1 SCIP Africa Summit | October , 2014 Trade Integration and Revealed Comparative Advantages of Sub- Saharan Africa and Middle East and North Africa Merchandize Export 2014 SCIP Africa Summit, University of South Africa October 2014 VENUE: Khorong Hall Pretoria, South Africa Hailay Gebretinsae Beyene, PhD Institute for Dispute Resolution in Africa University of South Africa

2 SCIP Africa Summit | October , 2014 Introduction The concept of comparative advantage is highly associated with international trade. The theory of international trade dates back to the era of mercantilism.

3 SCIP Africa Summit | October , 2014 Evolution of the Theory of Comparative Advantage The Theory of Endowment: Heckscher and Ohlin Theory of Comparative Advantage: David Ricardo (1817) Theory of Absolute Advantage: Adam Smith (1776)

4 SCIP Africa Summit | October , 2014 …. Evolution of the Theory of Comparative Advantage Theory of Revealed Comparative Advantage: Balassa (1965) Measures the revealed comparative advantage a nation/region has in the export of products in the world

5 SCIP Africa Summit | October , 2014 In the contemporary world, the winds of globalisation are influencing countries of the world regardless to their level of economic status. One of the factors that determine the success of a country in international trade is the competitiveness of its commodities in the world. Hence, the importance and reliance on the concept of comparative advantage has increased.

6 SCIP Africa Summit | October , 2014 This study examines The revealed comparative advantage situation of the two regions: Sub-Saharan Africa and Middle East and North Africa

7 SCIP Africa Summit | October , 2014 Specifically it examines SSA’s and MENA’s –RCA in the export of merchandise goods. Food, Agricultural Raw Materials, Fuels, Ores and Metals, and Manufactures

8 SCIP Africa Summit | October , 2014 Methodology

9 SCIP Africa Summit | October , 2014

10 SCIP Africa Summit | October , 2014

11 SCIP Africa Summit | October , 2014 Result and Analysis

12 SCIP Africa Summit | October , 2014 Figure 1: RCA and RDCA of Food Export of Sub- Saharan Africa and Middle East &North Africa

13 SCIP Africa Summit | October , 2014 SSA has revealed comparative advantage on food export during the whole period, 1995 to However, its trend shows that it has been rising consistently and peaked at an RCA index value of 2.29 in 2004 followed by consistent decline afterwards.

14 SCIP Africa Summit | October , 2014 MENA in contrast to SSA has a comparative disadvantage during the whole period, 1995 to However, the trend is similar to Sub- Saharan Africa that it had consistent improvement and peaked in 2004 followed by consistent decline afterwards.

15 SCIP Africa Summit | October , 2014 The gap in revealed comparative advantage between the two regions is wide that ranges from an RCA index value of 1.13 to This gap implies that SSA’s competitiveness in the export of food is higher by at least more than one fold times than MENA.

16 SCIP Africa Summit | October , 2014 Figure 2: RCA and RDCA of Agricultural Raw Materials Export of Sub-Saharan Africa,and Middle East & North Africa

17 SCIP Africa Summit | October , 2014 The revealed comparative advantage of SSA is strong in the export of agricultural raw materials in the world. In general, SSA region never had the experience of comparative disadvantage in export of agricultural raw materials in the world during 1995 to 2010.

18 SCIP Africa Summit | October , 2014 MENA, in the former periods, 1995 to 2004, it had experienced revealed comparative disadvantage in the export of agricultural raw materials. SSA has higher competitive position over MENA by about two fold in the export of agricultural raw materials.

19 SCIP Africa Summit | October , 2014 Figure 3: RCA and RDCA of Fuels Export of Sub- Saharan Africa and Middle East &North Africa

20 SCIP Africa Summit | October , 2014 Both SSA and MENA have strong RCA in export of fuel in the world (1995 to 2010). The highest revealed comparative advantage has been recorded for each region in 1995 with an RCA index value of 5.14 and for SSA and MENA respectively. However, the two regions have exhibited similar declining trend in their respective RCA indices.

21 SCIP Africa Summit | October , 2014 In comparative terms, even though both regions have very strong revealed comparative advantages, it is higher for MENA. The gap of their competiveness is also characterised by a consistent declining trend that ranges from an RCA index value of 5.29 in 1995 to 2.54 in 2010.

