02 July 2012
The global crisis exposed the vulnerability of Least Developed Countries to external shocks and clearly illustrated once more the importance of diversifying into non-traditional sectors. One sector that has demonstrated the gains that can accrue from such horizontal diversification is horticulture, as shown in case studies conducted by UNCTAD in a number of African countries.
World trade in horticultural products has been growing steadily. The sector has become the single largest category in agricultural trade, accounting for more than 20 per cent of world agricultural exports. In line with this overall trend, horticultural exports from sub-Saharan Africa have also increased and now exceed US$2 billion. Among the success stories is the surge of exports of cut flowers from Ethiopia and Uganda during the 2000s. Still, horticultural exports from sub-Saharan Africa represent only 4 per cent of world exports, which suggests that there is scope for LDCs, especially from the African region, to expand their exports of flowers, fruits and vegetables.
"Non-traditional" exports such as horticulture are potential sources of earnings and a promising avenue for export expansion and diversification in LDCs. Recent UNCTAD studies have therefore focussed on successful experiences and best practices of least developed countries in non-traditional exports with the view to shed further light on factors that led to very encouraging results in a relatively short period of time, and to provide lessons and best practices for others.
There are several reasons why horticulture is a potentially promising sector for LDCs. To begin with, a number of LDCs enjoy comparative advantage in horticultural products due to low labour costs and favourable natural resource endowments. Second, horticultural production creates employment opportunities for the rural poor, notably women, and has significant impacts on poverty reduction. Third, horticultural exports can enable LDCs to acquire new knowledge and technology in producing and marketing high-end products. Finally, the close-proximity and expanding EU and the Middle East markets are large and offer good growth potential for African least developed countries' exports, especially for high quality exotic/tropical fruits, quality products and certified organic produce.
There are, however, a number of constraints that impede the development of the sector, both on the supply-side and the demand-side. Among the former are
(i) inadequate physical infrastructure
(ii) lack of access to finance
(iii) lack of information and know-how
(iv) political instability
(v) an unfavourable macroeconomic environment
(vi) ineffective support organisations and lack of public action. Constraints on the demand-side include compliance with quality standards and international competition from non-LDCs.
In tackling the different challenges facing them, horticulture-exporting LDCs can find it benficial to consider each other’s experiences and best practices as well as the experiences of other developing countries.
In Ethiopia, to facilitate access to finance, the government offers loans to horticultural and agricultural producers at affordable lending rates of 6-7 per cent as compared to an average of 13-15 per cent lending rates in Sub-Saharan African countries.
In Uganda, non-traditional exports such as fish and horticulture have shown tremendous increase, with fish exports emerging as a dominant export, overtaking coffee as the largest merchandise export. The horticultural sector has almost tripled export earnings for Uganda over the last eight years. Fresh flowers, plants, fruits and vegetables now account for around US$20 million worth of exports annually, with floriculture exports in particular showing an increase of 475 per cent in value between 1995 and 2010. The Common Market for Eastern and Southern Africa (COMESA) emerged as the second largest export destination for Uganda after the European Union.
As another example, in addressing inadequate infrastructure, a few small-scale pilot projects in Senegal have presented innovative approaches to donor provision of infrastructure that are cost-effective, environmentally sustainable and do not require long-term dependency on aid.
The cases of Ethiopia, Senegal and Uganda are but three examples of various successful experiences and best practices in the horticultural sector. Careful examination and detailed analysis of country-level experiences lead to the following policy implications:
- Horizontal diversification based on well-designed and targeted strategies with focus on areas where LDCs have comparative advantage has considerable potential to generate export revenues comparable to traditional export sectors of many poor countries. It can also offer employment opportunities that improve household incomes and have direct positive impacts on poverty reduction.
- Investment can play a pivotal role to establish and develop domestic industries. Furthermore, targeting investment to sectors of strategic interest to LDCs can have direct impacts on their socio-economic development. An important conclusion, therefore, is that countries must create conditions that are favourable to attracting FDI from leading multinationals.
- The precise role of government can vary, depending on local circumstances and capabilities. However, the case studies suggest that less interventionist and more activist government policies, attractive incentives for investors, effective domestic policies and institutions, a favourable environment for private-sector led growth and targeted donor support can help poor countries to become successful exporters.
