UNITED ~ATIONS
Eco:\:n~qr:~.~D ~nCI:\L
COVNClL
ECONOMIC COMMISSION FOR AFRICA
First Meeting of the Action committee of G77 on Raw Materials
Abuja, Nigeria 3-7 April 1989
Distr. : LIMITED
E/ECA/TRADE/89/4 28 March 1989 Original: ENGLISH
AFRICA • S RAW MATERIALS IN THE CONTEXT OF THE SIXTH INTER-GOVERNMENTAL FOLLOW-UP AND COORDINATING
COMMITTEE (IFCC-VI)
E/ECA/TPAnE/89/4
I. INTRODUCTION
1. The subject of raw materials is much closer to the 4aconomic heart. than any other sector in a number of developing countries. I t is much i"'!>e~ with a number of recent developments like the adoption and implementation of the Integrated Ptogramme for Commodities (IPC). This is particularly the case for economies that are excessively dependent on primary commodities for their economic survival.
2. In no other part of the world is the issue or consideration of raw materials so central as it is in the African situation. To some extent, this is also equally true for a few other Third World countries. In particular. the ones that are heavily dependent on the export of primary commodities. That having been said, we should therefore not overlook the fact that there are certain differences among these Third World countries in regard to their respective dependence on primary commodities. Take as one example, the group of the Newly Industrializing Countries (NICs) in Which this higher dependence on raw materials trade poses less serious problems of development. But the same is not true for those with low levels of processing and manufacturing.
3. There is a lot of documentary evidence that one can use to support the above point of view. Considerable research including a recent ECA study on
«Proeessing of African Raw Materials into useable and tradeable Productst 1/
show the end result of exploitation of raw materials is a very major - determinant of their economic wellbeing. This particular analysis, focuses attention on the 18 commodities that form the core of the IntegratGd Programme
£_ Commoaities, (!PC). There are many others not included in this particular analysis but which are covered in documents ECA/IND/GEN/l/89. Both analyses reveal that the problems faced and, some of the likely prospects are in many ways similar to this core group. Some other products are covered under such formal arrangements as the international commodity arrangements or agreements (ICAs).
4. Data provided concentrates on the 18 IPC commodities in order to better explain the scenario. The significance of raW materials in the African
economies goes beyond thair academic interest. It can be best described as a matter of life and death for those countries 2/. A point of view to which non-Africans are unlikely to subscrib-ebecaus9 they al'eunable to draw such a close parallel. For them, the most important consideration is balancing supply and demand. This is especially so where these does not exist a close link between commodity eXport earnings and the accumulation of debt. The rise of debt service for many AfdcAll countries a8 a whole is directly relilted to failure of, primary commodities ,to perform accordingly. Matters were made _ worse because the fall in the prices of most primary commodites increased the difficulties :(ort;he Af,rican countries in terms of unsustainable balance of payments deficits.
5. In a nutshell, the impact brought to bear on the African ec~omies by the way raw materials are eXploited both for domestic needs and export in Africa is
sYnonymous to a patient destined to die a slow death because he fails to take
y
2/
United Nations Economic Commission for Africa, Processing of Afr1c1l1 Raw Materials into Useable and Tradeable Products, ECA/IND/GEN/1/89, Addis Ababa, 17 March 1989.
See Jonathan H. Chileshe, «Primary Commodities; Africa's lifeline and South-Soyth Cooperation, ,Primary C9mmodities; Challenge to
Cooperat1On among Develop1ng Countr1es.
E/ECA/TRADE/8914 Page 2
the right advice. First and foremost, primary commodities determines each country's terms of trade as briefly stated above, Since over two-thirds of developing countries' export earnings come from commodities. Activities linked with exploitation of commodities constitute a principal source of national employruent in terms of production, marketing, distribution. There also contribute erroneously not only to export earnings but to the capacity to import and redeem the external debt and build the needed infrastructure.
It is therefore inconceivable that any of these activities can be seriously considered without taking account of what takes places or how the impact of trade in raw materials or primary commodities is likely to be, both in the short and long run.
6. Of the bulk of the countries that make up the Group of 77, it has been established that exploitation of commodities or raw materials accounts for over 50 per cent of their export earnings. Furthermore, a majority of them have a dependence ratio on commodities of over 90 per cent. Further still, for most low-income countries that are also non-fuel exporters, the commodity sector accounts for over 40 per cent of their GDP. One other feature is that as an economic activity, it involves the production and export of raw materials in a raw or elementary semi-processed form.
