Nigeria, others fixated on primary products export despite diversification

Despite export diversification been a policy priority for Africa, the United Nations Conference on Trade and Development (UNCTAD) has expressed concerns that fewer than half of all African countries have succeeded as insufficient progress has been made in steering the industrial sector into high value-added manufactured goods that are key to successful sector growth and effective integration into the high-value segments of regional and global value chains.

According to UNCTAD, Nigeria and other African countries remain predominantly dependent on exports of primary products in the agricultural, mining and extractive industries, leaving adverse impacts on inclusive growth in the long term, as it dims the prospects of industrialization and human capital development, among others.

UNCTAD’s economic development in Africa report for 2022 says that global crises, including the COVID-19 pandemic and Ukraine war threaten African countries’ economies. It says millions of Africans already struggle to make a living in the middle of a rapidly rising food and energy crisis.

U.N. economists say Africa will not get out of its poverty trap if the continent remains dependent on exports of primary products, mainly in the agricultural, mining, and extractive industries. They note commodities still account for more than 60% of total merchandise exports in 45 of Africa’s 54 countries.

“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 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 (both government and income) and investment. Commodity price shocks are also associated with lower levels of financial sector development in commodity-dependent countries.

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”, UNCTAD noted.

UNCTAD Secretary-General Rebeca Grynspan says 1 out of 2 Africans, more than 600 million people, are severely vulnerable to food, energy, and finance shocks. She says Africa must diversify its economy to become more resilient.

“The report makes clear the great potential for African countries to transform their economies through services, supporting the continent’s long-standing economic diversification goals, boosting productivity and development,” Grynspan said.

UNCTAD says knowledge-intensive services, such as information and communication technology, or ICT, and financial services, could be a game-changer for Africa. However, they note the sector currently accounts for only 20% of the continent’s services exports.

Grynspan says traditional services, such as travel and transport, dominate, accounting for about two-thirds of the total services trade.

“The analysis we are sharing today provides convincing evidence that high-value services, especially high-intensity ones in ICT and finance, are often the missing links that explain why diversification has not been achieved in the continent,” Grynspan said.

Grynspan says economic diversification should be a priority in Africa. She says it is the only path to sustainable growth and to high-quality jobs for young people.

The UNCTAD report calls on African countries to implement policies to better link trade in high-value services with other sectors, especially manufacturing. It also calls for removal of protectionist measures that limit the development of high value-added services trade.