Introduction

CHAPTER 4 Unlocking East Asian Markets to Sub-Saharan Africa

Nama Ouattara and Albert G. Zeufack

Introduction

Global competition in turbulent times has seen the gradual restructuring of international trade policy. According to the World Trade Organization trade monitoring report (WTO 2019), countries have applied 75 new trade restrictions, including tariff increases, quantitative restrictions, import taxes, and stricter customs regulations. This comes at a time of increasing trade tensions and associated rhetoric. Yet countries also continue to implement trade-facilitating measures, as witnessed by the growth of trade between 2016 and 2017. In value terms, merchandise exports rose by 10.6 percent, to $17.73 trillion, and services exports grew by 7.4 percent, to $5.25 trillion.

Asia made the largest contribution to world trade volume growth in 2017, accounting for 51 percent of the increase in merchandise exports and 60 percent of the growth in merchandise imports. Interestingly, Sub-Saharan Africa’s share in Asian trade has increased rapidly, a hallmark of the recent growth of South–South trade.1

Over the past decade, economic relationships between Sub-Saharan Africa and Asia have expanded. Historically, these two regions have shared wide similarities. Although their historical ties since the Bandung Conference in the 1950s2 have been marked by shared ideology and political interest, contemporary Sub-Saharan Africa–Asia relations are structured around more-economic aspects, namely trade, investment, education, and technology transfer. In light of the recent trade and policy trends, it is expected that an even closer partnership could be beneficial for Sub-Saharan African countries if strategic policies are implemented. Therefore, this chapter investigates how Sub-Saharan Africa could further benefit from its growing trade relationship with Asia.

Conceptual Motivation

At the conceptual level, the chapter is motivated by two closely related strands of the trade policy literature. The first strand concerns the role of trade agreements. Preferential trade agreements (PTAs) have been on the forefront of the trade policy agenda, including in Sub-Saharan Africa. More recently, Indonesia has started negotiating PTAs with a few African countries since it has identified opportunities for increased trade. Several empirical studies have assessed the impact of PTAs using different techniques, including general equilibrium, partial equilibrium, and gravity equation models.

The second strand of literature explores the nexus between firm productivity and export behavior, which Bernard, Jensen, and Lawrence (1995) introduced in a seminal paper. Exporting firms are generally believed to be more productive than their domestically oriented counterparts. Evidence from firm-level panel data (in Malawi, Rwanda, Senegal, and South Africa) suggests that exporters have not only higher productivity than other firms but also greater productivity growth. These results strengthen the narrative that trade facilitation policies have long-lasting impacts on productivity.

Contributions of This Chapter

This chapter goes beyond the narrative of export promotion as an important element of growth strategy, shedding light on how Sub-Saharan African countries can mitigate economic slowdown in turbulent times and take advantage of their relationships with various trading partners.

The chapter is organized around two key questions. The first question is whether export market destination matters, because expansion into foreign markets is a major decision for a firm and involves choices about which countries to approach and which products to export. There is an extensive literature on export orientation and firm performance, but few such studies have looked at the case of Sub-Saharan Africa. Using a new and unique firm-level survey data set collected in 2010 and covering 19 Sub-Saharan African countries, the chapter analyzes the link between export markets and geographic concentration.

Along the same line of analysis on international trade and firm heterogeneity, the second question concerns how Sub-Saharan African firms can take advantage of the available opportunities in a targeted region like Asia. To address this question, we use a specific market selection strategy, drawing on the product life-cycle theory. We look at models in which demand factors, rather than supply ones, drive a firm’s sales expansion and specifically focus on innovation as a potential determinant of export behavior. Are firms that want to export compelled to innovate before doing so? Or is it only because they innovate that exporters are more productive?

According to the product life-cycle theory, we could argue that process innovation helps to spur exports only indirectly through the productivity channel, whereas product innovation directly affects the propensity to export—that is, to open new markets. The chapter sheds more light on