Exporters in Africa: What Role for Trade Costs?

This paper investigates the role of trade costs in exporter dynamics in Africa. In comparison to exporters from other regions, African exporting firms are fewer, smaller and relatively less diversified. African countries also display the highest rates of entry, exit and turnover of exporting firms, exporting products and export destinations. This suggests that Africa’s export environment is volatile, with exporters having difficulties in maintaining trade relationships. The analysis also confirms that trade costs are a crucial factor in explaining exporter performance in Africa vis-à-vis other regions, but also among African countries. Trade costs play a disproportionate role in affecting the size of new exporters and the survival of exporters in Africa in comparison to other regions. Also, trade costs differences across African countries are a relevant factor in explaining the lower market diversification of exporters from landlocked countries. A key implication is that the African Continental Free Trade Agreement can entail large benefits in the medium-term, especially in terms of export flows and destination markets. Yet, the diversification of export products will likely remain limited without strengthening productive capacities.