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Guest post by: United Nations Economic Commission for Africa Become an Author

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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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