Will the commodities boom affect the LAC and African migration?

With the price of crude oil going up and the American economy’s woes reflected in the general weakness of the dollar, commodities has seen a huge boom. The price of most commodities has shot upwards, from oil and gas to agricultural commodities. As some of the largest exporters of commodities, the Latin American and African countries are experiencing a boom time with demand from China amongst other nations soaring. LAC produces 47% of the world’s soybean crop, over 40% of copper and around 10% of crude oil. A recent large find of oil and gas in Brazilian waters has further added to the region’s resource riches.

Rapid development in China has led the country to become the largest importer of many commodities, including soybean, cotton and copper. The food crisis has compounded the problem, with escalating prices causing many populous Asian nations like Thailand and India to suspend exports of food commodities like rice. Africa and the LAC are rich in natural resources and the question arises, will this boom be big enough to bring riches to the two regions and reduce migration?

The answer is probably no. Poverty reduction will depend on the proper management of the resources and allocation of funds. There is a need for infrastructure development for the appropriate exploitation of the resource, with the twin goals of generating income and progress for the public. The foreign financing required for development projects is often rejected by the resourcenationalist- based mentality of many LAC governments. Further, the success of development projects in the LAC region is notoriously low and to top it all, the potential for a case of the ‘resource curse’ exists in both the LAC and Africa.

The resource curse brings with it the tendency to spend all resource revenue on maximum exploitation of the resource and squandering of the monies. Civil strife and political disturbances can occur. Finally, the lack of transparency in commodities payments between these regions and China (or other developing nations) has social and economic implications that can destroy credibility in the region. These nations will also need to reduce their dependence on the commodities, by creating a robust economy through diversification of interests. This may be the single largest challenge of all.

There is another possibility as Developing Market Associates CEO and UK FATF member Leon Isaacs sums up, “I agree, migration will not stop as it will take a long time for the wealth from natural resources to feed its way through the emerging market economies. However, it may well be that people migrate to different places. There may be more intraregional migration to the areas that are exploiting their natural resources. Also, people may choose other countries to migrate to – the US may not be number one choice given the economic slowdown and migrants may well go elsewhere.”

With a potential Fed interest rate hike by Bernanke, the dollar may go up, crude oil may come down and eventually, commodities may start a downward trek as well. Isaacs asserts, “I don’t think that the dollar will appreciate for the time being. Commodity prices might stabilise but I do not foresee a big fall”. In either case, with commodities up or down, it is a long shot that these regions gain the wherewithal to reduce emigration.