Comparative advantages of sub-Saharan states

About the study

Many people and institutions have argued that some developing countries have an advantage in agricultural production, particularly of cash crops, because of good climate and relative cheapness of land. The argument is developed further: markets would function better if developing states specialise in agriculture, trading for other goods which aren't produced domestically in sufficient quantities.

On the other hand, certain countries export more labour intensive goods as their economies develop, despite the expectation of increased capital intensive goods production. Human resources growth outpaces capital growth. Many African countries have an abundance of the well-educated unemployed or underemployed. In the presence of various other factors affecting business (existing investment, government, law, environment, international inputs, scientific knowledge, fashion, to name a few), deciding which goods to produce is even more complicated.

My approach in this work is to consider the main factors affecting major industries in a country, and use them to assess the relative strengths of each state.

What the results show

For each country, the tables in the sections below show the relatively most attractive industry at the top of the list. Reading down the list, the industries become less appealing. To calculate relative attractiveness, I work out how absolutely strong a business sector is in the country, then compare it with the results for other countries. If the sector is above the country average across all industries, then I say it is relatively strong.

Traditional comparative advantage talks about goods that can be traded internationally. Some of the businesses considered in this study are not easily exchanged, so the meaning I use is a bit different. You can see a traditional analysis by looking just at the tradable goods in a country's list.

The lists are not definitive statements of how much potential an industry has. They use only a limited number of current resource inputs, and these may change in future, or others may become important. Also, any business may have an influential position in a small industry. Industries are not necessarily absolutely strong in the country just because they are relatively strong, although they usually are. The report does not consider capital availability for setting up businesses, and some sectors may require be too expensive at present, despite having a good economic profile.

A full description of the methodology used, the industries considered, and the inputs included is at the appendix to the report.

The results

Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Central African Republic
Chad
Cote d'Ivoire
Congo
Democratic Republic of the Congo
Eritrea
Ethiopia
Ghana
Guinea
Kenya
Lesotho
Madagascar
Malawi
Mali
Mauritania
Mozambique
Namibia
Niger
Nigeria
Rwanda
Senegal
Sierra Leone
South Africa
Tanzania
Togo
Uganda
Zambia
Zimbabwe

Notes on abbreviations used

EBA means the Everything but Arms agreement between the European Union and certain least developed countries.
ECOWAS means the Economic Community of West African States.
EU means European Union.
GDP means Gross Domestic Product.
When sub-Saharan median is mentioned, then it means the median of the states included in this report.

Angola
Petroleum extraction 1
Petroleum refining 2
Shipbuilding 3
Iron and steel production 4
Mining 5
Aircraft manufacture / aerospace 6
Electricity supply, water supply, gas supply 7
General insurance 8
Publishing 8
Electronics 10
Plastics manufacture 11
Industrial chemicals 11
Car manufacture 13
Pharmaceuticals 14
Food processing 15
Microfinance 16
Computer hardware manufacture 17
Textiles manufacture 17
Software design 19
Corporate finance 20
Toy manufacture 21
Consumer goods 21
Consumer banking 23
Cash crops 23
Tourism 23
Personal lines 26


Angola has large petroleum reserves, and so extraction and refining are among the most attractive sectors in Angola. The size of the petroleum industry makes certain other industries seem attractive too, frequently through increasing demand, like shipbuilding, iron and steel production, and general insurance. Aircraft manufacture is made more appealing by the large government expenditure on defence, the size of the industrial sector, and the volume of goods exported. But production for export is almost exclusively petroleum, which is most cheaply transferred by ship, and defence expenditure may decline when the civil war finally ends.

The economic environment has been unfavourable - hyperinflation, very high debt, a very volatile exchange rate, a complicated procedure for setting up businesses, and an ongoing civil war. The factors make service sectors seem difficult to operate in: consumer banking, personal lines insurance, corporate finance, and tourism. They would become very strong if the environment was to improve.

The volatile exchange rate also moves cash crops down the list. Angola has been said to have some of Africa's most fertile land, which may only be partially recognised by the availability of fresh water as an input factor.

