Enhancing Africa’s Trade: From Marginalization to an Export-Led Approach to Development
Enhancing Africa’s Trade: From Marginalization to an Export-Led Approach to Development
This paper reviews Africa’s role in the global trading system and discusses the
constraints and options for Africa to move from its current marginalization to an exportled
approach to economic development. It discusses the impact of regional economic
integration on intra-African trade, reviews the WTO regime, analyses the internal and
external constraints to African trade, including the controversy over Western agricultural
subsidies and tariff and non-tariff barriers to African trade in Western markets. It then
discusses new approaches to trade development in Africa with special emphasis on the
role of export processing zones and concludes that there is urgent need for Africa to
diversify its exports through a systematic structural transformation.
Introduction
The socio-economic conditions in African countries deteriorated drastically during the
1980s, a decade that is widely regarded as Africa's lost decade of development
opportunities. Available empirical evidence shows that, in sub-Saharan Africa, income per
capita declined at an annual rate of 2.4%; Africa's real gross domestic product (GDP) per
capita fell by 14.3%, investment contracted by 15%, while exports and imports declined
drastically during the period. By 1990, the total external debt of African countries was in
excess of US$270 billion, leading to a crushing debt-service burden and further aggravating
Africa's development problems.
Many reasons can be adduced for the dismal economic performance of African countries in
the 1980s. While domestic economic policy inadequacies cannot be ignored, it seems certain
that external economic conditions played a significant role. According to the World Bank's
World Development Report 1990:
Adverse developments in the world economy also had a part in the falling growth rates of the
1980s. Weak external demand, declining terms of trade, a diminishing supply of external
finance, and a great increase in the volatility of interest rates combined to produce an
unusually adverse climate.
In fact, in the area of external economic relations, we can identify three main issues that
have had significant impact on African economic performance. They are (i) the escalating
external debt and crushing debt-service burden; (ii) rising trade deficits; and (iii) the
declining inflow of concessional finance and deteriorating terms and conditions of loans.
These issues are interrelated and inextricably linked. However, the issue of commodity trade
seems to be the most fundamental. This is because it is invariably an imbalance in
merchandise trade that leads to financing imperatives like borrowing. Specifically, any
deficit in the trade or current account balance brings about the need to finance it either by
external borrowing (leading to escalation of debt) or other non-debt creating financial flows.
The high susceptibility of most African economies to trade and current account deficits arise
from the following:
· extreme volatility of primary commodity prices;
· high dependence on the exportation of a limited range of primary commodities;
· high external trade dependence;
· low world share;
· declining terms of trade; and
· excessive export earnings variability and falling export revenues.
Prices of primary commodities, particularly tropical products and food crops, fluctuate
sharply in response to changes in global supply and demand. During the decade of the
1980s, prices of many primary commodities exported by African countries fell to their lowest levels since the end of the Second World War. Many countries in Africa depend on
the exportation of a limited range of primary commodities. Some countries like Nigeria,
Algeria and Libya obtain the bulk of export revenues from oil. In fact, many African
countries obtain over half their export earnings from 1 or 2 primary commodities. In 1988,
Uganda derived 100% of its export receipts from primary commodities while sixteen other
countries obtained over 90% of their export revenues from primary commodities.
It has been found that exports account for almost one-third of the GDP in Africa while
imports account for a slightly higher proportion. The typical African country therefore
exhibits a high degree of "trade openness" which renders it unduly susceptible to external
shocks. The adverse effect of this on Africa is increased by the continent's low market share
of world trade. Indeed, Africa now accounts for less than 2% of the world export trade.
There is thus an unfortunate asymmetry -- because of its low market share, Africa has little
or no influence on international trade yet because of its openness, it is highly susceptible to
internationally transmitted shocks. The situation is further worsened by the phenomenon of
declining terms of trade, which became quite pronounced in the 1980s when the prices for
many primary commodities collapsed. By 1989, average commodity prices were still 33%
lower than in 1980 in spite of a slight recovery in prices in 1988. The World Bank estimates
that the fall in commodity prices during the 1980s cost sub-Saharan Africa 15% of the real
purchasing power of exports.
All these factors combined to bring about a drastic fall in Africa's export earnings and a
rising trade and current account deficit in the 1980s. In 1988, Africa's export trade totaled
US$65.3 billion while its imports amounted to US$65.9 billion. Therefore, in 1988, the
import surplus (or trade deficit) amounted to US$0.6 billion while the ratio of the import
surplus to total export earnings was an approximately 1%. In year 2000, exports of goods
and services totaled US$116.3 billion while imports amounted to US$106.6. Thus, the ratio
of export surplus to total earnings was 8.3 percent; see World Bank (2002).
