IMF sees growing need for commodity economies to diversify

Johannesburg - The poor economic outlook for commodity producing economies intensifies the need for diversification, according to Dr Gian Maria Milesi-Ferretti, deputy director of the International Monetary Fund (IMF) research department.

Milesi-Ferretti was speaking on the IMF’s World Economic Outlook October 2017 report, at a briefing hosted by the UJ College of business and economics on Monday.

The report indicated that emerging market and developing economies dependent on commodity exports would face weaker economic prospects than more diversified economies.

Milesi-Ferretti explained that commodity pricing is one of the main drivers of prospects in these commodity producing countries, which will hopefully change if more diversified economic structures are introduced.

He explained that a lot of this depends on the “depth of pockets”. “Saudi Arabia with a giant sovereign wealth fund, can be more aggressive in pursuing a strategy of that kind [beneficiation]. They have ambitious programmes to diversify the country.”

Diversifying economies is a medium-term challenge and cannot happen overnight, said Milesi-Ferretti. These processes should also allow for market forces to “pick winners”. “Government is not always in the best position to decide what is tomorrow’s sector,” he said.

Commodity pricing

Following the briefing Milesi-Ferretti explained that commodity pricing depends on both supply and demand factors. Demand in China has been a significant driver of pricing because of the size of its demand.

The decline in China’s investment, particularly in commodity markets, led to the weakening of commodity prices, explained Milesi-Ferretti.

The IMF report showed that by June 2017, the metal price index reached its lowest point in eight months due to a slower demand growth in China and the US. Prices have since rebounded due to improved macroeconomic sentiment, especially in China, the report read.

LISTEN: Full interview with Dr Gian Maria Milesi-Ferretti

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