JOHANNESBURG, (Reuters) – Are mispricing and the opacity of commodities trading in Switzerland contributing to Africa’s underdevelopment?
The world’s poorest continent remains heavily dependent on natural resources and so is extremely vulnerable to manipulations in the price of the commodities it extracts and exports, with very real consequences for its economies.
Switzerland is a global hub for trade in commodities, and so exerts a significant influence on Africa’s development.
But critics say the way commodities are traded through the country is shrouded in opacity and this ultimately deprives developing regions such as Africa of revenue.
The Swiss government this week took steps that it says will bring more transparency to its lucrative commodities trading sector, but the problem is deep-seated.
For example, a 2010 study by Christian Aid showed that as Zambia’s copper production soared in the 2000s, Switzerland came to account for more than half of the southern African country’s exports of the commodity.
But the price of Swiss re-exports of the copper was far higher than that received in Zambia.
In 2008, the study estimated, Zambia’s GDP would have been 80 percent higher if the copper leaving its borders in that year alone had received the same price as Switzerland. It’s a pattern of trade mispricing that has persisted, critics say.
A study in January by the Centre for Global Development, a trade and aid think tank, estimated that developing countries may be losing between $8 billion and $120 billion a year because of mispricing of commodities in Switzerland.
That report analysed 244 jurisdictions, including virtually all sub-Saharan countries, and almost 2,600 commodity categories, and found that the average price of commodity exports to Switzerland was lower than to other jurisdictions.
The difference here cost developing countries about $8 billion annually, according to the report.
But it found Switzerland also declared higher re-export prices for those same commodities and this difference was as high as $120 billion.
The Swiss impact varies from commodity to commodity.
As for platinum, it looks to be a case of depressing prices that has consequences for the continent’s most advanced economy, South Africa, which accounts for 70 percent of global supplies of the precious metal.
Reuters reported this week that vaults in the Zurich Freilager, or freezone, may hold around 20 percent of the total stocks of platinum in London and Zurich, the world’s two main storage centres for the metal.
This may explain the muted reaction of spot prices to a five-month platinum mining strike in South Africa. That stoppage, which ended this week, hit 40 percent of global production of the precious metal.