Developing countries that depend on commodities must seek diversification strategies to mitigate the adverse effects of price volatility in international markets, explained speakers at UNCTAD’s meeting of experts on commodities and development, on 15 April at the UN’s European headquarters in Geneva, Switzerland.
Today 67% of developing countries depend on commodities, a situation that has changed little in the last two decades, UNCTAD Deputy Secretary-General Isabelle Durant said. Least developed countries are even more dependent, as over 80% of their export earnings come from commodities.
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Specifically, commodity prices in 2018 were volatile, and followed a downward trend, with variations showing between commodities, according to UNCTAD’s commodities head, Janvier Nkurunziza.
Thus, the downward trend of most commodity prices, countries have been losing crucial import/export revenues.
The continued fall in commodity prices since their peak in the early part of the decade has affected the ability of countries dependent on these commodities to ensure their socio-economic development
Mr. Nkurunziza mentioned.
In addition, a drop in export earnings has impacted state budgets, and the lives of farmers producing crops such as coffee and cocoa. This downward trend driven by production increases and trade uncertainties has impoverished many coffee and cocoa farmers, especially in countries such as Cote d’Ivoire and Ghana.
Delivery of basic goods affected
Minerals are also hit by price volatility. These are considered a key component of lithium-ion batteries widely used in electric cars. After years of relative calm in cobalt markets, prices per tonne increased by 129% by the end of 2017, due to rising demand for lithium-ion batteries and other factors.
However, the upward trajectory was reversed in the second quarter of 2018, as prices decreased 16%, because of excess supply. As a result, revenues of cobalt-exporting countries such as Congo have fallen, impacting their ability to deliver basic goods and services.
Diversification strategies
Because of these problems, commodity-dependent countries must find diversification strategies to tackle the risks surrounding with continuous price volatility.
Currently, there are two key diversification strategies:
- One approach is to diversify horizontally by exporting different types of commodities and other products;
- The other is to diversify vertically through value addition.
These strategies can contribute greatly to achieving the 17 Sustainable Development Goals set by the international community in 2015. This will be done by creating jobs and inclusive growth and adopting the process of industrialization.
