More than half of the countries in the world are commodity-dependent countries (CDDCs), meaning that at least 60% of their exports derive from commodities, primarily, from agriculture and extractive industries (carbon-intensive natural resources, minerals, ores, and metals (UNCTAD,2019, UN,2019) Commodity dependence, combined with poor governance of natural resources and commodity sectors put at risk the economic resilience of the CDDCs, their progress towards achieving multiple SDGs and targets (2a, 2b, 2c, 7.1 and 7.b, 9.b, Goals 12, 14 and 15) and their transition to climate-resilient economies (UNCTAD, 2017) Constituting a significant global share of developing countries, CDDCs put at risk the global overall progress towards implementing the 2030 Agenda and the Paris Agreement. There is an urgent need for the economy-wide reforms in the CDDCs which would recognize the unique character of risks and challenges faced by this group of countries.
Most of the CDDCs are developing resource-rich countries, LDCs and LLDCs. The economic model of the CDDCs is characterized by (i) a high concentration of economy around natural resources in hangs of government and/or a few interest groups, (ii) a big gap between a vast natural capital and other capitals (human resources, goods, and services); (iii) non-diversified export baskets, largely composed of commodities and only few traded services and goods; (iv) exposure of the economies to commodity price fluctuations, booms and slums. Exposure to international price commodity fluctuations represents the major vulnerability of the economic model of the CDDCs since price slums usually last longer and result in a decrease in tax revenues, foreign investments, and public spending, lead to a currency devaluation and a greater sovereign risk, put food security at risk.
For instance, in Brazil, climate change could reduce the amount of land, suitable for soybean crops. Successful implementation of the Paris Agreement also requires 80% of all proven fossil fuel reserves (oil, gas, coal) to remain unexploited (Bos, Gupta, 2019). It implies huge costs, losses in revenues and investments in the CDDCs. In Africa continent alone, stranded oil reserves would be close to $2trln, which is little short of the combined GDP of all African countries in 2017 (UNCTAD, 2019).
Changing eco-environmental and the global policy context, shaped by climate change and decarbonization of global economy, implementing 2030 Agenda and achieving the SDGs, added an additional level of complexities, risks and challenges for the CDDCssuch as (i) increase inmarket uncertainties and raise in the frequency of price shocks UNCTAD (2019);(ii) greater exposure of commodity groups and extractive industries to extreme weather events and other impacts of climate change (hurricanes, floods, rising sea levels), which lead to an increase in production costs for the CDDCs; (ii) greater risks of physical and regulatory stranding of assets in extractive industries such as coal mining, natural gas and oil, forestry and agriculture in the result of climate change and of implementing response measures to climate change by third countries (mitigation action).
These multiple challenges, informed by the unique parameters of the economic model of the CDDCs and complex interaction between development, climate change and response measures undertaken by third countries in their course of their mitigation action, put the CDDCs at risk of failing to achieve their sustainable development goals, effectively addressing climate change, and adapting to the climate response measures.
These unique characteristics, opportunities, and challenges faced by the CDDCs in the course of a transition to sustainable and climate-resilient economies are not properly factored neither in current economic model of the CDDCs nor in the Paris Agreement, that does not specifically differentiate between commodity-dependent and other developing countries but does allow the countries adversely affected by the stranding of the energy-related resources to be treated differently in line with the principles of equity and common but differentiated responsibilities (Art.2, Paris Agreement) and count on the assistance in implementing their mitigation and adaptation measures required to address climate change. (Art.3, Paris Agreement).
The main challenge faced by the CDDCs is the adaptation to the impacts of climate change and adaptation to the response measures taken by third countries (mitigation action). Recent studies (ND-GAIN Index) demonstrate that 10 countries most affected by the impacts of climate change and by the response measures of third countries are the CDDCs; in 2017 out 40 of the climate-sensitive economies only 3 were not CDDCs. The socio-economic conditions and the geographical characteristics of the commodities contribute to a low adaptation capacity of the CDDCs and provide limited space for the regulatory maneuvers to adapt to a rapidly changing economic and environmental global context. Governments of the CDDCs need to manage and address the physical constraints and changing global economic and environmental context through effective policies aimed at sustainable and climate-resilient development.
At the national level, countries need to introduce the economy-wide reforms and enabling policies in order to(i) diversify their economies and develop different types of stocks, invest in human capital and skills to support professional mobility between different sectors and promote inclusive growth; (ii) introduce greener fiscal policies aimed at mobilizing local climate finance including the reforms on fossil fuel subsidies provided to producers and consumers, (iii) develop diversified export baskets composed of various climate change-sensitive goods and services,(iv) improve and align themanagement of the natural resources and commodity sectors with the SDGs and climate action,(v) improve management of revenues from the extractive sectors and more actively use such instruments as sovereign wealth funds (OECD, 2019).
These national efforts have to be combined with effective technical and financial assistance and international cooperation, which would recognize the unique character of the opportunities associated with increasing global demand for natural resources, particularly rare metals and minerals, challenges and risks faced by the CDDCs in the course of the transition to sustainable, inclusive and climate-resilient economies. The most needed assistance is climate finance. The recent statistical data demonstrate the existing imbalance in financing adaptation action and much greater focus of multilateral, bilateral and regional climate finance on financing mitigation action. As the UNCTAD rightfully notes, in its recent Commodity and Development Report 2019, out of $30.4 bln allocated in climate finance through multilateral, bilateral and regional frameworks, $3.8 bln went to adaption, $14.6 bln to mitigation, and $12 bln to support both simultaneously. It implies that most vulnerable and most challenged by climate change and response measures to it, get less financial assistance. There is a need to align and balance climate finance with the idea of a balance between adaption and climate finance underpinning the Paris Agreement.
