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Number of commodity-dependent countries reaches 20-year high

There has been a rise in the number of countries dependent on commodity exports, especially in the developing world, finds a UN agency report, rendering these countries vulnerable to negative commodity price shocks and price volatility.

by Kanaga Raja

GENEVA: The number of commodity-dependent countries increased from 92 in the period 1998-2002 to 102 in the period from 2013 to 2017, reaching its highest level in 20 years, the UN Conference on Trade and Development (UNCTAD) has said.

In its State of Commodity Dependence Report 2019, released on 16 May, UNCTAD said that more than half of all countries – 102 out of 189 – and two-thirds of developing countries are commodity-dependent.

According to UNCTAD, a country is considered to be export-commodity-dependent when more than 60% of its total merchandise exports are composed of commodities.

“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 (SDGs),” said UNCTAD Secretary-General Mukhisa Kituyi.

According to the UNCTAD report, in the period 2013-17, 102 out of 189 countries (54%) were commodity-dependent.

By region, 89% of sub-Saharan African countries are commodity-dependent, compared with two-thirds of the countries in the Middle East and North Africa, half of the countries in Latin America and the Caribbean, and half of the countries in East Asia and the Pacific.

On the other hand, only a quarter of countries in South Asia and in Europe and the Central Asia region are considered commodity-dependent, while there are no commodity-dependent countries in North America.

UNCTAD said that commodity dependence is almost exclusively a developing-country phenomenon. Only 13% of developed countries are commodity-dependent, compared with almost two-thirds (64%) of developing and transition economies.

Commodity dependence is particularly concentrated in the least developed and most vulnerable country groups: 85% of least-developed countries (LDCs), 81% of landlocked developing countries (LLDCs), and 57% of small island developing states (SIDS).

Using the World Bank country classification by income groups, UNCTAD found that 91% of low-income countries are dependent on their commodity exports, compared with less than one-third of high-income countries.

The number of commodity-dependent countries increased from 92 in 1998-2002 to 102 in 2013-17. However, UNCTAD said, the number of countries dependent on the export of agricultural products declined from 50 to 37 between these two periods, while the number of mineral-dependent countries steadily rose, from 14 to 33, and the number of energy-dependent countries increased from 28 to 32.

UNCTAD also pointed out that commodity dependency is a persistent problem. During the period 1998-2017, the dominant export product groups (agriculture, minerals, energy, or non-commodities) of 142 countries out of the 189 in the sample (75%) remained unchanged.

Commodity prices increased substantially between 1998-2002 and 2008-12, but fell in 2013-17, although they remained significantly higher than the prices registered in 1998-2002 or even in 2003-07.

But price increases varied by commodity group: the prices of energy and minerals increased much more than those of agricultural and manufactured goods. Therefore, said UNCTAD, relative price changes among these different commodity groups and relative to the price of manufactures contributed to changes in the dominant product groups exported.

For example, during the period 2008-12 when energy prices peaked, non-commodity-exporting countries with a sizeable energy sector, such as Egypt and Indonesia, became temporarily energy-export-dependent. Similarly, some countries switched from being dependent on agricultural exports in 1998-2002 to energy- or mineral-dependent (e.g., Bolivia and Mozambique) in 2008-12 as energy and mineral prices soared.

Vulnerability

UNCTAD further said that commodity-dependent developing countries (CDDCs) are vulnerable to negative commodity price shocks and commodity price volatility. The average commodity price levels in the period 2013-17 were substantially below their peak of the 2008-10 period. For example, energy prices fell by 23.5%, mineral prices by 13.7% and agricultural prices by 12.8%.

The negative terms-of-trade shock, together with other factors, both external and domestic, contributed to an economic slowdown in 64 commodity-dependent countries, with several of them registering a recession in 2013-17. As their economies slowed down, the fiscal situation of many CDDCs deteriorated, resulting in the accumulation of public debt, often in the form of an increase in external debt.

