Chapter

Chapter 1. Overview

Author(s):
Sanjeev Gupta, Kevin Carey, and Ulrich Jacoby
Published Date:
October 2007
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Sub-Saharan Africa’s share in global trade (exports plus imports) has declined from about 4 percent in 1970 to about 2 percent at present (Figure 1). This long-term decline is traceable to such factors as macroeconomic instability, high and cascading tariff structures, and unfavorable cost structures as a result of poor business environments, small domestic markets, and high indirect costs (Gupta and Yang, 2006).

Figure 1.Share of World Trade by Region, 1970–2005

(Percent)

Source: IMF, Direction of Trade Statistics.

However, the region’s trade prospects have improved with the recent commodity boom. Because it is well endowed with natural resources, sub-Saharan Africa has benefited from the boom, which has reoriented its trade toward rapidly growing economies. China accounted for about 20 percent of the increase in global oil imports between 2000 and 2004 and about 15 percent of the increase in metallic ore imports (Goldstein and others, 2006). The effect of India is estimated to be smaller, although India accounted for nearly one-third of the increase in global imports of precious stones between 2000 and 2004. In each case, sub-Saharan African producers of these commodities have seen major export surges.

Continued rapid growth in Asia offers sub-Saharan Africa opportunities to reverse the long-term decline in its trade share. Because most domestic markets in sub-Saharan Africa are small, exports to Asia offer sub-Saharan African producers opportunities to vastly expand their markets. There is evidence that sub-Saharan African firms become more productive when they export (“learning by exporting”), so an upturn in exports could help lay the foundation for sustained growth (Bigsten and Söderbom, 2006).1 In principle, African producers may find opportunities for diversification as labor costs in East Asia increase, shifting cost advantages toward sub-Saharan Africa, and as demand changes with growth of the middle class in China and India (Winters and Yusuf, 2007). Moreover, efforts to improve the business environment in sub-Saharan Africa could make it possible for countries there to exploit untapped potential in traditional export destinations.

This study analyzes the trade patterns emerging in sub-Saharan Africa and assesses their implications for policy. Whereas recent studies (World Bank, 2004; Goldstein and others, 2006; and Broadman, 2007) highlight growing trade between sub-Saharan Africa and Asia, this study looks at all sub-Saharan Africa’s trading partners, including industrial countries (Chapter 2). Other studies have treated the countries in sub-Saharan Africa as a homogenous group; however, this study differentiates among them on the basis of endowments (resource-intensive or not) and location (coastal or landlocked) to assess whether these considerations are relevant to trade. The study also analyzes merchandise trade in terms of product groups that are gaining acceptance in industrial and fast-growing emerging economies and whether in the aggregate the region is undertrading or overtrading (Chapter 3). It concludes with suggestions for policies that would help sub-Saharan Africa realize its full trade potential (Chapter 4).

See also Mengistae and Pattillo (2004). However, there is little evidence that the textile export boom in sub-Saharan Africa under the U.S. Africa Growth and Opportunity Act led to increases in productivity (World Bank, 2004); the learning-by-exporting effect may need supporting factors to be effective. See also the discussion in Chapter 4.

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