1. Introduction

Transformative industrialisation remains a development imperative for Africa. Over the last two decades, positive anecdotes of economic growth on the continent have largely been driven by gains in primary resource export. Lopes and te Velde (2021) have argued that while Africa’s share of manufacturing value-added between 2000 and 2017 reflects a slight decline from 12.6 to 11.3% of GDP, its overall level of industrial growth since 2000 has been significant. However, economic growth, as the African Development Bank (2016) recounts, has not been inclusive enough in creating jobs and improving the quality of life. Today, there is still a heavy reliance on imports for manufactured goods, including essentials such as medicines.

Examples of dynamic industrial clusters, large scale indigenous manufacturing firms and domestic technological development are few and far between (Markowitz & Black, 2019). More conspicuous, however, is the virtual absence of regional value chains (RVCs), which have been an integral aspect of rapid industrialisation success in Asia (UNESCAP, 2015). Trade in value-added goods within the region is by far the lowest in comparison with Asia and Latin America (Slany, 2019).

In this context, the African Continental Free Trade Area (AfCFTA) offers an opportunity for the continent to recommit itself to transformative industrialisation by building competitive and robust RVCs that exploit existing comparative advantages and complementary features within the region including differentiated labour cost, productive capabilities, natural resource endowment and geopolitical advantages (Weigert & El Dahshan, 2019). The appeal of RVCs as an industrialisation pathway for the African continent is four-fold (Figure 1).

Mitigating negative distributional impacts

In the context of AfCFTA, RVCs constitute a viable strategy for mitigating possible negative distributional impacts that Africa’s smaller and more vulnerable economies are likely to suffer under AfCFTA trade liberalisation (Ismail, 2018).

Transitional solution for competitive integration into GVCs

Given the individual African countries’ lack of competitiveness in global trade, RVCs offer transitional solutions for regional firms to progressively upgrade their production process and optimise productivity before integrating competitively into global value chains (GVCs) (Weigert, 2016; Slany, 2019).

Opportunity for diversifying from global supply chains and their risks

RVCs offer an opportunity for diversifying from global supply chains thereby reducing the continent’s exposure to future adverse global shocks (Banga et al, 2020).

Suited for industrial development in sectors unique to the continent

RVCs are uniquely well-suited for industrial development in sectors where idiosyncratic factors determine consumption behaviours and market opportunities (Weigert & El Dahshan, 2019).

Figure 1: The appeal of RVCs as an industrialisation pathway for the African continent

The case for African RVCs is compelling, especially in the pharmaceutical sector. From the continent’s high disease burden and excessive dependence on imports of essential medicines, to the distinctive regional health problems for which there is no investment case for large extra-regional pharmaceutical firms, the need for an African pharmaceutical production network cannot be overemphasized. Undeniably, the Coronavirus pandemic (Covid-19) has exposed the supply chain risks of Africa’s excessive import dependency for pharmaceuticals and amplified the urgency to build competitive and robust value chains in this sector on the continent (Banga et al, 2020; Steele et al, 2020). Yet, an even more compelling boost to local African pharmaceutical production, is the economies of scale the AfCFTA affords in overcoming the market size constraints, commonly cited as an obstacle for pharmaceutical manufacturers on the continent (Chaudhuri et al, 2010; Kaplan & Laing, 2005).

To this end, the question of whether Africa will continue to rely on imports to meet pharmaceutical demands or focus resources on the development of local industries and competitive RVCs requires urgent consideration. Drawing on discussions organised under the “AfCFTA and Transformative Industrialisation Webinar Series” this policy brief examines the potential of building a competitive and robust regional pharmaceutical value chain on the African continent. The rest of the paper is structured as follows. Section 2 presents an examination of the current state of the pharmaceutical industry in Africa. The requirements for achieving a competitive regional pharmaceutical production network are set out in Section 3. Section 4 then presents the conclusion and policy recommendations.

“If it is a health problem that has caused this economic meltdown, should we not be reverseengineering the entire process to strengthen our system to protect the economy?”

Mr Marlon Burgess (Chairman, Medical Device Manufacturers of South Africa (MDMSA))