Hedge your bets: Managing commodities risk in sub-Saharan Africa 

Sub-Saharan Africa (SSA) – the world’s most resource-rich region and home to much of the global commodity market – is not growing.  

A recent IMF report found a significant slowdown of the SSA economy, which grew by 4% in 2024 but by only 3.8% in the first few months of 2025. A promising figure of 4.2% is forecasted for 2026, driven mainly by rising commodity exports. However, especially compared to its resource-rich predecessors, growth is still happening at a rather slow pace. 

The massive potential of the region – home to 30% of the world’s natural resources, including some of the world’s largest reserves of copper, cobalt, diamonds, manganese, platinum, uranium and vanadium – is failing to materialise. Part of the reason for this is a lack of institutionalised commodity risk management, which, combined with political instability, is a significant obstacle to regional growth. 

Hedging as a solution

Countries in SSA that are resource-rich do not manage their risks effectively, leaving them vulnerable to shocks and impacting potential growth. While they do impose taxes and royalties on foreign mining companies to generate short-term income, they don’t manage their risks through hedging, leaving them vulnerable to inevitable cyclical downturns in the commodity markets.

The risks associated with the inherently volatile commodity market can be managed through hedging and the management of their own physical sales, which involves using derivatives to offset the risk of unfavourable price fluctuations. 
Despite its benefits, strategic hedging is the least common method of risk mitigation within commodity markets. However, the under-appreciated method is tantamount to survival in times of inevitable economic downturn.

Commodities appeal to investors looking to diversify their portfolios. If SSA economies focused on hedging, they could encourage far more investment, promising stability through boom-bust shock absorption.

The complete avoidance of hedging by all SSA countries and SOEs can be catastrophic. Unless sub-Saharan African nations understand where the price of a commodity comes from in the international markets and the factors influencing it, they will never understand the risks they face and lay themselves open to boom and bust scenarios.

This is all the more crucial as, according to a World Bank report, commodity prices will reach a six-year low in 2026. Given that foreign direct investment (FDI) in SSA is often contingent on commodity prices, nations will face significant declines in cash inflows, which many of them are woefully unprepared for. 

Part of the reason for this is that many nations undervalue the potential of their natural resources. For example, much of SSA exports raw materials to China and beyond without really understanding what those assets are really worth. This means that both the nominal and real value of their exports depreciate across each stage of the globalised value chain. Because nations aren’t getting a fair price for their natural resources, they struggle to set aside whatever funds they do get to invest in domestic economies and developmental outcomes, meaning they are reliant on dwindling foreign investment and remain stuck in the cycle.

Arguably, the absence of institutionalised hedging means nations aren’t just failing to manage risks, but that they’re also mishandling the marketing of their natural resources.

Misconceptions of hedging

Insufficient knowledge of the pricing mechanism of commodities means that when prices are high, nations sell as much as they can to bring in profits. This profit is then used to maintain the status quo – ensuring the elites stay in power, becoming the main beneficiaries of commodity exports while the population sees few if any developmental or social gains.

Hedging requires substantial upfront investment, such as trained expertise, institutionalised legal and governance frameworks, and the setting aside of adequate financial resources. If this does not occur in countries with systemic failures in fiscal management, the status quo will remain, and SSA will continue to be dependent on foreign aid, constant debt restructuring and little change to the political settlement, which will inevitably lead to continued dependence and lack of agency for real systemic change.

But these nations certainly have the capacity to adapt to hedging from within. To avoid repeating the colonial pattern of dependence, nations must learn to autonomously govern their commodity assets and not rely on others to do so on their behalf.

The skillset required for sophisticated hedging can be developed internally. But instead, the bureaucracy is currently focused on the cost and difficulties involved in hedging to mask their current negative rent-seeking behaviour to justify their lack of engagement.

Corruption thwarts investment

Reluctance toward hedging and investment-inducing risk management is often attributed to widespread corruption within political settlements. Many SSA nations are led by semi-democratic governments but which prioritise protecting their own elite over the needs of the majority of the population.

There have been, and are, large failures of investment into developmental programmes, such as healthcare, education, and infrastructure. Most profits from natural resources are siphoned off to buy off the political elite and protect those in government, with little trickling down to ordinary citizens.

Among the many problems with this dynamic is that state capture in extraction-based industries appears to undermine sophisticated risk management, which is likely to be far more valuable to these economies in the future. 

Unfortunately, the existing leadership of these nations has avoided assessing the nature of their commodity dependence, prioritising short-term cash generation over long-term developmental outcomes and ensuring the blame goes elsewhere. This may include railing against the costs of borrowing, constant calls for debt restructuring, and failing to gain sufficiently from their resource abundance. We regularly hear ministers from leading SSA nations flatly deny the existence of any problems and insist they are open to investment.

Changing the narrative

Recently, the management of commodity trades in SSA has been going through an upturn. Should price shocks occur, as they inevitably will, SSA’s commodity price vulnerability will recur, while the distinct lack of long-term developmental vision for growth will remain as they are. 

But these developing economies must not give in to the entrenchment of the status quo, but change the narrative to seriously investigate the true value of their resource assets by taking control of risk management and the independent marketing of their own material.

If governments developed institutions, such as a sovereign wealth fund or development fund, to manage these risks, their nations could benefit from a more disciplined approach to commodity management rather than the short-term cash grab that currently dictates policies. Crucially, this can stimulate investment in a nation that has taken a stand against fiscal instability. 

Risk management is an adequate long-term insurance for investors. But for nations that are not ready for a wholesale overhaul of their revenue streams, short-term hedging can still provide better and steadier cash flows than those currently achieved and potentially guide the process forward.

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Overall, focusing on the roots of the commodity markets – the mining companies and resource extractors – could bring some much-needed confidence and prosperity.

Perhaps even the state getting involved, either as a shareholder or as a participant, could bring some much-needed stability to SSA. As such, the mining companies are safe, now and in the future. This would go a long way towards assuaging people’s fear of investing in projects they think are in danger of being nationalised, overly taxed, or susceptible to the dangers of political and military insurgency.

American demand is clear, as seen with the reversal of tariffs on copper cathode this July. The US has signalled its interest in value-add at home. SSA can capitalise on what is likely to be a stabilising prospect of trade between the US and copper-exporting nations, many of which lie in SSA. 

SSA needs to reconsider its own narrative toward domestic commodity markets. Practical state engagement and institutionalised frameworks of governance could open up the region for far higher levels of investment. 

For now, however, the barrier is still up. A lack of knowledge and willingness by states to get a handle on commodities markets is preventing meaningful risk management strategies and, as a consequence, stifling development outcomes and foreign investment. Legacy assumptions need to be overcome for the scalability of the commodity market to be realised in the region and for these countries to realise that they have much to gain from pursuing these goals.