Why Cannot Africa Export Manufacures


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Why Cannot Africa Export Manufacures

  1. 1. Why cannot Africa export manufactures? Francis Teal Centre for the Study of African Economies University of Oxford February 2006
  2. 2. Outline of the Talk How has Africa grown since 1980? What is the relationship between exporting and growth? Why manufactures? Exporting and skill acquisitions: which way does it go? Why not Africa?
  3. 3. How has Africa grown since 1980? Changes in Incomes per Capita: 1980-2000 1980 China 2000 1980 Sub-Saharan Africa 2000 1980 South Asia 2000 1980 South-East Asia 2000 1980 Latin America 2000 1980 Middle-East 2000 0 2,000 4,000 6,000 8,000 Income in US$ Note:Sub-Saharan Africa excludes South Africa. Source: PENN World Tables. Incomes are weighted by population and expressed in 1996 PPP$.
  4. 4. What is the relationship between exporting and growth? The picture from these overall data presents both bad and good news. The bad news is that Africa’s position has fallen radically relative to other regions. The good news is that very high rates of growth in very poor economies have proved possible – they have moved China from being one of the poorest regions in the world to being nearly as rich as South East Asia in the space of twenty years. The Report of the Commission for Africa argues that the goal ‘should be to increase the average growth rate to seven per cent by the end of the decade and sustain it thereafter’ (p. 211). The implications of the achievements in China and South Asia for Africa are obvious: the target growth can be achieved.
  5. 5. The key to growth So what is the key to growth and how can Africa emulate the experience of rapid development that China has followed? The Report of the Africa Commission identifies a large number of possible answers to the question as to how the growth rate can be increased. I want to argue that one of these answers is central and without success in this area all the other possible policies will fail. The key to growth for Africa is to export more.
  6. 6. Why exports and growth? What are the fundamental reasons why success in exporting is so closely linked to successful growth? African economies are rich in natural resources - the domestic market for these products is negligible, the world market huge. The speed of export growth for these economies is limited only by the speed with which they can increase output. When African economies have grown successfully - and it is often forgotten how frequently in the past this has happened - it has been through this mechanism of using the world market place to sell produce for which there is no domestic demand.
  7. 7. How rapid can growth be? How closely related the links Mauritius Incomes and Exports are between the rise in 14000 2500 incomes and exports in 12000 2000 Mauritius is demonstrated in 10000 the Figure. Incomes 1500 Exports For a continent that has 8000 1000 become notorious for 6000 economic failure, this 500 4000 success is worth highlighting. 1970 1980 1990 2000 Year Unfortunately Mauritius is an Income per Capita Exports per Capita exception within Africa. Incomes per capita are in 1996 PPP$ from PENN World Tables. Exports per capita are in 1995 US$ from World Bank Development Indicators
  8. 8. Africa in a global context It is useful to put Africa in the Growth in Incomes per Capita and Trade: 1990-2000 context of other regions of the 8 world. China 6 The Figure shows that China in Growth of the 1990s grew by nearly 8 per Incomes4 East Asia (excluding China) cent per annum and trade as a (%pa) South Asia proportion of income expanded 2 Middle-East South-East Asia Industrial Latin America by a similar amount. Australasia Sub-Sharan Africa (excluding SA) 0 South Africa In contrast African growth was 0 2 4 6 8 virtually zero and trade growth Growth of trade (%pa) while positive very low relative Growth rate of income per capita (%pa) Linear prediction to the successes in South Asia Note: Incomes are weighted by population and expressed in 1996 PPP$, trade is measured as the ratio of exports plus imports to GDP. and China. Source: PENN World Tables.
  9. 9. GDP per Capita (in 1996 US$ PPP) Source: PENN World Tables 6.1 Chart shows 15000 Mauritius in the 13000 context of another Real GDP per Capita 11000 successful 9000 Africa country – Botswana -and 7000 two 5000 unsuccessful 3000 ones – South Africa and 1000 Zambia. 1970 1975 1980 1985 1990 1995 2000 year NB levels of per Mauritius Botswana capita income in South Africa Zambia 1970 over US$1,000.
