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The Commodity Down Cycle: Some Policy Options for Africa

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The Commodity Down Cycle: Some Policy Options for Africa

The Commodity Down Cycle: Some Policy Options for Africa

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This working paper is an extension of a prior tralac working paper, The Commodity Price Downturn and Trade: Finding Solutions for Africa, which examines the extent of the fallout of the commodity price ‘down cycle’ for the countries of Africa, grouped by export specialisation in fuels, mining and agri-food; as well as a fourth group with more diversified exports.

In this paper, a selection of five distinct policy instruments are simulated for the same four groups of countries, in order to assess the potential for alleviating some of the economic stress brought about by the price shocks. It is found that a policy package consisting of the following, in conjunction with an export-promoting policy package, can assist in alleviating the adjustment costs associated with the downturn in the commodity price cycle:

  • Depreciation/devaluation of the real exchange rate.

  • Market enhancements to the labour market

  • Enhancement of trade-related infrastructure

  • Market enhancements to lower required rates of return and encourage capital inflows

  • Increase the fuel products tax or levy.

  • For the mined products export specialist group only, tariffs on the fuels and agri products imports can assist.

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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