Commodities and Rapid Growth Markets: Joined at the Hip?
Last decade’s commodity price shock helped resuscitate much of the developing world’s commodity dependent economies. Between 2003-2008 oil prices climbed by 330% in dollars terms with metals and minerals making similar advances (global food prices doubled from 2006 to 2008). New research examines in detail which emerging market regions and countries are commodity dependent.
Some of the highlights of IEMS’s research report include:
After the energy-rich MENA petro-states, Sub-Saharan Africa is the region most dependent on commodity exports (for the region they accounted for almost 70 % of merchandise exports and 18% of GDP in 2010).
The East Asia and Pacific region is the least dependent on commodity exports (20% of merchandise exports), with rapid industrialization bringing down the region’s commodity export share from almost 60% as recently as 1985.
As a continent, Latin America remains dependent on commodities. In the past decade, they accounted for approximately half of the region’s merchandise exports. That is down from 86% in the 1970s, but over the same period, the figure in East Asia and the Pacific fell from 94% to 30%.
China, of course, is a large net importer of commodities, but it currently possesses large stockpile of various commodities, precluding it from becoming a large beneficiary of falling commodity prices.
The decade long rise in commodity prices boosted economic growth in the commodity dependent regions. For example, the rise in world prices for Latin America’s commodities and the related increase in commodity output may have accounted for between one-third and one-half of the region’s growth over the past decade. Natural resources—and the related government spending they financed—generated at least a full third of Africa’s GDP growth from 2000 through 2009.
Most critically, many commodity-dependent governments have also become significantly more reliant on raw materials for their tax revenues. For example, total taxes collected on natural resources (as a share of GDP) over the past decade have increased from 8% to 40% for the MENA region and have approximately quadrupled for Sub-Saharan Africa. In the Arab world, the figure is 50% of GDP, while it is almost one-third in Russia.
The report also notes that some countries have offset the price volatility risk of commodity dependency by putting some of their bonanza away for a rainy day. For example, Kuwait, Saudi Arabia, Qatar, and Abu Dhabi quadrupled the size of their sovereign wealth funds over the last decade. Energy giant Russia has $500 billion in foreign exchange reserves, while Chile has squirreled away approximately $20 billion from its copper exports (12% of GDP). Even Mexico, Peru and Bolivia have saved part of their windfall gains thanks to high commodity prices.