UNCTAD advocates economic diversification to tackle climate change

Economic and export diversification is the best response to the challenges posed by climate change in developing countries that depend on commodities, according to United Nations Conference on Trade and Development (UNCTAD’s) Commodities and Development Report 2019.

The diversification could be horizontal, which entails venturing into new goods and sectors to reduce dependence on a narrow range of commodities, or vertical, which involves moving the value chain of a commodity up to increase its worth, says the report entitled “Commodity Dependence, Climate Change and the Paris Agreement”.

According to the report, a successful diversification strategy will likely include a combination of horizontal policies, such as strengthening human capital through investments in education and health, and targeted measures to promote individual sectors.

“The climate crisis poses an existential threat to commodity-dependent developing countries and will result in the collapse of some economies if decisive action is not taken now,” UNCTAD Secretary-General Mukhisa Kituyi said.

“Now more than ever before, these countries need to assess their diversification potential and reduce their commodity dependence, which for decades has kept them exposed to volatile markets and climate change,” Dr. Kituyi added.

Although commodity-dependent developing countries contribute only modestly to climate change, the climate crisis puts them at most risk. They are more vulnerable primarily because they are economically dependent on sectors that are highly exposed to extreme weather events, the report states. Small island developing states (SIDS) are among the worst affected.

Rising sea surface temperatures pose significant risks to the SIDS that derive a large share of their merchandise export earnings from fisheries, such as Kiribati (88% in 2013–2017), Maldives (79%) and the Federated States of Micronesia (75%).

The negative effects of climate change on crop and fisheries production are more severe in low-latitude regions, where most commodity-dependent developing countries are located, the report observes.

Equally at risk are high-income, fossil-fuel-dependent countries, such as Brunei Darussalam, Kuwait and Qatar, which have some of the highest levels of greenhouse gas emissions per capita. They could be profoundly affected by the stranding of their major natural resource as a result of the growing push towards greener sources of energy, the report says.

The report underscores that the high risk faced by commodity-dependent developing countries reinforces their need to adapt, diversify and modernize their economies. They must also adapt to the effects of the climate response measures undertaken by other countries, which are expected to reduce the demand for some key commodities on which they depend.

According to the report, the quest for climate mitigation and adaptation has spurred investments in technological innovations that could benefit commodity-dependent countries. One example is the adoption of cost-efficient solar photovoltaic cells, which could bolster energy security and support commodity sectors in remote areas that are not connected to national power grids.