The fall of oil prices is likely to dominate the global economy in 2015. As analysts predict who the winners and losers will be, many consumers are hoping the benefits will trickle down to them. There is the prevailing view amongst critics that the economic benefits of low oil prices will be uneven particularly in African countries that have a high dependence on oil as their main source of revenue.
One of the factors that has led to sceptisim is the fact that economic growth in Africa over the past decade has not been inclusive. There is also the idea that low oil prices will not impact oil dependant nations because much of the growth on the continent has come from other sectors as more countries try to diversify their economies and develop their manufacturing industries.
While businesses and consumers in Western countries such as the United Kingdom, are already beginning to see the benefits of a few pounds down a barrel of crude, – which potentially add up to millions of pounds in revenue – in terms of haulage costs, questions are being asked if this will be the same in Africa.
Oxford Economics a commercial venture with Oxford University’s Business College which provides economic forecasting and modelling recently predicted that a fall in oil to $40 could add up to millions of pounds for businesses. This could inevitably translate into an increase in spending power for consumers as the benefits are passed on to them.
However, for workers employed by oil companies such as British Petroleum (BP) in the North Sea off the shores of Scotland, a drop in the price of oil is already having a negative impact on jobs in the oil sector and has led to at least 300 job cuts which were announced early last week. There is talk of “future exploration and investment being under threat from falling global oil prices” with only a few companies left to operate at very low profit in the North Sea.
Back on the continent, there are concerns that low oil prices will also have a negative effect on countries like Nigeria which has the second largest oil reserves in Africa and accounts for 95% of all exports. The optimism brought on by oil discoveries in new oil and gas frontiers in East Africa, where at least 130 billion barrels of crude oil is waiting to be tapped, according to Pricewaterhousecoopers, is likely to have been dampened as the price of oil remains low. There is the view that low prices in oil could weaken economic activities in exporting countries with a possibility of high job losses.
While the issue of low commodity prices having an impact on African economies is not new and has been the subject of much discussion over the past few months, some reports show that a good number of resource rich countries fared well economically in 2014 despite negative expectations.
According to the economist, there is evidence to show that most resource rich countries in Africa have been slowly diversifying. The oil industry in Nigeria is known to have stagnated over the past few years and despite this, the West African country was ranked as the continents economic giant with most growth coming from sectors such as banking, construction and telecommunications. The service sector in general, accounted for 60% of GDP in Nigeria.
Angola another country known to be heavily dependent on the oil sector and also the second largest oil producer in Africa, saw most of its economic growth come from other sectors such as construction and manufacturing. Kenya and South Africa have also been able to diversify their economies including Zambia, one of Africa’s largest producers which “posted growth of 12% per year in financial services” according to the Economist. On paper, Africa fared well despite a deep in commodity prices and is predicted to go beyond being a continent that predominantly provides raw materials, according to a recent report by Voice Of America.
There is the expectation that as economies on the continent become more diverse, we might begin to see changes in the levels of inequality which tend to be much wider when countries rely on natural resources, which have so far, only benefited a small segment of the population in Africa.
Diversification of economies away from fossil fuels, will protect Africa from the volatility of commodity prices and damage to the environment as seen in the Niger Delta Region in Nigeria where those affected by the B.P oil spill were given meagre sums of money as compensation for lost earnings.
Investing in infrastructure and human resources is essential as this will allow the agriculture sector to thrive as well as unleash the potential of this sector. This along with other policy changes in governance will help bring to an end, the era of an economic boom that has been largely exploitative and has widened the gap between the haves and the have nots.