Breaking Into New Markets: Emerging Lessons on Export Diversification

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More generally, the degree of industrial export concentration is higher in those countries whose total exports are also concentrated. Export growth hinges more on the traditional export base than on new products. Weak diversification does not mean that the export base is stable.

Thus one can observe shifts in the composition of the export basket, developments in the value chain as well as the creation of new export products. Disaggregating export growth in the franc zone countries between the period — and — into the share due to the increased export of traditional products intensive margin , and the share due to the net creation of export products extensive margin thus enables a finer analysis of diversification dynamics cf. The resulting calculations of the intensive and extensive margins for the franc zone countries are reported in Table 5. As we saw in the previous section, there is a high degree of heterogeneity across the franc zone countries.

In some countries, exports increased threefold Congo and Mali , or even tenfold Equatorial Guinea, and Chad between the two periods; in other countries, on the contrary, they decreased GuineaBissau, Niger and the Central African Republic or hardly rose at all Burkina Faso and Togo. Products with low export levels: from 0. Those countries that experienced a decline or near stagnation of their exports are characterised by a low level of export diversification in terms of the Herfindahl index, except for Togo. Burkina Faso was more affected at the extensive margin, in connection with the disappearance of large amounts of livestock products at the beginning of the period column g.

In addition to the importance of the intensive margin for the key traditional export products, these countries face the problem of not having other export sectors to boost exports when the traditional products go into decline. Thus, a detailed analysis of the components of the extensive margin columns f and g show that many products exited the export basket between — and — without enough new export products being created. Moreover, in line with the findings of Besedes and Prusa , survival rates are low: export products that were emerging in did not survive in the medium run and were therefore not able to substitute the dwindling traditional products.

The key traditional products column d are the most dynamic, except for Mali whose exports benefited from an increase in its sales of gold, which was not yet present among the key traditional products at the beginning of the period average intensive margin, column c. This point shows that the franc zone countries find it difficult to sustain their emerging exports in the medium term — a finding that concurs with those of Hausmann and Rodrik These authors underline how difficult it is for the least wealthy countries — and a fortiori the least developed countries LDCs — to cross the financial and non-financial barriers linked to starting up new product lines.

On first analysis, the export base of franc zone countries seems relatively stable between and , and export growth appears to be driven mainly by an increase in the export of traditional goods, with no real emergence of Big Hits, such as those identified by Easterly and Reshef for other sub-Saharan African countries. In parallel, the intensive margin of key traditional export products column d declined considerably, which evidences a reshuffling of the export bases of these two countries: the products that traditionally make up their export basket gave way to new products from the mids. Thus, despite a sound traditional base, the country has clearly invested in new export lines by, as we shall see, moving up the value chains.

To be sure, the intensive margin has driven export growth columns b and d , but a very substantial number of products exited between the two periods. Some franc zone countries benefited from the emergence of new export lines The previous section pointed up the dominance of the intensive margin in export growth in franc zone countries. Nonetheless, some countries did benefit from the emergence of new export lines due to moves up the value chain or to a reshuffling of their export structure. In some countries, a growth in export products that had hardly emerged in — can be observed.

We shall now look in detail at the different growth margins, and at the same time measure the technological content of export products. Certainly, both countries experienced a collapse of their key traditional export product, cotton, between — This decline was due to the diminishing global demand for cotton and the fall in world cotton prices.

Their overall export growth was nonetheless positive, especially for Chad, thanks to successful new export lines. Chad in fact benefited from its oil exports, which were not yet active in —, which increased its exports thirteen-fold. This is a case where an ailing product is replaced by another product that benefits from a growing demand and favourable price trend over the period. These reshuffling patterns confirm the conclusions based on the level and growth of the industrial export ratio: here the dependency on agricultural products has shifted to a dependency on extractive products, which means that these countries are still highly vulnerable to external shocks.

On the other hand, it can be seen that these new products have taken advantage of a move up the production chain: in the gas industry in Equatorial Guinea and the copper and cobalt industries in the Congo. Although the extensive margins of these two countries are small compared to their intensive margins, they are above the median of those franc zone countries that have dynamic exports i. Table 5. The diversification models nonetheless remain fragile for at least two reasons. Firstly, the new goods, just as much as crude oil, will inexorably come up against the problem of dwindling reserves, since they involve the primary processing of extractive products.

They are also subject to the same fluctuating international prices as crude oil. Secondly, gains in value-added and technological content in export diversification do not automatically translate into economic development. The challenge for countries like Equatorial Guinea is to successfully generate spillover effects that filter through to the rest of the economy and are conducive to job creation and poverty reduction.

These new specialisations are interesting on several counts. To begin with, crude oil, on which both countries are highly dependent, has gone hand in hand with new exports that could well make their economies less vulnerable to global price fluctuations. The share of these new products is still relatively low but growing fast. This means that the countries have been able to incorporate technological content or increased value-added into the processing of the raw products Hausmann and Klinger, In the case of Equatorial Guinea, for instance, methanol conversion of gas to liquid fuel is a medium-high technology product.

The latency period between the take-off of gas production and methanol production can be clearly seen in Figure 7. This pattern of a specialisation based on sectoral linkages concurs with the findings of the World Bank , Lederman and Maloney and Gelb , who consider that an abundance of natural resources is in no way incompatible with technological advances or enhanced productivity.

