The COVID-19 pandemic quickly drove the global economy into a recession last year with the suspension of much international trade and production activity. This trade shock caused commodities markets worldwide to take a huge knock.
In 2021, however, with exporting and importing restrictions being loosened, commodities have been recovering at an astounding pace, as indicated by surging prices and high global demand. Commodities showing the strongest growth this year have been iron ore and copper as well as Arabica coffee, corn, and lumber. Following closely behind are commodities that include PGM, oil, and other raw materials. Almost all commodity prices are now higher than they were prior to COVID-19. The high rate of commodity price surges have even led to speculation of the possibility that a commodity supercycle is on its way, although analysts say this is unlikely at present.
South Africa has already seen an economic rebound due to being able to resume exporting goods, with raw materials accounting for a third of the country’s exports. Prices for platinum group metals have seen the strongest spikes in the country. The commodity boom has resulted in the Rand soaring in value and being back at close to R14 to the dollar. The last time it was this value was in January 2020. This is an impressive comeback from the Rand’s historically low value of R19 to the dollar in April 2020, when the hard lockdown was initially introduced in South Africa and the country experienced an economic fallout.
However, although the economy of South Africa, along with other African countries, is recovering from the pandemic, it is doing so more slowly than in richer countries with more advanced economies – with China having recovered the fastest, followed by the US. This is in part due to Africa’s economic activity being hindered by the continent’s current debt burdens and lack of access to vaccines making the containment of the COVID-19 pandemic difficult, which prevents the continent from fully opening for business again. There is hope, though: the climbing commodity prices will benefit African economies, particularly if they can manage the profits gained from commodities – something that will enable economies to remain resilient even future recessions hit.
Is the global recovery in commodity prices sustainable?
Current commodity prices are likely to remain steady and fairly unchanging over the course of 2021 with the economy having bounced back and high commodity demand meaning there is further growth potential. However, this depends on there being a global improvement in the containing of COVID-19, the output of key global commodity producers, and trade policy measures. It is important that developing and emerging economies work to foster short-term resilience should commodities fall again.
The pandemic has affected food commodities – what this means for Africa
There had been growing food insecurity around the globe even prior to COVID, however the pandemic has exacerbated this to the point where development gains have been reversed entirely and vulnerable populations in nearly every country are suffering the effects. These effects are expected to continue into 2022.
With food supply distribution having been slowed due to COVID restrictions, mixed with the recent powerful resurgence of commodities, countries around the world have been hit with food price inflation and low-income households have been particularly hard-hit by the spike in food prices. And it is predicted that these prices will continue to grow.
In South Africa, an outbreak of avian flu earlier in 2021 did not help matters, with the country’s poultry industry taking a knock and the country being banned from exporting poultry across borders. This makes it that much harder for the country’s economy to recover from the pandemic.
The World Bank Group has responded to this crisis in various developing countries in Africa and abroad and is currently collaborating with governments and global partners to monitor in-country agricultural and food supply chains and keep them running in spite of obstacles presented by the COVID-19 pandemic.