Africa can mitigate the impacts of price volatility in export commodities if supply-side constraints – ranging from poor infrastructure, regulatory bottlenecks, and huge informal activities that hinder local industries’ growth and competitiveness are addressed.
This is according to the African Export-Import Bank (Afreximbank) African Commodity Index (AACI) outlook for the six months (H1) ended June 30, 2024.
According to the report, Africa, which covers about 20 percent of the earth’s surface, possessed high-yielding commodities like coffee, copper, and cocoa among a trail of others but lacked proper management of these resources.
“Commodities remain central to African economies, many of which face a complex environment characterised by persistent global risks, volatile commodity prices, and structural challenges,” said the report.
Due to structural challenges limiting export commodities, poverty rate continues to rise in Africa, with 57 percent of the world’s poorest population situated in Sub-Sahara Africa, according to the World Bank.
However, the AACI has said that African governments must intensify efforts to diversify their economies. It noted that excessive reliance on commodities will perpetually subject African countries to price volatility and external shocks.
“Therefore, African governments need to diversify their government revenues and export earnings by building local capabilities in key areas such as manufacturing, agro-processing, and services exports,” they said.
The report urged that government budgets consider the potential economic shocks that arise from reliance on commodities by adopting lower budget benchmarks for commodity prices and also increase savings from excess and enhance reserve growth.
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“Given that commodity booms are often followed by commodity busts, African governments need to prepare for these fluctuations,” they noted.
Adding that, “local production of critical goods is important in addressing foreign exchange problems, creating jobs, and limiting vulnerability.”
According to them, local production of critical goods is important in addressing foreign exchange problems, creating jobs, and limiting vulnerability.
Afreximbank said the provision of support structures remains crucial in improving agricultural productivity across African countries.
Furthermore, they called on the government to prioritise the provision of infrastructure, power supply, inputs, and extension services to farmers and players in the agricultural sector to maximise the value chain.
“For crops that are affected by unfavourable weather conditions, governments need to invest in climate information services and provide structuring and incentives for the adoption of weather insurance and customised financing schemes to guarantee the quality of output and a sizeable quantity for farmers.”
The AACI pointed out that the agricultural sub-index rose by 14 percent, driven by soaring prices of cocoa (111 percent), coffee (37.4 percent), and palm oil (7.8 percent). In the period under review, sugar, corn, wheat, and cotton prices fell by 16.7 percent, 10.2 percent, 1.6 percent, and 0.1 percent, respectively.
They also said cocoa prices soared to unprecedented levels during the review period, reaching historic highs of $12,000 per ton in April 2024 which was mainly driven by supply chain disruptions in Côte d’Ivoire and Ghana, the world’s largest cocoa-producing countries, with a combined share of about 60 percent of global cocoa output.
Afrexim however forecasts a fall in cocoa prices in the third quarter of 2024 from its present value of $8,325 per metric ton to $7,910 per metric ton.
The report revealed that swollen shoot virus disease accounted for roughly 30 percent of harvest losses in Ghana, exacerbated by illegal small-scale gold mining activities, contributing to cocoa farmers running at a loss while their colleagues in Nigeria cashed out big at the peak of the cocoa rally.
For coffee, the bank also forecasts that prices of the commodity will fall to $243.73 per ton in the third quarter of 2024 from its current $245.70 per ton.
The Afreximbank’s AACI provides a crucial tool for monitoring developments in key commodities and anticipating future price trends.
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