African economies are being urged to reduce their dependence on commodity exports, yet a steep decline in international project finance across the continent is holding back investment in the infrastructure needed, research has found.
More than 80% of least-developed countries rely on raw commodities exports, leaving them exposed to price volatility and unable to leverage their natural resources for sustainable economic growth, says a report published by UN Trade & Development (UNCTAD) on July 21.
Commodity dependence – defined as a situation where more than 60% of a country’s goods exports are primary commodities – is particularly acute in Central and West African countries, the report says.
Between 2021 and 2023, most of these nations “earned over a staggering 80% of their export revenues from primary commodities”, UNCTAD says.
“Entrenched reliance on these primary products – long been of global concern – hinders industrial development and threatens countries’ fiscal stability when global prices go volatile,” it says.
“Without more efforts to diversify economies and add value, countries risk squandering opportunities to translate their raw material wealth into engines of sustainable and resilient growth.”
Hassatou Diop N’Sele, chief financial officer at the African Development Bank, told Radio France International last month that the “priority for African countries today is to mobilise the continent’s internal resources for industrialisation and regional integration”.
“By exporting our raw materials, we export our jobs,” she said. “Our products lack added value. That’s why it is so important to speed up implementation of the African Continental Free Trade Area.”
A separate report published on July 18 by the Bank for International Settlements (BIS) – an international financial institution owned by 63 central banks – echoes that economic diversification through intra-African trade would strengthen the continent’s resilience.
“Many African countries face significant external vulnerabilities due to high export concentration” and are “highly susceptible to commodity-driven boom and bust cycles”, it says.
However, the BIS report says underdeveloped infrastructure – notably road transport – is a “key non-trade barrier hindering regional trade integration” within Africa.
One challenge is that project finance deals fell by 13% in 2024, BIS says, with the drop seen “mainly in infrastructure”.
“Tighter global financing conditions and expectations of declining interest rates led investors to delay large-scale commitments,” it says.
A report published last year by UNCTAD suggests this decline is not a blip.
In 2023, the estimated value of international project finance deals in Africa dropped 50% by value compared to the previous year, following a 20% fall in 2022.
The report identifies just two international project finance deals in the transport sector in 2023, down from eight the previous year, equivalent to a 92% drop in value.
The only sector in which international project finance grew was telecommunications, UNCTAD found.
There has been a recovery of infrastructure finance from the export credit sector in Sub-Saharan Africa since the pandemic, Berne Union data shows.
New medium-to-long term export credit and political risk insurance commitments totalled US$13.4bn last year, it says.
Although down from the 2023 figure of US$16bn – when the association hailed an “infrastructure boom” in the region – it exceeds the US$10.6bn and US$8.1bn figures for 2022 and 2021 respectively.
The recovery of new business “was driven by contributions of all member types but predominantly an increase in business from [export credit agencies] and multilaterals”, it said.
Meanwhile, Africa’s earnings from commodity exports have fallen by more than US$25bn over the last decade, UNCTAD’s July report says.
This drop is largely attributed to a decrease in the value of energy exports from major oil-producing nations such as Nigeria, Angola and Algeria, which the report says is due to a combination of lower oil prices and growing demand for renewables.
Energy now makes up 45% of Africa’s commodity exports, down from 52% a decade ago, whereas agricultural commodities and metals are growing more rapidly, it adds.
UNCTAD calls for targeted policies, strategic investment and expanded market access across the continent, in order to build more diversified and resilient economies.
