Revealed Comparative Advantage of Footwear Industry

Revealed Comparative Advantage of Footwear Industry: An Empirical Analysis for Selected African Countries Mulat Alubel Abtew Ethiopian Institute of Textile and Fashion Technology [EiTEX], Bahir Dar University, Ethiopia Abstract: The article examined the vitality of revealed comparative advantage (RCA) of the footwear sector within the selected African countries, namely Ethiopia, Egypt, Kenya, Nigeria, Tanzania and Uganda during 2003-14 utilizing 2-digit Harmonized System code 64. The study used Balassa’s index (1965) to investigate and identify those countries which exhibit RCA among the selected countries. The Analysis of Variance (ANOVA) and Scheffe Post Hoc multiple comparisons method also used to test the significant difference between the countries’s RCA and analyse the multiple comparisons between the RCA. The result highlights there is a significant difference in the pattern and between the RCA of the selected economy. Kenya has showed stronger RCA than Ethiopia and Uganda. In contrast other selected countries namely, Egypt, Nigeria and Tanzania have no RCAs. Finally, the study suggests that selected economies need very active strategies for this particular sector to have RCA and competitive in the international market. Keywords: revealed comparative advantage; African Countries; Balassa Index; footwear sector; International Trade; export market JEL classification: F10, F14. 1. Introduction These days the global export patterns of various exports are changing globally very fast due to various reasons mainly due to technological advancements and liberalization. These changes have led to gains in productivity of different products, and alter in comparative advantage patterns in world economy.Studies show that most of the Eastern and Southern African countries have good potential to be recognized as major suppliers of semi-processed leathers to the export market, and for the production of finished leather products for their own markets and gradually, for export. The sector is using renewable resources, the technology and skills are within reach and cheap labour is also available. Growing domestic market for footwear and leather goods is a distinct advantage for the local industry. Availability of raw hides and skins in the region is the main development asset for the sector. Africa has 18.1% of the world livestock population. During the previous last decade (1985-1995), the increase of livestock population in Africa was 9.6% for bovine, 14.6% for sheep and 18.3% for goats. During the same period, in developed countries, the livestock population decreased by 12.7% for bovine, 18.3% for sheep, the increase for goats being only 14.3%. However, the share of Africa in hides and skins is lower (6.2% for hides, 9.4% for sheep skins and 15.5% for goat skins). Compared to these shares, the share of Africa in the world production of shoes is much smaller. Africa with 148.6 million pairs represents only 3.2% of leather shoes produced in the world and only 1.4% when North Africa (Algeria, Egypt, Libya, Morocco and Tunisia producing 83.7 million pairs) is excluded.At a time when other developing countries have substantially increased their share of world footwear production in relation to developed countries, African countries have shown only a modest increase. Import penetration of their domestic leather footwear markets by other developing countries is estimated at 73.3%. IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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Studies have shown that the leather and shoe manufacturing sub-sector already provides 4% to 5% of total industrial employment, with contributions to MVA of 2.9% in Egypt, 8.3% in Tunisia and 74% in Ethiopia, where the cattle population is the highest in Africa and close to 1% in the remaining five countries.In the theories of international trade, RCA is an important concept for explaining pattern of trade. Ricardo (1817) first introduced the concept of RCAwith very strict assumptions and now well recognized as the Ricardian model. According to this classical Ricardian theory of comparative advantage, relative labour productivities determine trade patterns. The Ricardian model plays an important pedagogical role in international economics, but has received scant empirical attention since the 1960s. In the modern theories of international trade, such strict assumptions are replaced with the more realistic ones. Heckscher(1919) and Ohlin (1933) also tried to examine the effect of different factor endowments on international trade. RCA is also an important concept in modern economic theory. This concept more than 200 years old, is immovable to date is considered a determinant of specialization in the concept of international trade. Liesner (1958) was the first person who introduces the measurement of RCA;it was later developed by Balassa (1965). (Balassa 1965, 1977, 1989) have published and analyzedthe revealed comparative advantage measure in manufacturing across industries. Comparative advantage measure is a determinant of trade patterns which lead to the international trade specialization to be determined by several supply and demand factors. Comparative advantage will also increase the efficiency of scarce resources and welfare. The principle of RCA is also mostly designed and sustained through a highly localized process. Differences in national values, culture, economic structures, institutions, and histories all contributes to the competitive success. Further, Porter pointed the factor conditions, demand conditions, related and supporting industries and the firm strategy, structure, and rivalry as the four determinants to create the national comparative advantage (Porter 1990). According to Bela Balassa the concept of RCA is defined as it is widely used in practice to determine a country’s weak and strong product line. Michael porter, for example, uses a Balassa index exceeding 1, in some cases; Balassa index exceeding 2 is considered to be identifying a country’s strong sectors (Hinloopen and Marrewijk 2001). Kowalski (2011) proved that comparative advantage remains an important determinant of trade with