Africa’s New Janus-Like Trade Posture

IMF Blog, October 30, 2011

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In little more than ten years, Africa’s exports to Europe, North America, and Japan—referred to as traditional trade partners—have dropped from three-quarters to just one-half of the region’s total exports.
Exports to other developing countries have increased sharply, with major reorientation toward China and India.
Today 17 percent of the region’s exports are headed to China, up from negligible levels in 2000.
Exports to India and Brazil together are now the destination for 20 percent of Africa’s exports, double what they were a decade ago.
Trade within sub-Saharan Africa has also grown, now accounting for 14 percent of the region’s total exports.

Exports to the three large emerging markets (Brazil, China, and India) are dominated by natural resources, particularly oil; by 2008, oil accounted for some 70 percent of exports to the three countries.
Natural resources represent a considerably smaller share of trade with traditional partners and other developing countries, and an even smaller part of trade within the region.
Manufactured exports account for 10 percent of intraregional exports, compared to around 5 percent of exports to Brazil, China and India.
Financial linkages have strengthened: in 2008, some 16 percent of all foreign direct investment in sub-Saharan Africa was from China, compared to around 2 percent in the early 2000s.

The reorientation has broadened the region’s export base and linked Africa more strongly to rapidly growing parts of the global economy, helping to reduce the volatility of exports and improve prospects for robust economic growth in Africa.
Exports to non-traditional partners accounted for half of the region’s total export growth between 1990 and 2000, and this share rose to two-thirds during 2005-10.
During the global financial crisis, exports to non-traditional partners declined considerably less than exports to traditional partners.
Higher commodity prices driven by demand from emerging markets have contributed to higher African income.
A risk is increased dependence on natural-resource exports: higher commodity prices tend to invite more investment in resource output, intensifying the region’s reliance on such exports.
Resource-dominated growth tends to be much less labor-intensive and has fewer direct linkages with other parts of the economy.

Improve management of natural resource revenues:
- Channel resource revenues to high return infrastructure investments to help raise productivity in agriculture and other sectors.
- Use resource revenues to strengthen education and health care systems.
Strengthen economic flexibility and safety nets:
- Consider retraining programs for affected workers where imports may displace domestic production.
- Facilitate access to finance for companies to shift to more competitive sectors.
Negotiate better market access in non-traditional trade partners, which tend to have much higher trade barriers.

The reorientation of sub-Saharan Africa’s exports towards developing countries offers the prospect of stronger and less volatile export growth.
To take full advantage of this opportunity and address the challenges it brings, African governments need to implement policies that support broader-based and more inclusive growth.

Antoinette M. Sayeh, October 30, 2011