5 October 2008
analysis
Washington, DC — "Confining African countries to the production of primary commodities amounts to condemning them to remain locked in the commodity trap. Africa needs to create a competitive advantage in the production of manufactured products, as many other developing countries have done." - United Nations Conference on Trade and Development
The international financial crisis, spreading from the United States to Europe and Asia, is sure to hit Africa as well, most commentators agree, despite relatively high growth rates that may remain above five percent and relatively low loan exposure by African banks.
World Bank chief Africa economist Shanta Deverajan noted in his blog that both cutbacks in recent high capital inflows and possible falls in commodity prices could serious affect Africa.
Commodity prices, however, have differing effects depending on the commodity and the country. Most African countries are negatively affected by high food and fuel prices, while commodity price volatility affects oil and non-oil producers in different ways.
Regardless of short-term trends, however, says a new report from the United Nations Conference on Trade and Development, Africa's export performance demands a break from earlier policies based largely on trade liberalization, in favor of concentrating on building capacity both in the agricultural and manufacturing sector.
This AfricaFocus Bulletin contains excerpts from the press release and overview of that report. Complete versions of these documents, as well as the full report, are available at http://www.unctad.org Also available, with much relevant data and commentary on Africa, are recent annual reports from UNCTAD on investment and on trade and development.
For previous AfricaFocus Bulletins on economic issues, see http://www.africafocus.org/econexp.php
International Monetary Fund Survey Online
Interview with Antoinette Sayeh, Director of IMF's Africa Department (Sept. 23, 2008)
http://www.imf.org/external/pubs/ft/survey/so/2008/INT092308A.htm
World Bank blog by chief economist for Africa region, Shanta Devarajan, "Financial Turmoil and Africa" (September 29, 2008) http://tinyurl.com/3n2fex
Third World Network summary of UNCTAD report on trade and development
http://www.twnside.org.sg/title2/wto.info/twninfo20080903.htm and
http://www.twnside.org.sg/title2/wto.info/twninfo20080904.htm
Report says strengthening supply capacity is essential for Africa to benefit from trade liberalization
UNCTAD/PRESS/PR/2008/027 15/09/08
[Excerpts. Full press release and entire report available on http://www.unctad.org Summary overview at:
http://www.unctad.org/en/docs/tdb55d6_en.pdf]
Effective policies are needed for agricultural and industrial sectors to remove constraints to production and achieve higher exports for Africa
Geneva, 15 September 2008 - Weak supply capacity -- that is, a limited ability to produce the quantity and quality of goods required to respond to global demand for those goods -- is the main obstacle to improved export performance in Africa, and explains why the continent has lost market share from 6% of world exports in 1980 to about 3% in 2007, reports Economic Development in Africa 2008.
Subtitled "Export Performance following Trade Liberalization: Some Patterns and Policy Perspectives," the 2008 edition of UNCTAD s annual report on Africa says two decades of trade liberalization have successfully removed many of the barriers that used to limit trade from the continent -- and there has been a slight increase in exports as a result. But the progress has been less than expected and is far below the increases achieved by other developing regions.
Gaining greater access to world markets opens up vast opportunities, but many African countries do not yet have sufficient ingredients in place to take advantage, the report says.
They need such building blocks as well-trained workforces, reliable electricity supply, research and development skills, flexible investment and banking services, and efficient transportation to supply, at competitive prices, large volumes of products for which there is global demand.
Governments on the continent also need to take effective steps to reverse several worrisome trends, according to the study. These include decades of relative neglect of agriculture that have hindered African countries at a time of climbing commodity prices.
In addition, diversification of their economies -- long recommended as a way of ensuring more robust and stable growth -- has not occurred; and the manufacturing sector, where potentially higher profits and higher living standards can be realized, has been stagnating while other developing regions have greatly expanded their industrial outputs.
Africa's export performance after liberalization has been modest
Trade liberalization in Africa was expected to result in increased production in the tradable sector, which should have increased export volumes and diversified the array of exported products. As of the second half of the 1990s, most countries in the region were liberalized. Their average ratio of exports to Gross Domestic Product (GDP) increased from 23% before liberalization to 26% after. This 11% climb is much lower than the 50% increase recorded in non-African developing countries following trade liberalization.
Relative to other developing regions, the increase in Africa s export value had been driven primarily by an external factor -- rising export commodity prices -- rather than increasing volumes.
Over the period between 1995 and 2006, both export volumes and prices grew at about 6% per year. This performance contrasts with the experience of developing Asia over the same period, where export volumes grew by 10% per year while the prices increased by only 1% per year, the report finds.
Analysis of Africa s export composition shows that most African countries have not diversified their export products. On the contrary, more than 60% of African countries registered higher export concentration indexes in 2006 relative to 1995, increasing these countries vulnerability to falls in prices for a small number of commodities. Most African countries that increased their export revenues owed it to unexpected hikes in the prices of fuel and other minerals, such as copper and gold. Indeed, the ratio of the value of fuel exports to GDP increased from 5% in 1998 to more than 15% in 2006. Over the same period, the corresponding ratio for non-fuel primary commodities and manufactured products remained constant, each at about 5% of GDP. These statistics suggest that the current commodity boom should not lure African countries into a false sense of prosperity. Africa remains vulnerable to the vagaries of international commodity prices, the report warns.
Agricultural export performance is hampered by structural and institutional constraints
Despite its importance, the agriculture sector in many African countries has been deteriorating over the years. In the space of a generation, Africa s agriculture has so dramatically declined that Africa has fallen from its status of a net food producer to become the region most dependent on external food aid. In fact, Africa is currently, experiencing a food crisis. The main explanation lies in the negligence in development policies pursued during the last 25 years, which have abandoned previous emphases on research, agricultural infrastructure, extension services, and the provision of credit for farmers. The recent policies, including trade liberalization, failed to recognize the strategic role of agriculture in African economies and went as far as dismantling the institutions that had previously supported the sector. Total donor support to agriculture declined from its peak of US$8 billion in the early 1980s to $3.4 billion in 2004; the proportion of official development assistance (ODA) allocated to agriculture declined from 16.9% cent in 1982 to just 3.5% in 2004. Domestic resources invested in agriculture followed the same trend. It is noteworthy that those countries that maintained strong agricultural export sectors were those that pursued sustained and coherent sectoral policies to increase and diversify their agricultural exports.
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