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Lines in different shades of green: products at the extensive margin. Its export base seams have undergone continuous diversification. Nonetheless, this has not brought about a stronger growth dynamic for overall exports than the dynamic present in other franc zone countries. These are from diverse business sectors, including a few industrial sectors agri-food, toiletries,. Table 6 , and more importantly involve several medium-high technology products. This growth, in fact, is much less pronounced than that of the Congo, Equatorial Guinea, Mali or Chad.

Efforts to diversity have clearly not generated any Big Hits likely to foster high export growth.

Senegal still needs to support and promote these products, as well as their production facilities, in order to expand the different components of the intensive margin. Non-manufactured products Low-technology products Medium-low-technology products Medium-high-technology products. Conclusion The purpose of this paper is to shed fresh light on the dynamics of export diversification in the franc zone countries, using various measures inspired by the empirical literature on the subject. For this, we chose to use measures other than the conventional diversification indicators, such as the Herfindahl index, which has some serious limits.

This study proposes two other measures of diversification: first, the ratio of industrial exports to the population, which makes it possible to assess the degree of export sophistication, and to decompose export growth into extensive and intensive margins, thus affording greater insight into the different forms of diversification. Contrary to what is generally believed, the study shows that the franc zone countries are not all homogeneous in terms of export diversification.

While some countries have not diversified their exports, others do exhibit a degree of diversification, even though the forms this takes is differentiated depending on the country. Some move up their value chains, others restructure their export baskets, while others successfully create new export lines from scratch.

The different rhythms of diversification also give rise to considerable divergences in the growth dynamics for industrial exports in the franc zone: the countries that were initially the most industrialised in the zone are those whose industrial export growth was the most dynamic. In the strand of recent research on the subject, the findings show that it is the intensive margin that contributes most to export growth in the franc zone countries, even though this remains limited.

For some countries, this is explained by the decline of key exports in the traditional export base Benin, Chad combined with an adverse trend in the global demand and international prices for these products. Thus, against the backdrop of globalisation and rising raw material prices, it is not enough to intensify existing export lines in order to sustain export diversification dynamics. At the. In some countries Benin, Chad , the robust contribution of new export lines to total export growth has not in fact helped to reduce their vulnerability to external shocks: the growth of the extensive margin went hand in hand with a declining intensive margin.

This simply led to a reshuffling of their export base, which is still underpinned by goods vulnerable to external shocks. Finally, the extensive margin, when indeed there is one, rarely involves products with technological content or products likely to move up the valueadded chain. In fact, only Equatorial Guinea and, to a lesser extent, Senegal have managed to produce goods incorporating a moderately level of technology.

However, in the franc zone countries, the export dynamics systematically lack one of these three components. All in all, while some countries have followed diversification patterns geared towards more sophisticated products, persistent blockages prevent them from constructing exemplary diversification models within the zone. So what exactly are these blockages? One example of a blockage is the case of Senegal, which is finding it hard to expand its exports despite a gradual diversification across the intensive and extensive margins.

These margins are not supported by a modern production system capable of truly driving Senegalese exports: the share of exported good in GDP has dropped from It seems that effective public policies aimed at consolidating the productive apparatus and the traditional export model are a precondition for the creation of new export lines, if emerging products are to be fostered and expanded in the mid- to long term.

A further example of a blockage is Equatorial Guinea. Here, the effects of methanol exports are for the time being very limited in terms of job creation and sharing the benefits of growth. A new specialisation methanol based on capital-intensive production in a country where qualified labour is scarce raises the question of whether the local labour market will benefit from this new specialisation. The investment required to develop a new capitalintensive activity comes primarily from abroad.

To what extent can these foreign capital inflows generate externalities for the economy as a whole? What imitation processes can national investors put in place? The diversification model of moving up the value chain and incorporating technological content also needs to be supported by adequate public education policies. The results of our study highlight the need for effective state intervention.

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As Brenton et al. This depends above all on capital investments and export support measures to ensure that market failings do not penalise the growth of emerging products. Moreover, if diversification is to translate into economic development, public social policies mainly in the areas of education, health and redistribution of wealth need to ensure that the effects of this export diversification are of benefit to all.

To conclude, we must emphasise that this study does not explore all the pathways leading to export diversification. As there is no database on services, with details by sector and trading partner, we were unable to undertake the same type of study as the one we completed on goods.

However, for lowincome countries, export diversification solely based on services does have limits in terms of economic growth. The example of emerging countries shows that service exports often call for the intensive use of skilled labour, which is a relatively scarce resource in the franc zone. For countries with the lowest levels of income, developing the export of services does not therefore seem to be a particularly important source of export diversification.

CEPII ranking of franc zone countries according to the quality of export data reporting countries ranked. Feenstra, and S. Wei, The University of Chicago Press. SHAW and P. DENG, A. MA and H. GELB, A. IMBS, J. SHAW et P. PHAM, C.

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It publishes studies that focus on countries, regions or development-related macroeconomic issues. Share This Paper. Figures and Tables from this paper. Figures and Tables. Citations Publications citing this paper. The pattern of economies green growth: The role of path dependency in Green Economy expansion Seyyedmilad Talebzadehhosseini , Steven R.

Towards measurement and determinants of export diversification : An empirical analysis of Pakistan Pakistan Naima Mubeen. Product diversification, relative specialisation and economic development: Import—export analysis Aleksandra Parteka , Massimo Tamberi. References Publications referenced by this paper. The product space conditions the development of nations. Stages of Diversification J. Imbs , Romain Wacziarg.

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