capital-to-labour, but geographical distances are equally as important in explaining industry patterns of trade. While regulatory quality and labour market rigiditytend to influence trade patterns less significant, the availability of creditand primary energy supply is another source of comparative advantage. The comparative advantage theory emphasises the relative differences in productivity between countries as the reason for international trade and hence for gains from trade.The largerthe differences in principal sources of comparative advantage across countries, the larger the gains from trade. The objective of the paper is going to examine the RCA of the footwear industry for the selected African economies. The methodology used to compute the RCA is Balassa index (1965) utilizing the 2-digit HS code 64 mainly focus on footwear, gaiters and the like; parts of such articles. The paper also tries to test the significance difference between the RCA of selected African economies by Analysis of Variance (ANOVA).The paper is structurally organized as follows: Chapter 2 will discuss the relevant literature related to the paper, while Chapter 3, the data and methodology to determine the RCA of the countries. IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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Chapter 4will cover the statistical tools and technique used to analyze the data, chapter 5 will measure and explain empirical results and the last chapter will summarize and concludes the study. 2. Literature Review The economic literature on RCA dates back to Adam Smith’s theory of absolute advantage. Much of the literature sketched on Ricardian comparative advantage theory and the Heckscher-Ohlin theory of factor proportions, demonstrate both factor productivity and relative factor endowments as important determinants of specialization. These theories are not a complete explanation of specialization patterns. Rather, according to Kilduff and chi (2007) on their study ‘‘Analysis of comparative advantage in the textile complex: A study of Eastern European and Soviet Union nations’’ the differences arise from the influence of a complex combination of economic, technological, social and political factors, including country specific idiosyncrasy and data accuracy problems. Widodo (2009) investigated the dynamic changes in comparative advantage of the ASEAN, China, Republic of Korea and Japan (commonly abbreviated as the ASEAN +3) using statistical and econometric methods on Revealed Symmetric Comparative Advantage (RSCA) index and the study implies that there have been changes in the patterns of comparative advantage in the ASEAN +3 with no stationary level of similarity in the patterns of comparative advantage. Porter (1990) also pointed out the factor conditions, demand conditions, related and supporting industries and the firm strategy, structure and rivalry as the four determinants to create the national competitive advantage. Changjun (2001) report clearly shows first, the RCA indices reveal clearly that the general pattern of China's exports have changed from a distortion to coincide perfectly with the law of comparative advantage in Hechscher-Ohlin theory, along with the gradual liberalization of external trade restrictions and exchange controls. Second, there are distinct differences in export patterns across Chinese provinces. Toit, Fouri and Trew (2010) showed on their study the sources of comparative advantage in tourism following the law of comparative advantage, a country with a favourable natural environment should specialise in tourism exports rather than exporting other goods or services. Leishman, Menkhause and Whipple (2013) also demonstrated the analysis of comparative advantage for agricultural commodities has not only become relevant, but may in fact be an important tool for understanding the future of world agriculture. Makochekanwa (2013) analyzed the RCA of the ASEAN countries and China trade flow and the result show that China has a more established trading pattern compared with other ASEAN countries and also the pattern of trade specialization of ASEAN countries is more complicated and dynamic. Further Mwasha and Kweka (2014) also construct Tanzania RCA in different sectors and commodities by using HS 4 digit commodity level export data from UN Comtrade to examine the comparative advantage of the top ten export commodities in Tanzania and International Trade Centre (ITC). The analysis indicated Tanzania export performance is subsequently increasing in collaboration to its Revealed comparative Advantage as it was found that there were only two commodities which had higher export value with less than one RCA namely Medicinal and pharmaceutical products and Special transaction not Classified. And also Tanzania has a strong comparative advantage in commodities such as gold, metalliferous ores and metal scrap in the world market accompanied by other commodities which was analyzed in this paper. Another study that used the RCA approach is Felix, Bongani andMacleans (2013). The study concluded that Ethiopia has comparative advantage in the production of 302 product lines and is benefitting from engaging in international trade with other countries. However, its comparative advantage is limited to 302 IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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product lines. Beyene (2014) employed the Balassa (1965) RCA to study the RCA of sub-Saharan Africa (SSA) and Latin America & Caribbean (LAC) on the export of five merchandise subsectors during 1995 to 2010. The study explains even if improvements observed, SSA’s and LAC’s trade share and economic integration are low. LAC has stronger RCA than SSA in export of food items and the SSA region has higher RCA in export of agricultural raw materials, fuel, and ores and metals than LAC. However, both regions have revealed comparative disadvantage in the export of manufactures, though lesser in LAC. Chingarande, Mzumara and Karambakuwa(2013) investigated the comparative advantage and an Economic Performance of East African Community. The investigation noted that Kenya has RCA greater or equal to 1 in 778 product codes