JUNIOR MINING — African nations struggle with low commodity

African countries, their economies tied to cash-crop production, have watched with despair the collapse for over a decade of international prices for their commodities.

According to World Bank projections, real prices for African commodities in the next 12 years will be less than two-thirds their 1979-81 levels. With over 70% of its export earnings after 30 years of independence still coming from raw materials, Africa is affected more than any other continent by the downturn in prices.

In real terms, commodity prices are now virtually half their 1979-81 average levels. For African countries attempting to reform their dysfunctioning economies, this is a body blow.

Cocoa prices have fallen for eight consecutive years. In 1992, they were down 10% on the previous year’s average. Coffee has also declined for six straight years, 20% down in 1992. Cotton and groundnut oil were the worst performers in 1992, with prices dropping by 25% and 30% respectively. For the four commodities, this year looks just as bad.

The prices for metals and minerals in 1992 were also poor, with the World Bank’s index for the sector at its lowest ever.

Only logs, tea and, marginally, sugar registered a higher average price in 1992 over 1991. But that relative success has to be seen against the longer-term trend since the 1970s which is inexorably downward. In the 1975-79 period, African countries were able to rebound from the effects of drought and the first oil price-shock induced declines. Average gross domestic product growth was around 5%, roughly comparable with the rest of the south, and the highest multi-year period ever recorded for the continent.

Africa’s resilience was based largely on the 1975-76 beverage price boom, oil export earnings, and a rapid build-up of external debt. However, with the going good, little was done to improve the efficiency of commodity production, adding value through processing, or diversification. In the 1980s, Africa tried to ride out the storm of a disastrous decade following the second oil shock, sharp increases in world interest rates, drought, war and general primary product terms of trade deterioration. That failed. The much-heralded global recovery did not materialize, and Africa has entered the 1990s poorer and more fragile and with little choice but to bite the bullet on austere economic adjustment policies. Donor-backed reforms are uniformally based — apart from an insistence on repaying multilateral debt — on policies designed to boost agricultural and raw material production.

Against the falling terms of trade, to achieve past income levels, African countries have had to double or triple the volume of their exports in a climate where investment is scarce. There is also little capital around to move into processing of raw commodities to add value to exports. However, a number have managed to boost output of existing or new products. “But the depth and extent of the current downturn in prices makes the prospect of increasing returns from this strategy difficult to sustain for more than a limited number of countries,” the United Nations Africa Recovery newsletter warns.

The newsletter adds that with commodity prices showing little hope of an upswing, Africa’s chances of achieving the UN’s 6% growth target for the 1990s are slim.

— From Inter Press Service.