Only an integrated approach to value addition will elevate African economies, create new jobs and leapfrog development stages.
Industrial policy expert and former CEO of the Kenya Association of Manufacturers Phyllis Wakiaga says that without a well thought-out and executed industrialisation and value addition policy, African countries will continue lagging in development.
“You get the most out of a product when there is value addition to it. Whether it’s tea, coffee, cotton, for any product: every time you add value, every step of the value chain increases the value of that product.”
Wakiaga says that Africa needs to retain the value of production on the continent by pushing industrialisation which she says can trigger a rapid development pace akin to that of developed countries a century ago.
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“Industrialisation is the process that leads to value addition. As much as the ambition for value addition is great, you must have the industrial capabilities to value-add across the entire value chain.”
Governments must also play a major role in pushing value addition by having the right industrial policy anchored on a true desire to push through the much-needed business-friendly policies. Government goodwill however must be there for the policies to be effective.
“A lot has been said about having the right policies, but whether there’s corresponding value chain support for it is the question. Manufacturing is an ecosystem that requires input from various actors.”
Farmers and industrialists might for instance need support for inputs – whether its farm inputs, transporting produce to market, cost of power or working capital – for them to make an impact on the end product.
“If this end-to-end ecosystem is not fully addressed, then it means that you have the ambition, you have the desire, but the full value addition happening across the value chain might not be possible,” says Wakiaga.
One of the factors constraining growth has been capital – especially patient capital – that will allow businesses to grow without cash flow constraints.
“For value addition to happen, it must take place competitively and because capital is one of the most critical parts of that, having affordable patient capital is important. Manufacturing is a long game. You’re going to invest in equipment and working capital”.
Patient capital is therefore critical for the manufacturing sector and across different value chains too.
“There is room then for development finance that is more patient and affordable for industries. That is where development banks such as Afrexim can come in to bridge the financing gap,” says Wakiaga.
Industrialisation, she says, must be driven by proper government policies that will encourage private sector investments if adding value is to take root. She calls for special economic zones to help push growth of such nascent industries as cotton value addition.
“How do you make it competitive for ginners and spinners to entice them to invest? This is a capital-intensive industry. You’re buying equipment, so how can you get affordable finance? The cost of energy is also high. There is therefore room for special economic zones that can have more affordable utilities and tax benefits for industries like that.”
Africa has also faced issues of technology obsolescence, where some ginneries have remained stuck with outdated technologies, leaving the entire industry non-competitive. Kenya at one time had world-class textile manufacturers in the seventies – Kisumu Cotton Mills (Kicomi) and Rift Valley Textiles (Rivatex) – to name but two.
Kicomi, built in 1965 provided a lifeline for farmers in the region. However, the factory was closed due to mismanagement, and its equipment has laid idle for decades. The other legacy textile manufacturer – Rivatex – limped along for many years before a fresh capital injection was negotiated between the government and a private investor giving it a new lease of life.
With the introduction of Bt cotton in the region, the need for reviving these value addition factories have never been more urgent.
Africa produces about six percent of global cotton, but an estimated80-90 percent of it is exported as raw. There is therefore a need for investments to make processed cotton more competitive on the global stage.
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“We have advantages like free trade agreements that give us access to global markets. We therefore need to have more vertically integrated textile mills in the continent and look at how we maximise value chain across countries,” she says.
Often overlooked are the local and regional markets which usually hold a lot of promise and which have however remained unexplored due to various tariff and non-tariff barriers.
“I can make a case for local consumption and production. Whether it’s pushing ‘buy-Kenya-build-Kenya’ or ‘buy-Nigeria-build-Nigeria’, the local market is a critical one since is the closest to you. It’s a market that that can consume your product. I see a huge opportunity for Africa as a continent because of our population,” says Wakiaga.
In Kenya, Bt cotton is now grown mostly in Kwale and Lamu areas in the coastal region as well as in western Kenya where farmers who had abandoned the commodity have now started growing it on the back of improved prices.