while Tanzania has RCA greater or equal to 1 in 471 product codes. Whereas Uganda and Rwanda have RCA greater or equal to 1 in 437 and 275 product codes respectively. Finally Burundi has showed the same in 152 product codes. Abtew (2015) also indicated the performance of leather industry (both raw hide and skin and Leather and leather products categories) in Ethiopia and made its comparison with selected African countries, Kenya, Egypt and Tunisia using Balassa’s RCA index. The study observed that RCA index of Ethiopia is greater than unity for raw hide and skin export category compared with RCA index of all, which means Ethiopia in these categories can play an important role and have significant potentiality in the export of raw hides and skins in the international market. Isaac and Othieno (2011) showed the competitiveness of Uganda in the EAC market for the period 20002009. In determining the country’s competitiveness position in the region and with China, RCA indices were computed for various products at the HS 4-digit disaggregation level of commodity classification the results also shed light on which sectors Uganda should specialize in strategically and the empirical evidence of Uganda’s competitiveness is largely dependent on the individual country under consideration. The study made by Ndayitwatwayekoet al. (2014) has showed Burundi the least competitive amongst all EAC members despite the liberalization of the coffee sector. The declining of comparative advantage may explain the status of coffee sector of Burundi in which a large part of its production is exported to the world market. According to Chingarande, Mzumara and Karambakuma (2014) MERCOSUR, which is a trading bloc of countries in South America, has comparative advantage with a limited number of products. The study also recommended that MERCOSUR can improve its comparative advantage by admitting more members in this regional grouping and should create a conducive environment which can attract foreign direct investment (FDI) which can bring in technology and improve comparative advantage. Khatibi (2008) already used Balassa’s RCA measure to examined Kazakhstan’s competitiveness vis-à-vis world exports to the EU-27 and intra-exports between the EU-27 member countries. The study reveals that although Kazakhstan shows a revealed comparative advantage in a number of sectors, its competitiveness has a falling trend in almost all sectors. Serin and Civan (2008) also presented an analysis of the competitiveness of Turkey’s fruit juice, olive oil and tomato sectors against its main rivals in EU market, Spain, Italy and Greece for the period 1995 to 2004. The empirical findings suggest that Turkey has a comparative advantage over its main rivals in EU market in the fruit juice and olive oil sectors (even if the result showed decline from 2000), but not in the tomato sector. Makochekanwa (2007) used indices of RCA to analyze the competitiveness of Botswana in world trade during 1999 and 2004. According to the study Botswana has an RCA in diamonds, copper matte, bovine meat, grain sorghum, prepared explosives and safety or detonating fuses, among other products. The study also established that Botswana gained comparative advantage in sugar and sugar IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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confectionery; copper ores and concentrates; and textiles braid and trimming, in which it previously had comparative disadvantage. On the downward side, the country lost specialization in products such as coal gas, water gas, ivory related products and men’s/boys overcoats, among other products. Hadzhiev (2014) offered a new approach to the measurement of revealed comparative advantages in addition to the classical approaches of Bella Balassa and Thomas Vollrath. The proposed approach aims to summarize the divergent expression of comparative advantages by commodity groups and countries and to arrive at the general pattern of export specialization. The conclusion drawn is that the contemporary international trade is characterized by symmetric specialization of exports. This is reflected in the specialization of a large group of countries in the export of lower-processed products and vice versa, a small group of countries specialized in the export of highly-processed products.Akhtar, Zakir and Ghani (2008) studied the revealed comparative advantage and its competitiveness in the global perspective and its potential for growth of Pakistan footwear industry. Using RCA methodology and a 2digit and 4-digit levels of industrial classification the analysis concluded that in recent years, specifically the period from 2003-06, the footwear industry has moved from a disadvantage (as compared with China and India) position to comparative advantage. Crafts and Thomas (1986) also investigated UK manufacturing trade prior to World War II and the result showed Britain exported goods intensive in the use of unskilled labour and had a comparative disadvantage in goods intensive in the use of human capital right up to the mid 1930s. Startienėand Remeikienė (2013) in their study, “Evaluation of Revealed comparative advantage of Lithuanian industry in global markets”, investigated the competitiveness of Lithuanian industry in global markets by using both RCA and RSCA indexes. The values of both indexes showed that the strongest competitive positions in global markets during the period of 2007–2011 were taken by Lithuanian food, chemicals, wood and textile manufactures and also the study results revealed smaller volumes of sales were characteristic to the export of most products. Similarly Karaalp and Yilmaz (2013) demonstrated the comparative advantage of four countries in the world: Bangladesh, China, Germany and Turkey with respect to the US and the EU-15 textiles and clothing markets by employing Balassa’s RCA index for the period 2000-2010. Generally the results revealed that Bangladesh, China and Turkey have a strong comparative advantage in both the textile and clothing markets of the world, the US and the EU-15, while Germany has no significant comparative advantage in any of these markets. Bangladesh and Turkey have a substantially higher comparative advantage in the Clothing and Textile industry respectively in all three markets compared to the other countries. 