By Wolassa L Kumo
The unprecedented commodity price boom that began in October 2001 and that lasted for more than seven years came to an end in July 2008 amid slowing global economic growth. According to the World Bank's Global Economic Prospects 2009, overall, global GDP growth is projected to decline to 0.9 percent in 2009 while growth in developing countries will fall to 4.5% from 7.9% recorded in 2007.

Slower GDP growth and decelerating global trade, as measured by falling global export volumes, put heavy pressure on commodity prices. In addition to these, increased supplies and revised expectations played a significant role in pushing the commodity prices down. Commodity prices reflect forward- looking expectations. Therefore, the expectations of sharp decline in global economic growth in 2009 is believed to be the main driver behind falling commodity prices than the little changes in underlying demand and supply conditions (World Bank, 2008).

As a result, the prices of major commodities such as oil, metals and food have fallen sharply since June 2008. The most dramatic decline is observed in the price of oil which plummeted from an all time high of $144 during the boom to just below $40 in early December, 2008. The price of Brent crude fell to $39.57 on 5 December 2008 for the first time since January 2005. Currently, the price is hovering around $43-$46 range, which is a four year low.

Moreover, the prices of some metals have already fallen to pre-boom levels and the dollar price of many internationally traded foods has fallen back to their 2006 levels. While slowing economic growth is expected to exert further downward pressure on commodity prices in the short run, they should however, remain higher than they were in the 1990s. Real food prices are projected to decline by 26 percent between 2008 and 2010, energy prices to fall by 27 percent, and metals prices to decline by 32 percent (World Bank, 2008).

While the end of the commodity price boom is a relief to commodity importing African countries, it is a sad news for the African exporters. The higher and persistent GDP growth in sub Saharan Africa since 2001 has been anchored by the commodity price boom. The abrupt end of this boom, in mid 2008 could have serious consequences on the continents' over all future growth performance.

The Falling Commodity Prices and the Prebisch- Singer Hypothesis
Prebisch and Singer argued in 1950 that the price of commodities relative to that of manufactured goods will tend to decline over time. The theories of declining commodity terms of trade maintain that commodities have a relatively low income elasticity of demand compared with the outputs of other sectors and hence that the relative price of commodities declines as world income increases; that technical progress in manufacturing tended to be raw material saving, lowering the demand for commodities over time and the pace of the productivity growth in agriculture and mining sectors has been higher than in other sectors.

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