Over the last two decades, world trade (measured in current US dollars) has tripled. Many factors have contributed to this extraordinary advance. Among them are the liberalization of trade, the falling costs of communications and transportation, the slicing up of global production chains, an increased need for natural resources in fast-growing developing countries, and an increased appetite for diversity as incomes rose across the globe.
International trade in services has particularly taken off because of the reduction in communication costs and the digitization of services.
However, not all developing regions benefited from this trend. East Asia’s share of world exports grew spectacularly from 3.3 percent in 1980 to 8 percent in 1995, and then to 14 percent in 2008. Europe and Central Asia, as well as Latin America and the Caribbean, lagged behind, going from 1.2 and 6.5 percent in 1980 to 7 and 6 percent of world exports, respectively, in 2008. Meanwhile, sub-Saharan Africa’s share of world exports showed little advance over this same period, and varied within a range of 1.3 and 1.6 percent. By 2008, sub-Saharan Africa captured the smallest share of world exports of any region, exporting just US$200 billion worth of goods for international markets, or US$100 per capita.
Although the growth of African economies as a whole accelerated in the past decade, their export growth rates continued to lag behind that of other developing regions, thus further widening the gap between Africa and the rest. Moreover, growth in exports in Africa has been mostly driven by mining, which represented 73 percent of export growth between 1995 and 2008, the highest of all regions. The lack of production and export diversification—in terms of both goods and partners—made many African countries vulnerable to external shocks. Indeed, more diversified countries and regions such as East Africa weathered the crisis better. Reversing Africa’s marginalization in global trade, diversifying its exports, and moving them up on the technology ladder are, therefore, key policy priorities.
Because of the dual linkages between FDI and trade, FDI inflows have exhibited similar trends as trade, rising rapidly during 2000s. While developed countries continued to receive the majority of FDI inflows until 2009, the long-term geographical pattern has been gradually changing, with more inflows going to developing countries, especially in Asia. Africa was no exception to the general rise in FDI—in fact, FDI inflows to the continent more than tripled between 2001 and 2009.
Looking ahead, a large body of literature has underscored how important it is for African countries to be integrated in the world economy and have a strong, sophisticated, and well-diversified export sector in order to maintain and achieve sustained growth. Moreover, the importance of creating enabling environment to attract FDI into high-growth potential sectors, beyond mining, cannot be overstated. Achieving these objectives will help Africa to improve competitiveness of its economies and raise productivity in order to achieve robust, sustained, and shared growth.