Journal Issue
Working Paper Summaries (WP/94/1 - WP/94/76)

Working Paper Summaries 94/23: Economics, Politics, and Ethics of Primary Commodity Development: How Can Poor Countries in Africa Benefit the Most?

International Monetary Fund
Published Date:
August 1994
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In sub-Saharan Africa, as in most low-income countries, primary commodity exports are the major foreign exchange earners. In most cases one or two commodities contribute the majority of export earnings. For example, coffee in Burundi, Ethiopia, and Tanzania, cocoa in Ghana, tobacco in Malawi, and cattle in Somalia each contributed over 50 percent of total export earnings in 1985-86. The large share of primary commodities in export earnings and their significant contribution to employment, income, and government revenues imply that small percentage changes in the output or prices of these major commodities can have large macroeconomic effects that may determine the ultimate course of economic transformation.

In the 1980s, while Asian and, to a lesser extent Latin American countries increased their agricultural export volumes, sub-Saharan African countries’ export volumes declined and, at best, stagnated. The loss of sub-Saharan Africa’s market share was a result of a lack of competitiveness compounded by protectionist policies in the developed countries. Labor productivity showed a slight decline in sub-Saharan Africa, in the 1980s, although Latin America and Asia registered significant increases. Still more striking, was the large jump in land productivity in Asia between 1980 and 1985 relative to Africa.

The limited but successful smallholder commodity development that has occurred in Africa stresses the importance of high-quality, location-specific research and extension, rural infrastructure, access to finance for producers and processors, processing and marketing arrangements that take into account scale economies in processing, and price incentives. Developing countries also require competitive global markets and, where appropriate, the scope to vertically integrate commodity processing enterprises into these markets. This would benefit producers in developing countries as well as consumers in industrial countries. Information is critical for the development of a thriving export sector. These various factors call for a pragmatic partnership of public and private institutions, rather than an ideologically based preference for either sector. Consistent long-term strategies are important for achieving economic diversification and broadbased, sustained growth in the production of commodities. The hitherto piecemeal approach that has been followed by countries influenced by donor advice, has vacillated over the past two decades between import substitution, export promotion, and diversification.

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