“Stock prices can go to zero. Commodities cannot. Unlike shares in a company commodity are real things that are always likely to be worth something to somebody.”

Jim Rogers

South Africa has declared Covid-19 a national disaster and is issuing travel restrictions. This will seriously impact other African countries like Zimbabwe. The economic powerhouses of Africa are South Africa and Nigeria, when they cough we all cough. We live in a global economy, when the global economy is disrupted, we squeal. Most African countries are commodity driven countries. The commodities range from mining, agriculture and even fisheries in some instances. A commodity market is defined as a market where there is buying, selling, or trading of raw products, such as oil, gold, or coffee. There are hard commodities, which are generally natural resources, and soft commodities, which are livestock or agricultural goods. Zimbabwe's main exports are tobacco (23 percent of total exports) and nickel (20 percent). Others include: diamonds, platinum, ferrochrome, and gold. Zimbabwe main export partners are: South Africa, China, Congo and Botswana.

Zimbabwe Top Ten Exports

Zimbabwe exports are mainly raw precious metals (a disadvantage of course given that primary beneficiaries of products earn the least in the value chain).

The challenge Africa has is that the performance of our economies is as volatile as the performance of commodities that anchor the economies. Hubei Province in China for example is a big importer of iron ore so as manufacturing was disturbed the countries that produce the ore suffer. Value addition so far as it is a look good phrase from many captains of industry and politicians, is the way to go, it reduces volatility of economies to commodities prices.  Below we look at some major commodities in the market and how they have performed during the ravaging virus.

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Oil

Zimbabwe has been waiting in anticipation on the developments happening in the Dande Valley on potential oil fields. It is unfortunate however that the performance of Oil has suffered a double wham, Coronavirus and fight between Saudi Arabia and Russia. Saudi Arabia and Russia feud over oil prices caused the biggest one-day price crash since the Gulf War in 1991. Saudi Arabia kicked off an oil price war with Russia at a time when the world is dealing with the coronavirus outbreak decimating supply chains, inducing panic buying and grounding flights. This trade war starting as China is turning away Oil tankers due to tinkering economy as a result of the virus. The move followed the implosion of an alliance between the OPEC cartel, led by Saudi Arabia, and Russia.

One Month Oil Price: Bloomberg

The decline of Oil especially to the current levels would be good for consumers like you and me but in some countries like Zimbabwe the decline is never pushed to the consumer because of taxes and also the fact that the oil was already subsidised. Rogue trades also take advantage and profiteer during times as these! Consumers benefit in general from lower oil prices and the resulting decline in petrol and diesel prices at the pump, especially in the United States where retail markets react more directly to supply and demand. Taxes and surcharges make up a higher share of pump prices in Europe and Africa specifically Zimbabwe so the effect is less marked. The Government however benefits as they will get higher taxes and enjoy less pressure to raise funding for importation of Oil.

Other Commodities

The virus is causing upset in many supply chains. An example is the hoarding of tissues in Europe and the USA that will result in artificial shortages and may potentially results in up shoot of timber prices. Food supply chains may equally be disrupted resulting in shortages and big bugs for productive countries. Many commodities have also reacted to the fears and contagious negativity in the market. Depending on behaviours of markets and disruption of supply chain some commodities will increase as some decline. The impact may be short term though if the virus is contained in time. On the general however the Covid-19 may disrupt world GDP growth resulting in general decline in commodities demand. Decline in demand will hit African countries the most.

Always remember Hygiene! Hygiene! Hygiene! Hygiene! Always wash your hands!

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