By Asmau Ahmad
The United Nations Economic Commission for Africa (UNECA) says commodity markets in Africa are expected to remain volatile in the coming months following the persistence of Coronavirus (COVID-19) constraints in the supply chain and other global economic pressures.
UNECA made this known during its Price Watch session with African finance ministers, which was held under the theme “Commodity Prices Amid COVID-19: Prospects and Policy Implications for African Economies.”
Stephen Karingi, Director of Regional Integration and Trade Division at the ECA, told African finance ministers that African economies remained largely dependent on primarily the exports of commodities.
According to the UNECA, 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 Karingi, adding that limited diversification and reliance on commodities sectors are detrimental to long-term development in resource-rich countries.
The ECA director noted that the commodities markets in Africa reacted strongly to COVID-19 in early 2020, owing to restrictions, economic slowdown, and uncertain outlook.
From mid-2020, significant rebound in commodities prices was above their pre-COVID-19 levels with short-term volatilities partly supported by expansive macroeconomic policies, it was noted.
On the commodity markets outlook, the upside risk factors for the continent are said to be gradual recovery partly driven by successful vaccines campaigns and control of COVID-19 outbreaks.
Meanwhile, dynamic construction and infrastructure sectors worldwide are expected to support markets of some commodities just as high production costs are expected to put upward pressure on food costs and low carbon energy.
Electric vehicles are projected to sustain markets for products such as cobalt, lithium, and nickel.
The downside risk factors are said to be the gloomy economic prospects, especially in industrialised economies if the new COVID-19 variant is not controlled, as well as slower growth in major commodity importing countries.
According to Karingi, the potential impacts of recent surge in commodities prices will see commodity exporters record increases in economic outputs and fiscal revenues as well as price volatility to result in macroeconomic instability, trade balances, and investment flows.
The surge is forecast to cause potential negative weight of high prices on net commodities importers, especially with regards to food and energy commodities.
The UNECA director recommended countries should have an overhaul policy (fiscal, trade, and human capital) to reduce strong dependence on global commodity markets.
African countries have been also urged to promote economic and fiscal diversification, including through the landmark African Continental Free Trade Area (AfCFTA).
Oliver Chinganya, Director of the African Centre for Statistics (ACS) at the ECA, on his part stressed that while the macroeconomic effects are well known, the trends of 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,” Chinganya said.
Chinganya emphasized that over the last twenty months, COVID-19 has exposed the vulnerability of African economies to global shocks and high dependence on remote world markets.
The situation had led to disruptions in supply chains and the slowdown in economic activities worldwide, which to some extents have affected the price of several commodities since the outbreak, he said.