Key Takeaways:
- The AfCFTA lowers tariffs and trade barriers, but expanded market access alone will not automatically strengthen productive capacity, create firm-level linkages or enable countries to move into higher-value activities.
- Differences in industrial bases, infrastructure and firm capabilities risk concentrating gains among already competitive economies unless governments and regional institutions actively support supplier development, logistics, standards and trade finance that make cross-border production commercially viable.
- The article proposes an AfCFTA Regional Value Chain Facility, coordinated with Regional Economic Communities, to match producers with suppliers, co-finance upgrading and generate durable regional sourcing relationships whose success is measured by capability gains rather than trade volume alone.
The African Continental Free Trade Area (AfCFTA) aims to integrate African markets through tariff liberalisation and the reduction of barriers to intra-African trade. But more trade does not necessarily mean greater productive capacity or more economic value retained in Africa. The economic impact of integration will depend on whether expanding trade also strengthens productive capabilities, creates linkages between African firms and enables countries to move into higher-value activities.
Signed in March 2018 and in force since May 2019, first trade operations under the AfCFTA preferential rules began in January 2021. Despite the ambition of this agreement is to create a single continental market, African economies are approaching this opportunity from markedly different starting positions. Industrial capacity, infrastructure, institutional resources and export structures shape the ability of firms to compete in the expanded continental market. Economies with established manufacturing bases, competitive firms and reliable logistics may be better placed to exploit new opportunities, but less developed ones risk gaining market access without having the capacity to compete. These differences need not entrench disparities: they can also underpin regional specialisation and productive complementarity, provided firms can establish commercially viable links between countries.
Reducing tariffs and harmonising trade rules can lower the costs of cross-border commerce, but these measures do not automatically generate industrial development, technological upgrading or more diversified production. Firms must also be able to finance investment, source inputs at competitive prices, move goods efficiently and meet the requirements of regional markets.
Without these conditions, liberalisation may favour businesses and economies already equipped to compete. Trade can expand without producing substantial changes in productive structures, leaving countries with weaker industrial bases dependent on primary commodities production or other lower-value activities. The development impact of the AfCFTA will therefore depend on whether market access translates into productive relationships between African economies.
This requires enabling firms to source inputs, develop supplier relationships and participate in regional production networks. The AfCFTA offers a framework for this, but its success will depend on whether countries can build the conditions necessary for these connections to emerge.
Regional value chains offer one way to achieve this. Manufacturers can source inputs from neighbouring countries, agricultural producers can supply processing industries, and service providers can support cross-border production and distribution. Such connections can create opportunities for specialisation, investment and participation in higher-value activities. But they require more than investment or preferential tariffs. Reliable logistics, efficient customs procedures, predictable regulations and access to trade finance must be complemented by the ability of firms to identify suppliers, meet product standards and quality requirements, demonstrate compliance, and compete on cost, quality and delivery.
African governments should therefore look beyond attracting investment within their own borders and focus on making cross-border production commercially viable. This means strengthening the productive capabilities of firms, helping the smaller ones in meeting supplier requirements, and addressing at the same time the regulatory and logistical constraints that make regional sourcing more costly or less reliable than alternatives outside the continent.
This challenge is particularly important for countries with weaker productive bases, where firms may need support to access finance and technology, improve production processes and meet the requirements of regional markets. Countries with more developed industries can also contribute by creating demand for regional inputs and supporting supplier upgrading. Yet these relationships will not emerge simply because governments call for them. Established producers must have commercial incentives to source regionally, while potential suppliers must be able to meet buyers’ requirements for quality, cost, production volumes and delivery reliability. Supplier development should therefore be linked to credible purchasing opportunities and measurable improvements in productive capabilities, rather than to training or finance alone.
One possible response is to establish an AfCFTA Regional Value Chain Facility, developed in coordination with the Regional Economic Communities (RECs), to address the barriers that prevent firms from building commercially viable production links across national borders. The facility could bring together the AfCFTA Secretariat, RECs, participating governments, development finance institutions and private-sector partners to identify promising value chains, map complementary productive capabilities, match established producers with potential regional suppliers, and co-finance supplier upgrading, product testing and certification, technology transfer and access to trade finance. RECs could help identify regional priorities, align the facility with existing industrial and trade programmes, and coordinate implementation among participating countries.
The rationale for the facility lies in a coordination gap. National investment incentives often reward investment within individual countries without accounting for the wider benefits of linking production across national borders. Supplier development programs developed in one country may create commercial opportunities for firms in another, but the costs and benefits of establishing these relationships are not necessarily reflected in national investment decisions. A regional facility could help bridge this gap by supporting commercially viable supplier relationships that individual national programmes have limited incentives or capacity to develop. Firms in less industrialised countries could gain opportunities to enter regional supply chains, while established producers could diversify their suppliers and expand their markets. The aim would not be to equalise productive capacities across countries, but to make their differences a basis for regional specialisation, supplier development and stronger industrial interdependence.
The Facility would need to fill a gap left by existing industrial programmes and development finance instruments. Its function should be to support cross-border production linkages that existing mechanisms do not adequately address, with financing tied to credible commercial demand and clear upgrading objectives. Its effectiveness should be assessed not by the amount of funding disbursed or the number of projects supported, but by whether it generates durable cross-border supplier relationships, increases regional sourcing and strengthens productive capabilities that would not otherwise have emerged.
More fundamentally, the success of the AfCFTA should be measured not only by how much trade crosses African borders, but also by whether that trade strengthens productive capabilities, advances technological development and creates economic opportunities in participating countries. Participation in a regional value chain is not, in itself, evidence of industrial upgrading; the development gains depend on whether firms improve their capabilities and capture greater value from production. The objective is not simply to redistribute the gains from trade after they materialise, but to widen the capacity to generate those gains in the first place.
