Making the Most of Commodities: From Theory to PracticeRaphael Kaplinsky

Development Policy and Practice, The Open University and CSSR, University of Cape Town

Commodities-Manufactures Terms of Trade

China’s demand for agricultural commodities

• 20% world population, 7% arable land• Biofuels• Industrial inputs• 22% global rubber consumption (2006)• Imports 27mt cotton vs 7mt domestic production(2008)• Pork, other meat and animal feeds• Switch domestically from grains to fruit and vegetables

World Manufacturing Export Price, 1986-2000

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IMF, World Economic Outlook Database

Commodities-Manufactures Terms of Trade

Curse or Gift?

• Minerals and metals are capital intensive– Little employment– Income distribution

• Minerals and metals provide point revenues which can be stolen

• Commodities through the Dutch Disease, undermines manufacturing– But this has not always been the case

• SO HOW CAN THE COMMODITIES BOOM BE A SPUR TO INDUSTRIALISATION?– THE KEY LIES IN LINKAGES

Global outsourcing

• Core competences

–Has value in market

–Unique to firm

–Difficult to copy

• Everything else outsourced

ProductionDesignMarketing

Services Services

The increasing globalisation of VCs

Competitive pressures

Linkages in the commodities sector

Time

OutsideMiningCompanycorecompetences - win-win

Value added

Inside coreCompetences - win-lose

Mining Technology Patents

Source: EPO, USPTO Databases

All Patents Mining Technology patents

Share (%)

S Africa 2,969 128 4.3

USA 1,587,915 7,882 0.5

Australia 16,283 311 1.9

Canada 65,580 853 1.3

Total 1,672,747 9,174 0.5

Mining Technologies – South Africa’s cluster of patenting excellence

• The portfolio of patents held by South African enterprises is not especially large…

• But it is distinctive in terms of quality• And the measured relative quality of South

African patents stands up to quite rigorous tests– Not statistically better than American or Canadian mining

patents…– But statistically equal in quality to Australian patents

Linkages in Ghana Gold Sector

• Chamber of Mines– 10 production companies– 45 mine support service companies– 1 exploration company (out of an estimated 15-20)

• Business/Industrial Directories:– 250-300 companies

• Spatial:– Majority of companies are located in Greater Accra

Tarkwa, Obuasi - direct operational support – Sekondi-Takoradi

Types of linkages

• Inputs to gold mining– capital goods – consumables – services

• Tier 1 direct suppliers and Tier 2 indirect suppliers• Business and producer services: 10 to 15 years of

significant investment – finance, insurance, real estate/property, legal,

logistics, laboratory and other technical services

Extent and Nature of Linkages

Classification $m %

Employees 175 8

CAPEX 669 29

Direct to State 146 6

Mining Host Communities 12 1

Local Purchases (excluding Fuel/Power)

467 20

Local Purchases (Fuel/Power)

428 18

Loans 52 2

Imported Consumables 376 16

Linkages in the commodities sector

Time

OutsideMiningCompanycorecompetences - win-win

Value added

Inside coreCompetences - win-lose

Speeding up

Speeding up and deepening

What determines the shape of the linkage curve?

• Sector specific factors

• Ownership

• Infrastructure

• Skills spillovers

• Links to National System of Innovation

• Role of regional capabilities

• POLICY

MMCP Programme

• Joint University of Cape Town and Open University

• IDRC-funded

• Began Jan 2009, ends March 2011

• Underdeveloped policy dialogue

MMCP Sectors

• Mining services in South Africa

• Diamond polishing and cutting in Botswana

• Offshore umbilicals maintenance in Angola (oil)

• Copper in Zambia

• Gold in Tanzania

• Gold in Ghana

• Timber in Gabon

• Services to Oil in Nigeria

• Central development corridor in East Africa

• Chinese companies in infrastructure

Why am I here…?

• Exchange of information

• UNCTAD and policy dialogues

• UNCTAD and training programmes