Unblocking Trade

• Author: Sanjeev Gupta and Yongzheng Yang
• Position: Assistant Director/Senior Economist in the IMF's African Department

To underpin growth, Africa needs to adopt a comprehensive approach to boosting trade

Despite its improved economic performance in recent years, Africa is still lagging on trade. Since 1970, trade (exports plus imports) in sub-Saharan Africa (SSA) has grown at three-fourths the world rate and only about half Asia's rate. Africa's share in world trade has thus fallen from 4 percent in the 1970s to 2 percent today (see Chart 1). Its trade openness (measured by the trade-to-GDP ratio) has also grown more slowly than that of any other major developing region, and, in 2001, Africa supplanted Latin America as the region of the world least open to trade.

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Africa's growth still falls short of the 7 percent required for Africa to achieve the Millennium Development Goal of halving poverty by 2015. What more can one of the poorest regions of the world do to boost living standards? Trade, which has not reached its potential as an engine of growth, is essential, despite the setback to the Doha Round trade talks.

Shifting trade patterns

Africa's exports remain dominated by primary commodities, with fuels accounting for about 40 percent and agricultural products for more than 25 percent. Only a few countries, such as Zambia and Kenya, have achieved some diversification of their exports, and the share of manufactured goods in Africa's total exports has stagnated at about 30 percent (see Chart 2), well below that in other developing regions. Moreover, manufactured exports from African countries have a narrow base and low value added; often, they are semiprocessed raw materials or products that have preferential access to industrial countries.

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However, recent surges in the world demand for commodities may have turned Africa's concentration in commodities into a temporary advantage. Although Africa's main trading partners remain industrial countries, the share of its exports to developing countries has more than doubled since 1990 (see Chart 3). As Asia industrializes, its demand for natural resources increases, and Africa has responded to the export opportunity. Asia now receives about 25 percent of Africa's exports. China and India-which are undertaking major investments in the African continent-together account for about 10 percent of both SSA exports and imports, 25 percent more than these two countries' share in world trade.

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Developing countries are taking more of Africa's textiles and clothing-often regarded as a spearhead of manufactured exports-auguring well for the future growth of this sector. Manufactured goods dominate imports from both developing and developed countries. Within manufactured imports, consumer goods dominate imports from developing countries, although imports of machinery and equipment from China and India are significant. Imports of consumer goods tend to compete with local products, causing concern among local producers, but African consumers have benefited from their low cost.

Obstacles to export expansion

Africa's poor export performance to date has many roots.

Unstable macroeconomic situation. Until recently, SSA countries had high inflation and large deficits in government budgets and external current accounts, which have been blamed for the region's low exports and poor overall economic performance. The human resource base and infrastructure have also been weaker in Africa than in other developing regions, as have the legal and regulatory framework and governance. These problems, combined with the high incidence of policy distortions, have raised the costs of doing business in Africa.

Anti-export bias. This bias persists despite the removal of many nontariff barriers and a...