CHAPTER 4: Macro Policy & Economic Convergence
4.2 Export growth, diversification and sophistication
4.2 Export growth, diversification and sophistication
Another form of convergence that the SADC subregion seeks to achieve is balanced growth in exports and in export diversification and sophistication. While the expansion of exports is a key driver in the economic development of the subregion, expansion alone without the structural transformation of export baskets may not lead to sustainable economic devel-opment. This is true if exports are dominated by primary and or low-value commodities.
Hence the important roles of not only export growth but also export diversification and sophistication in promoting faster and sustainable economic development.
Regarding export growth, the subregion has shown signs of convergence, albeit at very low levels of nominal growth. Figure 4.2 presents summary data on nominal export growth trends during 1991-2011. Only five countries (Mozambique, Lesotho, Tanzania, South Africa and Mauritius) experienced export growth in all four period intervals. Lesotho led the overall export growth record, followed by Tanzania and then Mozambique.
In terms of subregional convergence in nominal growth rates in exports, the earlier period intervals, 1991-1995 and 1996-2000, show quite divergent export growth rates across SADC, with no obvious patterns. In contrast, the majority of SADC countries such as DRC, Zambia, Mozambique, Seychelles, Angola, Lesotho, Malawi, Tanzania, Namibia and South Africa experienced similar growth-rate patterns in 2001-2005 and in 2006-2010. On the other hand, Madagascar, Swaziland, Zimbabwe and Botswana experienced negative nominal export growth rates in either the 2001-2005 or the 2006-2010 periods, while Mauritius recorded a very small growth rate for the period 2006-2010. This sug-gests that overall convergence in nominal export growth rates were recorded in the SADC subregion during the latter parts of the reference period, marking a desirable outcome.
Figure 4.2: Nominal export growth rates (interval average %), 1991-2011
Source: constructed from Country Data Tables (Annex 1)
However, Figure 4.2 reflects another significant fact, that the growth of exports in the subregion is very slow, with interval growth rate averages of less than 0.5 per cent across all countries. This lends further support to the assertions in chapter 3 (Figure 3.1) that, although SADC has been increasing the share of its exports in overall world trade, the rate of growth has been low. The subregion still has only a marginal overall share of global export trade. Subregional and market-integration strategies and efforts to support trade expansion will have to be intensified for the subregion to achieve its ambitions to promote and expand exports.
Figures 4.3 and 4.4 present further evidence of the limited performance in trade and particularly of the fact that SADC countries are not yet able to take advantage of the benefits being forged in subregional integration. The figures are adapted from Munalula and Cheelo (2011), whose analysis sampled 34 countries, of which 10 were from SADC25. The figures respectively show actual trade outturns in terms of trade efficiency relative to stochastic trade frontiers for African trade and SADC trade. The stochastic trade frontiers represent the maximum possible trade achievable, in the absence of any trade inhibitors under given circumstances (Armstrong, 2007). For expository purposes the frontier is calculated as 100 per cent and country outturns reflect the extent of trade efficiency rela-tive to the 100 per cent threshold or frontier. The distance between the threshold and the actual outturn therefore represents the unmet trade potential of each country.
25 The analysis places the SADC countries within a broader African context.
The main point in Figures 4.3 and 4.4 is that trade efficiency was less than 6 per cent (average 4.3 per cent) of full potential African trade efficiency in all the selected SADC countries for which relevant data were available, excluding South Africa, which covered about 72 per cent of its full potential trade efficiency, and Mauritius, which recorded 24 per cent of its potential in Africa. Even within the SADC arena (Figure 4.4), the member States were only covering about 23.9 per cent of their full SADC potential on average.
South Africa again led the pack with an outturn of 37.5 per cent of its full potential in SADC while Namibia trailed the pack with 7.4 per cent. Thus the low nominal export growth rate observed above is consistent with the observation on trade efficiency. South Africa was already relatively close to its full trade potential and thus had little scope for recording high growth rates. SADC is at less than a quarter of its full trade potential and the evidence is clear that export promotion and subregional integration have not yet taken root, as envisaged by SADC.
Figure 4.3: African trade frontier - average country trade performance (%), 2002-2007
Source: Adapted from Munalula and Cheelo (2011) forthcoming.
One plausible empirical explanation that has been posited about the inability of Afri-can countries, including SADC member States, to make signifiAfri-cant gains in trade-based
growth has to do with their low levels of export sophistication. Rodrik (2006) uses an index, EXPY, to measure export sophistication levels. The index links the product sophis-tication level of an economy to its income (economic prosperity) level. As explained in Cheelo and others (2012), EXPY “represents the income level associated with the coun-try’s export package. This measure is motivated by observations in Hausmann et al (2007).
Looking closely at the sets of products that countries export Hausmann et al show that
‘what you export matters’. They show that the composition of a country’s export basket has important implications for its growth prospects. That is, after controlling for initial income, countries with more sophisticated export baskets grow faster.”
Figure 4.4: SADC trade frontier -average country trade performance (%), 2002-2007
Source: Adapted from Munalula and Cheelo (2011) forthcoming
The analysis by Hausmann and Klinger (2008) (Figure 4.5) compares several economies of the world, plotting real GDP per capita (PPP) in logs on the x-axis and EXPY (PPP) in logs on the y-axis. The data are for 2004 for over 130 countries. In 2004, the only three readily identifiable SADC countries covered in the analyses – Malawi (MWI), Tanzania (TZA) and Zambia (ZMB) were at the lower end of the spectrum in terms of per capita income and export sophistication compared to the majority of countries represented in the figure. However, two of these economies – Tanzania and Zambia – exported sophisti-cated export baskets relative to their respective income levels. According to the argument in the previous article (Hausmann and others, 2008), the prediction should be that the subsequent growth of the two would be higher as GDP would converge to that level; in essence the countries would become domestically more prosperous in tandem with their
export sophistication. Arguably, given the relatively low level initial positions of GDP per capita and export sophistication, SADC countries still have a lot of untapped potential that could be exploited.
Overall, SADC still lags considerably behind the income and export sophistication of most countries in the world. There are a few exceptions such as South Africa and Mauritius that have done relatively well in terms of creating and taking advantage of trade opportuni-ties. Except for these few, the income and export performance levels of SADC countries seem to converge, albeit at relatively low levels compared to other economies of the world.
Clearly, there have been challenges to formulate reliable national and subregional strate-gies that help countries to create and exploit trade and subregional integration.
Figure 4.5: Export sophistication & GDP per capita, 2004
Source: taken from Hausmann and Klinger (2008)