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166 for export earnings tomorrow as a result of changes in factor supplies and technical progress. Thus, export diversification is a dynamic process, not static.
Fifth, although it has been widely believed that SSA may replicate the East Asian diversification experience, the road to those goals is bound to be rocky and it will not be an easy task. Thus, countries seeking to diversify must create sufficient levels of human and physical capital as well as an adequate infrastructure, and above all conducive macroeconomic policies and strong government institutions to support export diversification. Moreover, the following factors should also be taken into consideration in ensuring rapid development in SSA: high rates of savings and investment, investment in education, capital accumulation, sound macroeconomic management, relatively open trade policy, a dynamic economic sectors, maintenance of relatively equitable income distribution, and political credibility.
Sixth, export diversification does not come about itself. It is not simply a byproduct of sound macro-economic policies alone. Sustained export diversification requires concrete national, sectoral and enterprise-level strategies which are based on a realistic assessment of supply capacities and international demand and an understanding of international commercial practices, which reflect existing institutional, technical and entrepreneurial strengths.
Seventh, productive activities in diversified sectors should be interrelated with each other through backward and forward linkages. If exploited properly, this may ensure efficient utilization of resources and enhance the rate of growth. There may be backward linkages from the primary sectors (mainly agriculture and minerals) in the form of demand for output of the industrial sector. On the other hand, there may also be forward linkages from the primary sectors in that the products from these sectors may serve as inputs to the industrial sectors. In short, inter-sectoral linkages and dynamics are vital for sustained economic growth.
Eighth, the study reveals that the effect of natural resource endowment on diversification depends on the type of resources. If properly managed they can be a blessing and can be used as a source of capital formation and growth.
Ninth, a close looks at Sub-Saharan Africa by categorizing it into low income and middle income reveals that there is indeed a substantial gap between SSA countries which middle income countries have attempted to invest in education and infrastructure and thereby to diversify their exports. On the other hand, low income SSA countries are still dependent on the export of primary products and their attempt to invest on human capital and infrastructure have been minimal. As a result, SSA in general and low income SSA in particular could not escape the vicious circle of the “resource curs” effect and change its economic and social structure.
Tenth, the experience of East Asia indicates that the development of SMEs contributes to the expansion and diversification of markets as well as to increasing the savings rate and investment base as discussed in chapter three. SMEs can serve as shock absorbers, without which business cycles would be more serious, and without which the necessary structural adjustments would not be possible. Moreover,
167 the greater the relative importance of SMEs in the economy, the lower the income inequality is likely to be (Nugent and Yhee, 2002). Since capital is scarce in SSA and enhancing heavy industries may be challenging in the short-term, policy makers‟ in SSA should put more emphasis on the development of SMEs and lay a strong foundation for competitive industrial development by encouraging domestic enterprises to grow and expand internationally. Moreover, SMEs are acknowledged to be strategically important for industry restructuring, for employment growth, as a source of competition for large enterprises, for improving skills, flexibility and innovation, promoting regional trade, investment and technology transfer, and for the attainment of social objectives such as poverty reduction and regional development.
Eleventh, the differences in economic performance among countries within East Asia itself would suggest that it would be a mistake to think that they all adopted a single, uniform model of development. There are nonetheless certain broad policy features shared by the successful East Asian economies that have contributed to their rapid economic growth. Chief among these have been their heavy investment in physical and human capital, structural transformation from primary commodity producers to value-added manufacturing exporters through vertical and horizontal diversification, outward orientation, low price distortions and macroeconomic stability as reflected in low inflation, interest rates, stable exchange rates, etc.
Twelfth, East Asia‟s experience shows that rapid catching up can be possible in various ways. A market-oriented environment is a key ingredient, but interventionist approaches are also common. Thus, the range of policies compatible with rapid growth appears to be broader than neoclassical economics admits. Hence, the real issue is not whether the policy environment is generally interventionist or laissez-faire but whether policies are properly structured to address the basic requirements of growth and whether they fit the economy‟s capacities and environment.
Thirteenth, the success of East Asian countries in shifting from producing low primary commodities to more productive manufactured products shows that latecomers are able to diversify in high growth areas if some of those pre-conditions are fulfilled. Therefore, the thesis argues that SSA can replicate the East Asian experience even if not completely.
