Wednesday, March 20, 2013

Recession Fears and Africa’s Commodity Export: What Lies Ahead?

frica ‘s massive natural resource is indeed a great blessing; but one that has come with enormous challenges, Inarguably the most endowed continent in raw materials, most African countries depend on primary commodities for up to 70 percent of their total exports. This exposes them to the volatile price movements that characterize commodity markets, worst during periods of global economic recessions which unfortunately have become a five yearly affair.

The irrepressible price volatility in global commodities market is often beyond control of both the producers and consumers. Periods of price bubbles and false sense of abundance, followed swiftly by periods of price slumps and fiscal shocks- these have been the rollercoaster experience of several commodity dependent economies. Unfortunately, by their nature, the scale and timing of commodity price movements are difficult to predict.

As another global recession looms, this time triggered mostly by the euro zone dept crisis, the direction of the commodity market remains largely uncertain. And in the face of this uncertainty, African economies are particularly vulnerable. Unpredictable, sharp price movements of these exports constitute a menace to policy makers in their quest for fiscal and monetary stability. The external environment is constantly being scanned; and majorly consuming nations watched keenly for signs of positive economic development that would bode well for commodities demand and prices.

Worse still are the single commodity dependent countries that are left without safety nets anytime there is a crash in the price of their single export. These countries are the worst victims of the market dumping and production subsidy activities of advance economies.

While some African countries have made good progress in breaking the single commodity export jinx, many are yet to attain the level of industrialization required to export finished products, Global commodities price volatility will therefore, for a long time remain a concern for Africa. So, as another global downturn looms, the question is; what does the future hold for African commodity export?

Culled from Zenith economic quarterly July 2012 and written by Eunice Sampson

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