Two key reasons emerge from the evidence and discussions in the previous two chapters of this report, as to why diversification should become a central pillar in Africa’s development efforts. First, diversification is important to strengthen growth in Africa because from the second half of the 1980s, Africa’s growth has been mostly accounted for by factor accumulation. Beyond a certain point, factor accumulation becomes binding under certain demographic and physical conditions, making other sources of growth critical. Consequently, the positive contribution of diversification to TFP is central to any efforts to achieve higher and sustainable growth in Africa.
The second reason is that Africa has failed to reap benefits optimally from preferential trade arrangements and from globalization. There is, therefore, a need for a new paradigm on diversification, to enable African countries to benefit from preferences and trade liberalization. As cited earlier, Africa has been unable to benefit fully from preferences at the international and regional level. It is also evident that while other developing regions have increased their share in global trade, Africa has seen its share decline even as global trade liberalization has progressed. The failure to maximize gains from preference utilization and trade liberalization assumes special significance given the likelihood that the future gains that may accrue to African countries from current trade liberalization efforts will be marginal.
Essentially, with the current economic structures, African countries will not be able to maximize gains from trade liberalization, and risk perpetuating the historical failure to secure benefits from global trade reforms. Apart from the suboptimal nature of the expected gains from trade liberalization, it is also possible that Africa will be marginalized further and any such gains will be unevenly distributed among developing countries. Therefore, there is a strong case for a new diversification paradigm in order to help African countries secure benefits from preferential schemes such as AGOA, EBA, DFQF market access promised to LDCs in the Doha Round, and the subsequent trade liberalization in agriculture, NAMA and services under the WTO and EPA agenda.
Several key policies and recommendations are presented in this chapter. These policies constitute the elements of a new diversification paradigm that will enable African countries to benefit from preferences and from ongoing liberalization efforts at bilateral, regional, and multilateral levels. The recommended diversification policies include macroeconomic, trade, sectoral, industrial, and financial development policies, in addition to strategies that will strengthen institutions.
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