Benin
Tourism 1
Software design 2
Personal lines 3
Food processing 4
General insurance 5
Corporate finance 5
Pharmaceuticals 5
Textiles manufacture 5
Consumer banking 9
Plastics manufacture 9
Publishing 9
Industrial chemicals 9
Electronics 13
Cash crops 13
Car manufacture 13
Microfinance 16
Toy manufacture 16
Consumer goods 16
Electricity supply, water supply, gas supply 19
Computer hardware manufacture 20
Petroleum refining 21
Iron and steel production 21
Mining 21
Shipbuilding 24
Aircraft manufacture / aerospace 25


Benin has a good macroeconomic environment: low administration for setting up a company, moderate inflation, a stable exchange rate, EBA access to the EU market, good research and development incentives, low government expenditure on defence. Unsurprisingly, service industries are among the most promising. The number of tourist arrivals is presently moderate, so there may be scope for growth in their number. The general insurance and corporate finance sectors show particular promise in view of Benin's role as a transit point for goods throughout West Africa. Excellent investment incentives provide encouragement for the software industry, although the small size of the domestic services sector means that it may rely on future growth, or on exports.

Among the manufacturing industries, pharmaceutical production is promising. Benin has favourable market access, both to the EU and the ECOWAS states, notably Nigeria. The number of tertiary students is a little above the sub-Saharan median, although illiteracy is quite high, which hinders some other industries. They are also restricted by the limited size of the existing manufacturing sector.

Shipbuilding is near the bottom of the list, but in view of the considerable volume of goods passing through the country, the transportation sector may well be stronger than its position would suggest.

Botswana
Toy manufacture 1
Consumer goods 1
General insurance 3
Corporate finance 3
Iron and steel production 3
Mining 3
Aircraft manufacture / aerospace 3
Electricity supply, water supply, gas supply 8
Car manufacture 8
Consumer banking 10
Personal lines 11
Textiles manufacture 12
Food processing 13
Publishing 14
Tourism 14
Software design 16
Plastics manufacture 16
Industrial chemicals 16
Computer hardware manufacture 19
Petroleum refining 20
Electronics 20
Pharmaceuticals 22
Cash crops 23
Microfinance 24


Botswana has the one of the highest incomes per head in the continent, and the total domestic purchasing power is quite high too. The domestic market is the major reason why consumer good and toy manufacture top the list.

General insurance and corporate finance are attractive, with the large mining sector presenting direct opportunities for capital. The favourable macroeconomic situation also helps, with a small stock market and low external debt.

Heavy industry benefits from a large industrial sector, and high income per person, while domestic production of electricity is above the sub-Saharan average, which should help production. Light industry and more technological goods are comparatively less attractive, for example because of relatively moderate investment incentives and EU market access, and a modest number of tertiary students. On the other hand, local funds for development are likely to be more readily available in Botswana than elsewhere.

Burkina Faso
Cash crops 1
Mining 2
Microfinance 3
Petroleum refining 4
Iron and steel production 4
General insurance 6
Pharmaceuticals 6
Food processing 6
Personal lines 9
Plastics manufacture 9
Tourism 9
Industrial chemicals 9
Consumer banking 13
Car manufacture 13
Corporate finance 15
Computer hardware manufacture 15
Aircraft manufacture / aerospace 15
Software design 18
Electronics 19
Publishing 19
Textiles manufacture 21
Toy manufacture 22
Consumer goods 22
Electricity supply, water supply, gas supply 24


Burkina Faso's particular characteristics mean that its industrial strengths are quite varied.

Cash crops top the list, due to good export incentives, favourable market access, a stable currency, and low wages. However water per head is not high, maybe suggesting that the land may be insufficiently fertile, and the merits could be overstated. Food processing has similar strengths, although the quite low income may mean that the demand for processed foods is weak.

The population has a low average income, and there is quite a stable economic environment, which makes microfinance seem attractive. The environment also assists general insurance, of a quite large manufacturing sector. Domestic petroleum refining for that sector could be promising, perhaps using crude oil exports from Nigeria.

