Figure 4.1 shows three different measures of diversification for African economies as a whole (see Ben Hammouda et al. (2006a) for detailed definition of the indices of diversification). Three concise comments on the general trend of Africa’s diversification experience can be made.
First, African economies exhibit very low levels of diversification and by all measures and accounts, limited diversification of exports with very little change over the last 25 years or so. Within this 25-year period, four distinct phases that give the historical picture of Africa’s economic diversification efforts can be discerned. The first phase appears to have ended around 1982 and was characterized by progress with diversification.
Despite the adverse effects of the economic crises that African economies were experiencing at this time, the diversification efforts during the 1970s were beginning to yield positive results in the early 1980s. However, those positive diversification gains did not last. The escalation of the economic crises in the first half of the 1980s and the structural adjustment measures instituted to deal with them impacted negatively, leading to the second phase of 1982-1991. Over these ten years, the diversification gains that had been achieved earlier were reversed.
The third distinct phase of African efforts toward diversification started in 1992.
The macroeconomic stabilization policies of the 1980s may have contributed to this positive development. Unfortunately, the gains registered were fragile as the improvement in the diversification index lasted only up to 1998. Since then, in a fourth phase of the diversification experience, African economies have become more concentrated, considering the upward trend of the diversification index from 1998 to 2002. This trend needs to be reversed for the continent to trade its way out of the challenges it currently faces.
Second, the African diversification experience has been volatile. Considering the evidence from different measures of export diversification, there is no distinct and general trend discernible in the African experience on the whole, as a clear and definite direction is lacking. What is clear though is that at the continental level, there has been volatility in the diversification indicators.
Third, where there have been some improvements in diversification, the gains have been fragile. Against the backdrop of the volatility noted above, African economies have been unable to register any sustainable movements towards deepening diversification.
The periods when diversification deepened have turned out to be quite fragile and short-lived, an indication that fundamentals to support such deepening were not in place.
How does Africa’s diversification trend compare with those of other regions? Figure 4.2 shows the results of diversification efforts in Latin America and in the Asian NIEs compared with the African situation. The NIEs included are Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. In the early 1980s, all three regions made concerted efforts towards diversification. However, in the 1980s, the intensity of the economic crises that ravaged mainly the developing world had a very serious impact on diversification results.
The main determining factor of the impact the crises had on the different regions appears to be the nature of their response. The Asian NIEs gave a dynamic response from the early years of the crises by way of accelerated investments and intensified diversification. Clear policies aimed at integrating the Asian NIEs to production value chains have been documented. In Africa, it appears that the response was less dynamic and was more one of concentration on a few commodities. African countries, for the most part, seem to have adopted a defensive reaction instead. The windfalls in some of their commodity sectors underpinned this defensive reaction.
This is especially the case with regard to the oil exports of the Central and West African subregions where growing oil revenues dominated and led countries to pursue a more concentrated path, instead of using oil revenues to diversify their exports.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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