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

Written by: United Nations Economic Commission for Africa

Article Overview: The general picture of the continental performance that was shown in figure 4.1 masks the gains and losses made at the subregional and country levels. Figure 4.3 gives the situation at the subregional level and it compares five subregions defined around some of the RECs. In 1980, the most diversified subregions were COMESA and ECOWAS. The least diversified was CEMAC with SADC and North Africa in between. By 2002, the diversification gains at the subregional level had changed, with the most significant gains made by SADC, which is now the most diversified subregion on the continent. It is followed by COMESA and North Africa. CEMAC has remained the least diversified subregion.

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

The general picture of the continental performance that was shown in figure 4.1
masks the gains and losses made at the subregional and country levels. Figure 4.3
gives the situation at the subregional level and it compares five subregions defined
around some of the RECs. In 1980, the most diversified subregions were COMESA
and ECOWAS. The least diversified was CEMAC with SADC and North Africa in
between. By 2002, the diversification gains at the subregional level had changed,
with the most significant gains made by SADC, which is now the most diversified
subregion on the continent. It is followed by COMESA and North Africa. CEMAC
has remained the least diversified subregion.

The improvements in SADC’s index of diversification, especially in recent years, are
attributed more to South Africa’s heavily diversified economy. The diversification
results in other SADC countries appear to be easily masked by the dominant nature
of the South African economy. Case in point is the Angolan economy which is
becoming increasingly concentrated owing to its reliance on oil. However, this concentration
is hidden in the overall SADC results due to South Africa’s dominance.

In the case of North Africa, there is a clear trend towards diversification. This could
be attributed to the efforts of Egypt, Morocco and Tunisia to diversify, given their
proximity to the large and lucrative European market (box 4.1). Country-level
analyses of the North African experience show that the subregion’s diversification
results are close to the overall African results (Ben Hammouda et al. 2006a). It is noteworthy that although diversification of North African economies was weaker
in 1980, the gap between these economies and that of the whole of Africa has been
significantly diminished. The Tunisian experience with economic diversification has
played a big role in achieving the subregional outcome given the static performance
of economies such as Algeria’s, after making considerable progress until 1985 or so.

Unlike the experience in North Africa, COMESA lost some of the diversification
edge it had at the beginning of the 1980s. Yet, COMESA had a great incentive to
diversify. Unlike other subregions such as West, Central and North Africa, the East
African subregion has not been favoured with discoveries of new export commodities
such as oil. It failed to pursue policies that could have led to a more dynamic
response to the challenges that it faced after the main economic crises. While
COMESA is one of the most diversified subregions in Africa and even more diversified
than Africa on average, performance is driven by only a few economies.

Kenya and Mauritius have had significant diversification and as such they have outweighed
the influence of other economies such as Burundi’s, that has had a tendency
to become more concentrated. It is important to note that Sudan, which is
one of the largest economies in COMESA, had managed to maintain a stable path
of diversification until the structural changes following the discovery of oil. For
the least diversified, CEMAC, the oil factor dominance through Chad, Republic
of Congo, Equatorial Guinea and Gabon is a major determinant of the diversification
experience. Notably, the Cameroon economy rates as more diversified than the
subregional average.

The magnitude of the oil factor in African economies is most pronounced in
ECOWAS where the dominance of the Nigerian economy has led to low export
diversification in the overall subregional performance. From the late 1970s to the
early 1980s, the diversification index for ECOWAS was higher than the aggregate
African index.

ECOWAS, at the beginning of the period, was one of the most diversified subregions.
However, beginning from 1986 onwards, the economies of the subregion
started to become more concentrated, and within 25 years, the diversification gains
that had already been made were eroded. In 1986, a clear structural shift occurred
in Nigeria that was related to the oil effect and this shift was strong. It is not possible
to discount the political factors associated with the conflicts and instabilities
that played a part in erosion of the diversification gains. This is particularly the case
with the recent history of Côte d’Ivoire, which at one point was a leading economy
in the subregion. Political instability undermines diversification and it can be envisaged
that instability affects some activities more (or differently) than others. For the period 1991 to 1998, other economies in the subregion such as Côte d’Ivoire were
making substantial progress on diversification. Senegal also managed to safeguard
the diversification gains it had achieved. Conflicts and political instability had a
negative effect on efforts in other countries to counteract the Nigerian oil effect.

It is apparent that the continental gains are attributed to just a few African countries,
whose experience could be replicated elsewhere if the gains had resulted in better
economic and social performance. This indicates that country-level performance is
important to understanding what is happening at the continental level (figure 4.4).
At the start of the period, Africa as a whole was more diversified than both Mauritius
and Tunisia.

For the period 1982 to 1991, Africa’s diversification gains were being reversed while
countries such as Mauritius and Tunisia were becoming more diversified economies.
What did Mauritius and Tunisia do to make their economies overcome the
constraints posed by the economic crises that so negatively affected the continent
as a whole? Both countries had a stable and sustained economic policy aimed at
very specific outcomes, in this case, increased diversification. For the most part,
subregional analysis of the diversification trends paints a picture of volatility at the
country level.

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

Article Tags: african economies, african experience, angolan economy, case in point, cemac, comesa, diversified economy, dominance, dominant nature, economic diversification, gap, level analyses, lucrative european market, north africa, sadc countries, south african economy, static performance, subregion, subregions, tunisian



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