Don't Miss


Home   >   Business   >   Industries   >   Economy   >   Nigeria, other commodity exporters facing difficulty – IMF

Nigeria, other commodity exporters facing difficulty – IMF

By on October 1, 2015

With a weak outlook for commodity prices, particularly for energy and metals, growth in Nigeria and other commodity-exporting emerging and developing economies could slow further over the next few years, a new study has stated.
The study, published in the International Monetary Fund’s (IMF) forthcoming 2015 World Economic Outlook, suggested that the recent declines in commodity prices could shave off one percentage point annually from the growth rate of commodity exporters over 2015-17 as compared with 2012-14. In exporters of energy commodities, the drag is estimated to be even larger—about 2¼ percentage points on average.
This slowdown is not just a cyclical phenomenon, the study finds.
“It has a structural component as well,” the lead author Oya Celasun, who is the Deputy Division Chief, in the Research Department, stated.
“Investment, and accordingly, potential output, tend to grow more slowly in exporters during commodity price downswings.”
The decline in potential growth exacerbates the post boom slowdown, Celasun said.
“This means that policymakers in commodity-exporting countries must go beyond demand-side measures and tackle structural reforms to improve human capital, increase investment and, ultimately, unleash highera productivity growth.”
It noted that commodity prices are unpredictable and can be very volatile. They can remain high or low for prolonged periods, giving the impression that their levels are permanent, only to exhibit very sudden and large changes, it added. “Recent history is no exception.

The first decade of the 2000s saw a persistent surge in commodity prices from record lows in the mid-1990s to record highs by 2011. More recently, however, the prices of commodities have fallen again, some in a dramatic fashion, and are expected to remain weak for some time,” it emphasised.
Furthermore, it noted that in commodity-exporting economies, output growth, and economic developments more broadly, are unavoidably driven by commodity price cycles.
“To understand the channels better, the study examined data for more than 40 commodity exporters in emerging and developing economies for the last 50 years. It finds that output and, particularly, investment grow faster during commodity price upswings than in subsequent downswings.
“Much of this cycle reflects a strong investment response in the commodity-producing sector itself, which spills over into supporting industries such as construction, transportation, and logistics. The appropriate policy responses depend not only on the extent of the growth slowdown but also whether commodity-price-related fluctuations in output are mostly structural or cyclical in nature. That is, policies would have to be designed differently if commodity price changes affect potential output and not just the cyclical fluctuations around it.
“More specifically, fiscal policy has been less pro-cyclical—allowing for greater savings out of resource revenues—exchange rates have been more flexible, and financial depth has increased relative to the earlier episodes.

All these factors were associated with smaller drops in output growth during previous downswings.
“The findings of the study imply that the growth slowdown in the immediate aftermath of a commodity price boom most likely represents a return to a more sustainable level of output. At the same time, slowing investment and economic capacity can lead to lower potential output growth.
“Policymakers in commodity exporting countries therefore need to be careful not to overestimate the extent of excess capacity in their economies. A significant deceleration in growth rates is unavoidable for many economies,” it explained.

 

[ThisDay]