Andrew Mold

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United Nations Development Programme          November, 2006          Number  24
Are Improving Terms of Trade Helping Reduce
Poverty in Africa?
by Andrew Mold
African Centre for Gender and Social Development,
United Nations Economic Commission for Africa - ECA
Throughout the 1990s, the old slogan ‘trade not aid’
aggressively pushed the idea that export performance and poverty
reduction were intimately related. In recent years, however, there has
been a growing realisation that links between the two are far from
automatic and that serious mismatches can occur.
One illustration of this is the apparent mismatch in Africa between
export performance and poverty reduction. Pessimistic assessments
of African export performance abound. But these may not be totally
merited. During 1996-2001 UNCTAD estimates of trade volumes (as
opposed to trade values) show that some African LDCs achieved a
very respectable increase in exports. Yet, this expansion was not
accompanied in many cases by significant poverty reduction. For
example, Madagascar and the Central African Republic expanded
their exports by nearly 70% and 121% respectively over this period,
yet their dollar-a-day poverty headcount increased by 12% and 2%.
(See Graph). In Burundi, a 236% increase in export volumes resulted
in a 3% increase in the poverty headcount.
In value terms many Africa’s exports slumped over this period, as
volume increases were not enough to offset collapsing real export
prices, like those of coffee, palm oil, cocoa and cotton. In spite of
small-holder farming still being predominant in Africa, exports of
these commodities have not only failed to contribute to poverty
reduction, but also have not prevented it from rising.
Recently reported record highs in commodity markets, driven by
strong demand from China and India, do improve the terms of trade
for commodity producers. However, major increases have been in
minerals (commodities such as copper) and fuels, but agricultural
commodities (or ‘soft commodities’), the mainstay of African
economies, have remained low.
Moreover, while the increase in fuel and mineral prices has had a
favourable impact on some African countries, it has also caused
a cleavage between exporters of hard and soft commodities.
Countries such as Nigeria or Zambia are benefiting from their
oil and copper exports, but others such as Uganda or Ethiopia,
whose export earnings depend on soft commodities (and rely on
the import of hard commodities, especially fuel), face an extremely
difficult situation. The emergence of transcontinental value-chains
dominated by Northern supermarkets and retail firms has added
further complexity, raising problems of excessive market power on
the part of buyers, and leading to a low and declining share of total
value-added for African producers.2
The importance of agriculture for poverty reduction hardly needs
emphasizing. Approximately 80% of the population of sub-Saharan
Africa live in rural areas, and 70% depend on food production. Yet
over the last two decades, policymakers in the North have generally
turned a blind eye to the development problems caused by volatile
commodity prices. Illustrations laid out here suggest that a new and
more nuanced look be taken at the relationship between trade,
economic growth and poverty reduction.
Clearly, for exporters of agricultural commodities, the first bit of
long-term advice is to get out of commodities, and be careful about
where they move into manufacturing production or services. But
African policymakers are keenly aware that economists have typically
been long on recommending diversification and short on practical
advice about how to achieve this goal. Policies to reduce poverty
must find mechanisms to reduce price volatility and improve the
terms of trade for these ‘soft’ commodities. A completely free-market,
non-interventionist stance on commodity markets has evidently
failed the poorer developing countries.
Notes:
1. Own elaboration based on ECA’s poverty estimates from country’s household surveys and UNCTAD
(2005), Statistical Yearbook (cd-rom).
2. See P. Gibbons and S. Ponte (2005), Trading down: Africa, Value Chains, and the Global Economy.
Philadelphia: Temple University Press.
 
-100
-50
0
50
100
150
200
250
300
350
-15 -10 -5 0 5 10 15
Change in Poverty Headcount
C
h
a
n
g
e
 
i
n
 
E
x
p
o
r
t
 
V
o
l
u
m
e
s
Burundi
Mozambique
Gambia
Malawi
Mali
Central African Republic
Senegal Zambia
Rwanda
SSA
Lesotho
Mauritania
1. Pro-Poor Trade Expansion 2. Trade Expansion without 
Poverty Reduction
4. Neither trade expansion nor 
poverty reduction
3. Poverty Reduction without 
Trade Expansion
Madagascar
Tanzania
Niger
Burkina Faso
Ethiopia
Trade Expansion and Poverty Reduction,  1996-2001
for selected African LDCs1
 (%)
 
(
%
)

Are Improving Terms of Trade Helping Reduce Poverty in Africa?

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Are Improving Terms of Trade Helping Reduce Poverty in Africa?

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