7. We therefore proceed in this rather brief paper with a brief review of the historical scenario and particularly the concern shown by the Group of 77.
It is this which led to the adop~ion of the Integrated Programme for Commodities (IPC) in 1976. Prior to that momentous decision, a Conference of Developing Countries on Raw Materials had been held in Dakar, Senegal from 3 to 8
February 1975 at which the part~cipants stressed the fact that it was more imperative than ever to strengthen cooperation between developing countries in accordance with the spirit of collective'self-reliance. Another pre- occupation will be to discuss what needs to be done against the background of developments that have taken place and are envisaged to take place in due course.
II. THE HISTORICAL SCENARIO FROM THE AFRICAN STAND POINT
S. It is necessary to prefix briefly the road which implementation of the IPC has travelled to this point in time. It was·at the Fourth Conference of the United Nations· Conference on Tr~de and Development (UNCTAD IV) in Nairobi,
in 1976 that approval was given in resolution 93(IV) to have IPC as an instrument geared towards alleviating problems associated with exploitation of primary commodities. Subsequent UNCTAD conferences passed a series of resolutions reiterating the need for implementation of IPC, It was not until 1987 during UNCTAD VII that sufficient signatures and ratifications as well as required pledged capital subscription was accomplished.
In the meantime. almost every African gathering continued to urge not only its own members but also other non-African countries which had not yet done so to sign and ratify the Common Fund of the .IPC.
· . I .
E/ECA/TRADEf89/4 Page 3
9. Africa is not alone in showing interest in what happens in the. area of exploitation of raw materials or primary commodities. Perhaps Africa will be forgiven for showing more interest in this subject than other Third World countries. Little will be achieved had we to repeat many of the reasons.
~~st are already well known, except for those who wish to cover them ~p
for their own personal or national or regional interest in order to direct interest to what is most dear to them. Not even for export products like coffee or cocoa or even a mineral like copper,is Africa's plight the same as say Brazil or Chile respectively. The predicament is not the same for these countries. The main difference is that other C.77 countries outside Africa do have alternatives. Alternatives which African countries do not have or are incapable of marshalling in comparable time. The industrial base of other non African G.77 countries is relatively capable of sustaining their respective economies. They also have the «economic and political' muscle to face up' to major industrialized countries when their economic livelihood is threatened in certain instances.
10. A recent example was when the United States of America and Japan imposed a ban on the import of Chilean grapes into their markets because some of the grapes where found to contain traces of cyanide. Chile had the option of
evoking some GATT article but chose to immediately seized five Japanese vessels that had berthed in its ports. The message to the Japanese was very clear. In other words, Japan had not shown any evidence of grapes into its market being contaminated and yet it acted in litu'·' with the USA. Chile rightly· felt that the Japanese action was uncalled for and ther0f"re had also the right to protect. its own national economic inter(..st. The question therefore is how many African countries would be able to take such an action and, succeed as . did Chile?
11. Africa can rightfully claim to have an abundance of raw materials, a
subject of this analysis. On the contrary, Africa lacks the abundance of cqntro1 in the exploitation of its raw materials. Neither has Africa had the abilLty to exploit its natural resources efficiently and economically. Africa, in common with other Third World countries, except the NICs, has as yet to create forward and backward linkages with other sectors of the economy in the
exploitation of its raw materials.
12. It is nonetheless important to prefix to the latter notion, the need of drawing certain pertinent observations. We certainly advocate the merits of greater and increased national or domestic processing of primary commodities.
However, this in not to mean that all commodities or raw materials in the respective African countries should be processed where they are found or produced. Neither is it implied by this to mean that all countries should aim to' process any particular commodity or raw material, irrespective of the prevailing economic circumstances.
13. On the contrary, there are a number of food products which are not suitable for any processing because their nutritional value would be greatly compromised were they to be processed. It is also a scientific fact for this type of products to be consumed in their natural state than otherwise. Another type of raw materials or commodities do not lend them- .se1ves to domestic processing for a number of good economic reasons.
E IECA I J:Rt.DE,' 6 9 i 4 Page 4
Particularly where processing at n~,tieni11 l£vel b~';omcs unocononic. ,Uso ,men the process might not only be efficient Ilnd s'so rel,tively expensiv2
economies ot large scale production are not possibl.e. Th',re is then the question of not being able to 'lttain a standardized rOrI!l th.lt is easily recognizable by intended end-users or consumers.
