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international trade

Reducing the Infant Mortality of African Exports: The role of information spillovers and network effects

Leonardo Iacovone's picture

Helping African exporters survive in international markets should be a high-priority item on the agenda of development agencies. African exports suffer from high “infant mortality” compared to other regions of the world: Figure 1 shows that the life expectancy of export spells originating from sub-Saharan Africa is about two years (half the level for East Asia and the Pacific), with a median—not shown—around one year. That is, half of the continent’s exporters don’t make it past the first year. Such “hit-and-runs” on international markets cannot establish networks, relationships, and credibility.

Figure 1: Average Spell Survival, by exporting region

Source: Author's calculations, from COMTRADE data

FDI in Southern Africa: Microeconomic Consequences and Macro Causes

Foreign direct investment (FDI) can theoretically reduce income gaps between developing and advanced economies. In a neoclassical world, with perfect capital mobility and technology transfer, capital readily flows from rich to poor countries, seeking higher returns in capital-scarce economies. The real world differs starkly from the theory.

Even though southern African countries (the Southern African Development Community, SADC hereafter) are poor on average, per capita FDI inflows are a meager 36.6 U.S. dollars per year (in 2000 value), which is about 18 percent of average per capita FDI in non-SADC countries and 58 percent of the average level for similar-income economies. Moreover, within SADC, country differences are huge: FDI per capita ranges from single digits (Malawi, Zimbabwe, Madagascar, Democratic Republic of Congo, and Tanzania) to 10-30 dollars (Mozambique, Zambia, Mauritania, and Swaziland), to 50 to 100 dollars (Lesotho, South Africa, and Angola), and to 167 dollars in the outlier in this region, middle-income Botswana. And even within this region there is a positive relationship between average income and FDI per capita, a pattern that holds for the world as a whole. Thus, any hope of relying on FDI as a supply-side remedy to catapult poor countries onto a development fast track is not likely to materialize soon.