Transcript The Integration of Africa: Commodity Based

The Integration of Africa:
Commodity Based Industrialization
Examined
The Problem
• By adding value to their soft and hard
commodities, “African countries have an
opportunity to transform their economies
through a commodity-based industrialization
strategy that leverages on the continent’s
abundant resources, current high commodity
prices and changing organization of global
production process.”(UNECA, 2013)
ERA: Expectations
• African countries would gain CA in the new
manufactures and therefore would be able to
export to the rest of the world by gaining new
markets.
Not Necessary
• In and on itself, commodity based industrialization does not
guarantee success in job creation or in attaining economic
growth any more than the pathways Africa adopted before
it. After all, East Asia practiced import substitution strategy
about the same time as the Africans.
• But modern models of trade suggest that countries may, in
fact, be exporting and importing the same commodities,
which, in current global contexts are, differentiated
• Sub-Saharan Africa’s share of world trade has ranged
between 1.3% and 2.2% in the past two decades. WTO
Database
Methods
• Intra industry trade indexes for ECOWAS
countries
• The gravity equation is fitted into trade data
from the region
Results
• ERA is not that relevant
• It is not likely to be effective
• Commodity processing for export is not the
priority for Africa in creating jobs and fighting
poverty
Implications
• We see the importance of commodity
processing in transforming African economies
only if the anticipated trade flows are directed
at regional trade within the continent.
Gravity Model of Trade
• The larger the two countries are, the greater
the volume or value of trade between them
• For ECOWAS, the relative size of each
importing country is measured by its share of
Africa’s GDP:
Gravity Estimates for ECOWAS
7
6
5
4
3
2
1
0
ECOWAS: Gravity Equation,
2008
y = 0.9587x + 0.4076
R² = 0.6139
0
1
2
3
4
5
Gravity Term: Larger GDP or Closeness
Log of Trade
Log of Trade
ECOWAS: Gravity Equation,
1996
6
8
7
6
5
4
3
2
1
0
y = 1.2738x - 2.7856
R² = 0.789
0
2
4
6
Gravity term: Larger GDP or closeness
• Intra ECOWAS trade confirms the concept of
monopolistic competition
8
Index of Intra-Regional trade
Golden Years for Africa(ns)
• The continent, particularly sub Saharan Africa, is being
praised as the new growth pole of the world or the
new frontier of investment.
• The old theories ..are being replaced. The pattern of
trade is being transformed by increasingly
sophisticated technology and innovations in
transportation; and the topography of actors is shifting
to reflect new poles of growth.. And Africa, both as a
continent and as the sum of individual sovereign
states, is poised to lead the new patterns of growth for
the foreseeable future. Pascal Lamy (2013), DG, WTO
African Governance
• The East African, 2013
Additional Figures
Conclusion
• The importance of commodity processing in
transforming African economies
– regional trade
• No comparative advantages: critical access
factors
• Share of Africa in world trade seems
immutable
– Consistently less than 5% at all times