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The Integration of Africa: Commodity Based Industrialization Examined The Problem • By adding value to their soft and hard commodities, “African countries have an opportunity to transform their economies through a commodity-based industrialization strategy that leverages on the continent’s abundant resources, current high commodity prices and changing organization of global production process.”(UNECA, 2013) ERA: Expectations • African countries would gain CA in the new manufactures and therefore would be able to export to the rest of the world by gaining new markets. Not Necessary • In and on itself, commodity based industrialization does not guarantee success in job creation or in attaining economic growth any more than the pathways Africa adopted before it. After all, East Asia practiced import substitution strategy about the same time as the Africans. • But modern models of trade suggest that countries may, in fact, be exporting and importing the same commodities, which, in current global contexts are, differentiated • Sub-Saharan Africa’s share of world trade has ranged between 1.3% and 2.2% in the past two decades. WTO Database Methods • Intra industry trade indexes for ECOWAS countries • The gravity equation is fitted into trade data from the region Results • ERA is not that relevant • It is not likely to be effective • Commodity processing for export is not the priority for Africa in creating jobs and fighting poverty Implications • We see the importance of commodity processing in transforming African economies only if the anticipated trade flows are directed at regional trade within the continent. Gravity Model of Trade • The larger the two countries are, the greater the volume or value of trade between them • For ECOWAS, the relative size of each importing country is measured by its share of Africa’s GDP: Gravity Estimates for ECOWAS 7 6 5 4 3 2 1 0 ECOWAS: Gravity Equation, 2008 y = 0.9587x + 0.4076 R² = 0.6139 0 1 2 3 4 5 Gravity Term: Larger GDP or Closeness Log of Trade Log of Trade ECOWAS: Gravity Equation, 1996 6 8 7 6 5 4 3 2 1 0 y = 1.2738x - 2.7856 R² = 0.789 0 2 4 6 Gravity term: Larger GDP or closeness • Intra ECOWAS trade confirms the concept of monopolistic competition 8 Index of Intra-Regional trade Golden Years for Africa(ns) • The continent, particularly sub Saharan Africa, is being praised as the new growth pole of the world or the new frontier of investment. • The old theories ..are being replaced. The pattern of trade is being transformed by increasingly sophisticated technology and innovations in transportation; and the topography of actors is shifting to reflect new poles of growth.. And Africa, both as a continent and as the sum of individual sovereign states, is poised to lead the new patterns of growth for the foreseeable future. Pascal Lamy (2013), DG, WTO African Governance • The East African, 2013 Additional Figures Conclusion • The importance of commodity processing in transforming African economies – regional trade • No comparative advantages: critical access factors • Share of Africa in world trade seems immutable – Consistently less than 5% at all times