3. Footwear Industry in Selected African Countries (a) An Overview In the five-year Growth and Transformation Plan (2011-2015), the Ethiopian Government has made the footwear industry one of its focus areas, since it is one of the most labor-intensive industries, providing ample employment opportunities, a key to successful industrial development. The Government envisages earning US$500 million annually from the leather sector by the end of the GTP. Industrial Zones have been established in Bole Lemi, and Kilinto (Addis Ababa), and the Government has plans to construct similar complexes in other cities. These zones are to provide the space and infrastructure needed for light manufacturing. (FDRE, 2010). Ethiopia has recently become an increasingly important destination for international buyers looking for high-end shoes, because of its fine leather products and a strong commitment to quality. The footwear industry in Ethiopia is thriving. There have been a growing number IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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of new and innovative enterprises, as well as expansion of existing companies, improving the quality of their products and developing new marketing systems. In the face of fierce competition, Ethiopian entrepreneurs have been introducing new ideas for product design, production methods, labor management, procurement, and marketing. Ethiopia’s footwear industry and the leather sector in general enjoy significant comparative advantages in the international arena. It has abundant, available raw material, a highly disciplined and competent workforce and cheap prices. Ethiopia possesses the largest livestock herd in Africa, and the 10th largest in the world. It annually produces 2.7 million hides, 8.1 million sheepskins and 7.5 million goatskins. The leather and leather product sector produces products ranging from semi-processed leather in various forms to processed leathers including shoe uppers, leather garments, stitched upholstery, backpacks, purses, industrial gloves and finished leather. Government policies also make it an attractive option for FDI. Besides the excise breaks, tax holidays and cheap land rentals offered to investors in certain preferred sectors, make Ethiopia attractive. Ethiopia has the added advantage of a competitive and youthful workforce. Ethiopia is also eligible for assistance under schemes like the US’s African Growth and Opportunity Act (AGOA) and the EU’s everything but Arms (EBA) treaty, which allows exporters from many African countries duty- and quota-free access to America and Europe. Ethiopian leather products have been exported to markets in Europe, especially Italy and the UK, America, Canada, China, Japan and other Far Eastern countries, the Middle East and other African countries including Nigeria and Uganda. In just one year, Ethiopia’s shoe exports under AGOA rose from US $630,000 in 2011 to nearly US $7 million in 2012. Ethiopia is indeed making a name for itself in the world of mass-produced footwear. Production of leather shoes in Ethiopia dates back to the 1930s, but it is only now that the industry is expanding and finding its way onto the international market, producing shoes exportable to the markets in the developed countries. Footwear in the Egyptian industry profile provides top-line qualitative and quantitative summary information including: market size (value 2009-13, and forecast to 2018). The profile also contains descriptions of the leading players including key financial matrices and analysis of competitive pressures within the market. Essential resource for top-line data and analysis covering the Egypt footwear market includes market size data, textual and graphical analysis of market growth trends, leading companies and macroeconomic information. The footwear market consists of the total revenue generated through the sale of all types of men's, women's and children's shoes. The market is valued at retail selling price with any currency conversions calculated using constant annual average 2013 exchange rates. The Egyptian footwear market had total revenues of $2.1billion in 2013, representing a compound annual growth rate (CAGR) of 9.1% between 2009 and 20013. Nigeria exports leather to the 15 countries of the Economic Community of West African States such as Togo, Mali, Niger, Gambia, Burkina Faso and Liberia, among others. Skins, hides and leather from Nigeria are also bought in large quantities by Italy, Spain and many European countries. The leather industry of Nigeria received a big boost in 2014 as the value of exports of footwear, gaiters and the like reached $62.9 million within the year, data collected by Cobalt International Services and released by the Nigerian Export Promotion Council (NEPC) show. According to the data, export values of the leather commodities were $14.9 million and $17.7 million in the first and second quarters of 2014, respectively. Similarly, the values of exports of these commodities totalled $14.5 million in the third quarter and $15.8 million in the last quarter of 2014.But this sector is stifled by a number of problems, notably lack of finance and short tenor of funds provided by banks. (Anudu, 2015) IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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(b) Trends and Trend Patterns of Footwear Export in the Selected African Economy This section will demonstrate the export trend and trend patterns of footwear, gaiters and the like of the selected countries in the studied time. Particularly (Table 1) and (Figure 1) show the exports performance of the selected African countries, namely Egypt, Ethiopia, Kenya, Nigeria, Tanzania, and Uganda in article 64, footwear, gaiters and the like during 2003-14 Table 1Export performance of selected African economies in footwear, gaiters and the like Total Footwear, gaiters and the like exports of selected countries (USD thousands) Years 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Egypt 1232 1071 1520 1531 8171 17159 17394 18817 9180 10807 12377

