Agro-processing & Horticultural Exports from Africa Emiko Fukase and Will Martin WIDER Development Conference Helsinki, Finland 13 September, 2018
Context • Improved transport & communications allow unbundling of global value chains (Baldwin, 2016) ▪ Labor-intensive activities in developing countries ▪ New opportunities for African countries: location-specific comparative advantages • Pessimism about prospects of Asian-type manufacturing export growth for Africa • Can agricultural processing and horticultural exports become Africa’s engine of growth? • How might African governments act to influence the development of high-value agricultural exports?
. Con ontext 1. 2. . Cha hangin ing pa pattern of of ag agri ricultural exp xport rts Outline 3. . Im Impa pacts of of pol polic icy reform 4. . Polic olicy que questio ions 5. . Con onclu lusions
1. Context 2. . Cha hangin ing pa pattern of of ag agri ricultural exp xport rts Outline 3. Impacts of policy reform 4. Policy questions 5. Conclusion
Agri small share of Africa’s exports 120 100 80 60 40 20 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Agriculture Resources Manuf Services
Changing composition of agricultural exports 1988-2014 World Africa 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Bulk Proc Semi Proc Hort Bulk Proc Semi Proc Hort
Share of Processed Agri VA in total Agri VA rises with income 1 .8 .6 .4 .2 0 6 8 10 12 LnGDP SSA Non SSA Fitted Line
Share of Processed Agri exports in total agri exports also rises with income 1 .8 .6 .4 .2 0 6 8 10 12 LnGDP SSA Non SSA Fitted Line
Structure of Agri Exports, 2013 Nos os Equiv No o of of Top it item Top 20 20 Herfin Her indahl exports sha share Sh Share Ind Index (%) (%) Ethiopia 249 23 96 7 Ghana 362 59 96 3 Kenya 520 40 85 5 Mozambique 208 37 94 5 Nigeria 299 32 90 7 Rwanda 233 22 93 9 Senegal 591 14 82 17 South Africa 655 7 53 44 Tanzania 357 12 80 18 Uganda 402 30 82 9 Afr fric ica as as a a gr group 670 670 13 13 56 56 33 33 Intra-Africa 662 662 8 48 48 54 54
Structure of Agri Exports, 2013 Nos os Equiv No o of of Top it item Top 20 20 Herfin Her indahl exports sha share Sh Share Ind Index (%) (%) Ethiopia 249 23 96 7 Ghana 362 59 96 3 Kenya 520 40 85 5 Mozambique 208 37 94 5 Nigeria 299 32 90 7 Rwanda 233 22 93 9 Senegal 591 14 82 17 South Africa 655 7 53 44 Tanzania 357 12 80 18 Uganda 402 30 82 9 Afr fric ica as as a a gr group 670 670 13 13 56 56 33 33 Intra-Africa 662 662 8 48 48 54 54
Africa’s agricultural exports are highly concentrated Nos os Equiv Top it item Top 20 20 Her Herfin indahl share sha Sh Share In Index* (%) (%) Ethiopia 23 96 7 Ghana 59 96 3 Kenya 40 85 5 Mozambique 37 94 5 Nigeria 32 90 7 Rwanda 22 93 9 Senegal 14 82 17 South Africa 7 53 44 Tanzania 12 80 18 Uganda 30 82 9 Afr fric ica as as a a gr group 13 13 56 56 33 33 Intra-Africa 8 48 48 54 54 1 *Numbers Equivalent of the Herfindahl Index measured as 2 where S i is the share of each product σ 𝑇 𝑗 in total agricultural exports.
Share of of Co Country ‘new goods’** in 2013 (%) Is Africa Ethiopia 47 exporting Ghana 10 Kenya 3 new Mozambique 7 Nigeria 16 Products? Rwanda 69 Senegal 8 South Africa 0 Tanzania 8 Uganda 12 ** ’New items’ is defined as a set of the ‘bottom 2%’ items in the initial year (Kehoe and Ruhl, 2013).
