Diversification in Africa: Why African Economies must Diversify

Diversification in Africa: Why African Economies must Diversify

Many African economies have not diversified. Rather they are highly dependent on the production and export of one specific type of commodity. For example, between 1992 and 1997 more than 85 percent of export earnings of Unganda came from exporting coffee. At the same time, Malawi obtained almost 60 percent of export earnings from exporting tobacco. These countries are said to be commodity dependent. The commodity collapse in the 1980s has shown us that there are high risks on being so dependent on only one or a few commodities:

1. Loss of purchasing power: the commodity collapse and the resulted decline in terms of trade made it relatively more expensive to imports goods. Furthermore, the income of exports relatively decreased. In other words, the commodity purchasing power of African countries dramatically fell because of deteriorating terms of trade.
2. Rising debt: The decline in terms of trade resulted in a significant increase in debt of the commodity dependent countries.

Therefore, economic diversification of African economies is needed. It can provide African economies with great opportunities to raise their resilience. Furthermore, diversification can contribute to reach and sustain long term economic growth and development.

Sources:
- Potter, R.B., Binns, T., Elliot, J.A. and D. Smith (2008) “Geographies of Development: An Introduction to Development Studies” Pearson Eduction Limited
- OECD/United Nations (2011) “Economic Diversification in Africa: A Review of Selected Countries” OECD Publishing.
- UN ( 2003) “Economic Development in Africa: Trade Performance and Commodity Dependency” New York and Geneva.