14. Needless to say, the envisaged processing of raw materials requires more than changes to existing patterns and practices. Such changes with rep,ard to diversification of market destination 10ill require to lay particular eophasis on South-South cooperation. I t is pattly against the above batkgro1Jnd that the decisions Ot both the Fourth Sunmit of the Noh-Alir,hed countries at Algiers in September 1973 and, ther(.!solution adopted by the United Nations Sixth Special Session in April-May 1974 4/, calling for the establishment of
associations of producers among developing countries arc 'not only pertinent but rather timely.
III. PERSPECTIVES REGARDING RAW MATERIALS
15. In presenting a pictur<.: of Africa's 1988 economic perforrlnnce and
projecting the likely st~te of play for 1989, the Executive Secretary of the Economic Co"""ission for Africa, in J~nuary 1989 1118·- reviewed the neneral world economic situation, He stated ~~ong other things,thet performance 1n Afric~
had improved markedly in 1986. In other words, after ne3r stagnation in 1987, the; region's output grew by ~,n estionted ilveragc of 2.3 per cent. However, as in most things African,the growth itself had been predicated on the good performance that was .achieved by the export of non-oil primary commodities.
factor th~t further underlines the significance of raw mat.erials in the t\frican economic equation~
16. Prospects for 1989, even in the absence of comprehensive date project e modest improveoent in 1988, provided the. international economy remains on its
present course. Alternativ(.!ly «if the strategy of gettinl', the recovery ship moving is not rocked violently by the international environment»5-/ as was pointed
out at one Panel on African Recovery <lnd Development in New Delhi in 1988 •
Consequcntl~r!, i-:::r"v':':-~:1n~3 f'!1--'...11r: continue tp pc r.:nde i+'l OTrlnr to iT1CrCBSE' the
perforl!k~nce aUG cOlitr~')Ution of primary cO:"I1odities i exploitation. This is 11 number of studies by EeA exhort for more efforts to be exerted 1n supporting adjustment
programmes in the region 61. The concl)lsions and recommendations like the recent one on (Processing of African Raw Materials into Useable and Tradeable Products»
recommend athPages 46 and 47 -da two pronged. action Which, if properly implemented can ennance w at 1S also des1re by the G.
n.
41 Resolutic~ 3202(S-VI) adopted by the Sixth Speciel Session of the entitled «Progral!ll!lC of Action on the Establishment of a Ne,,'
International- Economic Order» contained a specific chapter on Raw
Materials th~.t aoong other things, called upon the developing countries
«To facilitete the functioning and to furth~r the aims of producers'
associations,.includin~ their joint marketing arrangements, orderly COMmOdity trading, illprovement in export income of producing developing countries and in the ir terms of tr~.de •.. »
51 See Jon:lthan P. Ghilcshe, «Penel on Afric'ln Recovery and Development», Report on Poverty, Development and Collective Survival, COMPASS,
SIn 19th ~orld Conference, New Delhi, Octcb0r 1988, No. 35/36, p. 39.
61
See Economic Commission for Africa, Economic Repcrt on Africa 1989, Addis Ababa, llarch 1989.E/ECA/TRADE/89/4 Page 5
17. Hence the need to look closely at the 18 IPC commodities (bananas, cocoa, coffee, cotton and cotton yarn, hard fibres and products, jute and jute
Dk~nufactures, hovine ~eat. rubber, sugar, team tropical timber, veRetable oils and oilseeds, bauxite, copper, iron ore, manganese, phosphate rocks and tin).
The Tables 1 to 3 give a fairly good picture of export trends and the significance of this group of products between 1970 and 1980 as well as between 1980 and
1985. It can be seen from these tables that Africa's export values and share vis a vis the world and other developinG market econOtly countries is quite distinct.
18. Table 3 on «price indices of principal commodity exports of developing countries» is more revealing in terms of both continued decline and extent to which they were depressed. In the period 1970 and 1980 to 1985, and taking 1979-1981 as base year (100), only vegetable oi1seeds and oils (119) in 1984, agricultural raw mater1als (109), mineral ores and metals (109) as well as beverages (113) in 1980 that could be said to have faired any better, price-wise. The rest of the products hovered nuch below the benchmark level of 1979/81.
19. For instance. crude oil prices which started in 1988 at the OPEC benchmark of US$18 per barrel dropped by thG end of October 1988 and thereafter to U3$12.
