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Developing countries are facing the harsh impact of declining commodity prices

Developing countries are facing the harsh impact of declining commodity prices

Delegates at the meeting of the G20 Trade Ministers that is held in Istanbul, Turkey are in agreement that globally trade has slow down. The meeting was focusing on the slowdown in global trade and how to make the multilateral trading system work better. The meeting also focused on the implications of the global trade slowdown for the future of trade and at policy options to further integrate SMEs into global value chains.

South African Minister of Trade and Industry, Dr Rob Davies said that the global trade slowdown has a disproportional impact on developing countries given their relative size of their economies and consequently their heavy reliance on international trade.

“This being the case, developing countries are facing the harsh impact of declining commodity prices and falling export demand that are attributable to global trade slowdown. Added to this, financing pressures are becoming more acute, and are expected to remain so for an extended period of time. Access to private trade finance has become hard to come by, and the prospects for foreign direct investment in particular will be challenging over the foreseeable future,” said Minister Davies.

He added that the UNCTAD report (2014) also confirmed that the rate of income growth in developed economies since 2008 has been significantly lower than it was prior to the crisis, and statistical evidence also points to a considerable weakening of import elasticity of demand in these countries.

Minister Davies indicated that in order to address this, trade needs to support industrial development particularly in developing countries and should be seen as part of a wider economic development strategy with accompanying measures.

“Accordingly, trade policies must be strategically aligned with industrial policy objectives. A mix of policies that are critical to achieve a scaled-up industrial policy and a shift towards strengthening the productive side of the economy are required,” he added.

 Minister Davies specified that developed countries can provide support to Africa’s infrastructure drive and to the efforts to stimulate the development of Africa’s regional industrial value chains

“To enable the countries in Africa to integrate meaningfully into the world economy it will require infrastructure development and the building of production capacity and capabilities. In Africa, we have embarked on a process to build regional development integration through the upgrading of regional infrastructure and productive capacity,” stated Minister Davies.

He further said that trade liberalisation has failed to deter Africa from relying heavily on exporting primary commodities to the rest of the world. According,  to Minister Davies, broadening and upgrading the industrial base to encourage production and export of more sophisticated value added products requires purposeful intervention in the industrial economy.

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