Commodities will drive post-pandemic growth, but we must be aware of the consequences

Posted On September 16, 2021

Commodity prices are increasing, in part because of high demand for minerals needed to produce solar panels and other clean energy technologies.

UNDP Mauritius/Stephane Bellerose

Primary commodity prices are going up, and based on the anticipated demand and supply, the trend is likely to continue. Between July 2020 and July 2021, the price indices of energy, base metals and agricultural raw materials rose by 111 percent, 71 percent and 24 percent, respectively. 

In a bid to recover from the COVID-19-related recessions, countries will rely on mineral exports to generate tax revenue and foreign exchange. Economic growth in sub-Saharan Africa contracted by 1.9 percent in 2020. Per capita income will not go back to its pre-crisis level until 2025. The recovery, to a large extent, will rely on mineral exports. Consumer spending will also drive demand as more countries increase vaccine coverage and life returns to normalcy. 

To meet the Paris Agreement, countries will increase the share of renewable sources in their energy mix. The IPCC’s recent Sixth Assessment Report added urgency to realize the commitments to net-zero carbon emissions by mid-century. The implication is that significant amounts of minerals are needed to produce clean energy. Tons of concrete, steel, copper and aluminium go into wind turbines. Solar technology is built from silicon, aluminium, silver and tin. Electric vehicle batteries use lithium, cobalt and graphite.

The high urbanization rates in developing countries are likely to continue—the urban population in Africa and Asia grows at four percent per annum. SDG 11 aims to achieve safe and affordable housing, with over one billion new homes expected by 2025. Higher investments in housing and infrastructure mean higher demand for construction materials, industrial minerals and dimension stones.

SDG 9 aims to increase manufacturing value-added as a share of GDP from 10 percent to 15 percent. The progress in meeting this target translates into higher consumption of minerals that go into both building industrial zones and inputs to manufacturing processes. Between July 2020 and July 2021, the price indices of iron ore and tin went up by 98 percent and 95 percent, respectively.

As the frequency and intensity of natural disasters increases, so will the demand for  metals and aggregates. After Cyclone Winston in Fiji and Tropical Cyclone Idai in Mozambique, large quantities of sand, clay, aggregates and limestone were needed to reconstruct damaged houses, bridges, and schools. The recent earthquake in Haiti shows how much minerals will be required for the reconstruction effort.

In his recent Policy Brief, the United Nations Secretary-GeneralAntónio Guterres, reminded us that “the actual contribution of extractive indus­tries to sustainable development in countries rich in raw materials has often been mired by financial, economic, governance, social and environmental concerns”.

Mineral economies in sub-Saharan Africa continue to be locked in limited diversification and domestic value addition capacity. Resource-rich countries in the region still generate over a third of their fiscal revenue and foreign exchange from hydrocarbons and minerals. As a share of GDP, their manufacturing sector is around five percent on average, compared to 15 percent in the Latin American and Asian commodity-dependent economies. 

The Secretary-General’s Policy Brief also mentioned that “many countries facing severe fiscal deficits due to COVID-19 have rolled back social and environmental safeguards to attract investments and boost their economies in the short-term”. 

If not checked, mining-related economic, social and environmental ills could potentially be severe, more so because the 81 countries classified as resource-dependent comprise half of the world’s population and are also home to 70 percent of people living in extreme poverty. However, several proven policies will help reduce the risks associated with commodity-driven growth and optimize its benefits.

Countries need to strengthen their contract negotiation capacities to earn as much rent as possible from their resources. They have to know their resource wealth to negotiate as equals. For this, they must have the capacity to carry out comprehensive geological mappings and surveys.

Authorities should be able to tackle tax evasion and profit-hiding. UNCTAD estimates that US$87 billion leaves Africa in the form of illicit financial flows. The mobilization and investment of resource revenues to build human and green capital in things such as carbon-neutral infrastructure goes a long way in compensating for the loss of natural capital. 

Policymakers must provide incentives to those who can add value to minerals locally or regionally under the African Continental Free Trade Area. Botswana is an excellent example of establishing Gaborone among one of the cities where diamond beneficiation takes place.

Resource revenues can also be used to finance diversification into manufacturing and services that will create local jobs and generate incomes. Chile’s winery and fishery sectors would not have been possible without the capital injected from copper. Similarly the Indonesian manufacturing sector benefitted from capital mobilized from the sale of minerals and hydrocarbons.

Environmental protection must prevent further deforestation, land degradation, biodiversity loss, air, soil and water pollution. Ensuring the participation of communities, women’s organizations, and Indigenous peoples in the design and monitoring of extractive activities is key to protecting the environment and places of cultural and social significance. Once the decision to mine is made, policymakers must ensure that the industry adopts sustainable production methods and circular business practices.

The social impacts deserve closer attention and monitoring. Child labour is common in small-scale mining, with an estimated one million working in hazardous conditions. The use of dangerous substances like mercury still causes chronic illnesses. The migration of new miners to an area raises the risk of conflict due to conflict over water and land. 

We are at a critical juncture as far as the mining sector is concerned. On the one hand, demand for these commodities will continue to grow, presenting us with an opportunity to recover from the global economic slowdown. On the other, their extraction comes with costs that hinder the SDGs and calls for a rethinking of our consumption patterns. 

UNDP’s programmes such as The ACP-EU Development Mineral ProgrammeThe Environmental Governance ProgrammePlanet GOLD and The Africa Mining Governance Project, implemented in partnership with the European Union, the Global Environmental Facility and the Swedish International Development Cooperation, hold significant possibilities to resolve the above contradiction and contribute to building a sustainable future.