  10. 10. GDP per Capita (in 1996 US$ PPP) Source: PENN World Tables 6.1 The five 1500 countries shown here Real GDP per Capita have incomes ranging from 1000 US$500-1500. Both Uganda and Ghana 500 have seen a major change 1970 1975 1980 1985 year 1990 1995 2000 round in the Ghana Uganda 1990s. Kenya Nigeria Tanzania
  11. 11. Export Values per Capita in US$ (1995) prices Source: World Bank Development Indicators The link 2500 between income growth and 2000 Export Values per Capita exports is obvious. 1500 What the chart 1000 does not show is that for 500 Botswana it is almost all 0 diamonds while 1970 1975 1980 1985 1990 1995 2000 Mauritius year diversifies into Mauritius South Africa Zambia Botswana manufacturing.
  12. 12. Export Values per Capita in US$ (1995) prices Source: World Bank Development Indicators For these five 500 countries we Export Values per Capita see very 400 modest growth 300 and very low levels of 200 exports. 100 For all these countries at the 0 end of the 1970 1975 1980 1985 1990 1995 2000 year 1990s exports Ghana Uganda average about Kenya Nigeria US$100 per Tanzania capita.
  13. 13. Why manufactures? Many reasons have been advanced as to why manufacturing exports will be more closely associated with growth than primary products. These include – Higher income elasticity of demand – Benefits from skills transfer – Increased possibilities of learning by doing. The second and third point to the possibility of higher TFP growth with manufactures than non- manufactures.
  14. 14. Are these arguments convincing? Higher income elasticity of demand – Possibly but look at the impact China is having on the prices of primary products Benefits from skills transfer – Possibly but the primary problem poor countries have is finding jobs for the unskilled Increased possibilities of learning by doing.
  15. 15. What is the evidence on TFP and Exporting Manufactures There is a finding across virtually all micro data sets that exporting and higher levels of efficiency are positively correlated. Exporting and efficiency go together. However it could either be that – Efficient firms are more likely to export or – Exporting helps firms learn.
  16. 16. Exporting and labour productivity Percentage of Firms Exporting Labour Productivity: Output per Worker 80 50,000 40,000 60 30,000 US$ 40 20,000 20 10,000 0 0 GHANA KENYA NIGERIA OUTH AFRICA S TANZANIA GHANA KENYA NIGERIA SOUTH AFRICA TANZANIA Note: Prices have been adjusted to 1991 US$
  17. 17. What is the evidence for Africa? There is a lot stronger evidence that exporting leads to rises in efficiency than there is evidence that efficiency helps exporting. The most strikingly robust result to emerge from surveys of African manufacturing firms is the strong correlation between firm size and exporting.
  18. 18. Exporting and firm size Percentage of Firms Exporting to Africa and Outside of Africa Large GHANA Medium Small Large KENYA Medium Small Large NIGERIA Medium Small Large SOUTH AFRICA Medium Large TANZANIA Medium Small 0 20 40 60 80 To Africa To Outside of Africa
  19. 19. Why not Africa? The picture you have that Africa does not export manufactured goods is quite correct. However in most African countries (Nigeria is the exception in our sample) most large firms export and Further, by international standards these firms are not particularly large – usually just with more than 100 employees.
  20. 20. So we need a slightly different question Why is firm growth so limited in Africa and what limits their ability to enter the export market? I do not wish to suggest there is only one answer to that question but part of the answer comes from the link between wage and TFP.
  21. 21. TFP and Wages Relative Total Factor Productivity 0 -5 Percent -10 -15 KENYA NIGERIA TANZANIA Note: Measurement for each country is relative to Ghana
  22. 22. Linking Wages and TFP
  23. 23. The ability of firms across our countries to export Exports: All destinations International Exports (Outside of Africa) 10 0 -2 0 -4 Percentage Points Percentage Points -6 -10 -8 -10 -20 KENYA NIGERIA TANZANIA KENYA NIGERIA TANZANIA Note: Measurement for each country is relative to Ghana Note: Measurement for each country is relative to Ghana
  24. 24. Summary I have argued that the cause of Africa’s failure to grow is to be found in its inability to export. The problem is not confined to manufacturing but is particularly acute in manufacturing. Rapid growth is possible – it has happened in Mauritius. Most large firms in most African countries export. I have suggested that we need to understand how firm growth links to exporting and that the ability to export is linked to issues of efficiency and costs – both wage and capital costs.