Prices for crude oil recovered slightly in November 1988 when OPEC agreed to ~
new quota structure. Prices for metals according to ECA rose sharply during 1988 with copper reaching nearly US$1.42 por Ib or or bl.4l7.7 per metric ton, to givinR this particular product, an avcra~e price rise of 13.9 per cent when compared 1987,Commodity prices for other commodities of interGst to Africa -.any of which are
included in the above IPC list like beverages and agricultural raw materials, according to ECA.indcx of wholesale commodity prices declined by 12.8 per cent in 1988, after a rise of 20.8 per cent in 1987. Similarly, according to the IMP index, coffee prices - declined by 7.1 per cent, cocoa by 20.7 per cent while tea prices showed an increase cf 4.8 per cent with sugar being ~ost bouyant because of the shortage caused by drought in the United States in the previous harvest period.
E/ECA/TRADE/8914 Page 6
Table 1
Exports of 18 IPC Commodities (Billion
us
dollars)1970 1980 1981 1982 1')83 1984 1985
Hor1d 30.3 113.5 101.3 90.8 93.0 98.8 92.6
Developing Market
Econo~y Countries 19.2 6L4 57.1 51.8 53.8 58.2 55.9 Developing Africa 5.7 13.6 11.3 10.2 10.1 1l.3 10.7 Per cent of
Developing Africa's exports in Total
World (per cent) 18.8 12.0 1l.2 11.2 10.9 11.4 11.6 Per cent Share of
Developing Africa's exports in
Developing Countries
total (per cent) 29.7 20.2 29.8 19.7 18.8 19.4 1S.1 Source: TDFD calculations based on data fron UNCT/~, 1987, Conmodity Yearbook,
New York, 1988.
E IECA!TRlillE 189 -' 4 Palle 7
Table 2
Share of 18 IPC Commodities in Total Developing Africa's Exports
(Values in billion US dollars)
1970 1980 1981 1982 1983 1984 Export of 18 IPC
COl!Imoditi;s 5.7 13.6 11.3 10.2 10.1 11.3 Total, all
commodities exports 12.7 94.5 74.5 65.2 61.3 63.4 Per cent exports
of 18 IPC
Commodities 44.9 14.4 15.2 15.6 16.5 17.8
Source: TDFD calculations based on data from UN, 1985 International Trade Statistics Yearbook, New York, 1987.
Table 3
Price Indices of Principal Commodity Exports of Developing Countries
1979-81 ~ 100
1970 1980 1981 1982 1983 1984 1985 Food and Tropical
beverages 33 113 76 80 81 73
Vegetable oil seeds
and oils 44 96
n
88 119 82Agricultural raw
materials 32 109 82 88 86 77
Minerals, ores and
met,~ls 42 109 82 85 78 76
Combined index in terms of current
dollars 37 110 713 83 84 75
Source: UNCTAD, Monthly Commodity Price Bulletin, various issues.
1985
10.7 61.9
17.3
1986 87
51 77 71
79
1987 67
60 96 82
76
E IECA/T&'.DE/89 14 Page 8
20. Perhaps of considerable significance in the discussion is the like1y impact brought to bear on the economies when it comes to exploitation of raw materials
in the African countries. These trends depicted in the tables raise questions of the overall retained value. On the basis of a number of studies carried out under the auspices of the United Nations Conference on Trade and Development (UNCL,\D) .:!:l,the Food and Mricultural Organization of the United Nations
·tFAO} -sl and ECA 9/. show conclusively hot; a disproportionately l~rg€ -percentage-of the final selling price or price paid by final consumers .. does not go to producing developing countries • Rather, they are retained by
intermediary firms in the developed industrialized countries.
21. The following exaMples are .illustrative of what is stated above. The export of moai; cOlllllOdi~ies included. in the IPC list is inevitably .in their
raw or semi-processed forn. A greater part of the final price paid b~,consumers,
representing the profit margin is enjoyed by trading firms and middlemen in the importing countries of the developed industrialized countries. For instance.
the share or percentage of the final retail price on tea bags that goes to growers in developing countries is between 15 and 27 per cent. On tbe otber hand ,tbe remainder of between 73 and 85 per cent goes to iMporting and trading firms ot" the developed industrialized countries. The same is true for coHee where it has been estimated that only about 25 per cent Boes to growers while 75 per cent is shared by shippers, traders, processors and distributors, who
like in the case of trade in tea are headquartered in the developed industrialized countries. The picture for the other remaining 16 products in tbe IPC group
would be no different, except for certain minor variations.
22. Thus the delay in making operational the Common Fund of the Integrated Programme for Commodities bas been most unfortunate to say tbe least. It is contrary to what many developing countries perceived as a commitment by tbe
~international community for a broad-based international cooperation in the development and expansion of primary commodities' processing and the
export of the resultant products in aeveloping countries. That also was
assumed to be the main objective of The Two Windo~l!' of the Common Fund as under- lininr, the letter and spirit of UNCTtJl resolutions 93(IV) and 124(V}.
