Commodity markets in Africa are expected to remain volatile in the coming months following the persistence of Covid-19 constrains in the supply chain and other global economic pressures, says Stephen Karingi, Director of Regional Integration and Trade Division at the Economic Commission for Africa (ECA).
Mr Karingi was speaking at the ECA Price Watch session with African finance ministers on ‘Commodity prices amid COVID-19: prospects and policy implications for African economies.’ This is the 5th in the series of presentation sessions of price development in a specific sector compiled and disseminated by the ECA Price Watch Centre for Africa.
He said that African economies remain largely dependent on primary commodities exports and that although the commodity sector in most African economies is a significant source of national revenues, high dependence on the sector means high vulnerability to the vagaries of international markets and volatile prices passed on to local markets.
“High commodity dependence is associated with lower human development indicator across the developing world,” said Mr Karingi, adding “limited diversification and reliance on commodities sector are detrimental to long-term development in resource-rich countries.”
The ECA director noted that the commodities markets in Africa reacted strongly to COVID-19 in early 2020, owing to restrictions, economic slowdown and uncertain outlook. From mid-2020, significant rebound in commodities prices were above their pre COVID-19 levels with short term volatilities partly supported by expansive macroeconomic policies
On the commodity markets outlook, he said the upside risk factors for the continent include improved economic outlook/gradual recovery partly driven by successful vaccines campaigns and control of COVID-19 outbreaks; expansive monetary and fiscal policies to sustain economic activities like the recent $ 1.9 Trillion rescue Plan in the US and the € 750 Billion recovery effort in the EU area ; dynamic construction and infrastructure sectors worldwide to support markets of some commodities; high production costs to put upward pressure on food costs; low carbon energy and electric vehicles to sustain markets for products such as cobalt, lithium and nickel.
The downside risk factors include the gloomy economic prospects, especially in industrialized economies if the new COVID-19 variant is not controlled; and slower growth in major commodity importing countries.
According to Mr Karingi the potential impacts of recent surge in commodities prices will see commodity exporters record increases in economic outputs and fiscal revenues; price volatility to result in macroeconomic instability, trade balances, investment flows; and potential negative weight of high prices on net commodities importers, especially with regards to food and energy commodities.
He recommended that countries should have an overhaul policy -fiscal, trade, human capital – to reduce strong dependence to global commodity markets. African countries should also promote economic and fiscal diversification, including through the landmark African Continental Free Trade Area (AfCFTA)
“AfCFTA will assist with Covid-19 recovery but expected benefits from AfCFTA will not be automatic. Member states must pursue ratification of the Agreement and implement it effectively,” he noted.
Oliver Chinganya, Director of the African Centre for Statistics (ACS) at the ECA, said while the macroeconomic effects are well known, the trends of commodity prices and their influence on the revenue of African countries require delving into deeper analysis to have good grasp of the situation.
“The recent commodity price movement raises questions on critical points that economic policies should consider both in the current situation as well as for longer term perspectives,” he said.
Mr Chinganya observed that over the last twenty months COVID-19, has exposed the vulnerability of African economies to global shocks and high dependence to remote world markets. This has led to disruptions in supply chains and slowdown in economic activities worldwide, which to some extent have affected the price of several commodities since the outbreak.
The last ECA Price Watch Centre presentation was held on June 22 and focused on Energy Prices in Africa: Transition Towards Clean Energy for Africa’s Industrialization.
Commodity Market and Exchange Can Develop Agricultural Sector – Osinbajo
There is a need to focus on developing our agricultural value chain, particularly the business of guaranteeing the creation of a proper commodity market with the right logistics that would be mutually beneficial to farmers and consumers, according to Vice President Yemi Osinbajo, SAN.
He made this assertion on Monday while receiving a delegation from Gezawa Commodity Market and Exchange, a Kano State-based private company that provides a specialized organized market, operating efficient transaction and delivery of agricultural, solid minerals, and energy-based commodities. The delegation was led by the Managing Director of the company, Mr. Muhammad Rabi’I Elyakub.
Prof Osinbajo stated that “we need all the focus that we can on developing our agricultural value chain, especially the business of ensuring that we create a proper market so that there is value,” adding we must make sure that “we are able to resource that chain well.”
The VP acknowledged that in Nigeria, “we are top producers of so many different agricultural products as well as minerals.
“It is in adding value, ensuring the value chain works effectively, ensuring that we can process, store, and trade, that’s really where the missing link is.”
Elaborating on the importance of the agricultural value chain, Prof Osinbajo reiterated that “I don’t know of any society that has been able to develop the whole value chain from farm to table without a very vibrant commodity exchange.”
He lauded the idea of a private commodity exchange noting that “a private commodity exchange is very important. I am a strong believer in the private sector’s involvement.”
Prof Osinbajo then commended the commodity company for having made “very quick progress in a very short time,” adding that the company has covered substantial ground.
