Dependence on commodities leaves countries ‘vulnerable to shocks’ and ‘weakened’

THE NUMBER of countries dependent on commodities has reached its highest level in 20 years, according to a recent UNCTAD report.

UNCTAD (United Nations Conference on Trade and Development) defines commodity dependency as the moment when these account for more than 60 percent (in value terms) of its total merchandise exports.

The State of Commodity Dependence Report 2019 shows commodity dependent countries increased from 92 (from 1998 to 2002) to 102 (2013 to 2017).

Coal MiningMore than half of the world’s countries (102 out of 189) and two thirds of developing countries are dependent, the report indicates.

“Given that commodity dependence often negatively impacts a country’s economic development, it is important and urgent to reduce it to make faster progress towards meeting the sustainable development goals,” said UNCTAD secretary-general Mukhisa Kituyi.

Commodity dependent developing countries are vulnerable to negative commodity price shocks and price volatility. It is a problem of developing countries, almost exclusively, according to the report — with 85 percent of those which categorised as “least developed” affected. That can be further broken down to include 81 percent of landlocked developing countries and 57 percent of small island developing states.

Sub-Saharan Africa is the most affected, with 89 percent of countries classified as commodity dependent. It is followed by the MENA region (Middle East and North Africa), where 65 percent of countries depend on commodities.

Half of the countries in Latin America and the Caribbean, and half of the countries in East Asia and the Pacific, are also commodity dependent.

The problem is a persistent one, according to the report. The dominant groups of exported products changed in just 25 percent of countries from 2013 to 2017, and that was partly due to changes in commodity prices.

The number of countries dependent on the export of agricultural products declined from 50 to 37 in the 1998-2002 and 2013-2017 periods. The number of mineral-dependent countries rose from 14 to 33, while the number of energy-dependent countries increased from 28 to 32.

Relative price fluctuations among the different commodity groups contributed to changes in the dominant product groups exported, as the prices of energy and minerals increased more than those of agricultural and manufactured goods.

The average commodity price levels between 2013 and 2017 were below their peak (2008 and 2012), the report revealed. This contributed to an economic slowdown in 64 commodity dependent countries, with several going into recession and public debt expanding, often as an increase in external debt.

The external debt of 17 commodity-dependent developing countries increased by more than 25 percent of GDP between 2008 and 2017.

Some countries have succeeded in diversifying their production and exports over the past two decades.

Energy-export dependent countries such as Oman, Saudi Arabia and Trinidad and Tobago increased the share of non-commodity exports by adding value in their downstream sectors. Other energy or mineral-export-dependent countries like Rwanda and Cameroon managed to expand their agricultural exports.