Fourteenth, after a period of falling per capita incomes that started in the 1970s, African economies finally began finally to turn around from about 1995, with initially modest increases in per capita incomes (Bigsten and Durevall, 2008). Since 2001, the African economic turnaround has become real and sustainable with average growth rates of over 6% per annum partly due to the resources price boom but also due to improved economic policies. The progress has been largely due to improved policy performance, particularly the adoption of less-distorted macroeconomic frameworks, increased reliance on the private sector as a driving force for economic growth, and the improvement in governance in many countries. Although the political news is largely mixed, the emergence of more participatory government regimes has improved confidence and modestly increased investment in more sub regions
168 of the continent (UNECA, 1999). However, SSA is still one of the least developed sub region with massive poverty and underdevelopment. Studies have shown that to reduce poverty in Africa by half between 1999 and 2015, balanced policies to enhance economic growth and reduce inequality and an average annual rate of growth of at least 7 % are required (UNECA, 1999).
Fifteenth, though there has been an important progress in economic performances and in achieving the millennium development goals in many part of SSA, overall SSA is still on a knife‟s edge and the challenges remain daunting. Hence better institutions, good governance, appropriate macroeconomic and sectoral policies, investment on education, physical infrastructure, and political stability are pre-requisites for any economic strategy including export diversification to be effectively implemented in SSA. For that matter, export diversification is not an end in itself, rather it is a means to achieving economic transformation.
Sixteenth, it has also been suggested that export diversification initiatives in SSA need to be undertaken within a broad policy approach, whereby national governments should design and support a coherent macroeconomic policy framework consistent with export promotion strategies. While export diversification programs should be implemented primarily by the private sector, the role of the government in this context should be to prevent distortions and create an environment which promotes diversification. In this regard, government activities should be based on sound macroeconomic policies, establishing an open economy, providing the basic social, legal and economic infrastructure, creating a suitable climate for private enterprise, and ensuring a high level and appropriate composition of human capital formation.
Seventeenth, the level of Africa‟s industrialization remains low, as illustrated by three key facts:
first, there are only a handful of countries where manufacturing as a share of GDP exceeds 25 per cent, the benchmark for considering a country as having achieved the threshold of industrial take-off; second, the export composition of African countries continues to be dominated by primary rather than by processed or semi-finished products; and third, the ratio of public expenditure and private investment in scientific research and development remains minuscule as a percentage of GDP in all African countries (UNECA, 1999). Thus, diversification based on industrialization is the key to increasing Africa‟s participation in world commerce and finance, and crucial to the structural transformation of Africa‟s economy, and it provides the platform for enhancing Africa‟s competitiveness in an increasingly globalized economy.
Eighteenth, there is no doubt that Africa‟s future growth performance is highly dependent on mobilization of internal resources, attracting foreign investment, human capital formation, infrastructural development, diversification of its economies and exports mainly towards to more productive and dynamic value-added sectors, more access to the markets of the industrialized and industrializing countries, technological improvements, strengthening domestic markets, and strengthening regional cooperation.
169 Finally, it should be recognized that Africa‟s problems are deep-rooted, complex and many. They are the cumulative effects of a combination of economic, political, social, institutional, and structural factors.
Thus, export diversification should not be considered either as a panacea or an end by itself, but as one of the means within a comprehensive development strategy through which African countries can achieve economic transformation and sustainable economic growth.
Having said these, it is worthwhile to point out some of the limitations of this study, as is always the case with any research, and point to avenues for future research. First, some East Asian economies such as Taiwan, China, Vietnam, Cambodia, Laos and Myanmar are not included in the study, mainly because of lack of consistent and complete data for the years that the study covers. Second, most of the previous empirical studies have treated export diversification in aggregate ways without looking at its vertical and horizontal dimensions, and as a result there have been few theoretical and empirical studies dealing separately with vertical and horizontal export diversification and examining their determinants and impact on economic growth.
Yet despite its limitations, this study has attempted an in-depth and comprehensive empirical study and has made progress in identifying the key determinants of vertical and horizontal export diversification and thereby their impact on economic growth. The study has also provided some policy considerations/suggestions, which may be considered plausible and reasonable for Sub-Saharan Africa in order to draw lessons from East Asia which may fit its unique conditions. As a whole, the findings have wide implications especially for Sub-Saharan Africa countries for which export diversification is a necessity, not an option, so as to achieve structural transformation in their economies.
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