Africa urged to diversify exports

Despite efforts to achieve export diversification, African countries remain predominantly dependent on exports of primary products in the agricultural, mining and extractive industries, according to UNCTAD’s Economic Development in Africa Report 2022.

This has adverse impacts on inclusive growth in the long term, as it dims the prospects of industrialization and human capital development, among others. Forty-five African economies are commodity dependent, with highly volatile revenues due to the nature of the market, characterized by periods of price boom and bust.

While many parts of Africa have enjoyed positive economic growth in recent years, such growth was in part due to a commodity super-cycle. The high concentration of exports in a small number of commodity products can create macroeconomic instability, especially during times of commodity price volatility and global shocks, such as those affecting supply and demand, the report pointed out.

The disruptive effect of these shocks on trade balance, export revenues and financial flows can in turn generate a negative impact on productivity, economic growth, revenues and investment. Commodity price shocks are also associated with lower levels of financial sector development in commodity-dependent countries, the report reads.

The diversification of African exports and economies is the most viable means by which these countries can prosper in the global economy and survive vulnerabilities and economic uncertainties exacerbated by commodity price volatility.

There is currently great potential for African economies to transform and achieve a higher level of diversification and competitiveness. The successful implementation of the African Continental Free Trade Area, a growing middle class, an emerging consumer market, the increased use of financial services and technology, and dynamic private entrepreneurs will drive export diversification and sustainable economic growth in Africa.

However, when examining the various strategies put in place by African countries to diversify exports and foster competitiveness at the regional and global levels, what becomes apparent is the underestimated potential of the services sector as a cornerstone of productive activities for industry, manufacturing and agriculture, the report added.

Moreover, many export diversification programmes overlook the potential of the private sector and financial services to reach their objectives. The private sector, which includes small and medium enterprises (SME’s), can provide innovative and efficient ways of diversifying and transforming African economies.

Lastly, financial services can serve as a sustainable channel through which SMEs can mobilize financing to enter new markets, diversify exports, upgrade productive activities and improve competitiveness, the report recommended.