1. Why cannot Africa export
manufactures?
Francis Teal
Centre for the Study of
African Economies
University of Oxford
February 2006
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. 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. 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. 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. 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. 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. 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$, trade is measured as the ratio
of exports plus imports to GDP.
and China. Source: PENN World Tables.
9. GDP per Capita (in 1996 US$ 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$1,000.
10. GDP per Capita (in 1996 US$ PPP)
Source: PENN World Tables 6.1
The five 1500
countries
shown here
Real GDP per Capita
have incomes
ranging from 1000
US$500-1500.
Both Uganda
and Ghana 500
have seen a
major change 1970 1975 1980 1985
year
1990 1995 2000
round in the Ghana Uganda
1990s. Kenya Nigeria
Tanzania
11. Export Values per Capita in US$ (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. 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$100 per Tanzania
capita.
13. Why manufactures?
Many reasons have been advanced as to why
manufacturing exports will be more closely
associated with growth than primary products. These
include
– Higher income elasticity of demand
– Benefits from skills transfer
– Increased possibilities of learning by doing.
The second and third point to the possibility of higher
TFP growth with manufactures than non-
manufactures.
14. Are these arguments convincing?
Higher income elasticity of demand
– Possibly but look at the impact China is having on
the prices of primary products
Benefits from skills transfer
– Possibly but the primary problem poor countries
have is finding jobs for the unskilled
Increased possibilities of learning by doing.
15. What is the evidence on TFP and
Exporting Manufactures
There is a finding across virtually all micro
data sets that exporting and higher levels of
efficiency are positively correlated.
Exporting and efficiency go together.
However it could either be that
– Efficient firms are more likely to export or
– Exporting helps firms learn.
16. Exporting and labour productivity
Percentage of Firms Exporting Labour Productivity: Output per Worker
80 50,000
40,000
60
30,000
US$
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. 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. 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. 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. 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. TFP and Wages
Relative Total Factor Productivity
0
-5
Percent
-10
-15
KENYA NIGERIA TANZANIA
Note: Measurement for each country is relative to Ghana
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. 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.