Development Finance

The perils of commodity price volatility

19 Feb 2016

While a possible option to to compensate for the fall in commodities' prices, cutbacks in public expenditure will hinder progress towards the sustainable development agenda. Photo: Aude Rossignol/UNDP in Burundi.
Since 2011, the price of oil has fallen by 51%. Copper, coal and iron ore prices have dropped by 38%, 53% and 67%, respectively. Commodity dependent countries in Sub-Saharan Africa are facing serious fiscal and balance of payment deficits, hindering the progress towards the sustainable development agenda. Some countries increased supply of commodities to compensate for the fall in prices. Equatorial Guinea boosted oil exports by 13%, but revenues declined by the same percent. The Democratic Republic of the Congo (DRC) increased copper production, but revenues declined by US$360 million. Others cutback on supply in the hope that prices will go up. For example, Angola and Nigeria decreased the supply of oil, but revenues declined by US$5 billion for Angola and by US$26 billion for Nigeria. Chad, Congo and Gabon have cut production, but saw oil revenues decline by over US$2 billion. Zambia experienced a fall in revenues by 23% after reducing copper production. Liberia’s iron ore production declined by a third and its revenues fell by two-thirds. In the short run, there are five options. The first is withdrawing from sovereign wealth funds (SWFs). However, Nigeria’s Stabilization Fund, valued at US$0.5 billion, will not suffice; given its fiscal deficit is … Read more

UNDP Around the world

You are at UNDP Africa 
Go to UNDP Global