Ethiopia 954 412 904 3164 8200 9670 6611 7962 8637 14400 28343 33885

Kenya Nigeria Tanzania Uganda 19953 3153 1493 92 23080 3362 186 25990 2899 512 31673 26970 4775 394 45654 59705 4683 3902 38990 55178 2560 2997 34831 85799 4561 17502 41201 340865 4707 6030 41574 123832 2108 4839 162417 2815 4522 47400 191749 2442 5444 26544 3621 12597 6502 Source: ITC, COMTRADE data Based on the study time, Ethiopia, Tanzania, Uganda and Egypt shows better export performance percentage than the rest of the countries. Whereas Kenya and Nigeria showed the least.According to the result Ethiopia has the most export performance than other selected African countries followed by Uganda. In contrast, Nigeria has less export performance followed by Kenya in the specified study time. Figure 1 Export performance of selected African economies in footwear, gaiters and the like

The export performances of other selected African countries are also showing similar trends in some extent.However, the countries growth in values data shows the growth patterns are not same for all selected African countries over the study period. Based on the data, the selected countries experienced IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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both negative and positive growth value in the studied time. The growth pattern in the value of Footwear, gaiters and the like exports for the countries are presented in the (Table 2) and (Figure 2).

Years 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Egypt

Table 2 Growth in the value of footwear, gaiters and the like exports Growth of Exports in value (%) Ethiopia Kenya Nigeria Tanzania

-17 49 434 110 1 8 -51 18 15

-57 119 250 159 18 -32 20 8 67 97 20

16 13 22 44 121 -15 -8 -11 55 18 297 1 -64 31 18 Source:ITC,COMTRADE data

125 -14 65 -2 -45 78 3 -55 34 -13 416

Uganda 102 175 -23 890 -23 484 -66 -20 -7 20 19

Ethiopia’s footwear sector growth rate is very unstable with ups and down, which is quite similar with the other selected African countries. Ethiopia meanwhile experienced a maximum growth rate in the selected sector in the two consecutive year 2005 and 2006 with value 250 and 159 respectively, whereas Egypt in 2007 with 434 , Kenya in 2006 with 44, Nigeria in 2009 with 297, Tanzania in 2013 with 416 and Uganda in 2006 with 890 value. In general the selected countries show good growth value between years 2005 to 2009.In contrast the selected African economies also faced negative growth rates in the sector during the study period. Figure 2 Growth values of selected African economies in footwear, gaiters and the like

Ethiopia in the year 2003 and 2008, Egypt in the year 2003 and 2011 ,Kenya in the year 2007 and 2008, Nigeria in the year 2007 and 2010 , Tanzania in the years 2004, 2006,2010 and 2012 , Uganda in the years 2005, 2007, 2009, 2010 and 2011 were challenged with negative growth value. Generally in the Selected African Countries Uganda on average has better growth value, 141, in the study time followed by Ethiopia 60.8, Tanzania 53.8, Egypt 51.5, Nigeria 40.9 and Kenya 8.(Table 3) shows the percentage footwear export within the countries and percentage of world’s total footwear export for the selected countries in the studied time.

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Table 3Footwear, gaiters and the like export shares in country total exports & world’s total export Years Egypt Ethiopia Kenya Nigeria Tanzania Uganda % of % of % of % of % of % of % of % of % of % of % of % of Total World Total World Total World Total World Total World Total World Expor Total Expor Total Expor Total Export Total Expor Total Expor Total t Expor t Expor t Export Export t Expor t Expor 2003 0.02 t 0 0.19 t 0 0.78 0 0 0.13 t 0 0.02 t 0 0.01 2004 2005 2006 2007 2008 2009 2010 2011

0.01 0.01 0.01 0.03 0.07 0.07 0.06

0 0 0 0 0 0 0

0.07 0.1 0.3 0.64 0.6 0.41 0.34 0.33

2012 2013 2014

0.03 0.04 0.05

0 0 0

0.5 0.7 0.6

0 0 0 0 0 0 0 0

0.86 0.76 0.9 1.12 0.78 0.78 0.8 0.71

0 0 0 0 0 0.1 0 0

0.05 0.11 0.07 0.17 0.39 0.1 0 0.11 0 0.86 0 0.21 0 0.43 0 0 Source: ITC,COMTRADE data

0 0.1 0.1 0.1 0.4 0.1

0.23 0.17 0.26 0.22 0.08 0.15 0.12 0.04

0 0 0 0 0 0 0 0

0.03 0.06 0.04 0.29 0.17 1.12 0.37 0.22

0 0 0 0 0 0 0 0

0.1 0.2 0

0.05 0.06 0.22

0 0 0

0.19 0.23 0.29

0 0 0

(Figure 3) and (Figure 4) also shows the share of total footwear, gaiters and the like exports toward world total export and within countries total export respectively.For countries export as percentage of total world exports in footwear, gaiters and the like, Nigeria shares 0.11% of world’s export, which is higher than the selected countries in the study time. On the other hand, Kenya serves only 0.1%, whereas Ethiopia, Tanzania, Uganda and Egypt serves null to the total world’s export. (Figure 3) Figure 3 Percentage of Export of selected economies footwear, gaiters and the like toward world total export

