According to the United Nations Conference on Trade and Development (UNCTAD), commodity dependence increased over the last decade from 93 countries in 2008–2009 to 101 in 2018–2019. The latest revelation going as far as highlighting that the nominal value of world commodity exports reached $4.38 trillion in 2018–2019 which is a 20 per cent increase compared with 2008–2009. Worse still, today, it is now clear that commodity dependence tends to mainly distress developing countries as 87 of the 101 now considered commodity dependent rely on agricultural product exports with the remaining 32 relying on mining exports while 31 depend on fuels.
This reliance on commodities has crept up on many developing economies as many of them have made structural reforms in the past two decades towards trade liberalization and export orientation which in turn yielded growth in world merchandise trade and ultimately, growth in aggregate output. For Africa however, the daunting challenge remains the heavy reliance on primary commodities as a source of export receipts has left the continent vulnerable to price fluctuation shocks which in admission remain cyclical in nature.
With the price volatility, emanating from supply shocks and the secular decline in real commodity prices, many commodity dependent economies are often left grappling in price slumps.
In UNCTAD’s work on commodity dependence, three examples are highlighted to uncover the genesis of the plague and what can be done to counter the dependence. Focus is first placed on Zambia which exemplifies a country which is commodity dependent in the reference period and remains dependent over a long period. According to UNCTAD, “In 1965, copper ore and concentrate, and copper alloys, represented 85 per cent of Zambia’s net merchandise exports. Twenty years later in 1985, the composition of Zambia’s export basket had hardly improved, with copper and copper alloys, refined or not, unwrought; representing 77 per cent of the country’s merchandise exports. By 2005, merchandise exports were still dominated by copper-based raw materials, accounting for about 60 per cent of the total. In 2018, Zambia’s export concentration around copper had worsened, increasing to almost to 80 per cent of total merchandise exports. With such worsening dependence, what can be done to wean Zambia off copper exports?
The second case is Nigeria where the west African initially embarked on a trajectory of export diversification but in the end becomes export dependent. This makes for a rather peculiar case as noted by UNCTAD that “Nigeria was relatively diversified in 1965 but became more dependent on one commodity over time. In 1965, even though Nigerian exports were dominated by primary commodities, the export basket was diversified with cocoa beans, groundnuts, and palm nuts and kernels, representing 15 per cent, 13 per cent, and 10 per cent, respectively, of total merchandise exports. The country also exported palm oil, groundnut oil, and tin and tin alloys, unwrought. Crude petroleum and refined petroleum accounted for 15 per cent and 10 per cent, respectively, of total merchandise exports. Twenty years later in 1985, the country was exporting almost a single commodity, crude petroleum, which accounted for 97 per cent of total merchandise exports. In 2005, at 92 per cent of total merchandise exports, crude petroleum was still by far the major export of Nigeria. By 2018, the picture had changed only slightly, crude petroleum still accounting for 81 per cent of total merchandise exports (petroleum gases represented 12 per cent)”.
However, at the just concluded Global commodities forum in Geneva, one country was hailed for their structural reform and diversification drive: Costa Rica. In 1965, Costa Rica’s exports were by and large merely coffee and bananas. These accounted for about 68 per cent of total net merchandise export earnings and the gross figure too was not so encouraging as food commodities represented 83 per cent of total merchandise exports. By 1985, these two commodities were still the country’s dominant exports, accounting for 61 per cent of total merchandise exports.
Then the diversification drive commenced and by 2005. According to UNCTAD, the main exports were electronic microcircuits, with a share of 26 per cent, followed by parts of and accessories for machines, with a share of 15 per cent.
A success story indeed! In summation, escaping the commodity trap is takes immense political will and commitment but one can argue that African economies are in luck as they have the perfect case study —Costa Rica.