Indeed, said UNCTAD, the external debt of 17 CDDCs increased by more than 25% of GDP between 2008 and 2017, with a large proportion of them (82.3%) being either mineral- or energy-dependent countries. These 17 countries are Kazakhstan, Djibouti, Uganda, Ghana, Azerbaijan, Gabon, Niger, Montenegro, Senegal, Mauritania, Tajikistan, Kyrgyzstan, Zimbabwe, Armenia, Mozambique, Papua New Guinea and Mongolia.

During commodity price booms, the sudden inflow of additional public revenues provides resources to finance increases in public consumption, said UNCTAD. However, such increases, fuelled by a temporary increase in public income, may be difficult to contain or reverse after sudden declines in commodity prices. For example, it said, public consumption grew in Mozambique and Zambia during the period 2011-16 when aluminium and copper prices stagnated or fell.

Diversification

UNCTAD also found that in some energy-export-dependent countries, such as Egypt, Iran, Oman, Saudi Arabia, and Trinidad and Tobago, the share of chemicals (manufactured products downstream from their main exports) in total merchandise exports increased by more than five percentage points between 1998-2002 and 2013-17. Oman increased the share of chemicals in its exports from 1% to 9.5% during this period, mainly due to the increase in its exports of fertilizers and other derivatives. Trinidad and Tobago increased the share of chemicals in its exports from 19.4% to 27.7%.

Some countries such as the United Arab Emirates, Qatar and Saudi Arabia significantly increased their refining capacity and production of processed petroleum and gas products. Some of these countries and a few others like Bahrain also took advantage of their abundant energy resources by diversifying into energy-intensive aluminium production.

However, UNCTAD said that in some energy-export-dependent developing countries, value-added in downstream activities stagnated or fell. For example, in Azerbaijan, Nigeria and Venezuela, production of petroleum derivative products fell. Similarly, production of aluminium fell in energy-dependent developing countries such as Azerbaijan and Venezuela and stagnated in others such as Nigeria.

UNCTAD said that despite higher commodity dependence, some CDDCs managed to expand their manufacturing exports. For example, in Brazil, the share of commodity exports increased from 44.3% in 1998-2002 to 62.8% in 2013-17. While its non-commodity exports, notably its auto industry, grew by 160% and accounted for 29.1% of the growth of exports, its agricultural exports grew even faster, at 390%, and accounted for 42.8% of the increase in export value during this period. In Colombia, commodity export dependence increased from 66.5% in 1998-2002 to 80.6% in 2013-17, mainly due to a large increase in the value of energy exports (petroleum and coal). Its non-commodity exports also grew, by 110%, and accounted for 14% of the increase in the country’s total exports during this period.

UNCTAD said some CDDCs dependent on energy and mineral exports also diversified their exports by boosting agriculture. For example, Rwanda has become a mineral-export-dependent CDDC over the last 20 years. However, it has also boosted its agricultural exports, which explains 34.2% of the increase in export value. Especially dynamic have been its exports of tropical beverages (coffee and tea) and other agricultural products. Cameroon has remained an energy-export-dependent CDDC, but its agricultural exports have increased significantly in value terms over the past 20 years. Their increase accounted for 38% of the increase in the country’s total export value during the period. This was due, in particular, to the dynamism of its cocoa exports and, to a lesser extent, some agricultural raw materials, fruits and nuts, said UNCTAD.

UNCTAD also found that in some CDDCs dependent on energy and mineral exports, the agricultural sector contracted, and export concentration increased. In Chad, for example, the value of its exports boomed after oil extraction started in 2003. However, cotton exports fell by 40.3% in value terms between 1998-2002 and 2013-17, resulting from a large reduction in their production and area under cultivation. Despite some increases in exports of oilseeds and gum Arabic, the value of Chad’s agricultural exports fell by 16%. This led to the share of agricultural exports in total exports shrinking from 92.5% to 5.8%. In Equatorial Guinea, petroleum production started in 1994 and peaked in 2004. The cocoa sector, which had been important before the oil boom, registered a fall in production of 93.9% between 1990 and 2017. By 2013-17, energy accounted for 91% of exports, mostly in the form of crude petroleum. (SUNS8910)                                    

Third World Economics, Issue No. 680/681, 1-31 January 2019, pp21-22


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