Commodity price volatility: causes, policy options and prospects for African economies

This chapter outlines the main causes of commodity price volatility and their impacts on developing countries, especially for African countries. The chapter considers the historical evolution of commodity price volatility, particularly for countries described by UN organisations such as UNCTAD as commodity dependent developing countries (CDDCs) who depend for at least 60% of their export earnings on primary commodities. The chapter also sets out a historical analysis to map the evolution of policies to deal with the problem of commodity price volatility. It analyses the reasons why the price-setting International Commodities Agreements (ICA’s) collapsed in the 1980’s and 1990’s. The chapter then reviews the academic literature on the subject including: the impact of financialisation; global value chains; and institutional initiatives such as the creation of commodity exchanges in some African countries which have been established to mitigate the negative effects of price volatility on producing countries. The chapter concludes by discussing the way forward in policy terms for CDDCs, especially in Africa.
Key words: commodity price volatility; CDDCs; financialisation; global value chains; commodity exchanges; policies.