Burundi
Microfinance 1
Personal lines 2
Consumer banking 3
Publishing 3
Aircraft manufacture / aerospace 3
Food processing 6
General insurance 7
Tourism 7
Petroleum refining 9
Pharmaceuticals 9
Plastics manufacture 9
Textiles manufacture 9
Industrial chemicals 9
Corporate finance 14
Software design 14
Electronics 14
Toy manufacture 14
Cash crops 14
Car manufacture 14
Consumer goods 14
Computer hardware manufacture 21
Electricity supply, water supply, gas supply 21
Iron and steel production 21
Mining 21


Information on Burundi's investment incentives and law is quite difficult to find. The criteria relating to the policy environment are estimated to be moderate: administration in setting up a company, business facilitation, start-up incentives, intellectual property rights, research and development incentives, export support, trade barriers on capital inputs. Because these are often quite attractive in other sub-Saharan states, particularly among the French speaking countries, certain industries are low down the list. If the policy environment is more attractive than I have assumed, then the manufacturing industries may offer potential for profitable trade, (plastics, pharmaceuticals, textiles, chemicals).

With a quite large population with low income, mainly based in rural areas, microfinance has strong potential. Moderate inflation is another advantage. The external debt is close to the sub-Saharan average, and the financial environment is a relative strength, resulting in high placing for personal lines insurance and consumer banking. In view of the poverty of the nation, and the non-tradable nature of these industries' output, they may not be practical except on a small scale at the moment.

Cameroon
Electricity supply, water supply, gas supply 1
Food processing 1
Car manufacture 1
Personal lines 4
Software design 4
Computer hardware manufacture 4
Petroleum extraction 4
Electronics 4
Tourism 4
Petroleum refining 10
Pharmaceuticals 10
Shipbuilding 10
Aircraft manufacture / aerospace 10
Plastics manufacture 14
Industrial chemicals 14
Consumer banking 16
General insurance 17
Iron and steel production 17
Mining 17
Corporate finance 20
Publishing 20
Microfinance 22
Textiles manufacture 22
Toy manufacture 24
Consumer goods 24
Cash crops 26


Cameroon has a relatively high GDP, and high income per head. Certain of the leading industries benefit from the domestic market: electricity, water, and gas supply; food processing; car manufacture. Good export support, a large regional market, and a stable exchange rate against the Euro all help with foreign trade, including the technology sector. The sector also seems attractive because of the quite high levels of educational achievement.

Although the country has modest petroleum reserves, there is a wide range of industries in which Cameroon has comparative strengths. Many of the industrial inputs are strong.

Central African Republic
Cash crops 1
Electronics 2
Software design 3
Tourism 4
Food processing 5
Microfinance 6
Computer hardware manufacture 6
Iron and steel production 6
Mining 6
Personal lines 10
Consumer banking 10
Aircraft manufacture / aerospace 10
Corporate finance 13
Pharmaceuticals 13
Plastics manufacture 13
Toy manufacture 13
Industrial chemicals 13
Consumer goods 13
Electricity supply, water supply, gas supply 19
Car manufacture 19
General insurance 21
Petroleum refining 21
Textiles manufacture 21
Publishing 21


Cash crops top the list, with food processing high as well. Although I do not have information on agricultural potential for specific crops, the natural environment is good for production of both. The policy environment encourages exports, and is helpful to entrepreneurs, making businesses like electronics and software design seem attractive, despite limited education resources.

Some of these factors also suggest that some forms of heavy industry could be based in the Central African Republic. However, the very small size of the domestic industrial sector and low local demand would mean that production would be almost entirely aimed at possibly volatile foreign markets. Almost all equipment would have to be imported, and these features probably mean that the advantages of heavy industry are overstated.

Chad
Cash crops 1
Personal lines 2
Microfinance 2
Software design 4
Consumer banking 5
Publishing 6
Electricity supply, water supply, gas supply 7
General insurance 8
Corporate finance 8
Food processing 8
Pharmaceuticals 11
Electronics 11
Tourism 11
Petroleum refining 14
Plastics manufacture 14
Industrial chemicals 14
Aircraft manufacture / aerospace 14
Computer hardware manufacture 18
Car manufacture 18
Iron and steel production 20
Mining 20
Textiles manufacture 22
Toy manufacture 22
Consumer goods 22


Cash crops is at the top of the list, due to Chad's low population density, moderate water resources, low wages, and favourable European Union market access. A stable exchange rate against the Euro also helps, and the macro-economy is generally favourable: relatively low external debt and inflation. As a result, the financial industries aimed at households may appeal, despite quite low income per person. As the economy expands, these may become increasingly attractive.

