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Navigating 2025 commodity shocks – Business Daily

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The World Bank’s latest October blog post forecasts a significant decline in oil prices due to rising electric vehicle sales, global oil overproduction, and slowing economic growth in China.

Although these trends may contribute to worsening economic uncertainty in the coming year, they may also serve as market correction forces, especially in the context of increasingly intense conflicts in the Middle East and the resulting fluctuations in commodity prices.

This expected decline leads to potential economic chaos in oil-dependent African countries such as Nigeria and Angola, as interconnectedness in global production and supply chains could complicate commodity pricing dynamics.

Blog content requires review Commodity Market Outlook Report 2024, Covers commodity price trends from 2020 to mid-2024.

The report noted that non-commodity supply shocks have more lasting impacts than commodity-specific events, such as geopolitical tensions or weather disturbances.

Since the outbreak of the pandemic, these shocks have reshaped commodity pricing trends. The report predicts a 5% decline in prices in 2025 and a 2% decline in 2026, especially due to oil. However, he warns that escalating conflicts in critical areas could push prices higher.

Geopolitical events, defined by the World Bank as “commodity shocks,” have been shown to significantly impact prices, especially when conflicts affect key production regions, stressing supply chains.

The report compares the current impact of geopolitical tensions with previous commodity cycles, underscoring the evolving commodity pricing landscape and warning of potential price increases, especially in developing countries, due to the ripple effects of conflicts.

However, short-term strategies to mitigate global dynamics in Africa are noticeably absent from these high-level reports, which instead suggest long-term measures such as infrastructure development and economic diversification.

In the near term, African governments should consider establishing rapid response market intelligence teams to monitor global trends and geopolitical shifts, enabling timely, informed decisions to be made.

These teams can collaborate with the public and private sectors to respond to emerging challenges.

Although the report did not take into account the just-concluded US elections, a Trump presidency, for example, could further complicate Africa’s economic future.

Another short-term measure is to enhance liquidity support for sectors most affected by commodity price volatility. Governments can establish emergency funds to stabilize these key industries.

However, many African countries are constrained by debt, which limits their ability to implement the necessary economic policies. High debt levels hinder these countries from investing in diversification or infrastructure and complicate responses to commodity shocks.

Temporary fiscal policies can also help mitigate economic shocks by providing tax breaks or subsidies to vulnerable sectors and households, stabilizing consumption and preventing sharp contraction. However, access to affordable credit from traditional sources, such as the World Bank, remains limited.

Given these constraints, many African countries may need to explore innovative financial solutions to provide short-term relief.

In addition, Africa must ensure the stability of food and basic commodity supply chains. Governments can consider stockpiling necessities and developing contingency plans for potential disruptions, which helps keep prices stable.

This approach requires a transparent and corruption-free environment to prevent misuse, such as hoarding or political interference in the distribution of resources.

Diversification remains a critical long-term strategy, especially for oil-dependent economies. In order to reduce dependence on oil, African countries can focus on agricultural value addition, develop manufacturing, and leverage technology.

For infrastructure, countries can leverage the Chinese model, mobilizing large workforces to complete projects quickly and cost-effectively.

This approach can help build roads, bridges and other critical infrastructure, improve connectivity and create jobs.

Efficient storage and processing facilities for agricultural products are also essential to reduce waste and enhance food security.

Investments in renewable energy stabilize economies, attract foreign investment, reduce dependence on oil, and thus protect against global price fluctuations. Renewable energy initiatives can benefit local communities by providing clean, affordable energy and supporting small businesses and industries.

Strengthening regulatory frameworks is crucial to enhancing investor confidence and ensuring fair practices. Capacity-building efforts, market information systems, and technical assistance can enable local producers to adapt to market changes. Furthermore, promoting sustainable practices is critical to achieving long-term productivity and protecting the environment.

Finally, strengthening the African Continental Free Trade Area (AfCFTA) is essential to enhance Africa’s collective economic strength, provide a buffer against global economic fluctuations, and create a more stable economic environment.

Through the African Continental Free Trade Area, member states can pool resources and enhance negotiating power. Access to financial instruments such as hedging can protect African economies from price fluctuations.

African countries face challenges due to global commodity prices and geopolitical turmoil.

To mitigate shocks, these countries need long-term strategies such as infrastructure investment and diversification, and short-term measures such as liquidity support, and sustainable growth through renewable energy and agricultural efficiency. The African Continental Free Trade Area and financial instruments could further strengthen Africa’s position.

The writer is Kenya’s Ambassador to Belgium, its Delegation to the European Union, the Organization of African Caribbean and Pacific States and the World Customs Organization.

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