Working Papers

Export Diversification in Africa and Sustainable Growth

Export Diversification in Africa and Sustainable Growth

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07 Mar 2019

Author(s): John Stuart

Long-term growth is a necessary condition for developing countries to achieve developmental goals; however, being export-dependent for growth, this suggests that they need to develop sustainable and stable export markets. This paper seeks to assess what 21st century Africa looks like in terms of its export and industrial diversification and what, if anything, this can tell us about its recent economic and socioeconomic progress, with a view to drawing out pertinent themes and useful policy recommendations.

The notion that a lack of export and industrial diversification would indicate economic vulnerability for a country arises from the considerable literature around the long-term behaviour of commodity prices. This connection exists because undiversified exporters are almost always exporters of commodities. The volatility and sensitivity of commodity markets to the global business cycle exceeds that of markets for manufactured goods and services markets. Cyclical booms may earn temporary windfalls for commodity exporters in times of accelerated global growth, but these windfalls are often not put to longer term beneficial use. The result is that, a few years after an extreme commodity boom, undiversified economies may become stagnant or even experience negative growth. The more diversified an economy, the less the potential impact of deteriorating export prices for either the primary or secondary sectors.

Diversification in itself, however, is not enough. Effective policy action from governments and the leveraging of comparative advantages is necessary to enable a country to achieve sustained growth. Developing countries must leverage their strengths early on, accumulate capital and ‘upgrade’ their industrial capacity. Diversification is more likely to be but one outcome of a set of successful economic policies, and an appropriate investment response, where those policies are aimed at a more robust and dynamic economy.


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