New skills needed for old dilemmas in resource-rich poor countries

23 April 2018

Changing economic circumstances mean that developing countries dependent on commodities need to find ways to upskill their workers.

UNCTAD’s Global Commodities Forum opened on 23 April with a call to intensify the links between educating workers and market demands so that developing economies heavily dependent on exports of commodities can grow local enterprises, upgrade jobs and trade higher value goods across borders.

More than 90 countries in the world are classed as “commodity dependent” – deriving over 60% of their government revenues from exporting goods that are grown (like cocoa, grain and cotton), or mined (like oil, minerals and metals).

The economic value of such inputs is most often generated outside of the country where the commodity came from – partly because there is a mismatch between domestic workforce skills and what the agricultural and extractive commodity sectors need. Diversifying sources of revenue by boosting other economic activity – such as manufacturing – also requires the development of “human capital”.  

GCF 2018

“A rare point of consensus between economists is on the fundamental role that human capital plays in economic growth,” the director of UNCTAD’s Africa division Paul Akiwumi said at the opening of the two-day forum, subtitled Building Skills for Sustainable Development, and featuring an array of participants from governments, intergovernmental organizations and the private sector.

“Theory and experience converge on the importance of equipping workers with the education, skills, and knowledge that will allow them to use technologies to increase their productivity.”

Pieces of the puzzle

As well as highlighting its work on the problem, the executive director of the International Trade Centre Arancha Gonzalez said: “Commodity producers typically retain a small fraction of the value added of their produce. Even starting from distinct varieties of commodities such as tea or coffee, studies show that producers retain as little as 3% of the final consumer price. Retail channels typically account for 40% of the value added while importers also receive a similar share.”

Small-scale businesses in commodity dependent developing countries often need better training to help them participate in the highly integrated global supply chains built on commodified goods, said the director of the World Trade Organization’s agriculture and commodities division, Edwini Kessie.

“Solid commitments to enhance investment on research, education, and extension [improving agricultural efficiency and market reach] are important pieces of the puzzle,” Mr. Kessie said. “At the same time, it is important that solutions to develop both human skills and institutional capacity emanate from national policymakers, taking into account the domestic economic and social dimensions.”

Speaking for the International Labour Organization (ILO), Sangheon Lee, director of its employment policy department, said: “Even though the connection between skills and trade outcomes is intuitively clear, the availability of skills has not traditionally been addressed by the trade community as a component of the trade enabling environment. Even so, over perhaps the last 10 years it has been gradually becoming more prominent.”

“In around 2010, the ILO started to pilot its Skills for Trade and Economic Diversification, or STED, methodology, which is designed to investigate the skills that tradable sectors in developing economies need to participate effectively in international trade, and to mobilize skills development action on the priorities that the investigation identifies,” Mr. Lee said.

Oilseed and horticulture

The STED methodology has been applied to the oilseed and horticulture sectors in Malawi, said Benyani Munthali of the Employers Consultation Association of Malawi. These sectors were chosen to help the south-central African country diversify its economy from depending on exports of tobacco, tea, sugarcane and coffee. Their development also requires upgrading local skills.

Malawi hopes to increase the export value to its economy of oilseed from $79.6 million (2014) to $599 million by 2022, and for horticultural products such as flowers from $7.4 million to $55.5 million.

In many sectors, Mr. Munthali explained, Malawi’s almost entirely rural and agricultural economy was held back by a lack of skills. Oranges grow there, he said, but orange juice is imported because businesses lack the equipment and skills needed to process oranges to supply local markets.

Agronomic and business management training has been offered to help smallholder farmers improve their performance, products and participation in supply chains, Mr. Munthali said.

Forum participants heard from Penny Bamber, senior researcher from the Global Value Chains Center of Duke University in the United States, how the higher up the cocoa value chain you go – from picking the bean to retailing the chocolate – the more specialized the skills needed, but also the extent to which workers experienced “social upgrading” in other ways.

In the extractive commodity sector – which has different characteristics to the agricultural commodity sector, but which deforms and constrains dependent developing countries just as much – creating sustainable jobs and diversifying economic activity often rests on the parallel goal of moving away from exploiting fossil fuel reserves and forming alternative “green” sectors.

Participate and diversify

Tony Addision, the chief economist at the United Nations University World Institute for Development Economics Research, told the forum that understanding how automation and technology will change the extractive industry is key to the future of employment in developing countries which are heavily dependent on the sector.

Innovation can improve the extent to which local workers and businesses participate in and ultimately diversify from the oil, gas and mining activities carried out by multinational enterprises, Mr. Addison said.

UNCTAD economic affairs officer Rachid Amui said that a high number of direct jobs was often created by a big new oil, gas or mining project but this effect declined over time.

In Mongolia, for example, he said that the Oyu Tolgoi gold and copper mine had created 148,000 jobs at the start of its life in 2010 but this had since dwindled to between 3,000 and 4,000. This points to the need for skills development across and beyond the lifecycles of such projects.

Big mines and oil wells can also create indirect jobs in the wider economy, but again an integrated approach to support for skills is required by governments and private sector players if the benefits are to spread and take root throughout an economy, speakers said.