among traditional markets in Europe and other OECD

countries. Although not growing rapidly overall, exports to these markets have gradually shifted

towards transformed goods. A right policy mix needs to be identified, which allows SSA to fully

exploit its trade and growth opportunities to simultaneously reorient towards fast-growing

markets and higher value-added exports.


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Overall, white wine sales rose by almost 18%, and reds by 22%. Sauvignon blanc, Cabernet

Sauvignon, Shiraz, Pinotage and Merlot saw the biggest increase in volumes exported.

"South Africa is increasingly perceived as the source of interesting, original and well-made

wines, able to appeal to Americans eager to expand their repertoire," Thompson said. "This is a

very good positioning from which to build our base, particularly as we target Millennials, who

are especially eager to encounter new taste experiences."

She noted that the increase in bulk volumes of wines exported, from 59% in 2012 to 65% in

2013, was largely because of opportunistic buying on world markets prompted by the poor

European harvest.

Read more:

http://www.southafrica.info/business/trade/export/wine-150114.htm#ixzz2vCteQN2S
http://www.southafrica.info/business/trade/export/wine-150114.htm#ixzz2vCteQN2Shttp://www.southafrica.info/business/trade/export/wine-150114.htm#ixzz2vCteQN2Shttp://www.southafrica.info/business/trade/export/wine-150114.htm#ixzz2vCteQN2S

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Market opportunity in africa.docx