How can the African Continental Free Trade Area (AfCFTA) help develop regional value chains across Africa? : an exploration

All African countries participate in the African Continental Free Trade Area (AfCFTA) to boost intra-African trade to accelerate structural transformation. At the same time, increasing geopolitical tensions around the world are pressuring countries to 'reshore' by retreating from engagement in Global Value Chains (GVCs) towards Regional Value Chains (RVCs). High values for RVC indices would indicate that African exports have a high import content of intermediates originating in Africa and that exports destined to other African countries undergo further processing, an indication of structural transformation. The paper uses the EORA Multi-regional Input-Output (MRIO) data over 1995-2022 to present new, more comprehensive measures of participation in supply chains at several levels: across countries, regions, and sectors. Comparisons are with countries (e.g. China or India) and aggregates of countries (e.g. Europe, Americas, Asia) engaged in deep market integration. Measures for 50 African countries are compared with those for other regions. On average, African exports have a low content of imported intermediates and undergo further transformation in importing countries before reaching final consumers. Compared with other regions, African countries mostly engage in supply chain trade with countries outside Africa, displaying low values of RVC indices. In sum, compared to other regions, African Regional Economic Communities (RECs) and other regional trade agreements across the continent have failed to launch intra-African trade. The paper then explores the determinants of participation in supply chains. At the world level, from 1995 to 2022, geography factors and policy-related instruments like openness (captured by tariffs) and Foreign Direct Investment (FDI) stimulate GVC trade. For Africa, low tariffs and FDI are positively associated with regional supply chain activity, an indication that AfCFTA implementation should stimulate intra- African trade.