It should be pointed out that the increasing marginalization of Africa in world trade has been
aggravated by the excessive dependence of African countries on the European export
market. In 1988, the European Community alone absorbed over 60% of exports of many
commodities from Africa. Yet, intra-African trade accounted for less than 6% of Africa's
total trade. This low degree of intra-regional trade compares unfavourably with Latin
America (15%) and Asia (43%). With the industrialized countries placing more and more
tariff and non-tariff barriers on the manufactured exports of developing countries and the
attainment of a single European market, it is obvious that continued over-dependence on the
European market will become even more unrealistic and counterproductive. In fact, until
African countries resolve to increase intra-regional trade, the continent will continue to be
marginalized in world trade and become increasingly irrelevant in global economic affairs.
A solution being considered by African countries is that of economic integration of the
continent, specifically, by the establishment of a Continental Customs Union or Common
Market. Believing that intra-African cooperation and trade are essential to the economic
survival of the continent in the years to come, the Heads of States and Government of the
Organization of African Unity signed a treaty in June 1991 to establish an African Economic Community by the year 2025. The need for such economic integration is
supported by many academic economists and some international organizations.
According to UNCTAD (1994), there is little doubt that economic co-operation and
integration, in the long-term perspective, is crucial to the economic development and
survival of African countries. Indeed, very few African countries possess the resources
and market size necessary for viable industrialization and accelerated development.
Fewer still can participate on their own in the rapid technological revolution that is
sweeping the world today.
The remainder of the this paper concentrates on a discussion of the impact of regional
economic integration on intra-African trade (Chapter II); a review of the WTO regime,
with special emphasis on the implications of the WTO regime for African countries and
African trade expansion (Chapter III); an analysis of internal and external constraints to
African trade, the controversy over Western agricultural subsidies, and tariff and nontariff
barriers to African trade in Western markets (Chapter IV); and a discussion of new
approaches to trade development in Africa with special emphasis on the role of export
processing zones (Chapter V). The final chapter provides some concluding remarks.
African Development Bank
Economic Research Working Paper Series
Enhancing Africa’s Trade: From Marginalization
to an Export-Led Approach to Development
Milton A. Iyoha
Professor, Department of Economics & Statistics
University of Benin, Nigeria
Economic Research Working Paper
No 77 (August 2005)
Enhancing Africas Trade From Marginalization to an ExportLed Approach to Development - To learn more about this author, visit African Development Bank's Website.
Like this article? Share it with your friends
Abstract
This paper reviews Africa’s role in the global trading system and discusses the
constraints and options for Africa to move from its current marginalization to an exportled
approach to economic development. It discusses the impact of regional economic
integration on intra-African trade, reviews the WTO regime, analyses the internal and
external constraints to African trade, including the controversy over Western agricultural
subsidies and tariff and non-tariff barriers to African trade in Western markets. It then
discusses new approaches to trade development in Africa with special emphasis on the
role of export processing zones and concludes that there is urgent need for Africa to
diversify its exports through a systematic structural transformation.
Introduction
The socio-economic conditions in African countries deteriorated drastically during the
1980s, a decade that is widely regarded as Africa's lost decade of development
opportunities. Available empirical evidence shows that, in sub-Saharan Africa, income per
capita declined at an annual rate of 2.4%; Africa's real gross domestic product (GDP) per
capita fell by 14.3%, investment contracted by 15%, while exports and imports declined
drastically during the period. By 1990, the total external debt of African countries was in
excess of US$270 billion, leading to a crushing debt-service burden and further aggravating
Africa's development problems.
Many reasons can be adduced for the dismal economic performance of African countries in
the 1980s. While domestic economic policy inadequacies cannot be ignored, it seems certain
that external economic conditions played a significant role. According to the World Bank's
World Development Report 1990:
Adverse developments in the world economy also had a part in the falling growth rates of the
1980s. Weak external demand, declining terms of trade, a diminishing supply of external
finance, and a great increase in the volatility of interest rates combined to produce an
unusually adverse climate.
In fact, in the area of external economic relations, we can identify three main issues that
have had significant impact on African economic performance. They are (i) the escalating
external debt and crushing debt-service burden; (ii) rising trade deficits; and (iii) the
declining inflow of concessional finance and deteriorating terms and conditions of loans.
These issues are interrelated and inextricably linked. However, the issue of commodity trade
seems to be the most fundamental. This is because it is invariably an imbalance in
merchandise trade that leads to financing imperatives like borrowing. Specifically, any
deficit in the trade or current account balance brings about the need to finance it either by
external borrowing (leading to escalation of debt) or other non-debt creating financial flows.
The high susceptibility of most African economies to trade and current account deficits arise
from the following:
· extreme volatility of primary commodity prices;
· high dependence on the exportation of a limited range of primary commodities;
· high external trade dependence;
· low world share;
· declining terms of trade; and
· excessive export earnings variability and falling export revenues.
