Commodity markets in Africa are expected to remain volatile in the coming months following the persistence of Covid-19 constraints in the supply chain and other global economic pressures, says Stephen Karingi, Director of Regional Integration and Trade Division at the Economic Commission for Africa (ECA).
Mr. Karingi was speaking at the ECA Price Watch session with African finance ministers on “Commodity prices amid Covid-19: prospects and policy implications for African economies.”
He said African economies remain largely dependent on primary commodity exports and that although the commodity sector in most African economies is a significant source of national revenues, high dependence on the sector means high vulnerability to the vagaries of international markets and volatile prices passed on to local markets.
“High commodity dependence is associated with lower human development indicators across the developing world,” said Mr. Karingi, adding that “limited diversification and reliance on the commodities sector are detrimental to long-term development in resource-rich countries.”
The ECA director noted that commodity markets in Africa reacted strongly to Covid-19 in early 2020 owing to restrictions, the economic slowdown and an uncertain outlook.
On the commodity markets’ outlook, he said the upside risk factors for the continent include an improved economic outlook/gradual recovery partly driven by successful vaccines campaigns and control of Covid-19 outbreaks; expansive monetary and fiscal policies to sustain economic activities, like the recent US$1.9 trillion rescue plan in the US and the €750 billion recovery effort in the EU area; dynamic construction and infrastructure sectors worldwide to support markets of some commodities; high production costs to put upward pressure on food costs; and low carbon energy and electric vehicles to sustain markets for products such as cobalt, lithium and nickel.
The downside risk factors include the gloomy economic prospects, especially in industrialised economies if the new Covid-19 variant is not controlled, and slower growth in major commodity importing countries.
Mr. Karingi recommended that countries should overhaul their policies to reduce strong dependence on global commodity markets. African countries, he said, should also promote economic and fiscal diversification, including through the landmark African Continental Free Trade Area (AfCFTA).
“AfCFTA will assist with Covid-19 recovery but expected benefits from AfCFTA will not be automatic. Member states must pursue ratification of the agreement and implement it effectively,” he noted.
Oliver Chinganya, Director of the African Centre for Statistics (ACS) at the ECA, said while the macroeconomic effects are well known, the trends in commodity prices and their influence on the revenue of African countries require delving into deeper analysis to have a good grasp of the situation.
“The recent commodity price movement raises questions on critical points that economic policies should consider, both in the current situation as well as for longer-term perspectives,” he said.