Home' Trinidad and Tobago Guardian : January 15th 2015 Contents BG22 THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 2015 • WEEK THREE
Commodities are sirens: alluring, yet
dangerous. When prices are high,
politicians in commodity-exporting
countries rejoice. Proceeds from the
export of oil, natural gas and metals
fill state coffers. Foreign cash floods
in and well-paid jobs are created. Such countries
governments often neglect other parts of the economy,
believing that the good times will never end.
They always do.
As commodity prices tumble, many countries are
learning what happens when an economy is too
reliant on natural resources. Venezuela, with the
world s largest oil reserves, is on the verge of defaulting.
Brazil and Norway, two other big oil exporters, have
seen their growth forecasts cut. President Vladimir
Putin of Russia will watch his economy shrink by
5.0 per cent in 2015, according to central-bank esti-
mates. His government s debt is likely to be down-
graded to "junk" status.
When commodity prices started to fall in 2014,
economists feared the worst for other commodity
exporters, but so far many have surpassed expecta-
tions. Only a handful of Latin American countries,
including Argentina, Venezuela and possibly Brazil,
will fall into recession in 2015.
Others have seen growth forecasts trimmed but
still are doing well. Chile, a copper exporter once
hostage to market forces, will expand by 3.0 per cent
this year. Peru, which relies heavily on metal exports,
will see 5.0 per cent growth. Latin America as a
whole will grow by 2.0 per cent.
In 2015 no Middle Eastern oil exporter is expected
to suffer a recession, though measuring growth in
war-torn countries is nearly impossible. Saudi Arabia
is using its big currency reserves to boost government
spending and will grow by 4.5 per cent in 2015.
Some African countries are taking a hit. Nigeria,
which has barely any non-oil exports, saw its currency
lose 13 per cent of its value in 2014, and Zambia, a
copper exporter, turned to the International Monetary
Fund in June.
Things have been nowhere near as bad as some
had feared, however. Compared with previous periods
of commodity-price decline, currencies have been
fairly strong. Only the Ebola-hit countries and the
kleptocratic Equatorial Guinea should see their
economies shrink in 2015. Sub-Saharan Africa is
expected to grow by 5 per cent this year.
Two factors explain why some commodity exporters
are coping with falling prices better than others.
First, many governments have made their countries
more business-friendly. According to the World Bank,
in recent years sub-Saharan Africa has been the star
performer at improving business environments. Rwan-
da, which was in the throes of a civil war 20 years
ago, is now a better place to do business than Italy.
Benign business environments encourage foreign
direct investment. In recent years FDI into Africa
has held up, despite global wobbles. Foreign money
is helping African economies diversify. Nigeria s strong
recent growth is thanks not to its oil sector, which
has stagnated, but to finance and other services. Even
Chad, an oil exporter mocked for its one-track econ-
omy, of late has seen oil revenues play a progressively
Russia, though, has gotten no less dependent on
oil and natural gas. Diversifying the Russian economy
is harder than ever for Putin, thanks to an FDI slump
that hit the country in 2014.
Second, some governments are spending their
money more wisely. Before the 2000s almost all
splurged when commodity prices were high
and taxes were flooding in, only to slash
spending when prices dived. Russia still
does this. The state has no money with
which to boost domestic demand, so instead
it is cutting public spending, inflicting further
Some Latin American and African coun-
tries, such as Chile and Zambia, now operate
"countercyclical" fiscal policy, saving during
good times and spending during bad. Others,
particularly in the Middle East, are broad-
ening their tax bases to cope better when
commodity sales fall.
A decade ago the Angolan budget was
almost entirely dependent on oil, but now
a third of its revenue comes from elsewhere.
Chile, where copper makes up 60 per cent
of exports, was once known for the wayward
management of its copper revenues. Now
an independent panel checks that the gov-
ernment is using them responsibly.
Some commodity exporters face a grim
2015, but others can be optimistic. Africa,
for decades synonymous with resource
dependency, this year will be one of the
world s fastest-growing regions. It is no
longer doomed to the commodity roller
If Putin had tried to dismount a decade
ago, his people would not be facing such a
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
What Vlad can learn from Chad
President Vladimir Putin of Russia
will watch his economy shrink by
5.0 per cent in 2015, according to
central-bank estimates. His
government's debt is likely to be
downgraded to "junk" status.
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