According to the data on footwear, gaiters and the like exports toward countries total export, Kenya accounts 0.798% of country’s total export earnings, which is higher than the selected countries, followed by Ethiopia, 0.4%, Uganda, 0.2525, Tanzania, 0.144%, Nigeria, 0.122 and Egypt 0.0364. (Figure 4)


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Figure 4 Percentage of Export of selected economies Footwear, gaiters and the like within countries total export

4.Data and Methodology The data is obtained on footwear export of selected African economies which is published by International Trade Centre (ITC). The selected African countries consist of Egypt, Ethiopia, Kenya, Nigeria, Tanzania and Uganda. The study utilized the 2-digit HS code 64 which focus on footwear, gaiters and the like; parts of such articles. The reason for choosing only HS code 64 is primarily to accelerate the export of footwear from the country which has the RCA among the selected African economies. In order to know the tendency of selected African economies in export of footwear, the study covered the period from 2003 to 2014 irrespective of its emergence as an economic coalition.Vollrath (1991) offered three alternative specifications of RCA, following analyses of international competitiveness in agriculture (Vollrath, 1987 & 1989; Vollrath(1990) .The first of these measures is the relative trade advantage (RTA), which accounts for imports as well as exports. It is calculated as the difference between relative export advantage (RXA), which equates to the Balassa index1, and its counterpart, relative import advantage (RMA).An empirical investigation was carried by Balassa’s (1965) theory of revealed comparative advantage using the formula. According to Balassa, 1965, RCA is defined as follows: RCAij= (Xij/Xit) / (Xwj/Xwt) (1) Where,  RCAij represents the RCA of a given country i;  Xij represents the export volume of product j in country i;  Xit represents the total export volume of country i;  Xwj represents the export volume of product j of the world; and  Xwt represents the total export volume of the world The country has revealed comparative advantage if Balassa index exceeds 1. However, to identify a country’s strong sectors the RCA of Balassa index exceeds 2 (Hinloopen&Marrewijk, 2001). The empirical investigation is also carried by a One-way analysis of variance (ANOVA) to examine the significance difference between the revealed comparative advantages of selected African economies. Further, Scheffe Post Hoc multiple comparisons are also applied in order to analyze the multiple comparisons of Revealed Comparative Advantage (RCA) among selected economies. The statistical Package for the Social Sciences (SPSS) was used in analysis of data.


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5. Statistical Technique and Empirical Results The value ofrevealed comparative advantage (RCA) for export of footwear is obtained by formula ofBalassa’s RCA which is given in the above equation (1). A summary of descriptive statistics of RCA of the selected African economies is presented below on (Table 4). Table 4 Descriptive Statistics of the selected countries Country Mean SD Minimum Maximu RCA m Egypt 0.05531 0.033318 0.0158 0.10648 Ethiopia 0.61284 0.33585 0.101 1.071 Kenya 1.23672 0.311757 0.560 1.867 Nigeria 0.191349 0.17734 0.005 0.615 Tanzania 0.22060 0.121722 0.416 0.071 Uganda 0.386034 0.44353 0.024 1.675 The countries RCA for data in the studied period are also tabulated in (Table 5) and Figure 6. The following hypothesis is devised to determine the significance difference between the RCA of the selected African economies. Years 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Table 5Revealed Comparative Advantage for the countries from 2003 to 2014 Egypt Ethiopia Kenya Nigeria Tanzania Uganda 0.02758

0.257

1.079

0.02108 0.02225

0.101 0.152

1.3 1.184

0.0158

0.493 1.071

1.471 1.867

0.0546 0.10648

1.047 0.613

0.10314 0.09452

0.534 0.524

0.04869 0.05474 0.05949

0.018

0.182

0.024

0.345 0.27

0.043 0.098

0.074 0.185

0.416 0.365

0.067 0.487

1.353 1.171

0.117 0.258

0.142 0.229

0.302 1.675

1.245 1.127

0.615 0.156

0.181 0.071

0.582 0.356

0.777 0.177 1.013 1.248 0.309 0.771 0.56 0.005 Source:ITC,COMTRADE data

0.079 0.081 0.285

0.299 0.33 0.37

-

H0. There exists no significant difference among the revealed comparative advantage of selected African economies.


