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Afreximbank says the commodity index is down

Afreximbank’s weighted index tracks the performance of 13 commodities (crude oil, gold, cobalt, aluminium, copper, zinc, cocoa, coffee, cotton, sugar, wheat, maize and palm oil). The choice of these products depends on their total contribution to African trade. The index fell sharply at the end of March, down 44% from its level at the beginning of the year.

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“The Afreximbank African Commodities index (Aaci), the African Export-Import Bank’s (Afreximbank) index for tracking the performance of commodity prices, has been on a downward trend since January 2020.”

According to the bank’s results, the index fell sharply at the end of March, down 44% from its level at the beginning of the year, due to the disruptive impact of the coronavirus on global demand and commodity prices. “The impact of the pandemic was felt particularly in the oil markets, which were first put under pressure with the failure of the Opep and partners to agree to extend production cuts, and then exacerbated by sudden shutdowns and a shock in global demand caused by the pandemic,” said Afreximbank.

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The importance of oil in the economic growth of African countries and not only

Oil is a limiting factor of economic growth, the key indicator of which is the Gross Domestic Product (GDP). It is therefore the quantity of oil available that drives the economy. In this context of reduced energy supply, the capacity of man to transform the world is greatly reduced. The short parenthesis of humanity with growth is fading away as are the dreams of prosperity that were attached to it. Indeed, the world will realize that energy is not a sector of the economy but a component of all economic sectors.

Thus, less oil leads to fewer machines allowing interconnection therefore less transport, therefore less trade, therefore a decline in GDP (recession) at the global level.

There will be stress on established companies and damage to international trade. The future will, therefore, be low tech. In this compulsory and forced entry into the race, the competition for the remaining resources will lead to conflicts over control of the resources.

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The problems resulting from the end of energy abundance are global, but they may have more serious repercussions in Africa because of the specificities of the continent.

Afreximbank’s weighted index tracks the performance of 13 commodities 

Yet, between 2016 and 2019, the Aaci was on an upward trend, although the structural break in the third quarter of 2018 led to an abandonment of trend growth. This upward trend was explained by the recovery of commodity markets after the end of the super-cycle. The value of the index closed 2019 at 157, up 57%.

Afreximbank’s weighted index tracks the performance of 13 commodities (crude oil, gold, cobalt, aluminum, copper, zinc, cocoa, coffee, cotton, sugar, wheat, maize, and palm oil). The choice of these products depends on their total contribution to African trade. Five of the 13 commodities – crude oil, gold, cobalt, copper, and cocoa – account for more than 55% of total African exports. Crude oil is particularly important for the export profile of several African countries. For example, in Nigeria and Algeria, crude oil and hydrocarbon fuels account for about 95% of total export earnings and 57% and 40% of total fiscal revenues, respectively.

“The selection of commodities in the agricultural sub-index reflects both the continent’s heavy dependence on agricultural imports, including sugar, wheat, maize and palm oil, and the increasing pressure that the rising food import bill is putting on the balance of payments,” the bank explained. 

Tracking and monitoring the index will help countries systematically assess their commodity revenues in real terms, while adopting preventive policy measures to mitigate any risk of imported commodity inflation.

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First published in Financial Afrik, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Olivia McCall is passionate about education, women and children’s rights, and the environment. A long-time investor, she covers news about the latest stocks (lately marijuana and tech), IPOs and indices, and is always on the lookout for socially responsible startups. She also writes about the food sector, and has a keen interest on cryptocurrencies.