BUSINESS REPORTER
African countries should reduce reliance on commodities which are prone to volatility and instead embrace the African Continental Free Trade Area (AfCFTA), an expert has said.
About half of African countries, including Zimbabwe, are commodity dependent, with a ratio of export of primary commodities over total merchandise exports of 80% and above.
Stephen Karingi, Director, Regional Integration and Trade Division of the UN Economic Commission for Africa said this week the over reliance on the commodities sector was detrimental to the long term development in resource rich countries.
He advocated the overhaul of policies (fiscal, trade and human capital) to reduce strong dependence on global commodity markets.
This can be done through economic and fiscal diversification via the landmark, AfCFTA, Karingi said.
The commodity sector in most African economies is a significant source of national revenues and foreign currency, employment/income for citizens. In Zimbabwe platinum and gold receipts are the first and third largest foreign currency earners respectively.
He said the high dependence on the commodities sector means high vulnerability to the vagaries of international markets/volatile prices passed on to local markets.
Karingi said short-term volatility was likely to remain a key feature of the markets in the months to come urging government to be “more cautious with the outlook of commodities prices when preparing budgets”.
The expert said the recent improvements in global economic outlook in the context of Covid-19 was putting an upward pressure on commodities prices in global markets. But he cautioned that there is need to save for the rainy day.
Karingi said surplus revenue has to be saved (sovereign wealth funds) “in support of national budget later when prices drop”.