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Figure 6RCA Index Comparisons for countries in export of footwear, gaiters and the like

In order to test this hypothesis among different methods, One-way analysis of variance (ANOVA), a technique used to compare means of three or more samples (using the F distribution) which uses only for numerical data is applied and stated in Table 6. Table 6One way analysis of variance (ANOVA) on the RCA of selected African economies Value Sum of Squares df Mean Square F Sig. Between Groups 10.191 5 2.038 26.212 .000 Within Groups 4.821 62 .078 Total 15.012 67 For insight of the result RCA Matrix of multiple comparisons among selected economies are also tabulated in (Table 7). Table 7Multiple Comparisons of Revealed Comparative Advantage Dependent Variable: Value LSD (I) (J) Country Country Ethiopia Kenya Egypt Nigeria Tanzania Uganda Egypt Kenya Ethiopia Nigeria Tanzania Uganda Kenya Egypt

Mean Difference (I-J) -.557443636* -1.181511818* -.136093636 -.165193636 -.330776970* .557443636* -.624068182* .421350000* .392250000* .226666667 1.181511818*

Std. Error .116398806 .118902292 .121838593 .116398806 .116398806 .116398806 .116398806 .119396690 .113840278 .113840278 .118902292


Sig. .000 .000 .268 .161 .006 .000 .000 .001 .001 .051 .000

95% Confidence Interval Lower Bound Upper Bound -.79012153 -.32476574 -1.41919411 -.94382952 -.37964551 .10745824 -.39787153 .06748426 -.56345487 -.09809907 .32476574 .79012153 -.85674608 -.39139028 .18267942 .66002058 .16468653 .61981347 -.00089681 .45423014 .94382952 1.41919411

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Ethiopia .624068182* .116398806 Nigeria 1.045418182* .121838593 * Tanzania 1.016318182 .116398806 Uganda .850734848* .116398806 Egypt .136093636 .121838593 Ethiopia -.421350000* .119396690 * Nigeria Kenya -1.045418182 .121838593 Tanzania -.029100000 .119396690 Uganda -.194683333 .119396690 Egypt .165193636 .116398806 Ethiopia -.392250000* .113840278 * Tanzania Kenya -1.016318182 .116398806 Nigeria .029100000 .119396690 Uganda -.165583333 .113840278 * Egypt .330776970 .116398806 Ethiopia -.226666667 .113840278 * Uganda Kenya -.850734848 .116398806 Nigeria .194683333 .119396690 Tanzania .165583333 .113840278 *. The mean difference is significant at the 0.05 level. (a) Descriptive Statistics

.000 .000 .000 .000 .268 .001 .000 .808 .108 .161 .001 .000 .808 .151 .006 .051 .000 .108 .151

.39139028 .80186630 .78364028 .61805695 -.10745824 -.66002058 -1.28897006 -.26777058 -.43335392 -.06748426 -.61981347 -1.24899608 -.20957058 -.39314681 .09809907 -.45423014 -1.08341275 -.04398725 -.06198014

.85674608 1.28897006 1.24899608 1.08341275 .37964551 -.18267942 -.80186630 .20957058 .04398725 .39787153 -.16468653 -.78364028 .26777058 .06198014 .56345487 .00089681 -.61805695 .43335392 .39314681

RCA has different characteristics for judging the countries comparative advantages in any sector to show in which goods countries tend to specialize in, in their trade. (Table 4)and Figure 5 shows the descriptive statistics onRCA of selected African economies. The mean and standard deviation of Egypt, Ethiopia, Kenya, Nigeria, Tanzania and Uganda are 0.05531 & 0.033318, 0.61284 & 0.33585, 1.23672 & 0.311757, 0.191349 & 0.17734, 0.22060 & 0.121722 and 0.386034 & 0.44353 respectively. Kenya’s mean value emphasizing RCA of the footwear sector among selected African economies is the highest.

