What Trade-in-Value added databases tell us about Continental Integration – and what it means for the AfCFTA

Recent literature has stressed that it is not so much how much a country trades that matters, but rather both the degree of value-addition locally and the extent to which an economy is integrated into regional or global value chains. Yet, with a few exceptions Africa is relatively under-researched in this field. While over recent decades the continent has experienced substantial increases in the ratios of exports and imports to GDP and forged new partnerships with emerging markets, its degree of integration in regional and global value chains remains low, even after accounting for the generally lower levels of development (Allard et al., 2016). This gap is indicative of the region’s unexploited potential to tap into value chains in selected sectors like manufacturing, agriculture and agro-processing, tourism, transport and textiles.This paper examines the policy and non-policy determinants of domestic value-added embedded in the exports of African countries, applying country fixed-effects regression to UNCTAD-EORA data covering the period 1990-2018. The paper finds that the main determinants of domestic value-addition are economic size (GDP and its per capita counterpart), the average level of tariffs and population size. But the econometric results also highlight differences among countries by resource endowment, with oil-exporting countries leading and land-locked non-resource-intensive countries lagging in domestic value addition. After providing an overview of the extent of value-addition in trade on the continent, the paper then draws conclusions about its implications for the effective implementation of the AfCFTA.