Aside from the EU market, the regional market is a little larger than the sub-Saharan median, although it is possible that access to Sudanese and Libyan markets may be affected by conflicts. The distance from ports may make the cost of transport comparatively high. Software design would have few problems of course, taking advantage the excellent start-up incentives. Conventional manufacturing has an existing base to build on, which is close to the sub-Saharan median in size, although still small in absolute size.

Congo
Cash crops 1
Petroleum extraction 2
Petroleum refining 3
Computer hardware manufacture 4
Electricity supply, water supply, gas supply 5
Toy manufacture 6
Consumer goods 6
Electronics 8
Software design 9
Consumer banking 10
Iron and steel production 11
Aircraft manufacture / aerospace 11
Corporate finance 13
Shipbuilding 13
Plastics manufacture 15
Industrial chemicals 15
Car manufacture 17
Pharmaceuticals 18
Publishing 18
Textiles manufacture 20
Tourism 20
General insurance 22
Personal lines 22
Mining 22
Microfinance 25
Food processing 25


Congo's oil reserves, good export support, and a stable currency make both extraction and refining of petroleum attractive. The quite advantageous export environment, together with very high fresh water availability and a low population density suggest that cash crops could also be a strong specialisation.

With a comparatively high income per person, light manufacturing (consumer goods, toys,electronics) has a modest domestic base, as well as possibilities in foreign markets. The absolute size of the population is rather small, however, and the existing industry is small, so supplies may have to imported or manufactured as part of the assembly line itself.

Some of the inputs into the service sector are very favourable, while others are very unfavourable. There is little administration required to set up a company, but the manufacturing and services sectors are small. Inflation is low, gross domestic savings are high, but external debt is extremely high. As a result, certain subsectors seem to have more potential than others, according to the particular inputs used, with consumer banking currently the most appealing.



Democratic Republic of the Congo
Microfinance 1
Pharmaceuticals 1
Plastics manufacture 1
Electronics 1
Publishing 1
Industrial chemicals 6
Petroleum extraction 7
Petroleum refining 8
Food processing 8
Cash crops 8
Electricity supply, water supply, gas supply 11
Software design 12
Textiles manufacture 13
Tourism 14
Car manufacture 15
Consumer banking 16
General insurance 17
Computer hardware manufacture 17
Aircraft manufacture / aerospace 17
Iron and steel production 20
Mining 21
Toy manufacture 22
Consumer goods 22
Shipbuilding 24
Personal lines 25
Corporate finance 26


Simply the size of the D.R. Congolese population means that many industries have a reasonable demand from households, like pharmaceuticals and plastics, which also benefit from large absolute numbers of literates and tertiary students. The absolute size of the manufacturing sector is quite substantial, and industries which serve it (petroleum extraction and refining, chemical manufacture) also show moderate immediate potential.

With a large rural population with a very low average income, microfinance could be a strong industry. However, the hyperinflation of the last decade probably makes conventional loans difficult, and some form of barter type arrangement may be necessary. Inflation, together with a very high external debt and civil war, means that the industrial sector is relatively much stronger than the services sector.

Cote d'Ivoire
Software design 1
Petroleum refining 2
General insurance 3
Personal lines 3
Computer hardware manufacture 3
Tourism 3
Car manufacture 3
Consumer banking 8
Petroleum extraction 8
Aircraft manufacture / aerospace 8
Corporate finance 11
Pharmaceuticals 11
Food processing 11
Shipbuilding 11
Plastics manufacture 15
Electronics 15
Industrial chemicals 15
Textiles manufacture 18
Iron and steel production 18
Toy manufacture 20
Consumer goods 20
Microfinance 22
Publishing 22
Electricity supply, water supply, gas supply 24
Mining 25
Cash crops 26


Quite strong domestic demand supports many of the most promising industries in Cote d'Ivoire. The large manufacturing and services sectors could buy the products from the computer industry, the general insurance industry, and the petroleum refineries. High income increases demand for personal lines insurance.

On the supply side, the country is supportive for both new and existing businesses. The illiteracy rate is quite high, although so is the number of tertiary students. Export support is moderate, but less than many other African countries, and Cote d'Ivoire has less favourable access to the European Market than some. Overall, the country has current advantage in more technically complicated goods aimed initially at the domestic market.

