Building technological capacities can help countries escape commodity dependence

According to UNCTAD’s Commodities and Development Report 2021, which was released on July 7, developing nations whose economies rely on commodities must improve their technical skills to escape the trap that leaves the majority of their inhabitants impoverished and vulnerable.

In 2019, almost two-thirds of developing nations were commodity-dependent, meaning that primary products such as cacao, coffee, copper, cotton, lithium, and oil accounted for at least 60% of their merchandise export income.

The paper, titled “Escaping from the Commodity Dependence Trap via Technology and Innovation,” emphasises the link between poor technical capacity and high commodity dependency.

It cautions that unless they undergo “a process of technology-enabled structural transformation,” the majority of the 85 commodity-dependent developing nations (CDDCs) would stay stuck for the foreseeable future.

The commodity trap must not be seen as destiny.
According to the study, almost 95 percent of nations that were commodity reliant in 1995 remained so in 2018.

“Commodity dependency is a difficult situation to alter, but it must not be regarded as fate,” UNCTAD Acting Secretary-General Isabelle Durant stated.

“Developing nations can change and exploit their resource riches for better outcomes if they embrace new technology and innovation and obtain the proper assistance from the international community.”

As CDDCs strive to recover from the COVID-19 crisis, Ms. Durant believes that strengthening technical capacities should be a top priority, and that the present high prices of many commodities should not encourage these nations to “produce more of the same.”

“Otherwise, these countries and their people will be just as exposed to the next shock as they were to the coronavirus pandemic’s effects.”

The chances are stacked against you. The report’s findings demonstrate that low levels of technology are closely linked to commodity reliance.

CDDCs, for example, have a median score of 1.55 on the Technology Development Index, compared to 5.17 for emerging countries that are not commodity reliant (non-CDDCs), such as China, India, Mexico, Turkey, and Vietnam.

Another indicator in the study, on the readiness of frontier technologies, portrays a similar picture. CDDCs, with a median score of 0.25, are less equipped to employ technologies like artificial intelligence, the internet of things, blockchain, and robots than non-CDDCs (0.47).

In a business-as-usual scenario, the report calculates it would take the average commodity-dependent country 190 years to reduce by half the difference between its current share of commodities in total merchandise exports and that of the average non-commodity-dependent country.

However, several countries have demonstrated how to overcome adversity.

From coffee and bananas to microcircuits, there’s something for everyone.
Food exports accounted for 83 percent of Costa Rica’s total goods exports in 1965. Coffee and bananas accounted for about 68 percent of the total, compared to only 7% for manufactured products.

But, four decades later, the country’s export portfolio had shifted drastically. The food sector’s share had dropped to 24%, and the main export had become electronic microcircuits (26% of total merchandise exports), followed by machine parts and accessories (15%).

The Central American nation’s path to export diversification, the report says, was enabled by a policy environment supportive of the technology, innovation and human capital needed first to diversify into higher-value food products, such as fruit juice, and then to establish and grow high-tech sectors.

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