CHAPTER 3: EXPORT DIVERSIFICATION STRATEGY
3.2. Export Diversification
3.2.3. Export Diversification in Sub-Saharan Africa
Sub-Saharan Africa has performed poorly on the export diversification front and has lagged behind other developing regions such as Asia and Latin America (Bonaglia and Fukasaku, 2003). The performance gap between Sub-Saharan Africa and Asia and Latin America on the one hand, and Africa on the other, is clear from the categories of export diversification outlined in a UNCTAD (2002) report. Most African countries fall under the categories that are not yet diversified (or are the least diversified), known as the „perennial non-diversified commodity exporters‟ and the „transitory non-diversified exporters‟, respectively. In both the former and latter categories, countries‟ export structures are largely made up of a few primary commodities, generally grow slowly and are open to price shocks. Conversely, Latin America and Asia are classed as „diversified commodity
exporters‟. The countries in this category are generally “larger, medium and high-income developing countries with relatively diversified economies” (UNCTAD, 2002: 6), where primary commodity exports are important in the process of developing the economy and lowering poverty levels. These countries are also less open to the volatility experienced in commodity markets and they emphasise the positive effect that the commodity sector has had on development and the reduction of poverty.
Over the past 25 years, sub-Saharan African countries have shown low export diversification levels as well as limited changes in their export structures (Ng and Yeats, 2000; ECA, 2007; Sundaram and von Arnim, 2008). The diversification efforts of sub- Saharan African states have been unstable and inconsistent. According to Ben Hammouda et al. (2006: 17), the 1960s and 1970s saw most African countries undertake an “industrial process whose objective was to diversify their economic structures and reduce dependency on primary commodities”. Their export diversification approaches were modified to include import-substitution strategies.
The diversification attempts of the 1960s and 1970s bore positive results in the early 1980s, despite the economic crises that many countries in the region encountered.
However, these positive effects were short-lived as countries‟ economic and debt crises heightened. Over the next ten years, the positive effects and results that the 1970s diversification efforts had achieved were undone. Ironically, this period was characterised by the introduction of structural adjustment programmes. A further attempt at diversification in 1992 resulted in temporary gains and small returns, as the diversification efforts only lasted up to 1998. Thus, the region was further marginalised in global trade and poverty levels increased, sparking both political and social unrest. This spurred another attempt at export diversification between 1998 and 2002 (Ben Hammouda et al., 2006; ECA, 2007).
Figure 3.1 provides a graphical representation of the export diversification in sub-Saharan Africa for the period 1995-2006. The Normalised-Hirschman Index has been used. It indicates that the closer the index value is to zero, the more diversified the economy; the closer the value is to one, the more concentrated the economy is (UNCTAD, 2008). Sub- Saharan Africa‟s export diversification efforts have been weak and volatile, as the Normalised-Hirschman Index for the region has remained between 0.335 and 0.55 for the
2006, as the Normalised-Hirschman Index has, overall, tended towards one rather than zero.
Figure 3.1: Export Diversification of Sub-Saharan Africa (excluding South Africa), Mauritius, Tunisia and Kenya, 1995-2008 (Normalised Hirschman Index [N-H] used)
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year
N-H Index
Sub-Saharan Africa excluding South Africa Kenya Mauritius Tunisia
Source: Author‟s compilation based on UNCTAD data (UNCTAD, 2010)
Despite sub-Saharan Africa‟s fragile and erratic diversification efforts, as typified by Benin, Burkina Faso and Malawi, there are a few countries in the region that have managed to engage in effective export diversification. Mauritius, Kenya and Tunisia have been among those to exhibit successful export diversification efforts. The Normalised- Hirschman indices for Mauritius, Tunisia and Kenya are significantly lower than the sub- Saharan African average. These three countries have also shown a declining trend in their Normalised-Hirschman indices, which indicates that these states are moving towards being less concentrated (as indicated in Figure 3.1).
Mauritius is a noteworthy case as it has developed a successful manufacturing export sector, despite previously being heavily dependent on sugar. Mauritius has also developed its non-traditional exports, including fish and woven cotton fabrics. The movement into both manufacturing and non-traditional commodities demonstrates how Mauritius has
engaged in both vertical and horizontal export diversification (Bonaglia and Fukasaku, 2003; ECA, 2007).
Kenya is one of the more diversified sub-Saharan African countries, along with its neighbouring countries, Uganda and Tanzania. These three countries have shown remarkably low market concentration levels in recent years. In 2009, the top three products in Kenya, Tanzania and Uganda held a less than 40% share of total exports (Blanke et al., 2011). Kenya‟s non-traditional exports, which include vegetables and cut flowers, have managed to achieve robust growth. Kenya is considered the largest African grower of cut flowers as well as the largest fresh produce exporter. However, Kenya has not been successful in diversifying towards manufacturing as the country‟s top ten commodities have not moved into value-added manufactured goods. In addition, the incentives provided to the country‟s manufacturing firms in the export market did not succeed in maintaining export growth. Since Kenya has successfully moved into non- traditional commodities, it has engaged in horizontal export diversification. As a result, Kenya has increased its expertise and knowledge, received foreign investment and improved it infrastructure (Bonaglia and Fukasaku, 2003; ECA, 2007).
Similarly, export diversification in Tunisia is characterised by substantial horizontal diversification, as some of Tunisia‟s top ten export products comprise various types of garments as well as electricity distribution equipment. These products are classified as the
„emerging or newer products in the export mix‟ (Ben Hammouda et al., 2006: 60). Tunisia was heavily reliant on the export of its crude oil in the 1980s, which accounted for approximately 50% of its total exports. In 2002, however, crude oil accounted for approximately 7% of total exports, indicating that Tunisia has moved away from its major traditional exports (Ben Hammouda et al., 2006).
Despite there being some successful cases of export diversification, many sub-Saharan African countries have either demonstrated little diversification efforts, or these efforts have not created gains significant enough to ensure sustainability. According to Ng and Yeats (2000), the passive and closed domestic policies of sub-Saharan Africa are a crucial factor behind this failure to diversify successfully. In addition, the “inefficiency and a lack of investment in technology in [sub-Saharan] African manufacturing firms” (Morrissey and Mold, 2006: 10) has further contributed to the region‟s poor export diversification.
Export diversification is contingent on a country‟s level of infrastructure in order to improve transportation, communication and power facilities and develop the necessary skills level. In developing countries, and specifically sub-Saharan Africa, “the provision of basic infrastructure is likely to be more linked to activities in the primary commodity sector than to other forms of industrial production” (Habiyaremye and Ziesemer, 2006: 9).
This follows from the view that the export structure of a country depends on its resources and therefore reflects its comparative advantage (Wood and Mayer, 1998). This is derived from the Heckscher-Ohlin trade theory, which advocates that “a country‟s trade structure reflects its comparative advantage, which is in turn determined by the relative endowment of production factors” (Bonaglia and Fukasaku, 2003: 12).
This holds true for sub-Saharan Africa, as its comparative advantage lies in its agriculture and may provide a partial explanation as to why sub-Saharan Africa has lagged behind the rest of the developing world in diversifying into manufacturing. Wood and Mayer (1998) therefore argue that sub-Saharan Africa should utilise its comparative advantage and develop the volume and quality of its primary commodities, rather than diversify into manufactured products.
3.3. Export Diversification – The Role of Organic Agriculture in Sub-Saharan