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4.1 Diversification trends at the regional level: Economic Report on Africa 2007

Written by: United Nations Economic Commission for Africa

Article Overview: 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.

4.1 Diversification trends at the regional level: Economic Report on Africa 2007

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.

Related Articles
  4.0 Diversification trends in Africa: Economic Report on Africa 2007
  5.0 Diversification and Growth: Economic Report on Africa 2007
  5.2 Growth, productivity and diversification: Economic Report on Africa 2007
  4.3 Conclusion: Economic Report on Africa 2007
  5.3 Conclusion: Economic Report on Africa 2007

Article Tags: 1970s, 1980s, adverse effects, african economies, challenges, concise comments, continent, distinct phase, diversification efforts, economic crises, economic diversification, escalation, fourth phase, macroeconomic stabilization, measures, picture of africa, second phase, stabilization policies, structural adjustment, upward trend



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