Primary Commodity Booms and Busts

Primary Commodity Booms and Busts

August 1, 2016

Commodity boom is one of the major drivers of economic growth in Africa over the past decade. Most African countries experienced appreciable growth to the extent that sub-Saharan Africa was rated as the second fastest growing region globally between 2000 and 2010. Over the past one year, however, the rising trend of commodity prices is giving way to a declining trend. Most of the primary commodities such as gold, iron ore, crude oil, cotton and cereal that have been sustaining most countries have experienced tumbling prices since October 2013.The fall in prices ranges from about 9.3% in cereal to about 40.3% in iron ore – a double tragedy for the three Ebola epicenter countries that rely heavily on iron ore. Cocoa is, however, one of the few exceptions with a rising trend over the same period – about 18%.The unfolding development is posing some challenges to national governments in terms of resources to fund development projects and running costs. In some countries, it has started to manifest itself in the form of macroeconomic imbalances such as decline in external reserves, fall national currencies, increase in budget deficits, and rise in public debts, to mention a few. Some countries have been struggling to pay salaries of public servants over the past months. This could also affect capacity to sustain social protection programmes for the vulnerable and marginalized groups, which is considered to be critical in the continent’s transformation agenda and the Agenda 2063 of the African Union as well as the development aspirations of countries.