1. CHINA, INDIA, COMMODITY PRICES AND THE TERMS OF TRADE Raphael Kaplinsky Development Policy and Practice, The Open University Alf Maizels Memorial Workshop, 18-19 th Sept 2008

2. Chinas growth is not unique..

4. Distribution of MVA Share of the World Share of developing countries By Income198519952005198519952005 S. and E. Asia4.112.919.729.259.569.4 of which: China1.45.19.810.223.634.7 Latin America6.76.96.446.931.522.6 Sub-Saharan Africa1.00.3 7.11.31.0

5. Chinas share of growth in global demand Source IMF WEO, Sept 06

6. Source: Macquarie Metals and Mining, personal communication (2004

8. Copper mine production gains and losses Global mine production has underperformed plans for the past six years, and has massively below plan over the past three years. We have already lost close to 300,000t of planned production so far this year, and at this rate, total losses this year could be even bigger than last year. Source: Brook Hunt, Macquarie Research, September 2008 Source: Jim Lennpn, Macquarrie research, personal communication

9. Reasons for delays Mines are being pushed to their limits … leading to a higher frequency of equipment failures as well as pit wall stability issues Trend towards larger equipment replacing numerous small units means equipment downtime affects a higher percentage of production With equipment and consumables demand exceeding supply, replacement lead times have been greatly extended New projects are having to compromise on equipment quality in order to meet start up deadlines (e.g. use of Russian & Chinese tyres, etc) There is a shortage of skilled and qualified mine workers A new breed of very investor (i.e. hedge funds) now demands high investment returns, leading to overly optimistic company production forecasts (for both existing operations and projects) in order to attract these investors Substantially higher by-product metals prices have tempted miners (particularly in the US and Chile) to high-grade specific areas of their ore bodies, often at the expense of copper Source: Jim Lennpn, Macquarrie research, personal communication

10. Summary of reasons for 2007 losses Source: Brook Hunt, September 2008 Source: Jim Lennpn, Macquarrie research, personal communication

11. Chinas share of growth in global demand Source IMF WEO, Sept 06

12. Monthly average spot price of six key metals at the LME (1998 – June 2008) Source: IMF Commodities Price Bulletin

13. China, India share of global imports COMTRADE accessed via WITS on 5th Sept 2008

14. Index of oil and coal prices, 1980-2008 (2000=100) Source: IMF World Economic Outlook

15. World Manufacturing Export Price, 1986-2000 IMF, World Economic Outlook Database

16. EU Imports from China 1 st Q 2005/1 st Q 2004China Market Share in EU-25 Imports Volumes %Price %1 Q 2004 %1 Q 2005 % T-shirts164-26717 Pullovers534-47638 Mens trousers413-16635 Blouses186-24622 Womens coats184-18610 Bras139-153049 Socks and pantyhose 63-223054 Linen and ramie yarns 5112745 Linen fabrics25711045 Source: Euratex data as reported by Nathan Associates

17. % of sectors with negative price trends, 1988/9-2000/2001

18. Countries or sectors? Prebisch, Singer, Lewis and labour markets Singer revisits Schumpeterian rents (1971,1986, 1991) Maizels et al: –EU (1979-1994) –US (1981-1997) –Japan (1981-2000 )

19. A structural shift? The Asian Driver effect will be sustained in all three sets of commodities Schumpeterian rents will continue to be eroded in manufactures

21. A structural shift? The Asian Driver effect will be sustained in all three sets of commodities Schumpeterian rents will continue to be eroded in manufactures Historical divides will remain stronger in services Commodity prices may fall in the coming years, but the terms of trade are about relative prices

23. SSA EXPORTS SSA IMPORTS CHINA IMPORTS CHINA EXPORTS SSA GAIN SSA LOSS Clothing footwear Hard commodities Clothing footwear Oil All SSA SA, Lesotho, Swaziland, Madagascar, Kenya, Mauritius Most SSA Oil exporters, Zambia, SA, DRC, Botswana, Ghana, Gabon, etc