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Risk management in sub-Saharan Africa

Author

Listed:
  • Claessens, Stijn
  • Qian, Ying

Abstract

This paper investigates the vulnerability of countries in sub - Saharan Africa to uncertainty about commodity prices, exchange rates, and interest rates. It discusses some of the instruments these countries can use to manage financial risk and conclude that instruments linked to commodity prices would significantly reduce their risk. To account for possible interactions between external risks, the paper estimates the optimal portfolio of financial instruments for sub - Saharan Africa. It shows that the risk-minimizing portfolio for sub - Saharan Africa comprises only about 30 percent of general-obligation loans and about 70 percent of loans for which repayment obligations are indexed to the price of sub - Saharan Africa's most important exports: cocoa, coffee, cotton, copper, and oil. This portfolio reduces by about 90 percent the uncertainty of sub - Saharan Africa's resources available for imports. The risk-reduction benefit of the optimal portfolio is fairly stable for specific commodities included and for the specific period for which it is estimated.

Suggested Citation

  • Claessens, Stijn & Qian, Ying, 1991. "Risk management in sub-Saharan Africa," Policy Research Working Paper Series 593, The World Bank.
    • Handle: RePEc:wbk:wbrwps:593
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    Citations

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    Cited by:

    1. SWARAY, Raymond B., 2005. "Primary Commodity Dependence And Debt Problem In Less Developed Countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(4).
    2. Ying Qian & Duncan, Ronald & DEC, 1994. "Optimal hedging strategy revisited : acknowledging the existence of nonstationary economic timeseries," Policy Research Working Paper Series 1279, The World Bank.

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