‘Difficult to break chains of commodity dependence without diversification’
…98% of exports from Nigeria, others from single commodity
The inability of many nations to diversify their economy from a single commodity has continued to put them at the mercy of international market prices, with socio-economic and environmental consequences, the United Nations Conference on Trade and Development (UNCTAD) has said.
According to UNCTAD’s recent report on the State of Commodity Dependence 2019, for countries who depend on a single commodity, when prices go down, employment, exports and government revenue suffer. In other words, putting too many eggs in one basket renders the country vulnerable.
Data from UNCTAD showed that there are 35 countries in the world for which more than 90% of their exports are commodities. For Angola, Iraq, Chad, Guinea-Bissau and Nigeria, this share surpasses 98%, and in some instances a single product constitutes more than three-quarters of all export revenue.
To better understand the true impact of commodity dependence, UNCTAD noted that monitoring goes a long way towards shedding light and breaking cycles of underdevelopment.
The trade agency noted that around 54% of all countries, or 102 out of 189, are commodity-dependent. However, only 13% of developed countries – including Australia, New Zealand and Norway – are in this situation.“In contrast, this share increases to 64% for developing countries, and is higher still – at 85% – for the world’s least-developed countries. In other words, export concentration of primary commodities is linked to underdevelopment; the higher the dependence, the lower the country’s development, measured by its GDP per capita.
“The problem is not dependence per se, but the vulnerability it entails. The recent commodity price downturn is a case in point. After reaching a peak between 2008 and 2010, commodity prices were substantially lower between 2013 and 2017. This reduction contributed to an economic slowdown in 64 commodity-dependent countries, with several of them going into recession.
“And as their economies slowed down, fiscal positions worsened and public debt rose, often resulting in increased external debt. Between 2008 and 2017, the external debt of 17 commodity-dependent developing countries increased by more than 25% of GDP. In Mongolia, the most extreme case, the ratio of debt to GDP skyrocketed from 39% to 245%.
To address the issue, UNCTAD urged the need to support developing countries to diversify their economies and increase the value of their exports.
“This is nothing new. Somehow despite all what we know, the situation has hardly changed in the past 20 years, and it will not change in the next 20 if we continue as we are. The vulnerability of these countries will become the vulnerability of our development ambitions – chief among them, the Sustainable Development Goals”, it added.
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