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African export success: finding the needle when you’re not sure which haystack

Export success in Africa is a matter of finding a rare Big Hit, with the added complication that it won’t stay a hit, and that in a few years you will need a new Big Hit.

This from a new NBER working paper by Ariell Reshef (U. Va.) and myself. We also tell some stories of the individual successes, some of which involve the local government.

The news is not that Africa is different from the rest of the world in this, but that it’s the same.

This unstable uncertainty holds regardless of whether you include or exclude oil, minerals, and other export commodities. And so does the concentration of success — the top-ranked non-commodity export is 23 times larger than the 10th ranked export.

The stereotype of African countries as unchanging mono-exporters based on some unchanging natural endowment just turns out to be…wrong.

Coping with such remarkably high and unstable uncertainty (the “unknown unknowns”) as to what will be a hit seems like an a priori case for a lot of decentralized, highly motivated seekers and experimenters. We don’t exclude ANY possible government involvement — at the very least, governments need to be nimble to adjust regulations and infrastructure to support any new success that comes along from private entrepreneurs.

In sum, we think there is just as much a role for entrepreneurs in Africa, and just as little role for centralized and systematic government industrial policy, as in the rest of the world.

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3 Comments

  1. Tom Cushman wrote:

    Ive been in the African export business for twenty years. Bill’s points about what makes a good exporter are very valid. Exposure to foreign markets and minds, a background in or familiarity with Western business practices (accounting, banking, reliability, quality, delivery terms etc), perseverance, an enabling government, and GOOD LUCK. Most African entrepreneurs who try to export fail. Usually because they don’t understand the market and business environment they are trying to enter. BTW most entrepreneurs from anywhere in any endeavor fail.
    The Big Hit hypothesis is very valid. Exporting is expensive. If you don’t hit early and big overhead will eat you up. That is another reason why the big hits change over time. Big Hits are new or a new ways of doing something old. When new becomes old and the market gets saturated the hits just aren’t big enough and only a well established firm will stay in business with the reduced margins found in maturing industries. The up and coming entrepreneur is already in something new with hit potential.
    Aid to exporters may work sometimes but Ive done development work helping exporters and very few are able to wean themselves from Aid to become profitable. A helping hand can get a newby over the first hump but it wont keep someone used to handouts profitable when the easy money runs out.
    Business is hard work. There is no safety net. Export business even harder as you have travel and cultural issues and expenses on top of normal business risk. Any SME making money in exporting from Africa has to be lucky, smart and hardworking.
    It also really really helps if you speak English.

    Posted December 14, 2010 at 9:29 am | Permalink
  2. M wrote:

    Fascinating. Could it be that Africa is not static after all? *gasp*

    Also of interest: minus the various nuts, diamonds and cloves, all exports went up over the period (more or less in line with the overall GDP). Is it possible that we have more hits and misses? Even though coffee became less important to the economy overall, it still looks like a solid investment.

    Can’t wait to see the numbers in ten more years. If Warren Buffet were looking here, I’d bet he’d put everything he owned into Zanzibari cloves…

    Posted December 14, 2010 at 12:44 pm | Permalink
  3. Dan Kyba wrote:

    As Tom mentioned entrepreneurship is bloody hard work; what sometimes happens therefore is that the temptation of morphing into either a government or NGO sponsored version of crony capitalism is too great to resist.

    Slightly different, but subject to the same basket of human and institutional assets as needed to underpin export success are the successes and challenges in sub-Saharan Africa towards research and innovation in the health sector.

    see: http://www.biomedcentral.com/1472-698X/10/S1/I1

    Posted December 14, 2010 at 8:39 pm | Permalink

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