Building capacity to help Africa trade better

The Commodity Price Downturn and Trade: Finding Solutions for Africa

Trade Reports

The Commodity Price Downturn and Trade: Finding Solutions for Africa

The Commodity Price Downturn and Trade: Finding Solutions for Africa

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The continent of Africa is the world’s resource vault. More than any other continent or region, Africa is endowed richly with natural resources both in terms of diversity and also extent. This represents a significant advantage from the perspective of international trade, with the countries of the world in need of the commodities Africa has for sale. The extraction of resources and the utilisation of abundant and well-watered arable land for agricultural produce, creates commodities exchangeable for manufactures and services: a seemingly ideal situation. The rest of the world produces exactly those capital goods and technology services that Africa lacks, and that it requires in order to progress up the rungs of economic development.

Yet this stylised transaction is not without significant complications. Over time, the barter value of natural resources has steadily declined, and more recently has experienced unprecedented volatility too. The nations of Africa, and other commodity specialists, find themselves participants in markets over which they have little or no control. They are faced with the prospect of overheated economies in times of price boom, and painful adjustment processes thereafter.

When a commodity-exporting country’s terms of trade fall, this involves a loss of economic welfare and a worsening of development prospects, as the capital goods required to finance development become more costly to the commodity exporter. For this reason the phenomenon of deteriorating commodity prices is important for the commodity-focused exporters of Africa. This paper explores the nature of the problems around commodity prices, the specific issues faced by African countries and the specialist producer groups within Africa, and the potential policy responses by the commodity producing nations.

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.


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