2019-09-11

United Nations Trade and Development Organization: commodity-dependent countries should diversify their economies in response to the climate crisis

Cleaning solar panels at a solar farm in Morocco. (photo in June 2010)
Photo by Dana Smillie of the world bank
September 11, 2019
The economic development
Diversification of economies and exports is the best strategy to address the challenges posed by climate change in commodity-dependent developing countries, according to the UN trade and development organization's 2019 primary commodities and development report released today.
Unctad points out that diversification can be both horizontal and require bold entry into new commodity areas and sectors to reduce dependence on narrow commodity categories; Diversification can also be vertical, which involves moving goods up the value chain to increase their value.

Successful diversification strategies may include a mix of horizontal policies, such as strengthening human capital through investments in education and health, and targeted measures to promote individual sectors.

"The climate crisis poses an existential threat to commodity-dependent developing countries and will lead to the collapse of some economies if decisive action is not taken now," said unctad secretary-general igtuki.

High risk reinforces the need for action

While commodity-dependent developing countries are not the main cause of climate change, the climate crisis poses the greatest risk to them because they are economically dependent on industries that are highly exposed to extreme weather events, with small island developing states being the most affected.

Rising sea surface temperatures pose significant risks to small island developing states (sids), which export a significant proportion of their income from fishery commodities, such as 88 per cent in Kiribati, 79 per cent in maldives and 75 per cent in the federated states of Micronesia between 2013 and 2017.

The report notes that the negative effects of climate change on crop and fisheries production are more severe in the lower latitudes, which are the belt of most commodity-dependent developing countries.

Also at risk are high-income fossil-fuel-dependent countries such as brunei darussalam, Kuwait and Qatar, which emit the most greenhouse gases per capita. The report says these countries could be deeply affected by the transition to green energy.

The report stresses that the high risks faced by commodity-dependent developing countries highlight the need to adapt, diversify and modernize their economies. They must also adapt to the impact of climate response measures taken by other countries, which are expected to reduce demand for some of the major primary commodities on which they depend.

Opportunities in challenges

Tackling climate change also offers some opportunities for developing countries that rely on primary commodities, the report says.

The global push for renewable energy and energy efficiency has created opportunities for countries with large quantities of clean technology materials, such as solar photovoltaic cells, wind turbines and batteries for electric cars.

In 2018, the democratic republic of Congo accounted for 58% of the world's supply of cobalt, the main raw material used in the production of batteries for electric cars, while Chile and Argentina together account for 71% of the world's lithium reserves, a key raw material for batteries.

Tackling climate change could also create opportunities, such as boosting production of beef and milk substitutes, the report said. In Africa, as the frequency of drought increases and feed supplies decrease in some areas, herders raise camels to supplement or replace cattle.

At the same time, the need to mitigate and adapt to climate change has stimulated investment in technological innovation in commodity-dependent countries. One example is the use of cost-effective solar photovoltaic cells, which can enhance energy security and support production in remote areas outside the national grid.

What needs to be done to implement the Paris agreement?

The unctad report also echoes experts' warnings that countries' commitments to mitigate climate change under the Paris agreement are not ambitious enough. The report says the commitment will need to quadruple to limit global temperature rise to 1.5°C above pre-industrial levels.

The report makes it clear that achieving the more ambitious goals for its future will require greater political will and more financial and human resources.

The report stresses that, given the high costs of mitigation and adaptation, current funding is only a small fraction of actual needs and needs to be substantially increased.

For example, the total cost of implementing climate action plans for 80 developing countries with specific financial needs is estimated at $5.4 trillion. This is the total amount spent on energy subsidies every year in the world.

The report recommends reforming fossil fuel subsidies to further green fiscal policies. It is estimated that the richest 20 percent of households in developing countries receive 43 percent of the benefits from fossil fuel subsidies, while the poorest 20 percent receive only 7 percent.

In addition, the report notes the need to strengthen the capacity of commodity-dependent developing countries to undertake climate action. This includes building technical and regulatory capacity to design institutions and implement policies to mitigate and adapt to climate change.

United Nations trade and development organization