He continued, “I’m impressed with what you have done so far. I think the idea is that there is only one way to make agriculture profitable for the average farmer and that is by creating a market that is systematic and recognizes the value and you can’t do that without establishing a proper market.”
While giving a presentation, the Chief Financial Officer of Gezawa Commodity Exchange, Dr. Abdullahi Ya’u highlighted the importance of having a commodity exchange market.
He stated that without an exchange “it would take Nigeria ages for the farmers, producers, traders in commodities to discover their potential, but with the exchanges, we can be easily globally seen and standardize based on international best practices. I believe this is one of the core anthems of this government.”
Investors Can Make $1bn from Palm oil, Says Adebayo
The Minister of Trade, Industry and Investment, Niyi Adebayo has announced plans by the Federal Government to collaborate with investors to implement backward integration programme across key selected priority products.
These products include, palm oil, sugar, cassava starch, cotton textiles and garments.
Adebayo disclosed this on Thursday, during his address at the second Andersen Africa-Europe Bridge Conference held virtually, a statement issued by his spokesperson, Ifedayo Sayo said.
The statement was titled ‘Nigeria’s Economic Diversification Agenda achieving positive results – Adebayo’.
It read, “He announced the implementation of the ministry’s backward integration programme across key selected priority products, namely palm oil, sugar, cassava starch, cotton textiles and garments, saying the government was prepared to collaborate with investors to achieve its mandate.
“For palm oil, Adebayo said there was a domestic market opportunity of about $1bn which potential investors could take advantage of.”
On cassava starch, he said while Nigeria remained the largest producer in the world, the ninister said a significant domestic supply gap existed with more than 95 per cent of cassava starch still being imported.
He said the government focus was on bringing in large scale investors to bridge the gap and increase production of cassava starch.
Speaking on cotton, the minister told the gathering that the government strategy was to leverage on the special economic zones for garment production for both local market and export.
He declared that the government was committed to the establishment of special agro-processing zones across the country so as to reduce post-harvest losses, increase value addition to farmers and enhance rural employment.
Adebayo said the government was partnering with the African Development Bank to achieve its goals in this regard, adding that the ministry would be willing to collaborate with potential partners in different areas of this project.
He said, “Similarly, we aim to build at least one agro-processing facility in each of the country’s 109 senatorial district by leveraging available government funding and exploring innovative financing methods such as public-private-partnership and grants.
“Nigeria’s agribusiness sector is full of opportunities across multiple value chains, especially in the area of processing.
“The outlook report from the Organisation of Economic Cooperation and Development and the UN Food and Agriculture Organisation states that the sector will undergo robust growth projected to rise 30 per cent between 2018 and 2028.”
Adebayo also declared that the Federal Government’s diversification agenda was achieving positive results with the recent growth in the country’s Gross Domestic Product largely driven by the non-oil sectors.
He added that despite the view that Nigeria’s economy has historically been driven by oil, recent growth has been driven primarily by the non-oil sectors.
He said, “Despite the view that Nigeria’s economy has historically been driven by oil, recent growth has been driven primarily by the non-oil sectors, such as financial services, telecommunications, entertainment, and of course agriculture. This shows that our diversification agenda is working.”
The minister said the previous year was difficult for the country, he added that the country’s economy was getting back strong and open for business with the investment climate improving.
“In the first half of this year, investment announcements were at $10.1bn, an increase of 100 per cent in 2020.
“Investors from places as diverse as Europe, China, Morocco, and the UK are making strong commitments.”
He added the present regime was working tirelessly to ensure that the commitments turned into ventures, enterprises, and businesses that positively impacted the nation.
Bitcoin Approaches $50,000 as Investors Jump on Crypto Assets
Bitcoin, the world’s most dominant crypto asset rose above $45,000 on Tuesday morning as more institutional investors jumped on the rising trend following weeks of bearish trend after Elon Musk pulled the plug on Bitcoin and other crypto-assets.
Bitcoin gained 2.90 percent to $45.903.37 a coin on Tuesday to further establish price above the $45,000 resistance levels, up by over 59 percent from the $29,500 record low it traded on July 21.
“There seems to be a shift in the sentiment in the market compared to a few months back,” Ulrik Lykke, executive director at crypto hedge fund ARK36 stated via email. “We’ve recently seen some seemingly negative news coming out about Binance facing regulatory scrutiny that did not seem to influence the price a lot.”
On Monday Bitcoin break above the 200-day moving average, a long-term indicator of market health and has continued rising since then. Tuesday’s daily candle marks the first time bitcoin has closed above the long-term indicator since May 20.
Bitcoin’s daily volume rose to its highest for the month of August as trading activity backed by strong demand pushes its attractiveness among crypto investors up the chart.
“There was buying pressure from Coinbase, and I think the demand was from institutional investors,” said Ki Young Ju, CEO of the Korea-based blockchain analytics firm CryptoQuant. Ju also noted that based on the Kimichi Premium and other on-chain indicators, retail investors were mostly absent from bitcoin’s recent run.
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