Figure 5 Descriptive Statistics of the selected countries


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In contrast, Egypt and Nigeria have the least mean values among the selected countries of 0.05531 & 0.191349 with Standard deviation of 0.033318 & 0.17734 respectively with mean value much less than one, revealing the least dedication toward the footwear sector. Besides, the mean value of Ethiopia and Uganda footwear sector shows less than one, which is less comparative advantage as compared to Kenya but better than other selected African economies. (b) Countries Revealed Comparative Advantage Analysis This subdivision of the study is developed to present the results of the analysis performed on collected data to determine the pattern of RCA in export of footwear for selected countries- Egypt, Ethiopia, Kenya, Nigeria, Tanzania and Uganda. An in depth analysis has been configured for the category of footwear, gaiters and the like; parts of such articles for the period of 2003 to 2014.Using the above Balassa’s formula (equation (1)) for the years 2003 to 2014, the revealed comparative advantage values are computed for Egypt, Ethiopia, Kenya, Nigeria, Tanzania and Uganda. At HS-2 level in order to determine the comparative advantage of export in footwear sector, Table 5 and Figure 3 also reports the computed values of RCA from the year 2003 to 2014. A country is said to have RCA if Balassa index exceeds one and the sector is said to be strongest if it exceeds 2, however less than 1 RCA value demonstrates that the country has no RCA and is not specialized in the specified product line. Based on the computed data, the RCA value of the selected countries showed much variation during the period of the study. Among the selected African countries only Kenya showed a competitive advantage in footwear sector with little change in RCA. The RCA index value of Kenya is more than one throughout the study period except year 2014 that indicates footwear as strong sector during the period of the study. In addition the value of Kenya’s RCA are fluctuating throughout the study and reached RCA Index less than one in year 2014, which implies the changing pattern of footwear export of Kenya. Among the selected African economies Egypt, Nigeria and Tanzania all reported an RCA index lower than 1 in the whole study period which emphasizes that the countries do not have the revealed comparative advantage in footwear sectors. After the reflective analysis of RCA it has been observed that, in case of the footwear sector, Egypt, Nigeria and Tanzania do not place at competitive level among the selected African nations. Ethiopia has no comparative advantages on footwear sector with the RCA index less than 1 along with the reliability in the comparative advantage during the period of the study except the year 2007, 2008 and 2013. However, Ethiopia in future could gain a bigger share of footwear export as in the 2nd Growth and Transformation plan (GTP) of the country as its manufacturing sector has got priority to export high-end products and would substitute the export of low-value products which include leather and textiles. Uganda also showed an increasing consistency in RCA from 2003 to 2009, resulting in an RCA index greater than one in the year 2009. (c) One Way Analysis of Variance Before the discussion ofposthoc comparisons,first theone way analysis of variance (ANOVA) tablewas interpreted. Based on Levin and Rubin (1998)the ANOVAwas used to test the significance of the differences among more than two sample mean (using the F distribution) which was used only for numerical data. (Table 6) tried to show the ANOVA on the RCA of selected African economies. From the result the analysis is highly significant as the p-value (0.000) is below 0.05 significant levels with the F ratio of 26.212; therefore, the null hypothesis that, there is evidence at the 5% significance level to IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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suggest a significance difference among the RCAs of selected African economies was rejected. According to the result, the RCAs of selected African economies had a significant difference. However, in order to get an indepth insight, among several types of posthoc comparisons the RCA matrix of multiple comparisons in the selected African economies has been done using the Post Hoc Scheffe method. This method is the most conservative of the bunch which controls experiment wide error rate to 5%, or in other words, there at most a 5% chance of making any type-I errors using the procedure. The detailed Multiple Comparisons of RCAs among selected African economies is presented on (Table 7). Based on the computed data the RCA of Egypt showed significant difference in comparison to the RCA of Ethiopia, Kenya and Uganda but not a significant difference in relation to other selected African economies. When comparing the RCA of Nigeria and Tanzania, the values were not significantly different from the selected countries, except the RCA of Kenya and Ethiopia. Uganda did not show a significant difference in its RCA value, except the RCA of Egypt and Kenya. According to the data analysis, Ethiopia and Uganda do not have significant difference in RCA among the selected African countries. Besides, it is clear from (Table 7) that Kenya has significant difference in RCA from all the selected African economies. 6. Summery and Conclusions In Ethiopia the leather industry including footwear products is the more priority sector next to agroprocessing industries, textile and clothing, food and beverage industries. This particular study examined the performance of the footwear sector in international trade for Ethiopia and its comparison with selected African countries, i.e. Egypt, Kenya, Nigeria, Tanzania and Uganda. Throughout the study the known Balassa’s RCA index (1965) has been employed to compute and compare the RCAof the footwear sector from the year 2003 to 2014. The study period, among the selected economy Kenya has revealed strong RCA in the footwear sector. There were significant changes in the patterns of RCAs even if the rate of changes was not consistent and showed no RCA in the recent year, 2014.Uganda, however, showed good RCA in the footwear sector only in the year 2009. Ethiopia also showed a good RCA in the footwear sector in the year 2007, 2008 and 2013 in the study period. The RCA export pattern of Egypt, Nigeria and Tanzania is revealed that the countries did not have a comparative advantage in footwear export. Based on the one way analysis (ANOVA), the result showed that there was significant difference between the RCA of selected economies. Post hoc Scheffe results also showed that Ethiopia and Uganda did not have significant differences in RCA among the selected African countries. Only Kenya showed a significant difference in its RCA compared to all the selected African economies. Uganda also did not show a significant difference in its RCA value except with the RCA of Egypt and Kenya. Since the sector is labour intensive, the governments of these countries and different stakeholders should work together to devise strategic plans to ensure the implementation of financial and technical support and promote the export of comparative advantages of the footwear sector to enhance the country’s economy. References 1. Abtew, M.A. (2015) ‘Revealed Comparative Advantage of Ethiopian Leather Industry with Selected African Economies’,International Journal of Business and Economics Research,vol. 4, no.5, pp.229237. 2. Akhtar, N., Zakir, N. and Ghani, E. (2008)‘Changing revealed comparative advantage: a case study of footwear industry of Pakistan’’, The Pakistan Development Review,vol. 47, no.4:695-709. 3. Anudu, O. (2015).BusinessDay, Nigeria. 4. Balassa, B.(1965) ‘Trade Liberalization and ‘‘Revealed’’ Comparative Advantage.’ The Manchester School,vol.33, pp. 99–123. IRJBM – (www.irjbm.org ) Volume No – X December - 2017 © Global Wisdom Research Publications – All Rights Reserved.

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