Developing countries that depend on commodities ought to pursue diversification strategies to address the adverse effects of price volatility in international markets, was the key message during UNCTAD’s meeting on commodities and development on 15 April at the UN’s European headquarters in Geneva, Switzerland.
Today 67% of developing countries (91 out of 135 countries) are dependent on commodities, a situation that has changed little in the last two decades, UNCTAD Deputy Secretary-General Isabelle Durant told attendees.
Least developed countries are even more dependent, as more than 80% of their export earnings come from commodities.
Heavy dependence on commodities makes these countries vulnerable to shocks and price fluctuations,
…Ms. Durant said, adding that a decline in commodity prices can have a negative impact on export and fiscal revenues and may slow down economic growth and development.
As in previous years, commodity prices in 2018 were volatile, but generally followed a downward trend, with variations between commodities, said UNCTAD’s commodities head, Janvier Nkurunziza:
- Overall, agricultural products saw falling prices, a trend that began when the most recent commodity boom ended in 2011.
- Mineral prices, for their part, dropped after an upturn in 2016 and 2017 for ores such as gold, nickel and zinc.
- The prices of crude oil and natural gas fuels were the exception in 2018. The price index for energy products increased, particularly from its low level in 2016.
As a result of 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 said.
Commodity-dependent countries need to pursue diversification strategies to address the longstanding risks associated with continuous price volatility, Ms. Durant added.
According to UNCTAD, there are two main diversification strategies that can be used by commodity dependent developing countries. One approach is to diversify horizontally by exporting different types of commodities and other products. The other is to diversify vertically through value addition.
Reducing dependence on commodities through vertical and horizontal diversification remains the surest way to avoid the vulnerability of producing countries to changes in commodity prices. Only diversification of exports and the economy can lead to sustainable development,
…Ms. Durant said.
These diversification strategies can contribute to meeting the 17 Sustainable Development Goals set by the international community in 2015 – notably creating jobs and inclusive growth (Goal 8) and fostering the process of industrialization (Goal 9).
The 11th edition of UNCTAD’s Expert Meeting on Commodities and Development took place on 15- 16 April.