An Agenda for Trade, Investment, and Regional Integration

• Author: Robert Sharer
• Position: Assistant Director in the IMF's African Department

The importance of enhancing sub-Saharan Africa's trade performance, which was very weak in the 1980s and 1990s, cannot be overemphasized (Chart 1). Africa's non-oil exports in 2000 came to about $69 billion. If Africa had retained its share of non-oil world exports at 1980 levels, exports in 2000 would have been $161 billion, or $92 billion more than their actual level. Even if Africa had held its market shares at 1980 levels only for those commodities it already exported in substantial quantities in 1980, such as coffee, tea, and cocoa, exports would now be some $62 billion a year higher. By contrast, the total cost of the Heavily Indebted Poor Countries Initiative is about $30 billion-to be delivered over more than twenty years-and the most recent replenishment of the World Bank's concessional lending arm, the International Development Association, totaled $22 billion for a three-year period.

[ SEE THE GRAPHIC AT THE ATTACHED RTF ]

Without a substantial improvement in its trade performance, Africa will be unable to reverse its weak growth performance of the past two decades, and it is only by achieving sustainable high-quality growth that it will be able to meet its overarching goal of improving the living standards of the majority of its population. Trade has been a major engine of growth in the industrial countries and the middle-income developing countries, and extensive studies have consistently shown that export growth is linked to economic growth. Moreover, there is growing empirical evidence that improved trade performance is closely associated with increased employment opportunities and income for the poor.

The causes of Africa's weak trade performance are complex. Fundamental are the region's lack of infrastructure and physical and human capital, as well as factors outside Africa's control, such as limited natural endowments and a difficult geographic location. But flawed policies also play an important role. A country's ability to improve its trade performance in the short run is determined mainly by its macroeconomic and structural policies. Trade and growth prospects are enhanced by a macroeconomic framework that emphasizes appropriate fiscal and monetary policies conducive to price stability, saving and investment, and a sustainable external current account position. These factors are critical in maintaining a stable economic environment and, thus, in encouraging productive activities.

Trade policy and liberalization

Over the past decade, Africa has made substantial progress in liberalizing trade. In 1990, more than 75 percent of the countries in the region had trade regimes classified as "restrictive," as measured by the IMF's Index of Aggregate Trade Restrictiveness (Appendix I of a 1998 IMF study, Trade Liberalization in IMF-Supported Programs), and none had trade regimes that could be classified as open. Since the early 1990s, many of these countries have adopted ambitious structural adjustment programs, which have included substantial efforts at trade reform. Only 14 percent of African countries' trade regimes are now classified as restrictive, while 43 percent...