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Front Matter

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    The African Department

    Copyright © 2016

    International Monetary Fund

    Cataloging-in-Publication Data

    Joint Bank-Fund Library

    Names: Allard, Céline. | Canales-Kriljenko, Jorge Iván. | Chen, Wenjie, Professor of international business. | Gonzalez-Garcia, Jesus. | Kitsios, Emmanouil. | Treviño, Juan P. (Juan Pedro) | International Monetary Fund. | International Monetary Fund. African Department.

    Title: Trade integration and global value chains in Sub-Saharan Africa : in pursuit of the missing link / a staff team of Céline Allard, Jorge Iván Canales Kriljenko, Wenjie Chen, Jesus Gonzalez-Garcia, Emmanouil Kitsios, and Juan Treviño.

    Description: Washington, DC : International Monetary Fund, 2016. | Includes bibliographical references. | At head of title: The African Department.

    Identifiers: ISBN 978-1-49834-990-1 (paper)

    Subjects: LCSH: Sub-Saharan Africa—Economic integration. | Customs unions—Sub-Saharan Africa. | Economic development—Sub-Saharan Africa.

    Classification: LCC HC800.T723 2016

    The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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    The mid-1990s ushered in two decades of strong and sustained growth in sub-Saharan Africa. The growth takeoff has been attributed to a combination of factors, not least sound macroeconomic policies implemented by the authorities in the region, but also fiscal space created post-debt relief, the strengthening of political and economic institutions, and in a growing number of countries, exit from fragility. Favorable external conditions have undeniably also played a role, with strong demand from advanced economies until the global financial crisis, and from emerging markets afterward, especially for raw materials. These external conditions have, however, turned far less supportive, with sharply lower commodity prices—for oil, in particular—and tightening global financial conditions.

    We investigate the extent of trade integration of sub-Saharan African (SSA) countries in the global economy as well as within the region over the period 1995–2013.1 To assess integration, we use four key concepts: (1) trade openness, captured by import and export flows; (2) the centrality in the global and regional trade network, a measure that takes into account not only the size of trade but also the number of trade partners and the respective weight of these trade partners in global trade; (3) gravity model estimates that account for country- and region-specific determinants of bilateral trade flows; and (4) global value chain (GVC) integration. Using both existing data and a newly available data set based on multiregion input and output tables, we are able to evaluate these four important dimensions of trade integration and assess the degree of integration globally as well as regionally. The main findings of the paper are as follows:

    • The region’s trade openness has increased strongly since the mid-1990s, reflecting new partnerships with emerging markets, especially China, and budding intraregional trade. High demand for commodities has played a significant role, in particular for oil-exporting countries. However, the export structure of the rest of the region is less skewed toward raw materials, even for other natural resource exporters.

    • Increased trade has been a powerful engine for growth. Yet over the past 20 years, labor productivity gains have trailed increases observed in other regions. In addition, by being more integrated in the global economy, the region is now more vulnerable to external shocks.

    • Substantial opportunities for further regional and global trade integration still lie ahead. Despite strong growth in trade flows, sub-Saharan Africa’s trade has barely kept pace with the expansion of global trade, even as other regions managed to increase their weight in the global trade network over the same period. Indeed, even after accounting for lower levels of income and economic size, generally longer distances between countries, and a large number of landlocked countries, levels of trade flows emanating from sub-Saharan Africa are found to be only half the magnitude of those experienced elsewhere in the world.

    • Likewise, the region still has ways to go to better integrate in GVCs—a process that has consistently been associated with higher levels of activity and income growth over time—as has happened in South and East Asia or Eastern Europe. However, while oil-exporting countries are clearly lagging behind, many other countries—both commodity and non-commodity exporters—are showing progress, even if from very low starting points, with the East African Community (EAC) and the Southern African Customs Union (SACU) particular bright spots. In countries that have made the largest strides into GVCs—such as Ethiopia, Kenya, Seychelles, South Africa, or Tanzania—manufacturing, agriculture, and agro-business—and, to a lesser extent, transport, tourism, and textile—have benefited the most from deeper integration. These results highlight the potential sectors where the region could build on its comparative advantages, provided the business environment is sufficiently conducive.

    • In that respect, our analysis suggests that, to leverage the region’s trade potential and ensure strong job creation and durable growth in the process—especially at a juncture when external demand for commodities is far less supportive—it is more critical than ever to make progress in filling the infrastructure gap, lowering tariff and nontariff barriers, and improving the business climate and access to credit, while continuing to enhance education outcomes.

    The rest of the paper is organized as follows. In Section 1, we document SSA’s international and regional integration over the past 20 years. In Section 2, we introduce the concept of centrality in the global and regional trade network, which takes into account, for each country, both the size of its trade and the number of its trade partners and their weight on global trade. The third section links trade openness with macroeconomic performances. To investigate the determinants of trade and estimate the order of magnitude of a potential “trade gap” for sub-Saharan Africa, we use a gravity model approach in Section 4, explaining bilateral trade flows with both country- and region-specific determinants. Section 5 assesses the extent of SSA’s integration into global supply chains, using the newly created Eora database that provides multiregion input output tables. Section 6 concludes the paper.

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