Paper short abstract:

Brazilian grow was anchored in the commodities, and, the trade surplus provided a framework for a monetary policy twist that favored subsidies. The result was in Brazil commodities boom was amplified due the securitization of its primary market, through government backed credit offer.

Paper long abstract:

In 2014, before the current recession, Brazil was the 3rd global commodities exporter. Its outstanding macroeconomic performance in the 2000s was anchored in the rise of commodities prices boosted by the emerging economies. Historically, due its comparative advantages in commodities, the country had a non interventionist policy in the industry.

The trade surplus created by commodities super-cycle provided a framework for a monetary policy twist that favored subsidies, through credit facilitation, expanding the primary industry. From oil importer in the 1990s to oil exporter in 2013, this twist was a game changer to the sector.

Since 2003 Brazilian subsidies to commodities have increased more than three times, through financing programs such PRONAF and BNDES policies. Moreover, commodities credit is controlled by Central Bank and 25% of all deposits were mandatory destined to commodities subsidies which are complemented by the SNCR, providing preferential loans to the sector.

Still, a third of all commodities operations are anchored in credit subsidies, reflecting the incentives to commodities sector that expanded Brazilian pre-salt exploitation and agriculture. Although, the financialization of commodities led to irrational exuberance, whereby Brazilian producers were remunarated 3% more than international prices. To understand the role of financialization of commodities in Brazil since 2003, when there was a shift of liberalization agenda towards interventionism, and, commodities become strategic due alliances with BRICS , it will be applied GFS-APT-GARCH, to understand irrational exuberance in inter-assets, as cause of amplification of super-cycle in the country due overextension of credit, contributing to the current recession

Paper short abstract:

This paper will study how governance measures adopted at the national level in Colombia prepared (or not) subnational governments for the present low-price environment and for the high volatility of most commodity markets.

Paper long abstract:

Colombia is the only Latin American country that has an ad-hoc system specifically designed to manage the oil and mineral revenues. This system was established by the 1991 Constitution and later developed by the royalties law in 1994. The legislation laid three basic set of rules: i) the mechanisms used by the State to extract revenues from the exploitation of non-renewable resources by private on state-owned companies; ii) the share of the rents destined to subnational governments and; iii) how these governments could invest these revenues.

The system has been amended and adjusted several times since its inception, but the most important reforms were approved in 2011, in the midst of the last commodity boom cycle. These reforms aimed to address the low performance (e.g. impact of people's wellbeing) of the investments of oil and mineral royalties in the previous two decades. According to Government and Congress these reforms had four objectives: i) promote equity; ii) increase savings; iii) improve good governance and iv) enhance regional impact.

Did the measures adopted over the past 15 years prepared the Colombian governments for the present low-price environment and for the high volatility of most commodity markets? Did the last reform change the political economy of royalties investment? I will address these questions by presenting a comparative case study of three regions of Colombia that depicts what actors and factors drive the management of resource revenues by subnational governments.

Paper short abstract:

The paper examines the extent to which counter-cyclical policies enacted in boom mitigate impacts of negative shocks to eschew large imbalances that derail investment and inclusive development agenda.

Paper long abstract:

The paper evaluates the extent to which counter-cyclical macroeconomic policies and pro-active structural transformation measures enacted during the commodity boom have mitigated the impacts of the recent sharp price fall on governments' ability to eschew deteriorating macroeconomic imbalances that derail productive investment and 'inclusive development' agenda across commodity dependent developing countries with a focus on SSA. Our analyses are carried out through a comparative analysis of country cases as well as cross-country regressions of growth incidence of price shock. The former examines the range of policies adopted in the boom and their effects on countries' preparedness to counter shocks in a comparative perspective. The policies evaluated include: 1) counter-cyclical resource management such as an enactment of counter-cyclical fiscal rules, an establishment of stabilisation funds, SWFs and sovereign debt management in light of country-specific political economy and governance of public resources that would allow build-up of fiscal and forex reserves; 2) regimes adopted towards monetary and exchange rate policies and capital flow management; and 3) investment, financial and other policies specifically aimed at structural transformation. An access of countries to global financial safety net (swaps, IMF resources) to avoid liquidity challenges is also discussed. Our case-based study is followed by regression analyses of the cross-country growth incidence of the commodity price shock, using the IMF data sets. This analysis examines specifically whether the cross-country incidence and depth of the 2015-6 growth decline among commodity exporting countries is systematically related to mitigating policies and structural reforms they enacted before the shock hit.

Paper short abstract:

Evidence from oil producing countries supports the idea that there is a natural ‘resource curse’ that associates oil resources with slow economic growth. This paper argues that this literature does not take account of other factors that generate challenges for the economy, such as volatility in oil prices.

Paper long abstract:

There is an understanding that natural resource abundance served as an engine of economic growth for some states such as Canada, Australia and the United States during the nineteenth century. However, the existing literature from different locales provides considerable evidence that shows that natural resource abundance leads to slow economic growth in developing countries. Within this context, this paper considers a very pertinent question - what economic and political factors enable some resource abundant countries to utilise their natural resources to promote economic development and prevent resource curse?

Conceptually existing explanations in the literature, from a fairly wide range of different perspectives, do not adequately account for the role that volatility and economic environment play in shaping the development outcomes of natural resource-abundant countries. They tend to focus on variables that are determined by a country's natural resource base and to exclude consideration of other variables. This paper offers an alternative explanation that emphasizes the detrimental effect of volatility as one of the main potential perils that contributes to poor economic performance. In fact, oil endowment is not a 'curse' as such, the curse is considered to be high volatility, weak exchange rates and high interest rates. This paper draws on PhD research on 'the impact of oil revenue on Iran's economic growth', and provides an estimate volatility model using the Markov Chain Monte Carlo method. The discussion also focuses on the role that institutions and fiscal policies can play as shock absorbers to manage volatility in the economy.