81
91
See UNCTAD, «The marketing and processing of tea: areas for
international co-operation. and «The marketing of hard fibres {sisal nnd henequen}; areas for international cooperation»,
Studies in tbe processing, ~rketing and distribution of Commodities;
UN Sales No.E.84.1l, D.21.
See FAO, The World banana econoer, 1970-1984; Structure performance and prospects, FAD Economic and Social Development Paper No. 57, Rome, 1986.
~ Development:
IV. CONCLUSION
B Il':CJ./'I'lL\J)E I (l ~ J l,
Page 9
23. It is difficult togeneraliae on a subject as complex and complicated as that of developing, exploiting raw materials. .First and foremost. the basket itself is far from being homogeneous. Secondly, the Common Fund of the IPC is only one mechanism among many and was never conceived from the start to be a panacea in curing all the ills encountered in this field. Thirdly,
international cooperation or offers by certain developed industrialized countries to assist is only one part of the equation 10/. In other words, the countries whose raw materials are affected are themselves to shoulder a greater part of sustaining the suggested changes.
24. This is the background among otheTS, Why the observations in the Dakar Declaration of the Conference of Develo in Countries on Raw ~~terials {Dakar, 3-8 Fe ruary an some of the conc us~ons of the G. Meet~n¥ on
Surveillanee of the Information on Commodit Prices and Raw Mater1als (Addis Aba a, to er nre st1 1 . ac camp 1ments the objectives of UNCTAD resolutions 93(IV) and For instance, the Dakar De~laration
acknowledges and stresses:
eThe fact that developing countries have been denied adequate participation in the determination of international prices of their export commodities Vhich has led to a permanent transfer of real resources from developing to developed countries, because the benefits from improvements in productivity in the production of primary commodities and raw materials are transferred to developed consumer countries rather than translated into higher earnings for commodity producers •••• Furthermore, the low level of commodity prices has stimulated an excessive consumption and substantial waste of scarce raw materials in the affluent countries, resulting in the rapid depletion of non-renewable resources;
Consequently, the only way to correct this economic order and such a division of labour is, in effect, to transfer to the developing countries the processing of the raw materials they produce in their national territories, so that they may be able to derive maximum benefit frOD their potential wealth and improve their real terms of trade with developeG countries ••
10/ For instance the proposal of the Government of Japan during the Seventh Session of the United Nations Conference on Trade and Development when it offered to assist in a programme for the purposes of improving the proeessing of commodities in developing countries is one such weleome development. Japan was perhaps intent On using some of its aeeumulated foreign exchange sur- pluses to fund a Roundtable that would have considered and made suggestions in this field to eountries and international
organi~ations on needed action to improve the proeessing of raw materials •
E/ECA/TRADE/89/4 Page 10
25. To a large extent, the Dakar Declaration was a sort of «Action Programoe, since it indicated areas of cooperation aMong developing countries in the field of exploitation of raw materials and other priMary commodities. Like in the Dakar Declaration,developing countries were urged by the Meeting on Surveillance among other things, to:
(a) secure control over their natural resources;
(b) expand the markets for, and increase the returns from the exports of primary commodities;
(c) encourage processing in their national territory of their raw materials to the furthest stage;
(d) promote direct trade in raw and processed cO!!1!llodities among themselves in order to put an end to the prevailing triangular system of trade under which a developed country serves as an intermediary in importing an unprocessed commodity from a developing country and re-exporting it in a semi-processed or processed form to another developing country.
26. It is therefore more than imperative, especially given the slowness in making operational, the Common Fund that developing countries both as
producers and consumers of raw caterials further foster cooperation aMong themselves. By the saMe token, existing developing countries' producer associations ought to continue to be strengthened and new ones established where they do not exit. Equally important also as was pointed out during the Addis Ababa cMeeting on Surveillance of Information' is that multilateral cooperation schemes or agreements among developin~ countries producing primary commodities should be integrated into national plans and polieies at the
earliest opportunity.
27. It is this like of coherent approach in dealing with primary commodities which has become a major failing in transforming the Third World
economies. It is the same sort of paradox that makes Third World countries, who despite being well endowed >lith agricultural, mineral, acquatic and energy raw materials to continue to be dependent on importing products
whose industrial base is obtained by the industrialimed developed countrIes frOM other Third World countries.