The importance of ‘Big Hits’ • Exports from African countries are dominated by a small number of ‘big hits’ (Easterly and Reshef 2010) • Policies that encourage entrepreneurs to discover successful exports of the future are important (Hausmann and Rodrik 2003) • Example of a ‘big hit’: Case of Ethiopia’s cut flowers (HS06031) ▪ From a ‘bottom 2% item’ to the second largest African cut flower exporter ▪ $527 million exports in 2013 ▪ Key factors of success (Gebreeyesus, 2017) ✓ Comparative advantage: favorable agro-climatic conditions & abundant labor ✓ ‘Private entrepreneurship experimentation’ ✓ Government support programs (land, duty-free import of machinery, tax exemption, credit) ✓ Foreign Direct Investment (FDI) inflow ✓ Market access: international auction markets ✓ Transport: the light weight of flowers made air transportation viable
1. Context 2. Changing pattern of agricultural exports Outline 3. . Im Impa pacts of of pol polic icy reform 4. Policy questions 5. Conclusion
Destinations of Africa’s Exports TOTAL AGRICULTURE PROCESSED AGRICULTURE Kor/Taiwan/ LAC MENA Others SA Others SEA HK 1% 4% 1% 1% 2% 2% Japan China LAC SSA 2% 3% 1% 1% 19% MENA Australia/NZ 7% 1% SA SSA Kor/Taiwan/ 5% USA HK 35% SEA 5% 2% 5% ECA 5% China 5% Japan 2% USA 6% Australia/NZ EU ECA EU 1% 41% 3% 40% Source: Global Trade Analysis Project Database version 9
Structure of Ad Valorem Equivalent (AVE) Protection Afr frica Afr frica World ld EU on on In Intra-Africa Exp xports Im Imports Average Afr frica (%) (%) (%) (%) (%) Bulk 7.7 7.4 8.3 0.1 3.3 Horticulture 3.8 10.6 5.2 1.4 8.8 Proc Agriculture 7.6 13.6 8.6 1.3 12.6 Total 7 12.2 8.2 0.8 10.1
Tariff Escalation within the same value chains • Paddy rice (1.2 %) vs. processed rice (5.7 %) • Sugar cane(0.4 %) vs. sugar (9.1 per cent) • Raw milk (0.0%) vs. dairy products (10.9%) • Cattle, sheep, goats, horses (1.3%) vs. cattle, sheep, goat and horse meat (33.7%)
Impacts of reforms on exports Sim Sim (1) (1) Sim im(2) Sim im (3 (3) Sim im (4 (4) Sim im (5 (5) Rem emove Ag g Rem emove 10% 10% Cut ut own n Lo Lose se EU EU Ag g Tar ariff In Intra-Afri rica pr productivity protection on pr on Pref Esc Escala latio ion Ag g pr protection inc ag inc ag pr proc all all (%) (%) (%) (%) (%) Bulk -4.6 -1 0.3 -2.5 6.4 Horticulture -3.5 -3.3 1.5 -1.9 4.3 Processed Agri 114 -12 13 30 11 Total agri 39 -5.5 5.1 9.6 7.5
1. Context 2. Changing pattern of agricultural exports Outline 3. Impacts of policy reform 4. . Polic olicy que questio ions 5. Conclusion
Policy questions: External • Tariff escalation in the same value chains by Africa’s trading partners hurt agro-processing exports • Benefit from the preferential access to the EU especially for the processed goods (high preference margin) • Regional Integration matters • Intra-Africa protection is high (10.1% vs. 7.0%) • Tariff escalation is particularly notable within Africa • Opportunity of diversification (lower fixed cost; local value chains tailored to local taste and consumption)
Policy Questions: Domestic Policies • Create an environment without disincentives for exports • No value-subtracting restrictions on exports of raw materials • Important to have access to intermediates at world prices ▪ Processing agriculture operates with low margin ▪ Encourage experiments by entrepreneurs (future ‘big hit’) • Investments in Trade logistics important ▪ Unbundling of global value chains requires a mastery of logistics for the transfer of materials and knowledge ▪ Costs associated with customs clearance and domestic transport and customs clearance may make processing uneconomic ▪ Horticultural exports are perishable and particularly vulnerable to delays in shipping • Good policies lead to more, and efficient, processed agricultural exports ▪ Don’t make increased processing an independent goal ▪ Inefficient processing undesirable
1 . Context 2. Changing pattern of agricultural exports Outline 3. Impacts of policy reform 4. Policy questions 5. Conclusions
Conclusions • High-valued agricultural exports could play an important role in increasing overall exports ▪ African exporters moving from bulk to processed agriculture ▪ Horticulture successful in joining GVC • Important to encourage experimentation ▪ While minimizing disincentives to exports ▪ Investing on trade logistics (infrastructure, trade facilitation) • Seek policy reforms that also encourage exports of other goods and services. • Relying only on high-valued agricultural exports limiting • Agriculture only 10% of African exports
Thank you! w.martin@cigar .org efukase@worldbank.org
References • Baldwin, R. (2016). The Great Convergence. Harvard University Press. • Easterly, W. and Reshef , A. (2016), ‘African Export Successes: Surprises, Stylized Facts, and Explanation’ in Edwards, S., Johnson, S. and Weil, D. eds. African Successes, Volume III: Modernization and Development University of Chicago Press, Chicago, pp297 – 342. • Gebreeyesus , M. (2017). ‘Industries without Smokestacks: Implication for Ethiopia’s Industrialization’. UNU -WIDER Working Paper 2017/14. Helsinki: UNU-WIDER. • Hausmann, R., and D. Rodrik (2003). ‘Economic Development as Self - Discovery’. Journal of Development Economics, 72: 603– 33. • Kehoe, T.J., and K. J. Ruhl (2013). ‘How Important is the New Goods Margin in International Trade?. Journal of Political Economy, 121(2): 358-392.
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