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4.0 Diversification trends in Africa: Economic Report on Africa 2007
The diversification of African economies is one way through which the recent economic growth achievements could be sustained. Africa’s economic transformation can be achieved through both horizontal and vertical diversification. In addition, such diversification will help to build competitive economies that can productively be integrated into the global economy. Diversification is therefore a pre-condition if Africa is to register accelerated development. The scaling-up of current real growth to desired levels and in a broad manner can also be sustained if there is deepening in the diversification of African economies.

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4.0 Diversification trends in Africa: Economic Report on Africa 2007
The diversification of African economies is one way through which the recent economic growth achievements could be sustained. Africa’s economic transformation can be achieved through both horizontal and vertical diversification. In addition, such diversification will help to build competitive economies that can productively be integrated into the global economy. Diversification is therefore a pre-condition if Africa is to register accelerated development. The scaling-up of current real growth to desired levels and in a broad manner can also be sustained if there is deepening in the diversification of African economies.
4.1 Diversification trends at the regional level: Economic Report on Africa 2007
Figure 4.1 shows three different measures of diversification for African economies as a whole (see Ben Hammouda et al. (2006a) for detailed definition of the indices of diversification). Three concise comments on the general trend of Africa’s diversification experience can be made.
4.2 Diversification regimes in Africa: Economic Report on Africa 2007
Analysing the various diversification indices and the structure of the top ten export commodities for selected countries over the last two decades and a half provides some useful insights which can be used to define diversification regimes that characterize Africa. Five diversification regimes can be identified from Africa’s experience (see Ben Hammouda et al. 2006b). These regimes should not be viewed as steps or as a continuum that a country must follow as it moves from a concentrated to a diversified economy. Rather, the regimes are a result of the policy actions that a country has set in place over a given period of time. The particular regime that a country falls into is likely to be the result of a mix among the various diversification determinants.

5.1 Determinants of diversification in Africa: Economic Report on Africa 2007
Diversification and policy variables constitute a two-way process in that diversification not only influences policy outcomes, but is itself influenced by policy variables. This proposition naturally leads to the search for those economic and non-economic policy actions that are likely to affect the level and rate of diversification in a country. What evidence is there that links economic and non-economic variables with national capacity to diversify?
5.1 Investment is vital for an economy to diversify: Economic Report on Africa 2007
The inverse relationship between investment and the diversification index shown in table A5.1 indicates that as the level of investments increases, there is a tendency for economies to become more diversified. The smaller the diversification index gets, the more diversified an economy becomes, and vice-versa for specialization. Unless a country commits a sufficient portion of its national income to building capital stock, it is unlikely to be able to diversify. Investment as measured by gross fixed capital formation turns out to be a key determinant to Africa’s diversification results.
5.1 Fiscal space is critical for diversification: Economic Report on Africa 2007
The positive but insignificant result for the impact of fiscal balance on diversification shows that macro stability plays a role for the success of diversification efforts. At the same time, a proactive fiscal policy, especially in terms of promoting public investment, can support efforts towards diversification.
5.1 The results vary by diversification regime: Economic Report on Africa 2007
At this point, it is worthwhile to recall the five diversification regimes: those countries with little diversification; countries that started but got stuck in the diversification process; those with deepened diversification; backsliders in diversification; and the conflict and post-conflict countries. This report suggests that belonging to a particular regime has more to do with policy and institutional factors at the country level. Consequently, there are different determinants when the discussion is brought to the country level (see table A5.2 for correlation results).
5.2 Diversification-deepening policies raise growth and TFP: Economic Report on Africa 2007
What then do these results imply? They mean that pursuing diversification-deepening policies could help accelerate growth. Important policy implications of this link arise with respect to the determinants of diversification that were discussed earlier in the chapter.
6.3 Financial sector links between investment and diversification: Economic Report on Africa 2007
With regard to financial sector policies, the starting point is the clear link between investment and diversification. The contribution of private investment to desirable diversification outcomes cannot be gainsaid.
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