Eritrea
Cash crops 1
Tourism 2
Corporate finance 3
Microfinance 4
Toy manufacture 4
Consumer goods 4
General insurance 7
Personal lines 7
Textiles manufacture 9
Consumer banking 10
Computer hardware manufacture 10
Electricity supply, water supply, gas supply 10
Iron and steel production 10
Mining 10
Aircraft manufacture / aerospace 10
Software design 16
Petroleum refining 16
Pharmaceuticals 16
Plastics manufacture 16
Electronics 16
Publishing 16
Food processing 16
Industrial chemicals 16
Shipbuilding 16
Car manufacture 16


The two industries at the top of the list, cash crops and tourism, are outwards looking. Neither are excessively affected by the tiny domestic household and corporate market. However, in the case of cash crops, the limited water resources may mean that the potential for development is also limited. Tourism may have more possibilities, from a currently limited base. I do not have complete information on some factors like the exchange rate, export support, and so on.

Of the industries aiming at the domestic market, corporate finance and general insurance have some strengths, notably quite rapid growth in industry and services. The manufacturing sector is relatively quite large as a proportion of the total economy, by sub-Saharan standards. Microfinance and personal lines insurance are also comparatively strong, suggesting that Eritrea could follow the traditional path of small economies towards a large, internationally open services sector. Eritrea's geographic position also would strengthen this point of view, as historically Eritrea's ports were used by Ethiopia, until the recent border war.

Among other tradable goods, light manufactures are highest on the list. I do not have much information on the investment incentives in Eritrea, and if they are attractive for exporters and manufacturers, then producing industries could become even more stronger.

Ethiopia
Microfinance 1
Consumer banking 2
Industrial chemicals 2
Pharmaceuticals 4
Plastics manufacture 4
Electronics 6
Publishing 6
Personal lines 8
Textiles manufacture 8
Food processing 8
Software design 11
Car manufacture 12
Computer hardware manufacture 13
Electricity supply, water supply, gas supply 13
Aircraft manufacture / aerospace 13
Toy manufacture 16
Tourism 16
Consumer goods 16
General insurance 19
Corporate finance 19
Cash crops 19
Petroleum refining 22
Mining 23
Iron and steel production 24


With a large rural population, a very low average income, and moderate inflation, microfinance has good potential in Ethiopia. The other household services (consumer banking, and personal lines insurance) are also comparatively strong.

On the manufacturing sector, a group of four industries appear attractive, due to a number of factors: a quite large manufacturing and services sector; quite large numbers of literates and tertiary students; good research and development incentives, and start-up incentives. They are chemicals, pharmaceuticals, plastics, and electronics. These may show economies of concentration, if they are established in one particular region.

Ghana
Textiles manufacture 1
Tourism 2
Publishing 3
Microfinance 4
Corporate finance 4
Electricity supply, water supply, gas supply 4
Food processing 4
General insurance 8
Pharmaceuticals 8
Plastics manufacture 8
Toy manufacture 8
Industrial chemicals 8
Mining 8
Consumer goods 8
Personal lines 15
Consumer banking 15
Software design 15
Electronics 15
Car manufacture 15
Aircraft manufacture / aerospace 15
Computer hardware manufacture 21
Petroleum refining 21
Iron and steel production 21
Shipbuilding 21
Cash crops 25


A number of distinct features of Ghana's economy are relatively strong, so the industries at the top of the list are quite diverse. Textiles manufacture is favoured because of quite high domestic demand, ease of setting up a company, good export support, and ready availability of the workforce. Tourism, on the other hand, benefits from a quite large number of arrivals already, and an appealing environment. Supply of electricity, water, and gas benefits from moderate natural resources.

A common factor is the strong domestic demand, arising from a sizable population and income per person a little above the sub-Saharan median. The high level of education supports industries like publishing and the services. However, modest investment incentives and a medium sized manufacturing sector means that heavy industry, like petroleum refining and iron and steel production, is comparatively weaker.

Guinea
Mining 1
Iron and steel production 2
Electronics 3
Car manufacture 4
General insurance 5
Personal lines 5
Corporate finance 5
Cash crops 5
Consumer banking 9
Computer hardware manufacture 9
Shipbuilding 9
Tourism 12