The World Bank’s recent blog post from October predicts a significant drop in oil prices due to rising electric vehicle sales, global oil overproduction, and a slowdown in China’s economic growth.
While these trends may contribute to economic uncertainties in the coming year, they could also serve as forces of market correction, especially in the context of the Middle East’s intensifying conflicts and the resulting fluctuations in commodity prices.
This anticipated decline spells possible economic chaos for oil-dependent African countries like Nigeria and Angola, as the interdependencies in global production and supply chains could complicate commodity pricing dynamics.
The blog’s content entailed a review of its 2024 Commodity Market Outlook Report, covering 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 disruptions.
Since the pandemic, these shocks have reshaped commodity pricing trends. The report anticipates a five percent price decrease in 2025 and a two percent drop in 2026, mainly oil-led. However, it warns that escalating conflicts in critical regions could push prices upward.
Geopolitical events, identified by the World Bank as “commodity-specific shocks,” have been shown to significantly impact prices, mainly when conflicts affect key production regions, thereby straining supply chains.
The report contrasts the present influence of geopolitical tensions with prior commodity cycles, underscoring the evolving landscape of commodity pricing and cautioning against potential price spikes, especially in developing nations, due to the ripple effects of conflicts.
However, short-term strategies for mitigating global dynamics in Africa are noticeably absent from these high-level reports, which instead propose long-term measures like infrastructure development and economic diversification.
In the immediate term, African governments should consider establishing rapid-response market intelligence teams to monitor global trends and geopolitical shifts, enabling timely, informed decisions.
These teams could collaborate with the public and private sectors to respond to emerging challenges.
Although the report did not consider the just ended US elections, a Trump presidency, for instance, could complicate Africa’s economic future.
Another short-term measure would be to enhance liquidity support for sectors hit hardest by commodity price volatility. Governments could establish emergency funds to stabilise these key industries.
However, many African countries are constrained by debt, limiting their ability to implement necessary economic policies. High debt levels hinder these nations from investing in diversification or infrastructure and complicate responses to commodity shocks.
Temporary fiscal policies could also help buffer economic shocks by providing tax relief or subsidies to vulnerable sectors and households, stabilising consumption and preventing severe downturns. Yet, access to affordable credit from traditional sources, like the World Bank, is limited.
With these constraints, many African countries may need to explore innovative financial solutions to provide short-term relief.
Additionally, Africa must ensure the stability of food and essential goods supply chains. Governments could consider stockpiling essentials and creating contingency plans to counter potential disruptions, helping to maintain price stability.
This approach requires a transparent, corruption-free environment to prevent misuse, such as hoarding or political interference in distributing resources.
Diversification remains a critical long-term strategy, especially for oil-dependent economies. To reduce reliance on oil, African countries could focus on agricultural value addition, developing manufacturing, and leveraging technology.
For infrastructure, nations might draw from China’s model, mobilising large workforces for rapid and cost-effective project completion.
This approach could help build roads, bridges, and other critical infrastructure, improving connectivity and employment.
Efficient storage and processing facilities for agricultural produce are also essential to reduce waste and enhance food security.
Investments in renewable energy stabilise economies, attract foreign investment, and reduce dependence on oil, thereby protecting against global price swings. Renewable energy initiatives could benefit local communities by providing clean, affordable energy and supporting small businesses and industries.
Strengthening regulatory frameworks is crucial for fostering investor confidence and ensuring fair practices. Capacity-building efforts, market information systems, and technical assistance can empower local producers to adapt to market changes. Moreover, promoting sustainable practices is vital for long-term productivity and environmental protection.
Lastly, advancing the African Continental Free Trade Area (AfCFTA) is essential for bolstering Africa’s collective economic strength, providing a buffer against global economic fluctuations, and creating a more stable economic environment.
Through AfCFTA, member states can pool resources and enhance bargaining power. Accessing financial tools like hedging could further shield African economies from price volatility.
African nations face challenges due to global commodity prices and geopolitical disruptions.
To mitigate shocks, they need long-term strategies like infrastructure investment and diversification, short-term measures like liquidity support, and sustainable growth through renewable energy and agricultural efficiency. The AfCFTA and financial instruments can further strengthen Africa’s position.
The writer is Kenya’s Ambassador to Belgium, Mission to the European Union, Organization of African Caribbean and Pacific States and World Customs Organisation.
