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    Facts and Figures: Africa's Trade

     

     
     
    © International Trade Centre, International Trade Forum - Issue 1/2007

    Sub-Saharan Africa's economic stability, combined with a favourable global growth climate, now offers opportunities that the region has begun to exploit. But further work is needed at the "micro" level to accelerate progress on the Millennium Development Goals.

    What's looking up…

    Steady growth

    Sub-Saharan Africa experienced a third straight year of growth over 5% in 2006, and the International Monetary Fund (IMF) expects growth to be around 6% in 2007. The region is inching closer to 7% annual growth, the rate needed to achieve the MDG of cutting extreme poverty in half by 2015.
    While income per person declined in the early 1990s, the recent growth surge has been sufficient to get income per head growing at 3% per year - a significant achievement given the region's high population growth.











    Signs of stability


    High oil prices and increased oil production underlie Africa's acceleration. Yet growth is more broadly based. Some indicators of solid growth foundations - notably investment - have performed strongly in countries that import oil and those receiving debt relief. Unlike previous growth spurts in sub-Saharan Africa, the current improvement has not come at the expense of macroeconomic stability. Inflation remains in single digits (despite the impact of high oil prices) and foreign reserves have been on a sustained upward trend since the mid-1980s.

     



    More South-South trade


    With the economic rise of China and India, sub-Saharan Africa's exports are more oriented towards Asia than in the past - reflecting that region's rising demand for resources. Rapid growth in Asia has created an opportunity to develop a stronger African manufacturing industry. As costs rise in Asia, mobile firms might look to take advantage of Africa's low labour costs and proximity to major markets. However, there are still significant constraints to address before a stronger private sector - whether home-grown or via foreign direct investment - can emerge.


     

    … and what still needs attention


    High cost of business

    Africa still has the highest ranking on the World Bank's cost of doing business indicator, although the region was top of the most recent list of countries making improvements in the business climate.
    Past successful growth experiences point to a crucial role for export development in driving overall growth. But the region faces major obstacles. While global shipping costs have declined, many African countries impose cumbersome procedures on international trade. Overland transport costs and poor port facilities are part of a disadvantageous shipping cost structure.
    Bureaucratic requirements are also heavy. 








    Building skills

    A stronger manufacturing industry will require closing a substantial productivity gap with leading exporters like China. Low labour costs are not enough of a competitive factor, unless countries address challenges like high utility costs and the scarcity of skilled labour.





    Expanding the formal sector

    Success in exporting is usually contingent upon firms being able to meet various technical or quality standards, but many firms in sub-Saharan Africa cannot do so because they operate in the informal sector. This is one consequence of high taxes on formal sector firms, which keeps the size of the region's export-potential base unnecessarily small. Of course, the size of the formal sector is also restricted by the many formal sector procedures mentioned above.