1. TRADE IN TIMES OF COVID-19 PANDEMIC:
EFFECTS OF GLOBAL PRIMARY COMMODITY MARKET
DISRUPTION ON GROWTH AND POVERTY IN MALAWI
Ismael FOFANA
Director, Department of Capacity & Deployment
AKADEMIYA2063 Country Policy Event - Malawi
Virtual - April 28, 2021

2. OUTLINE
1. Introduction
2. Method
3. Scenario
4. Findings
5. Conclusion

3. 1. Introduction
Why assessing the effects of global primary commodity market disruption?
• The COVD-19 pandemic affects African economies through
several channels including,
 Global market disruption and the change in the
international price of primary commodities.
• The COVID-19 pandemic has driven most primary
commodity prices down in 2020.
• Heavy contribution of primary commodities in the export
basket of Malawi.

4. 1. Introduction (Cont’d)
The COVID-19 pandemic has driven most primary commodity prices down in 2020.
-50
-40
-30
-20
-10
0
10
20
Coal,
Australia
Crude
oil,
avg
Natural
gas,
Europe
Natural
gas,
US
Natural
gas
LNG,
Japan
Cocoa
Coffee,
Arabica
Coffee,
Robusta
Tea,
auctions
(3),
average
Coconut
oil
Groundnut
oil
Palm
oil
Soybean
meal
Soybean
oil
Soybeans
Barley
Maize
Rice,
Thailand,
5%
Wheat,
US,
HRW
Bananas,
US
Meat,
beef
Meat,
chicken
Oranges
Shrimp,
Mexico
Sugar,
World
Logs,
Cameroon
Logs,
Malaysia
Sawnwood,
Malaysia
Cotton
A
Index
Rubber,
Malaysian
Tobacco
DAP
Phosphate
rock
Potassium
chloride
TSP
Urea,
E.
Europe,
bulk
Aluminum
Copper
Iron
ore
Lead
Nickel
Tin
Zinc
Gold
Silver
Platinum
Changes in predicted prices in 2020 for primary commodities prices between April 2020 and October 2019 forecast

5. 1. Introduction (Cont’d)
Heavy contribution of primary commodities in Malawi exports
96 94 94 93
87 87
81
59
32
8
Angola
Botswana
Mozambique
Zimbabwe
Zambia
Namibia
Malawi
South
Africa
Eswatini
Lesotho
55
51 49 49 46
40 40 39
33 32
Angola
Botswana
Mozambique
Zimbabwe
Zambia
Namibia
Malawi
South
Africa
Eswatini
Lesotho
Primary commodities imports, share of total imports
Primary commodities exports, share of total exports

6. 1. Introduction (Cont’d)
Objective of the Study
Growth and poverty effects of
the global primary commodity
market disruption.

7. Key Messages
• With African countries closely linked to global markets,
disruptions in global trade have important effects on African
economies.
• Exposure to global trade shocks is a function of a country’s
import and export basket as well as the capacity of the
economy to respond.
• The same disruption could have positive or negative impacts
depending on how well the economy absorbs new costs or
pursues new opportunities.
• Responses to Covid-19 or other crises should not undermine
the economy’s ability to respond to changes in the global
economy.
7

8. 2. Method
• Simulation models (Akademiya2063 / ReSAKSS)
 Single-Country CGE Models
 Micro-Simulation Models
• Primary commodity price predictions (World Bank)
 Commodity Markets Outlook: October 2019 and April 2020
• Statistics on international trade (United Nations)
 Import and export data (2019/2018)

9. 3. Scenarios
Changes in the international price of primary commodities
Baseline Scenario
Price forecasts for the year 2020 in October 2019
(pre-COVID pandemic)
COVID Scenario
Price forecasts for the year 2020 in April 2020
(onset of COVID pandemic)

10. 3. Scenarios (Cont’d)
COVID Scenario
 Changes in the international price of primary
commodities (Price Shock)
 Disruption of global trade conditions and
international market access (Trade Shock)

