Africa weathers record oil prices
Aug 09, 2007
<b>ANALYSIS</b><br><br>KAMPALA<br>Record high global oil prices have so far had a muted effect on sub-Saharan Africa, with exporters reaping rewards and importers less badly hit than many had feared.
ANALYSIS
KAMPALA
Record high global oil prices have so far had a muted effect on sub-Saharan Africa, with exporters reaping rewards and importers less badly hit than many had feared.
A combination of demand, refinery bottlenecks and political fears drove crude oil to a record high of more than $78.50 last week.
While the poorest on the world’s most impoverished continent are paying the price, the impact has not been the disaster some forecast.
In Kenya, robust economic growth of 6.3% in the first quarter of 2007, compared with 4.1% in the same period last year, has cushioned the blow on a country that spends around 23% of its import bill on oil. “Pump prices are still rising, but that didn’t stop Kenyans buying some 50,000 cars last year,†said Mwendia Nyaga, head of the National Oil Corporation of Kenya.
Oil prices that have nearly doubled from $40 a barrel in 2004 brought dire warnings of inflation overtaking African economies. But Nyaga said Kenya could handle it.
“The economic outlook is quite positive and ready to support single-digit inflation,†he said. “I don’t think it’s crippling.â€
Across the continent, rises in commodity prices like copper and gold have helped other nations that export minerals, while higher foreign currency reserves and a lower debt burden have all helped absorb the burden of months of high oil prices.
But no one is complacent about the risk.
“Every time international oil prices go up, that impacts negatively on the fight against poverty,†said Zambia’s Finance Minister Goodall Gondwe.
“Wrestling with volatile international oil prices is one of the biggest challenges for the developing world.â€
The largest threat is to infrastructure projects, many funded by donors like the African Development Bank (AfDB), which were planned when oil prices were much lower.
In a report last year, the Tunis-based AfDB said many ongoing thermal power production projects were in danger because they were set up on the assumption that oil prices would remain at around $25 a barrel.
It said it hoped African governments would use higher prices to spur investment in cleaner, alternative energies like solar and wind power.
In Uganda, where banks of costly diesel generators struggle to make up a shortfall left by reduced hydroelectric generation on the Nile, such cost increases are a big risk.
Uganda has been rationing electricity for more than a year.
Oil exporters including Angola, Equatorial Guinea and Nigeria have seen incomes hugely increased.
Angola, the continent’s second-biggest exporter, has used subsidies to keep local prices stable.
The picture is however not rosy for all exporters.
Violence and political instability in Nigeria’s oil producing Delta has been one of the factors behind the record oil prices.
In May, Nigeria’s government raised pump prices by 15% to 75 naira ($0.565).
That triggered a general strike until it cut prices back to 70 naira.
But residents of Africa’s top crude exporter say it is almost impossible to find fuel at that price.
Refineries are not working because of pipeline sabotage and mismanagement.
So Nigeria has to import most of its fuel, and that business is manipulated by marketers and their powerful business or political patrons, who create artificial shortages to keep prices high, then pocket government subsidies.
While high oil prices has helped Nigeria build large foreign reserves and pay off most of its foreign debt, the rising cost of fuel for cooking and transport is a major source of discontent in the West African country.
The same is true in most importing countries, with many burdened families feeling the effect.
Earnest Chidoti, a Zambian accountant, earns about $650 a month, but spends nearly a third of that running his second-hand Toyota saloon car.
“Every day I drop my kids at school, my wife at work and then go to work,†he said. “At lunch, I pick my kids and drop them home.
“I also go home for lunch and that makes me spend almost $172 every month on fuel alone.â€
Reuters
KAMPALA
Record high global oil prices have so far had a muted effect on sub-Saharan Africa, with exporters reaping rewards and importers less badly hit than many had feared.
A combination of demand, refinery bottlenecks and political fears drove crude oil to a record high of more than $78.50 last week.
While the poorest on the world’s most impoverished continent are paying the price, the impact has not been the disaster some forecast.
In Kenya, robust economic growth of 6.3% in the first quarter of 2007, compared with 4.1% in the same period last year, has cushioned the blow on a country that spends around 23% of its import bill on oil. “Pump prices are still rising, but that didn’t stop Kenyans buying some 50,000 cars last year,†said Mwendia Nyaga, head of the National Oil Corporation of Kenya.
Oil prices that have nearly doubled from $40 a barrel in 2004 brought dire warnings of inflation overtaking African economies. But Nyaga said Kenya could handle it.
“The economic outlook is quite positive and ready to support single-digit inflation,†he said. “I don’t think it’s crippling.â€
Across the continent, rises in commodity prices like copper and gold have helped other nations that export minerals, while higher foreign currency reserves and a lower debt burden have all helped absorb the burden of months of high oil prices.
But no one is complacent about the risk.
“Every time international oil prices go up, that impacts negatively on the fight against poverty,†said Zambia’s Finance Minister Goodall Gondwe.
“Wrestling with volatile international oil prices is one of the biggest challenges for the developing world.â€
The largest threat is to infrastructure projects, many funded by donors like the African Development Bank (AfDB), which were planned when oil prices were much lower.
In a report last year, the Tunis-based AfDB said many ongoing thermal power production projects were in danger because they were set up on the assumption that oil prices would remain at around $25 a barrel.
It said it hoped African governments would use higher prices to spur investment in cleaner, alternative energies like solar and wind power.
In Uganda, where banks of costly diesel generators struggle to make up a shortfall left by reduced hydroelectric generation on the Nile, such cost increases are a big risk.
Uganda has been rationing electricity for more than a year.
Oil exporters including Angola, Equatorial Guinea and Nigeria have seen incomes hugely increased.
Angola, the continent’s second-biggest exporter, has used subsidies to keep local prices stable.
The picture is however not rosy for all exporters.
Violence and political instability in Nigeria’s oil producing Delta has been one of the factors behind the record oil prices.
In May, Nigeria’s government raised pump prices by 15% to 75 naira ($0.565).
That triggered a general strike until it cut prices back to 70 naira.
But residents of Africa’s top crude exporter say it is almost impossible to find fuel at that price.
Refineries are not working because of pipeline sabotage and mismanagement.
So Nigeria has to import most of its fuel, and that business is manipulated by marketers and their powerful business or political patrons, who create artificial shortages to keep prices high, then pocket government subsidies.
While high oil prices has helped Nigeria build large foreign reserves and pay off most of its foreign debt, the rising cost of fuel for cooking and transport is a major source of discontent in the West African country.
The same is true in most importing countries, with many burdened families feeling the effect.
Earnest Chidoti, a Zambian accountant, earns about $650 a month, but spends nearly a third of that running his second-hand Toyota saloon car.
“Every day I drop my kids at school, my wife at work and then go to work,†he said. “At lunch, I pick my kids and drop them home.
“I also go home for lunch and that makes me spend almost $172 every month on fuel alone.â€
Reuters