All the three east African countries are coffee and tea growers and the agricultural commodity boom is therefore likely to benefit the entire region. Photo/FILE
Recovering commodity prices in the international markets are likely to boost export earnings and spur the economies of East African countries which took a hit following the slump in demand caused by the global financial crisis.
The prices of tea, coffee, gold, and base metals — which are the leading exports in the region — have been on the rise thanks to demand from a recovering European states and the resilience of emerging economies led by China and India.
Analysts reckon that investors are also increasingly allocating more resources towards production of commodities due to the uncertainty facing other types of markets.
Economic stimulus packages that have been rolled out in Western countries following the global economic slow-down have boosted demand for commodities, hence sparking a price rally.
Prices of key commodities have risen at a steeper rate in recent months compared to the first half of this year or at the same period last year.
“Commodities’ demand is high in BRIC (Brazil, Russia, India and China) countries currently. This should be of benefit to Africa this year and the coming one,” Ms Anne-Marie Woolley, director of trade finance and services at Standard Bank Africa.
But while higher prices for exports will be a boon for Kenya, lower production volumes that may result if dry weather conditions dominate in 2010 may offset the gains.
Gold prices shot past the $1200 per ounce mark this month – a 20-per cent rise since September this year – and there are projections it could hit the $1500 soon.
The bullish outlook should benefit Tanzania, whose single largest export has in recent years been gold.
The highly prized mineral is now contributing to 34 per cent of the country’s total exports.
All the three east African countries are coffee and tea growers and the agricultural commodity boom is therefore likely to benefit the entire region.
According to World Bank figures, Arabica coffee prices averaged $3.14 in the first 11 months of the years compared to average price of $3.08 a kilo in 2008.
Globally, tea auction prices averaged $2.7 per kilo in the first 11 months of this year compared to an average of $2.42 in 2008.
Mr Godfrey Otieno, an analyst at Sasini Ltd, said tea prices have been on an upward trend and this is expected to continue into the New Year even if there is a slight slide in prices.
Bullish market
“Generally the market for tea has been bullish. As we go into the dry season in January and February, prices tend to go up because supply is lower,” said Mr Otieno.
Base metals including copper, lead and zinc and which is Uganda’s second largest export after coffee, have also seen prices rise in the past three months.
A major reason for the rise of the prices of commodities is that they are seen as a hedge against the volatility of the equities and property market especially in the developed countries.
This fact was noted in a paper titled, “Global Economic Crisis: The Need For African Government Interventions For Rapid Economic Recovery And Stability”, which was presented at the just-ended conference of African Economic Research Consortium in Nairobi on Africa response to the financial crisis by economist Sanni Hassan Taiwo.
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