Africa’s Commodity Markets to Remain Volatile Due to Constraints in Supply Chain

Commodity markets in Africa are bound to remain volatile in the coming months owing to the persistence of Covid-19 constraints in the supply chain and other global economic pressures, the United Nations Economic Commission of Africa (UNECA) has observed.

“African economies remain largely dependent on primary commodities exports,” said Stephen Karingi, Director of Regional Integration and Trade Division at the Economic Commission for Africa (ECA).

He was speaking during the ECA Price Watch session with African finance ministers on ‘Commodity prices amid COVID-19: prospects and policy implications for African economies.’

Mr. Karingi added that 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.

In a statement, UNECA said that high commodity dependence is associated with lower human development indicators across the developing world.

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“The limited diversification and reliance on commodities sector are detrimental to long-term development in resource-rich countries,” read a statement from a shared press release.

The commodities markets in Africa reacted strongly to COVID-19 in early 2020, owing to restrictions, economic slowdown, and uncertain outlook.

From mid-2020, a significant rebound in commodities prices was above their pre-COVID-19 levels with short term volatilities partly supported by expansive macroeconomic policies

According to Mr. Karingi, the potential impacts of the recent surge in commodities prices will see commodity exporters record increases in economic outputs and fiscal revenues.

Price volatility resulting in macroeconomic instability, trade balances, investment flows; and potential negative weight of high prices on net commodities importers, will provide room for growth. This is particularly in regards to food and energy commodities.

Countries should have an overhaul policy -fiscal, trade, human capital – to reduce strong dependence to global commodity markets.

African countries should also promote economic and fiscal diversification, including through the landmark African Continental Free Trade Area (AfCFTA)

“AfCFTA will assist with Covid-19 recovery but expected benefits from AfCFTA will not be automatic. Member states must pursue ratification of the Agreement and implement it effectively,” Mr. Karingi noted.

Nevertheless, even though 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.

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Over the last twenty months, COVID-19 has exposed the vulnerability of African economies to global shocks and high dependence on remote world markets.

This has led to disruptions in supply chains and the slowdown in economic activities worldwide, which to some extent have affected the price of several commodities since the outbreak