World Economy
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Falling Oil Prices Threaten Fragile African Economies

Falling Oil Prices Threaten  Fragile African EconomiesFalling Oil Prices Threaten  Fragile African Economies

The sharp decline in world petroleum prices is threatening to undermine the fragile economies of several African countries dependent on oil for their sustained growth, IPS reported.

The most vulnerable in the world’s poorest continent include Nigeria, Angola, Equatorial Guinea, Gabon and Sudan – as well as developing nations such as Algeria, Libya and Egypt in North Africa.

The world price for crude oil has declined from 107 dollars per barrel last June to less than 70 dollars last week.

The drop in oil prices, however, will have the most damaging effects on Africa which has been battling poverty, food shortages, HIV/AIDS, and more recently, the outbreak of Ebola.

The heaviest toll will be on Nigeria, the largest economy in Africa which depends on crude oil for about 80 percent of its revenues, according to the Wall Street Journal. The country’s currency, the naira, has declined about 15 percent since the beginning of the fall in oil prices.

Since oil prices are highly co-related to food prices, high oil prices make agricultural production more expensive and thus cause food prices to increase. The fall in oil prices is good for global food security and nutrition.

Poor producers and consumers in developing countries should be able to benefit from this – as long as their purchasing power increases. However, oil exporting countries may lose government revenues from low oil prices.

Crude oil producing nations in Africa have felt the pinch of declining oil prices given the dependence of their economies on crude oil. In the short run, poor people may suffer, if their governments reduce food subsidies.

When oil prices are low, these governments should use reserves to ensure that poor people are protected through social safety net programs. The high debt overhang and the heavy reliance on raw materials (such as oil) and minerals for exports, makes African economies susceptible to shock and systemic risks.

Transformational development will require that Africa add value to, and diversify, its export commodities.

Financialtribune.com