11. 3. Scenarios (Cont’d)
The price scenario is based on the composition of the basket of primary
commodities exported and imported by Malawi
Changes in predicted Prices for Top Ten Primary
Commodities Exported by MALAWI
Share of Top Ten Primary Commodities in MALAWI’s Total
Exports, in 2017

12. Share of Top Ten Primary Commodities in MALAWI’s Total
Imports, in 2017
Changes in predicted Prices for Top Ten Primary
Commodities Imported by MALAWI
3. Scenarios (Cont’d)
The price scenario is based on the composition of the basket of primary
commodities exported and imported by Malawi (Cont’d)
-37,5
-13,2
-4,1
-12,9
-1,7
3,9
-14,5
-7,8 -9,6
2,3
Petroleum
oils
Fertilisers,
nitrogen
Wheat
and
meslin
Fertilisers,
mixed
Unmanufactured
tobacco
Flat-rolled
products
of
iron
Structures
Maize
(corn)
Pneumatic
tyres,
of
rubber
Soya-bean
oil

13. 4. Findings
2 Percent Decline in International Price of Commodities Exported by Malawi
Angola -35.7
Zambia -13.7
Mozambique -10.4
Lesotho -6.5
Zimbabwe -4.7
South Africa -4.1
Malawi -2.3
Namibia -0.9
Botswana 7.5
Eswatini 8.0

14. Zimbabwe -25.8
South Africa -22.2
Zambia -21.0
Eswatini -18.4
Mozambique -18.4
Lesotho -18.3
Angola -16.4
Namibia -15.6
Malawi -15.5
Botswana -5.8
4. Findings (Cont’d)
16 Percent Decline in International Price of Commodities Imported by Malawi

15. 4. Findings (Cont’d)
Impact of the world price changes on individual economies depends on the
contribution of primary commodities in countries external trade
Percentage point change in export and import weighted average prices, COVID scenario compared to the baseline scenario
-35
-30
-25
-20
-15
-10
-5
0
5
10
Angola
Zambia
Mozambique
Zimbabwe
South
Africa
Malawi
Namibia
Lesotho
Eswatini
Botswana
Export Price Index Import Price Index
A B C
C

16. 4. Findings (Cont’d)
Slight Decline in GDP Growth in Malawi
Percentage point change in GDP growth, COVID vs. BaU, Price and Trade Shocks
-11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4
Angola
Zimbabwe
Zambia
Mozambique
South Africa
Malawi
Namibia
Lesotho
Eswatini
Botswana
A
A
A
A
B
B
B
B
C
C

17. Change in Poverty Headcount Ratio, COVID vs. Baseline, Price and Trade Shocks (pp)
4. Findings (Cont’d)
Slight Increase in Income Poverty in Malawi
8,0
0,3
3,1
-0,3
0,7
-0,5
0,0
0,2
Angola
Zambia
Mozambique
South Africa
Malawi
Namibia
Lesotho
Eswatini

18. 4. Findings (Cont’d)
Increased Urban Poverty More Than Rural Poverty in Malawi
Changes in urban and rural headcount poverty rates, COVID vs. Baseline, Price and Trade Shock (pp)
-2 0 2 4 6 8 10 12
Angola
Zambia
Mozambique
Malawi
Namibia
Lesotho
Eswatini
Rural Urbain

19. • Decline in the international price of primary
commodities traded by Malawi.
• Negative effects on economic growth and
(income) poverty in Malawi.
• Increase in urban poverty more than rural
poverty in Malawi.
5. Conclusion: Key findings

20. • Protect vulnerable populations
 Expansion of social protection scheme
• Diversify the external trade
Export basket
 More agri. commodities
 More high value agri. commodities
Import basket
 More primary commodities for input use
5. Conclusion (Cont’d): Policy Recommendations

21. THANK YOU