There has been a general global shift towards the Export Led Growth (ELG) strategy in recent years. Export-led growth (ELG) is an economic development strategy in which export and foreign trade in general play a central role in a country’s economic growth and development. This change has been due to the actual and potential economic benefits this strategy accords to both developing and developed countries alike.
This is true because export growth is said to result in increased output, employment and consumption, all of which lead to an increase in the demand for a country’s output. In fact, some of Africa’s principal exports revenues are generated from crude petroleum (32%), agriculture (cocoa (16%), coffee (12%), timber, bananas, cotton, and natural rubber); and wood and forest products (11%).
The export sector plays a crucial role in the growth performance of a country’s economy. In addition to increase in GDP margin, it generates the much needed foreign exchange earning that is essentially used to finance the imports of the country.
Such a buoyant export sector also enlarges the domestic market so that firms achieve economies of scale and thus lower unit costs. This may be expected because an export sector allows a country to trade along its lines of comparative advantage, specializing not only in commodities that use its abundant factors intensively, but also where it’s per unit costs are lower.
ELG strategy normally leads to efficient resource allocation and exposure to international competition which forces firms to adopt modern technology and produce quality products that meet the demands of sophisticated consumers in international markets. These benefits of the ELG strategy have led, not only to the adoption of this strategy by many countries, but also to the emergence of many studies to test the empirical validity of the hypothesis.
The Sub-Saharan economy is essentially agricultural based with about 70 per cent of the population employed directly in this sector and highly dependent on earnings of fragmented household agricultural activities. This agrarian and agricultural economy, dominate the export basket.
Together with foreign aid and grants, most countries in Sub Saharan Africa use the foreign exchange generated from the export of primary agricultural products to import almost all of its intermediate inputs, fuel and capital goods, which are believed to be essential for the economic growth of her economy.
Furthermore the share of non-agricultural products in total merchandise exports is almost insignificant. Again, the region’s heavy reliance on these few export commodities, which are highly subjected to price fluctuations, is one reason for the poor performance of the export sector. In addition to this, there is geographical concentration of exports that makes the region vulnerable to the economic conditions (demand) of its trading partners. This concentration on few trading partners resulted in demand constraint for the regions primary exports and could be one reason for the poor performance of the sector and hence of the economy. Another reason for poor performance could be competition among the various nations found in this region and difference economic levels which makes the power of buyers stronger than that of the sellers.
Although the focus of the economic reform program has been to make export as an engine of growth, it does not seem that the attempts made by governments have brought the required results. Thus, there is that need to constantly review and empirically determine whether exports from this region really determine GDP as the strategy demands.
Is the Export Led Growth strategy beneficial to Sub-Saharan Africa? Why is this ELG strategy a big issue when it comes to Sub-Saharan Africa? Can the region’s export revenues lead to significant and positive economic growth? Should countries in this region form a collective block to ensure balance of prices? What is the relationship between export revenues and economic growth in Sub-Saharan Africa? How can its leaders design evidence-based and result-oriented strategies to ensure an effective ELG strategy?
An empirical magnitude of the contribution of export to economic growth, in relation to the proportion of the overall economic growth that is attributed to the performance of the export sector shows the ELG has been less satisfactory and cannot fight talk less of winning an economic /balance of payment battle.Therefore, understanding the contribution of export to the different sectors of the economy would help the region to fully exploit the benefits of the sector that is essential for sustainable economic growth. In this regard, a clear picture of the domestic policies that once have been followed and other supply constraints become very important for governments in order for them to remove impediments that deter the performance of the sector.
Policy makers and related bodies need to take appropriate measures to remove any impediments and be able to fully utilize the benefits of the strategy. Africa’s rising leaders; be it in business, politics, social or religion, must interact, interface and interchange ideas on how to reposition themselves for relevance and leadership so as to make great use of this Export Led-Growth Strategy.
Africa is still naturally endowed with resources which can be exported from generation to generation and all we need are the right strategies. When opportunity meets with strategy, we break the boundaries.