Developing countries heavily reliant on commodities must enhance their technological capacities to escape the commodity dependence trap that leaves most of their populations poor and vulnerable, according to UNCTAD report.

Statistics show that about two-thirds (64%) of developing economies were commodity-dependent in 2019. This indicates that most of their merchandise export revenues came from the export of primary products, such as cocoa, coffee, copper, cotton, lithium and oil.

Evidently, there is correlation between low technology capacities and high commodity dependence, the report highlights.

Following this, the report warns that most (85) of the commodity dependent developing countries analysed will remain trapped going into the future unless they go through “a process of technology-enabled structural transformation”.

According to the report, about 95 percent of countries that were commodity dependent in 1995 remained so in 2018. “Commodity dependence is a state that’s hard to change,” UNCTAD Acting Secretary-General Isabelle Durant intimated, “but it must not be seen as fate.”

“If developing countries embrace new technologies and innovation, and receive the right support from the international community, they can transform and use their resource wealth for better outcomes.”
Isabelle Durant, UNCTAD Acting Secretary-General

Ms. Durant indicated that building technological capacities must be a priority as commodity dependent developing countries try to recover from the COVID-19 crisis. Thus, the current high prices of many commodities should not encourage these countries to “produce more of the same,” she averred.

“Otherwise, these nations and their populations will be just as vulnerable to the next shock as they were to the effects of the coronavirus pandemic.”

Meanwhile, the report’s analysis reveals that the probability of commodity-dependence is strongly associated with low technology.

For instance, in the Technology Development Index presented in the report, commodity dependent developing countries median score is 1.55 compared with 5.17 for countries that are not commodity dependent such as China, India, Mexico, Turkey and Viet Nam.

Another index in the report, on frontier technology preparedness, reveals same outlook. Commodity-dependent developing countries whose median score is 0.25, are less prepared than non-CDDCs (0.47) to use technologies.

Diversifying commodity dependent economies requires innovation

Going the way of diversifying into more dynamic sectors might require commodity dependent developing countries to take great leaps in innovation. That said, the report highlights that some of the technologies needed will have to be learned or transferred from abroad.

“It is essential that international public and private partners of commodity dependent developing countries facilitate technology transfer and participate in commodity-dependent developing country efforts towards building the physical, human and institutional capabilities required for the adoption and domestication of the relevant technologies.”

Technology transfer is critical because of the “unconnected” nature of producing commodities.

“They are like dead ends,” the report mentions. “Once a country is in a particular product space, it is difficult to use the capabilities therein to move to another product.”

For example, Angola’s technology capacities, which are highly concentrated around petroleum extraction, are not easily transferable to new sectors like digital services.

Therefore, the process of technology transfer should be adapted to local contexts and could be financed through special funds created for this purpose, as is the case with the Paris Agreement, according to the report.