Paper short abstract:

The paper analyses the impact of the end of the commodity super-cycle on black economic empowerment (BEE) in South Africa’s mining sector. It argues most BEE deals were predicated on high commodity prices, and that the crash has generated new tensions between state and private sector.

Paper long abstract:

This paper analyses the implications of the end of the commodity super-cycle for South Africa's black economic empowerment (BEE) policies in the mining sector, with a particular focus on platinum - the country's most important mineral by employment. Racial transformation of ownership has been the most significant policy issue in South Africa's post-apartheid mining sector. The key legislation designed to foster this transformation was the 2002 Minerals and Petroleum Resources Development Act (MPRDA), and the 2004 Mining Charter derived from it. This requires companies to meet targets for ownership by Historically Disadvantaged South Africans, a process more commonly known as BEE.

The paper argues that the legislation and the methods used to transfer ownership were born of the super-cycle, and that its end has exposed their fragilities. Ordinarily, stakes in mining operations were sold to BEE partners using a mixture of vendor and commercial debt financing. The debt was secured against the value of the stake acquired, with repayment contingent on dividends. However, the end of the super-cycle has caused dividends to dry up, company valuations to plummet, and credit conditions to tighten. This perfect storm has jeopardised transformation efforts, and exposed the inattention to counter-cyclical stabilisation measures. Key institutions are struggling to adapt, with new tensions emerging between state and private sector over the definition of BEE. Ironically, while the MPRDA eschewed state-ownership as a method for deracialising mine ownership, the crisis has seen state financial institutions quietly becoming key stakeholders in, and financiers of, the struggling industry.

Paper short abstract:

Low oil prices reflect surge in unconventional US tight oil and low-cost MiddleEast oil. Marginal barrels are no longer from ‘top of merit-order’ reservoirs but from low&middle-cost producers. Oil majors are negatively impacted. Contracts will have to mitigate decline in non-ME developing-country producers

Paper long abstract:

Implications of lower oil prices gain to be analyzed in light of their deeper origin, i.e. the emergence of new production capacity in low-cost producers (Iran, Iraq and, to counter them, Saudi Arabia) and in unconventional US tight oil plays. In 2004-2014, the marginal barrel was a 'tough-oil' barrel mostly from developing countries or FSU. For one decade at least, it will be from the Middle East (ME) or, if not, from North America (NA). Non-ME developing producer countries (NMEDCP) will be confronted with reduced interest in their top-of merit-order cost-curve resources. Similarly, oil majors (IOCs) will find their frontier-technology competitive advantage of reduced value vs. National (NOCs) and independent US producers. IOC generation of, and access to capital will be reduced accordingly, shrinking their capacity to contract.

In this context, NMEDCP will see the period when new oil counts as 'production oil' extended and 'profit oil' delayed. Their bargaining power will be reduced, the more so as the 'disinvest' movement will gain strength, leading shareholders to discount reserves that take time and capital to develop in favor of shorter life-cycle unconventional oil for which the notion of 'reserves' makes less sense. Policies and contracts will have to either postpone developments and make it conditional to carbon capture, or develop forms of resource-holder-IOC partnership beyond today's tool box and at the cost of significant cultural adjustment.

Paper short abstract:

China’s economic slowdown hit hard the DR Congo. In 2016, the country faces major budgetary constraints mainly due to funding of the electoral cycle. Given pressures on public finance, the country might seek the IMF assistance; it has not concluded an economic programme since January 2013.

Paper long abstract:

According to the IMF, in 2014, the DR Congo GDP growth rate was estimated at 9.2%, which was the third fastest growth rate in the world. In 2015, the IMF stressed that the country registered a 8.4% GDP growth rate. In 2016, it points out that the DR Congo growth rate is likely to be estimated at 4.9% due to a continued drop in commodities prices. Referring to the central bank of Congo, in 2013, exports accounted for USD 10,904,924,592.52. The same year, 97.7% of exports value relied on copper, cobalt, and zinc.

The DR Congo has emerged as an investment hot spot for the extractive industries. The UNCTAD stressed that, in 2014, Foreign Direct Investment (FDI) flows to the DR Congo reached USD 2,063,000,000 and might decrease due to a wait-and-see attitude of the private sector in the run-up to the 2016 presidential elections. Given the weak global economy, the 2002 mining code's review has been suspended in early 2016.

Moreover, the DR Congo faces with internal shocks: sovereignty-related spending given insecurity in Eastern DR Congo and funding the 2016 electoral cycle. Public finance is under pressure with a limited 2016 State budget of USD 9.080.681.622. The commodities slump entails a revised State budget, which will decrease by 30% in April 2016. The country might seek assistance of the IMF, which advised to implement an orthodox budget policy by not financing fiscal deficit by the central bank. It recommended the country's diversification restricted by lack of electricity and infrastructure.

Paper short abstract:

The Peruvian economy is heavily affected by the end of the commodity super-cycle. Instead of trying to diversify its economy, the Peruvian governments are deepening the country’s dependency on the export of its mineral resources and investment in the mining sector.

Paper long abstract:

The Peruvian economy depends for its growth principally on the export of its mineral resources and investment in the mining sector. The fiscal contribution of the mining sector enables the country to finance its increasing social expenditures. In the context of diminishing export values for the country's mining products, we argue that the natural consequence of the current Peruvian development model is to further the same development model based on the extraction of natural resources. This consequence is explained on the basis of what we have termed the political economy of unsustainability. On the one hand this concept helps to understand the country's political and economic dependence on the world economy in general and on transnational mining capital in particular, on the other hand it contributes to a comprehension of the national structures and the correlation of class forces that impede a radical change of the current unsustainable development model.