University of Cape Town
Welcome to The Open University and University of Cape Town Commodities Programme
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Commodities are central to many developing countries, particularly in Sub-Saharan Africa. They are a major source of foreign exchange earnings, and in the case of agricultural commodities, they provide important avenues for income generation and employment.
Three major families of commodities can be distinguished:
There are a number of reasons why, historically, the relative prices of commodities have declined compared to the prices of manufactures and services. This is referred to as their falling terms of trade. Price volatility in terms of short booms and long price slumps also has adverse effects on the export revenue for developing countries . Other concerns of the negative impact of commodity-exports on growth reflect the Dutch disease which leads to commodity sector crowding out manufacturing, as well as having an adverse impact on exchange rates. The nature of the mining industry itself, which is capital intensive and has long gestation periods, calls for large investments over long periods of time. The profitability of the sector is also affected by volatile prices. Because of these factors most countries development strategy has been oriented towards industry.
But since the late 1990s, it would appear that there has been a structural break in the terms of trade between manufactures and commodities, in part due to rising demand in China and India. For this reason many developing economies are reappraising their neglect of the commodities sector.
- Agricultural Commodities – the so-called “soft commodities” – which include food crops (such as grains), beverages (such as tea and coffee) and inputs into industrial products (such as cotton and timber)
- Energy Products: These would inculde Oil and Natural Gas
- Metals and Mineral Ores - often referred to as “hard commodities”, or “fixed point commodities” - such as copper, gold and diamonds.
But this poses many challenges for governments and civil societies, not least because commodities are easily “pocketed” by powerful individuals and interest groups. Booms in commodities prices push up the exchange rate (The Dutch Disease) and make it difficult for other sectors to thrive. Many commodities appear to have few or only weak linkages to other sectors – they are enclave sectors. And their prices remain volatile. They are seen more as a ”resource curse” than a “resource gift”.
Together with African colleagues, the Making the Most of Commodities Program seeks to identify a policy path to the exploitation of the commodities sector which will promote development and the equitable distribution of the returns from the commodities sector. The Commodities Group interacts closely with a global community of researchers focusing on the Asian Drivers, with colleagues in the Open University’s Development Policy and Practice group and the International Development Centre, as well as the Policy Research in International Services (PRISM) unit located in the School of Economics and Centre for Social Science Research, University of Cape Town.
For More Information contact:
Prof. Raphael Kaplinsky: R.Kaplinsky@open.ac.uk
Prof. Mike Morris: email@example.com