Dynamic Connectedness Between Commodities, Exchange Rates and Equity Markets of Commodity-Dependent Sub-Saharan Africa Countries

Financial integration creates complexities in risk transmission across commodities, currencies and equities, fuelled by non-immediate information systems, with implications for commodity-dependent nations during crises. Accordingly, this study analyses the time- and frequency-based connectedness between commodities, pressure currencies and equities in commodity-dependent sub-Saharan African states, including Botswana, Ghana, Kenya and Namibia. The study emphasised commodities that contribute immensely to the export revenues of the sample countries, including agricultural (cocoa, coffee, corn and cotton) and IDMs (aluminium, copper, nickel and zinc), spanning from January 2012 to December 2022. Through the Barunik and Křehlík index (BK-18), we revealed varying risk transmissions among the sample markets, with the long-term branded as the period of contagion given the multitude of bidirectional transmissions of shocks among these markets. The time-varying parameter vector autoregression (TVP-VAR) approach further complemented these results with contagion observed during the pandemic, nickel crash, pressure-currency era, as well as the Russia-Ukraine conflict. The results highlight commodities and currencies as net transmitters of shocks, while the sampled equity market served as shock receivers, with few exceptions and these were further substantiated by the TVP-VAR and the nonlinear causality test. The study has uncovered significant implications for policy-making, portfolio diversification strategies and risk management approaches. It is recommended that the central banks of the sample economies implement robust risk management policies that consider these interlinkages and diversify the economy with innovative sectors to reduce the region’s susceptibility to commodity and currency shocks and enhance equity market development.