Export Product and Market Diversification and Its Implications on the Performance of Eritrea’s Foreign Trade

Abstract

Low level of export product diversification and high market concentration are characteristic features of the export sector of many Sub Saharan African (SSA) countries. This situation coupled with limited intra African trade has contributed to deficits in trade balance and overall poor foreign trade performance which has been of concern to policy makers in these countries. In January 2012, the African Union (AU) Summit of African Heads of State and Government endorsed the theme of ‘Boosting Intra-African trade‘ and called on Member States, Regional Economic Communities (RECs) and the AU Commission to promote industrial development with a view to diversify economies and moving away from heavy reliance on traditional primary commodities for export. As the result, efforts have been made by many African countries to diversify exports along intensive or extensive margin. The intensive margin is related with expansion focussed more on current export products, while the extensive margin deals with creating new export products or new markets. In this paper data from Ministry of Trade and Industry (MOTI) on value of exports and imports of Eritrea for the period 2000 to 2015 are used to analyze Eritrea’s foreign trade performance and the trends in trade balance. Value of Eritrean exports by commodity group and destinations for 2000, 2003, 2009 and 2014 are used to compute Normalized Harfindahl-Hirshman Index (NHHI) of export product and market diversification in COMESA region and the rest of the world. The results show, for markets, the NHHI was 0.199 in 2000, 0.123 in 2003, 0.601 in 2009 and 0.354 in 2014 indicating high market concentration of exports in 2009 compared to the other years. For products, the NHHI was 0.169 in 2009 and 0.89 in 2014 indicating high export product concentration index in 2014 explained by the dominance of new export products from the mining sector namely copper ores and concentrates, gold compounds and silver ores and concentrates. This shows that Eritrea has not made any significant breakthrough in export diversification and is yet to diversify into the higher value added activities. Above all, export sector performance has been low and the study suggests that appropriate trade policy and strategy is needed to enhance regional and global trade, expand export markets and diversify its export products through value addition and further processing of domestic and foreign raw materials

Keywords: Eritrea, Export, Market Concentration, Product Diversification, Regional Integration


Article Review Status: Published

Pages: 61-78 (Download PDF)

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