Tuesday, 5 November 2013


Though the African continent is undergoing significantly positive reforms and macroeconomic metamorphosis, its share of total regional trade comprises a mere 12 per cent in 2010. In fact, the continent lags behind other regions in terms of export diversification, and is actually gravitating towards further concentration in its export commodities. The general trend over the last decade is one of gradual move towards less diversification for Africa.
Against this background, in January 2012, the African Union Summit of African Heads of State and Government endorsed the theme of ‘Boosting Intra-African Trade’, paving the way towards fast-tracking a Continental Free Trade Area (CFTA)[1] with a tentative timeframe of 2017. The Summit which also recognized the low level of trade between African countries, called upon Member States, Regional Economic Communities (RECs) and the African Union Commission (AUC) to promote industrial development policy and value addition in order to diversify African economies and thereby move away from heavy reliance on traditional primary exports.
There are copious evidences on the direct relationship between export diversification[2] and growth dynamics (UNECA and AUC, 2007, 2011; Karingi and Spence, 2011). Kilnger and Lederman (2006) and Cadot, Carrere and Strauss-Khan (2008) discuss that the process of diversification (as opposed to export growth) in low income countries is driven by inside the frontier innovation (emulations) and extensive expansion, suggesting that African countries should undertake new export activities if it is to succeed in diversifying its exports, but that they should be in industries in which there is already existing expertise.
In fact, some countries have struggled to diversify and orientate into new sectors due to rising commodity prices which subsequently results in an ever increasing concentration of exports, enclave economies and Dutch disease syndrome[3]. Further, countries such as Mozambique, Rwanda, Liberia and Sierra Leone, which experienced conflicts and negative diversification prospects in the past, are currently exhibiting positive diversification outcomes in more stable years.
The traditional strategy of export promotion which focuses on the international marketing of final goods appears increasingly inappropriate for African economies, but the adoption of different routes to diversification which could include resource-based manufacturing and processing of primary products. Africa needs to promote diversification by strengthening regional markets, competitiveness and economic integration. In other words, African countries need to diversify their total exports bases in order to foster better market access conditions, together with increased productivity in traditional and non-traditional crops. The creation and facilitation of such trade, and its diversification, foster economic transformation, and also reduces the risk from concentrating in very small numbers of agricultural export commodities.
Gbadebo Odularu
Policy and Markets Analyst, FARA

[1] The need to enhance intra-African trade among African countries led to the formation of the EAC-COMESA-SADC   (East African Community; Common Market for Eastern and Southern Africa  and the Southern Africa Development Community)  tripartite Free Trade Agreement (TFTA) as well as the proposed 2017 Continental FTA (CFTA) between Cairo and Cape Town. The tripartite agreement is expected to enable participating economies take full advantage of the economies of scale and other benefits (such as income and employment generation) of greater market integration.
[2] Export diversification is the expansion of exports due to new products—extensive margin—or export more of current products—intensive margin. Amurgo-Pacheco and Pierola (2008) provide a useful narrower definition by introducing a geographic dimension which precise that intensive margin is the expansion of exports based on existing products to existing export markets.
[3]  Dutch Disease theory states that a ‘resource export boom has an inherent tendency to distort the structure of production in favour of the non-traded goods sector vis-à-vis the sectors producing the non-booming tradeables. The Syndrome originates from the experience of the Netherlands after its 1960’s natural gas and oil discovery, which resulted in an export boom and balance of payments surplus for the Dutch economy