22 SCIP Africa Summit | October , 2014 Therefore, despite the shrinking trend of the gap of revealed comparative advantages between the two regions, Middle East & North Africa’s competitiveness is stronger than Sub- Saharan Africa.

23 SCIP Africa Summit | October , 2014 Figure 4: RCA and RDCA of Ores and Metals Export of Sub-Saharan Africa and Middle East & North Africa

24 SCIP Africa Summit | October , 2014 The RCA of SSA in export of ores and metals is characterised by a rising trend. The RCA index ranges from 2.33 in 2000 to 4.00 in It can be concluded that SSA has higher RCA characterised by a rising pattern. MENA, on the other hand has a consistent RCDA in almost the whole period, 1995 to 2010.

25 SCIP Africa Summit | October , 2014 The trend shows that while more of a rising trend is observed for SSA, a consistent declining trend is observed in the case of MENA. These opposite trends made the gap in the degree of revealed comparative advantage between the two regions to widen overtime. This gap ranges from 1.66 to 3.50 RCA index value during 1995 to 2010.

26 SCIP Africa Summit | October , 2014 Figure 5: RCA and RDCA of Manufactures Export of Sub-Saharan Africa and Middle East & North Africa

27 SCIP Africa Summit | October , 2014 Even though SSA has assumed a comparative disadvantage in the whole period, 1995 to 2010, it has an improvement trend in its revealed comparative advantage in export of manufactured goods. In fact, the improvement is low that ranges from an RCA value of 0.37 in 1995 to 0.45 in 2010.

28 SCIP Africa Summit | October , 2014 With regard to MENA, similarly, it has revealed comparative disadvantage during the whole period, 1995 to The study revealed that this region’s comparative advantage is lower than SSA and demonstrated more of declining trend. Due to the rising trend in SSA and declining trend in MENA made the gaps in between these two regions to widen over time.

29 SCIP Africa Summit | October , 2014 The following definitions are set under four intervals for RCA as given below to examine the relative strength of RCA in the sub-sectors of the merchandise export. Very High for RCA > 2.00, High for 2.00 > RCA > 1.00, Low for 1.00 > RCA > 0.50, and Very Low for RCA < 0.50.

30 SCIP Africa Summit | October , 2014 Table 4: Ranking of Average RCA of SSA and MENA Rank Ra nk RCA Sub- Saharan Africa Middle East & North Africa Sub- Saharan Africa Middle East & North Africa 1 C > D > 2.00C > D > 2.00D > C > 2.00A > B > 2.00A > B > 2.00D < A > 2.00B < A > 2.00B = nd 5 E <

31 SCIP Africa Summit | October , 2014 Scores greater than unity (RCA >1) reveal a comparative advantage, while scores less than unity (0 ≤ RCA <1) reveal a comparative disadvantage. A – signifies Food Export of the region, B – signifies Agricultural Raw Materials Export of the region, C – signifies Fuels Export of the region, D – signifies Ores and Metals Export of the region, and E – signifies Manufactures Export of the region. nd – signifies ‘No data’

32 SCIP Africa Summit | October , 2014 The study disclosed that SSA which has four of the five sub-sectors in a very high competitive position has maintained in three it throughout the time period 1995 to 2010.

33 SCIP Africa Summit | October , 2014 MENA, with the exception of fuel export, other sub-sectors fall either in the low or very low competitiveness spectrum during the whole period considered in the study, 1995 to 2010.

34 SCIP Africa Summit | October , 2014 Table 5: Intervals of RCA SSAAverage Value, Average Value, Very High HighLow Very Low Very High HighLow Very Low AA A BB B CC C DD D E E E MENA A A A B B (nd) CC C D D D E E E

35 SCIP Africa Summit | October , 2014 In general, it can be concluded that SSA has higher competitive position than MENA in all merchandise export with the exception of fuel export in the world.

36 SCIP Africa Summit | October , 2014 Conclusion It is disclosed that SSA has RCA in food, ores & metals, and agricultural raw materials. However, SSA region’s economic integration in the world is lower than the average of low and middle income countries. MENA has revealed disadvantage in all sub-products except in fuel export, while MENA has stronger integration in the world.

37 SCIP Africa Summit | October , 2014 … Conclusion In contrast to MENA, the population growth in SSA is not accompanied by commensurate economic integration in the world. The study uncovers the existence of immense potential the two regions to integrate each other in food, ores & metals, and agricultural raw materials trade.

38 SCIP Africa Summit | October , 2014