Africa’s T — Terms of Trade

Are terms of trade working against African development?

February 23, 2005

Are terms of trade working against African development?

African countries all import manufactured goods — and most also import oil. For the continent as a whole, terms of trade have, by and large, worked against Africa over the last two decades.

Amazingly, that is true in recent years even for Africa’s oil-exporting countries.

Terms of trade drive a wedge between physical production — which is reflected in "real gross domestic product," the usual yardstick for economic growth — and people's incomes and purchasing power.

Over the last 20 years, people needed to produce ever larger quantities of non-oil exports in order to be able to import the same amounts.