Wednesday, September 17, 2008

Africa’s trade progress slower than expected despite liberalisation – Unctad

A weak capacity supply was hindering Africa’s export performance, and this explained why the continent had lost market share from 6% of the world’s export in 1980, to only 3% in 2007.

The United Nation’s (UN's) Economic Development in Africa 2008 report, released on Monday, stated that although two decades of trade liberalisation had removed many of the barriers that limited trade, Africa’s trade progress had been less than expected, and that it was below the increases achieved by other developing regions. 

UN Conference on Trade and Development s (Unctad) senior economic affairs officer for a special unit on commodities, Dr Sam Gayi, said that Africa’s ratio of export to the gross domestic product (GDP) only delivered 11%, whereas non-African developing countries experienced a 50% growth.

Relative to other developing regions, the increase in Africa’s export value was driven primarily by external factors, such as commodity prices, rather than an increase in volume. Between 1995 and 2006, Africa’s export volumes and prices grew at about 6% a year.

However, Gayi said that this growth was not sustainable, as the rise in value was created by global demand for commodities, and once prices fell the value of export items would fall as well.

The report stated that an analysis of Africa’s export composition showed that most African countries had not diversified their export products, and over 60% registered higher export concentration indexes. This increased the countries’ vulnerability to price fluctuations.

The African countries that increased their export revenue owed it mainly to the unexpected price hikes in fuel, and commodities such as gold and copper. African countries that did not have these commodities to trade, with remained stagnant, with exports accounting only for 5% of their GDP.

The report investigated the importance of manufactured exports, and found that in sub-Saharan Africa, exports from the manufacturing sector amounted for only 26% of total exports. This was the lowest proportion of all regions.

Gayi said that only eight African countries had manufacturing exports that made up 10% of their GDP, and these included Botswana, South Africa, and Namibia.

The report noted that if Africa wished to increase its industrial output and exports, governments had to take steps to deal with several key issues. These included poor infrastructure, high entry costs for businesses, low investor protection, and cumbersome tax systems.

The report also stated that many African manufacturers were too small to benefit from the efficiencies achieved by larger firms, and governments would have to enact measures to help expand these firms to international standards.

Gayi noted that only a few African countries had taken the initiative to produce value-added products, but even their share was very low, with Africa’s share of total manufactured exports only accounting for 0,82% of global manufactured exports.

Despite its importance, the agriculture sector in several African countries deteriorated over the years, and in the space of a generation Africa went from a net producer of food, to the region most dependent on external food aid. The report stated that the main explanation rested with the negligence in development policies pursued during the last 25 years, which abandoned emphasis on research, infrastructure, and credit provision for farmers.

Countries that have maintained strong agricultural export sectors were those that pursued sustained and coherent sectoral policies to increase and diversify their agricultural exports, the report stated. These included countries such as Ghana, and the Cote d’Ivoire.

The report concluded that increased production and competitiveness would require increased productivity and the development of reliable infrastructure, including improvements in electricity generation, water supply, and telecommunications.