In the 1990s, the general level of commodity prices fell even more in relation to manufactures, and many commodity-dependent developing countries have continued to suffer deteriorating terms of trade. According to UNCTAD’s Trade and Development Report, 1999 (UNCTAD, 1999a: p85), oil and non-oil primary commodity prices fell by 16.4 and 33.8 per cent respectively from the end of 1996 to February 1999, resulting in a cumulative terms-of-trade loss of more than 4.5 per cent of income during 1997-1998 for developing countries. “Income losses were greater in the 1990s than in the 1980s not only because of larger terms-of-trade losses, but also because of the increased share of trade in GDP.” Moreover, the prices of some key manufactured products exported by developing countries have also declined. For example, the Republic of Korea experienced a 25 per cent fall in the terms of trade of its manufactured exports between 1995 and 1997 due to a glut in the world market (UNCTAD, 1999: p87).
The great loss of opportunity for growth represented by the fall in terms of trade can be seen in the following. In 1989, gross domestic saving was 15.8 per cent of the GDP of African countries as a whole and the gross domestic investment rate was 20.4 per cent of GDP (Khor 1993). As mentioned above, sub-Saharan Africa suffered a loss of income due to terms-of-trade decline equivalent to 15-16 per cent of GDP in 1987-89. Taking the 1989 Africa savings rate as the reference, it can be concluded that sub-Saharan African countries in the late 1980s were losing income equivalent to the amount of their entire savings level, as a result of terms-of-trade decline. If the terms of trade had not declined, and if the income lost had been added to savings, then the value of savings could have doubled. If the savings had been all invested, the investment level in the region could have increased by 76 per cent. These tremendous increases in savings and investments could have contributed to significant increases in the overall rates of economic growth.
The world trading system has been favouring the developed-country exporters of manufactured goods, while proving to be disadvantageous to the many developing countries whose main participation in global trade has consisted in the export of raw materials and commodities and the import of finished products. Many Southern countries have also lost their self-reliance in terms of producing their own food, as lands were converted to farm export crops that in many cases yielded unsatisfactory results in terms of instability of price and demand. Moreover, in recent years, even the prices of manufactured products exported by developing countries are showing disturbing signs of price decline.
Proposals
• It should be recognized that the decline in commodity prices constitutes the most important factor that hinders many developing countries from benefiting from trade, and also suppresses the incomes of millions of commodity producers, thus making it difficult for Millenium Development Goal 1 (eradicating poverty and hunger) to be realised. It is imperative that such huge income losses incurred by poor countries be stemmed and if possible reversed. There should thus be a Target under Goal 8 to "Address the problem of commodity-exporting developing countries through international measures to ensure commodity prices are stabilised at levels enabling adequate incomes for the countries and producers." The need for action on commodities was also recognised in the Implementation Plan of the World Summit on Sustainable Development. One possibility is for countries to initiate a new round of producer-consumer commodity agreements aimed at rationalizing the supply of raw materials (to take into account the need to reduce depletion of non-renewable natural resources) while ensuring fair and sufficiently high prices (to reflect ecological and social values of the resources).
• If it is not possible to initiate joint producer-consumer attempts to improve the commodity situation, producers of export commodities could take their own initiative to rationalize their global supply so as to better match the profile of global demand. The increase in the price of oil as a result of better coordination among producing countries is a good reminder of the benefits that producers can derive from greater cooperation. If the developed consumer countries do not wish to participate in joint producer-consumer initiatives, it is important that they do not discourage producers from having their own arrangements to improve their commodity prices.