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TRADE: Africa’s Export Performance Still Dismal, Says UNCTAD

Analysis by Offah Obale*

GENEVA, Sep 16 2008 (IPS) - Despite the liberalisation of trade over more than two decades, the level and composition of Africa’s exports have not substantially changed, according to the 2008 report by the United Nations Conference on Trade and Development (UNCTAD) on economic development in Africa.

Wanjohi Wambugu is one of the workers on a farm in Kiambu district, central Kenya, that produces tea for export. Credit:  Charles Wachira/IPS

Wanjohi Wambugu is one of the workers on a farm in Kiambu district, central Kenya, that produces tea for export. Credit: Charles Wachira/IPS

Furthermore, Africa as a whole has lost export market share, which went down from six percent of world exports in 1980 to about three percent in 2007.

UNCTAD yesterday launched the report entitled ‘‘Economic Development in Africa, Export Performance Following Trade Liberalisation: Some Patterns and Policy Perspectives’’.

The objective of this year’s report is to examine Africa’s export performance after trade liberalisation to draw lessons for the design of future development strategies. However, the report is noticeably silent on the role that external policy interference plays in the hampering of export performance.

Importantly, the report finds that trade liberalisation has had little effect on intra-African trade. Intraregional trade accounted for only eight percent of total African exports in 2006 – a much lower figure than in other regions.

This can be explained by the fact that products from African countries tend to be similar in nature, thereby limiting the complimentarity of exports. Second, the infrastructure for intra-African trade is often poor, which leads to high transaction costs.

And third, despite the many regional agreements in place, these are generally slow to be implemented. There is also little private sector involvement, compared with their equivalents in Europe, Latin America or Asia.

The report states that there has been some improvement in Africa’s export performance after trade liberalisation over the last 25 years.

However, most countries in the region remain essentially primary product exporters, with only a handful of countries (such as Lesotho, Mauritius and Tunisia) drawing a significant part of their export revenue from manufactured products.

This leaves the majority of African countries vulnerable to volatile commodity prices. In comparative terms, sub-Saharan Africa is the region of the developing world with the highest dependence on primary product exports.

This report comes at a time when most African states are affected by the current severe food crisis. Given that Africa was consistently a net food producer until 25 years ago, this is an opportune time to reflect on what has happened to Africa’s agricultural production and how to reconstruct its agricultural export sector.

UNCTAD makes a number of recommendations in this regard. The report identifies Africa’s weak supply response as the most important impediment to the continent’s export performance. Export policies should focus more on ways to increase production for export.

The report proposes policies that could help Africa to refocus its development priorities and increase the continent’s supply capacity and export response.

Firstly, it proposes tackling supply-side constraints with bigger incentives to encourage investment in agriculture. Incentive packages should be compatible with governments’ macroeconomic objectives and tailored to their agricultural development priorities. Secondly, governments have to develop programmes that promote diversification towards higher value added products. These will enable African countries to increase their gains from agricultural production and trade. It will also permit governments to reduce their vulnerability to commodity price volatility.

Thirdly, governments in partnership with the private sector need to promote regional economic cooperation and South-South trade. Countries should comply with the obligations of all regional trade protocols they have entered into in order to promote intra-African trade.

Moreover, the emergence of ‘‘Southern drivers’’ of the global economy suggests that Africa must rethink its existing trade and development strategies and reorient its external trade towards new growth poles such as Brazil, China and India.

The report highlights that the principal destination for African countries’ exports is still Europe. Countries that are now members of the European Union (EU) account for 40 percent of exports from African countries.

The European market’s importance has gradually been receding as the same European countries accounted for 66 percent of Africa’s export in 1960. This trend reflects the gradual loosening of the economic ties that bound African countries to Europe from the time of colonisation.

The second largest export market for African products is North America, especially the United States. The importance of North America as an export market for African countries has grown considerably since 2002.

This is mainly as a result of increased sourcing of oil from Africa and the implementation of the Africa Growth and Opportunity Act of 2000. The share of African exports going to North America was 24 percent in 2006. Most significant, according to the report, was the rise of developing Asia as an important destination for African exports. The share of African exports going to developing countries in Asia had not exceeded six percent between 1960 and 1992 but almost tripled between 1992 and 2006 to 16 percent.

This increase corresponds to the impressive growth performance of China and India and their emergence as major importers of raw materials. China and India together account for about one tenth of total sub-Saharan trade and they have made substantial investments in the region.

The report on the whole provides the public with a concise picture of Africa’s economic performance. However, the report is silent on the issues which plague trade liberalisation in the current international financial and trading system.

The Bretton Woods institutions (the World Bank and International Monetary Fund) do not only deal with dry technical questions such as tariffs.

They also decide on deeply sensitive questions of the environment, levels of intellectual property protection and the openness of a country’s telecommunications and other infrastructural sectors. All these have an impact on the export performance of African states as they limit the space available in these countries to carry out policy reforms.

*Expert writer Offah Obale works at the South Centre, an intergovernmental policy think tank based in Geneva

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