Prices of primary commodities, particularly tropical products and food crops, fluctuate
sharply in response to changes in global supply and demand. During the decade of the
1980s, prices of many primary commodities exported by African countries fell to their lowest levels since the end of the Second World War. Many countries in Africa depend on
the exportation of a limited range of primary commodities. Some countries like Nigeria,
Algeria and Libya obtain the bulk of export revenues from oil. In fact, many African
countries obtain over half their export earnings from 1 or 2 primary commodities. In 1988,
Uganda derived 100% of its export receipts from primary commodities while sixteen other
countries obtained over 90% of their export revenues from primary commodities.
It has been found that exports account for almost one-third of the GDP in Africa while
imports account for a slightly higher proportion. The typical African country therefore
exhibits a high degree of "trade openness" which renders it unduly susceptible to external
shocks. The adverse effect of this on Africa is increased by the continent's low market share
of world trade. Indeed, Africa now accounts for less than 2% of the world export trade.
There is thus an unfortunate asymmetry -- because of its low market share, Africa has little
or no influence on international trade yet because of its openness, it is highly susceptible to
internationally transmitted shocks. The situation is further worsened by the phenomenon of
declining terms of trade, which became quite pronounced in the 1980s when the prices for
many primary commodities collapsed. By 1989, average commodity prices were still 33%
lower than in 1980 in spite of a slight recovery in prices in 1988. The World Bank estimates
that the fall in commodity prices during the 1980s cost sub-Saharan Africa 15% of the real
purchasing power of exports.
All these factors combined to bring about a drastic fall in Africa's export earnings and a
rising trade and current account deficit in the 1980s. In 1988, Africa's export trade totaled
US$65.3 billion while its imports amounted to US$65.9 billion. Therefore, in 1988, the
import surplus (or trade deficit) amounted to US$0.6 billion while the ratio of the import
surplus to total export earnings was an approximately 1%. In year 2000, exports of goods
and services totaled US$116.3 billion while imports amounted to US$106.6. Thus, the ratio
of export surplus to total earnings was 8.3 percent; see World Bank (2002).
It should be pointed out that the increasing marginalization of Africa in world trade has been
aggravated by the excessive dependence of African countries on the European export
market. In 1988, the European Community alone absorbed over 60% of exports of many
commodities from Africa. Yet, intra-African trade accounted for less than 6% of Africa's
total trade. This low degree of intra-regional trade compares unfavourably with Latin
America (15%) and Asia (43%). With the industrialized countries placing more and more
tariff and non-tariff barriers on the manufactured exports of developing countries and the
attainment of a single European market, it is obvious that continued over-dependence on the
European market will become even more unrealistic and counterproductive. In fact, until
African countries resolve to increase intra-regional trade, the continent will continue to be
marginalized in world trade and become increasingly irrelevant in global economic affairs.
A solution being considered by African countries is that of economic integration of the
continent, specifically, by the establishment of a Continental Customs Union or Common
Market. Believing that intra-African cooperation and trade are essential to the economic
survival of the continent in the years to come, the Heads of States and Government of the
Organization of African Unity signed a treaty in June 1991 to establish an African Economic Community by the year 2025. The need for such economic integration is
supported by many academic economists and some international organizations.
According to UNCTAD (1994), there is little doubt that economic co-operation and
integration, in the long-term perspective, is crucial to the economic development and
survival of African countries. Indeed, very few African countries possess the resources
and market size necessary for viable industrialization and accelerated development.
Fewer still can participate on their own in the rapid technological revolution that is
sweeping the world today.
The remainder of the this paper concentrates on a discussion of the impact of regional
economic integration on intra-African trade (Chapter II); a review of the WTO regime,
with special emphasis on the implications of the WTO regime for African countries and
African trade expansion (Chapter III); an analysis of internal and external constraints to
African trade, the controversy over Western agricultural subsidies, and tariff and nontariff
barriers to African trade in Western markets (Chapter IV); and a discussion of new
approaches to trade development in Africa with special emphasis on the role of export
processing zones (Chapter V). The final chapter provides some concluding remarks.
African Development Bank
Economic Research Working Paper Series
Enhancing Africa’s Trade: From Marginalization
to an Export-Led Approach to Development
Milton A. Iyoha
Professor, Department of Economics & Statistics
University of Benin, Nigeria
Economic Research Working Paper
No 77 (August 2005)
Enhancing Africas Trade From Marginalization to an ExportLed Approach to Development - To learn more about this author, visit African Development Bank's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
|||
John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
|||
Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
|||
Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
|||
John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
|||
David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
|||
Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
|||
|
To learn more about the Evan Elite Author Program please contact us. | |||
 | |
|  |
Subscribe to African's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 The Evolution Of Networking Maslow For Entrepreneurs Positive Thinking Eneterprise Readiness EQ SUCCESS STORIES |
|
 | ||
 |
Top 50 Productivity Blogs
Top Blogs To Watch In 2008 | |
 |
Choose A PR Topic
Press Release Builder | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
| ||||||||||||
| ||||||||||||
|
|
||||||||||||