World Trade: The Struggle with Commodity Dependence
Deep reliance on commodities persists, requiring developing nations to enhance their products' value for a reversal of fortune
The global trade landscape has seen significant shifts in recent years, with the value of world trade in goods increasing by a substantial 25.6% during the same period. However, the growth in commodity trade expanded at a slower rate of 15.5%, leading to a decline in Africa's total earnings from commodity exports.
Africa's commodity exports fell by over US$25 billion from a decade before, despite growth in the agricultural and mining sectors. This decline was primarily due to a decrease in energy product exports from major oil-exporting countries like Nigeria, Angola, and Algeria.
Commodity dependence continues to hinder industrial development and threaten countries' fiscal stability due to volatile global prices. According to the latest edition of The State of Commodity Dependence report, two thirds of developing countries remained commodity dependent in 2021 and 2023. This situation, where more than 60% of a country's merchandise export earnings come from commodities, is a challenge that the world continues to grapple with.
Strategies to Reduce Commodity Dependence
To break free from commodity dependence, countries can adopt several strategies.
Diversification of Economies
Investing in processing and manufacturing industries to add value to raw commodities can reduce reliance on volatile global commodity prices. Encouraging industrialization by investing in infrastructure that supports manufacturing and technology sectors can further help diversify economies.
Regional Integration
Leveraging initiatives like the African Continental Free Trade Area (AfCFTA) can boost intra-regional trade of processed goods, benefiting landlocked countries and supporting value-added exports.
Digital Economy
Fostering a digital economy by enhancing mobile connectivity, fintech, and e-commerce can provide opportunities for digital entrepreneurship and innovation, reducing reliance on physical commodities.
Circular Bioeconomy
Adopting a circular bioeconomy model that promotes sustainable resource use and reduces waste can help retain value within local economies and enhance food security.
Benefits of Reducing Commodity Dependence
Reducing commodity dependence offers several benefits, including economic resilience, sustainable growth, job creation, and increased domestic value capture. Diversification can reduce vulnerability to commodity price fluctuations, ensuring more stable economic growth. By leveraging value-added sectors, countries can achieve sustainable and resilient economic development. Diversification into manufacturing and services can lead to increased job creation and better labor market opportunities. Retaining value within the economy can lead to higher domestic incomes and improved living standards.
Implementing these strategies will require supportive policies, skills development, and investment in infrastructure to facilitate the transition away from commodity dependence.
Asia and Oceania maintained their position as the world's largest source of commodity exports, comprising 37.1% of the global total between 2021 and 2023. Despite this, the decline in Africa's commodity exports highlights the need for developing countries, particularly those in Middle and Western Africa, to consider strategies to reduce their commodity dependence for a more sustainable and resilient economic future.
- World Bank Group
- United Nations Conference on Trade and Development
- African Development Bank
- International Monetary Fund
- The World Bank Group suggests that countries can reduce their reliance on the volatile finance sector by investing in processing and manufacturing industries, adding value to raw commodities.
- Encouraging regional integration, like through the African Continental Free Trade Area (AfCFTA), can support value-added exports and aid in reducing energy-related finance dependence for landlocked countries in Africa.
