9 Apr, 2015

Swiss commodity multinationals face transparency pressure at UNCTAD conference

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Geneva, 8 April 2015 (UNCTAD media release) – Representatives from the Swiss Government, individual trading companies and transparency advocates will discuss the current lack of publicly available information about commodity trading in Switzerland at UNCTAD’s sixth annual Global Commodities Forum at the Palais des Nations in Geneva on 13–14 April 2015.

The Forum continues a debate, begun at the 2014 event, on the need for improved transparency in the commodity trading sector – with Switzerland as its focus this year. The current dearth of information complicates governments’ responsibility to formulate policies that are effective as well as feasible to implement, and a lack of transparency represents a growing and significant reputational risk to firms, and their home and host governments.

The Forum, titled “Trade in commodities: Challenges and opportunities”, will open on 13 April with addresses by UNCTAD Secretary-General Mukhisa Kituyi and UNCTAD Trade and Development Board President Ana Maria Menéndez Pérez of Spain.

Switzerland is home to many of the world’s largest trading companies and the sector accounts for a significant proportion of the global trade in certain commodity products. For example, Geneva-based traders alone handle 35 per cent of the global crude oil trade, 35 per cent of grains and 50 per cent of sugar and coffee. Therefore, any regulation by Switzerland of its trading sector would have a far-reaching impact on commodities trade.

Nevertheless, the situation is delicate, as Switzerland does not want to risk its competitive position by stepping too far beyond the regulations imposed by other major jurisdictions, such as the European Union and the United States. Therein lies part of the problem: existing European and US legislation covers payments made by producing companies to foreign governments, but does not apply to trading companies.

Developments regarding this important issue in the past year include the Swiss government’s ongoing discussions with the trading community and trading giant Trafigura’s decision to become the first such company to join the Extractive Industry Transparency Initiative (EITI).

Panelists at the event, which takes place on the first afternoon of the two-day Forum (15.00-16.30), will also identify what measures are necessary for continued progress in this area. Participants include representatives of Berne Declaration, a not-for-profit, independent organization which campaigns for more equitable relations between Switzerland and developing countries, and the programme manager of the Swiss State Secretariat for Economic Affairs.

Also on the panel will be a board member of one of the world’s top trading companies, Ecom Agroindustrial Corp. Ltd, and an expert on due diligence and responsible supply chains from leading consultancy RCS Global.

Another key issue to be discussed will be the spectacular fall in prices for oil and other commodities since mid-2014 and what it means for resource-rich developing countries.

From recent highs of approximately 100 dollars per barrel in June 2014, oil prices dropped precipitously to less than 50 dollars in early 2015, which is also a 40 per cent drop from the 10-year average of just over 80 dollars. The government budgets of oil-producing developing countries are particularly vulnerable to such price movements.

For example, at the height of the supercycle, the governments of Angola, Nigeria and Chad drew 70 per cent or more of their revenues from their oil sector. Revenues plunged as prices dropped, forcing these governments to slash spending, freeze construction of new projects and delay the payment of civil servants’ salaries.

Among the sessions at the Forum will be a debate on the prospects for renewable energy sources in a lower-carbon energy mix, given the recent fall in oil prices.

In addition to the fall in oil prices, movements among other commodity prices have been generally down by 10 to 50 per cent from their 10-year averages. For example, in early 2015, iron ore prices were down 50 per cent and rubber prices down 37 per cent from their 10-year averages.

These price trends are of particular concern to commodity-dependent developing countries, which rely heavily on the income from their commodity exports.

More generally, lower prices squeeze the income available for distribution throughout the value chain. This can create tension among stakeholders and undermine policies enacted during the supercycle of high commodity prices.

Two keynote speakers will outline the key issues for debate throughout the Forum. Philippe Chalmin, President of the Cyclope market analysis service and a professor at Dauphine University in Paris, will identify some of the key forces behind the recent mutations on markets, with a view to understanding how they will impact stakeholders.

Yilmaz Akyuz will deliver a second keynote address. A former director at UNCTAD, Mr. Akyuz is the Chief Economist at the South Centre and he will share his ongoing research on governments’ macroeconomic management of the recent commodity boom cycle. Although many commodity exporting countries enjoyed sustained growth during the period, their policies had limited success in converting this growth into, for example: a diversification of their economies, a deepening of their capital markets or a reduction in their indebtedness.

In view of the recent fall in the oil price, a debate on the prospects for renewable energy sources in a lower-carbon energy mix will be among the sessions that follow the keynote speeches. The session seeks to emphasize that government policies are important in establishing investment incentives, such as fiscal concessions, to promote renewable energy technologies. In parallel, budget constraints due to lower oil prices may represent an opportunity for governments to reduce or eliminate their consumption subsidies for petroleum products.

The plenary themes to be considered through panel discussions and open debates over the two-day event are:

(+) Prospects for transparency-themed governance reform in the Swiss commodity trading sector

(+) Policy space for resource-rich developing countries in the trade of raw materials

(+) New dynamics in international agricultural commodity trade policies

(+) The prospects for renewables in a lower-carbon energy mix

(+) End of the supercycle? Implications for development and terms of trade

The 2015 Global Commodities Forum: “Trade in commodities: Challenges and opportunities” will open with addresses by UNCTAD Secretary-General Mukhisa Kituyi and UNCTAD Trade and Development Board President Ana Maria Menéndez Pérez of Spain.