beyondbrics

Sub-Saharan Africa is set to keep growing – so long as the rest of the world doesn’t let it down. The International Monetary Fund forecasts the region to grow by over 5.25 per cent next year if global growth hits 4 per cent, in its Regional Outlook report published on Wednesday.

As usual those countries lucky enough to have oil to sell will be picking up the slack by growing about 2 percentage points faster than their resource-poor neighbours.

However, the IMF’s report points to one way that Sub-Saharan countries can boost their growth rates and reduce their reliance on such volatile commodities – by increasing the sophistication of their exports. 

Essentially, the more advanced a country’s exports become, the more advantages it can generate – such as innovation sharing and economies of scale – and the higher such sophistication can drive economic growth.

The IMF’s report estimates that a small but significant increase (of 1-standard-deviation) in the sophistication of a developing country’s goods or services can result in a 13 basis point increase in the country’s growth rate.

To put that into context, the Fund estimates that if sub-Saharan Africa were to increase its goods or services sophistication to the level of China or India its growth rate would increase by upwards of 20 basis points. Unfortunately, the IMF’s report does not provide the underlying figures they use in these comparisons.

An increase of 20 basis points might not sound like much but, importantly, it is an isolated increase. The report notes that “initial export sophistication, of both goods and services, is associated with subsequent output growth, even after financial development, human capital, and external liberalization are controlled for.”

So, although a country’s exports will naturally become more sophisticated as it gets richer there is a separate bump provided by the sophistication itself. Such stand-alone gains are not to be sniffed at.

And, as the chart below shows, there is real room for speedy sophistication of exports in Sub-Saharan Africa. Manufactured goods have not advanced nearly as much as services (such as call-centres) over the past 20 years – in fact they have fallen in resource-poor countries.

Related reading:
Africa-China Trade Special Report, FT
IMF: positive on CEE with a few “buts”, FT