These boom-and-bust cycles naturally impact on developing countries as a group far more adversely than on industrial countries. After all, primary commodities accounted for as much 42 per cent of all developing countries' total merchandise exports in 1997, compared with only 19 per cent for the rich countries.
 
But still, even within developing countries, there are two groups that have been the most affected by the most recent boom-bust cycle. The first group consists of the major oil exporting countries, that is, countries where oil accounts for more than 50 percent of merchandise exports. The other group is that of the non-oil exporting countries of Sub-Saharan Africa, where non-oil primary commodities, on average, make up 80 percent of exports.
 
For some countries, especially the least developed countries of Sub-Saharan Africa, primary commodities account for 90 per cent of exports, and very often more than half to two-thirds of export value is accounted for by one single commodity. This naturally makes both the balance of payments and the domestic real economy extremely vulnerable to fluctuations in output and price of this one good or group of goods.
 
Despite this dismal performance of primary commodities, the overall terms of trade of all developing countries does not show such a negative tendency, as will be clear from Charts 4 and 5. This is actually because of the degree of diversification out of primary into manufactured exports that was achieved by certain developing countries, such as the previously named "dragons" of East and Southeast Asia as well as India and some Latin American industrialisers. However, such trade and production diversification is precisely what is now under threat in some countries where it had proceeded quite substantially, and is further constrained in less developed countries where it had not gone very far.

Chart 4 >> Click to Enlarge

Chart 5 >> Click to Enlarge
 
In regions where no such process of export diversification was evident, such as Sub-Saharan Africa, not only did terms of trade deteriorate very substantially, but this also had very large negative effects on real national income. Chart 8 shows this, in terms of more than 10 per cent decline in terms of trade over just two years 1997 and 1998, and an effect of this alone on income amounting to 2.7 per cent of GDP.

Chart 8 >> Click to Enlarge
 
The reason all this is particularly worrying is that primary commodity prices are not expected to recover very much in the medium term. Charts 6 and 7 show one set of projections by the World Bank for oil and non-oil prices until 2001. What is interesting is that despite the huge falls of the previous years, prices will not increase much and are not even likely to regain their levels of the mid-1990s. And this is notwithstanding the much-vaunted "recovery" in East Asia which is supposed to increase world demand for primary commodities once again.

Chart 6 >> Click to Enlarge

Chart 7 >> Click to Enlarge
 
One reason for this is that in the current slump, except in the case of oil, producers/traders of primary commodities have been reluctant to reduce output to limit or reverse the fall in price. rather they have chosen the option of increasing the level of stocks held (aided by relatively low interest rates) and this has meant a fairly large overhang of inventories. Stocks of metals such as copper and aluminium are at record levels; grain stockpiles held by the major exporters have more than doubled over just three years; sugar stocks are also reaching unprecedented levels.
 
Thus low prices now reflect more than the usual cyclical features. They are now characterised by severe overcapacity in a situation of generally sluggish world demand for such goods. It is clear that they are unlikely to bring much joy to exporters in the medium term.
 
This is important, because this means the eradication of the hopes which characterised the Uruguay Round of trade talks, that more liberal trade would lead to higher prices for developing country exporters of primary commodities. Instead, what we witness is low prices and overproduction, in a situation where competitive pressure and the need to push out more exports have made these commodities even greater sources of volatility and vulnerability in domestic economies.