Economic development in Africa: trade performance and commodity dependence

This report examines the reasons for Africa’s poor performance and its declining share in world trade. It reviews the structure and composition of Africa’s trade, along with the associated problems of commodity dependence, and it discusses the factors influencing both Africa’s ability to diversify into more market-dynamic sectors and its competitiveness. It also examines national and international policy measures adopted in the past to address the “commodity problem”, which is at the heart of the continent’s trade performance. Finally, it discusses national and international policy measures that may be needed to help Africa overcome some of the hurdles it faces.

Findings include:

• the persistence of the problems of commodity dependence in the past three decades suggests that markets have not been able, and cannot be expected, to solve the problem
• the limited support of the international community for the traditional price support and stabilisation schemes was an important factor in their demise
• addressing the secular decline in real commodity prices would require a domestic and international policy package aimed at the structural transformation of African commodity-dependent economies within the context of an improved system of resource allocation
• although essential, such transformation cannot be undertaken solely through provision of better market access and reduction of subsidies
• African countries now have to operate within the framework of WTO disciplines (backed by a rigorous enforcement mechanism), which limit the use of instruments deployed by the Newly Industrialised Economies, the special and differential treatment measures notwithstanding
• it should nevertheless be possible to envisage derogations, in the context of WTO negotiations, from some of these disciplines to support development programmes, if their objectives are clearly defined
• Africa could use the WTO system to its advantage by judicious schemes of tariff reduction (or rationalisation) within the context of regional economic groupings that enhance market access within the continent, and generally in the developing world

[adapted from author]