Deep dependence on commodities plagues developing nations; adding value is crucial to shift the momentum
In the span of two years, between 2021 and 2023, the world witnessed significant shifts in the global trade landscape. While the value of world trade in goods saw a substantial 25.6% increase, the expansion of commodity trade was relatively slower, growing by just 15.5%.
Africa, a continent rich in natural resources, experienced a 5.6% decline in its commodity exports, primarily due to a decrease in energy products from Nigeria, Angola, and Algeria. Despite growth in the agricultural and mining sectors, the decline led to a fall in total earnings from commodity exports, with Africa's earnings dropping by over US$25 billion from a decade before.
The decline was not unique to Africa. Similar patterns were observed in regions such as Central Asia and South America, where resource wealth plays a central role in trade.
Asia and Oceania maintained their position as the world's largest source of commodity exports, accounting for 37.1% of the global total. Mining products, such as minerals, ores, and metals, saw a 33.4% increase in export value, averaging US$1.65 trillion annually during the same period.
Commodity dependence is a prevalent issue, particularly in structurally weak and vulnerable economies. More than 80% of least developed countries and landlocked developing countries, and roughly 60% of small island developing states, are heavily reliant on commodities. This dependence hinders industrial development and threatens countries' fiscal stability when global prices go volatile.
To address this issue, key strategies have been suggested, emphasizing diversification, value addition, and industrialization. These strategies include strengthening value addition processes, expanding industrial diversification, implementing sound trade policies, promoting technology adoption and innovation, investing strategically in infrastructure and capacity, and learning from successful cases like Indonesia and Guatemala.
The urgency for these strategies is underscored by the vulnerabilities commodity-dependent economies face, such as exposure to global price shocks and constrained fiscal stability. A multi-pronged approach focused on industrialization, economic diversification, value addition, and enabling policies is recommended to help these vulnerable countries reduce dependence on raw commodity exports and build more sustainable, resilient economies.
Finance and industry are intertwined in efforts to diversify and industrialize commodity-dependent economies. To mitigate the risks of exposure to global price shocks and ensure fiscal stability, key strategies such as value addition, industrialization, and implementation of sound trade policies are crucial, as demonstrated by successful cases like Indonesia and Guatemala.
