High oil prices translate into more cash for Africa…
The high oil price has been great for Africa, a continent which, in 2003, produced just over 3 billion barrels of oil but consumed less than 1 billion. At these rates, Africa would earn an additional $60+ billion in 2007 versus 2003 when the price was around $25 per barrel.
However, the benefits of the high oil price will not be evenly shared due to many reasons. First of all, Africa isn’t a single homogeneous entity – it consists of 54 countries of which less than a quarter produce oil. The 12 main oil producing countries will run a surplus equivalent to 2.5 billion barrels of oil worth $64 billion more this year, while the 42 oil consuming countries will have to pay an additional $11 billion out of their pockets.
Secondly, the entire income from oil sales does not all return to the oil producing nations, while each African economy does indeed pay for what is imported and consumed. So, oil producing countries will only pocket about 40 per cent of the sale price. The rest of the profits will go to exploration companies as well as multi-national oil giants. As a result, Africa as a whole will benefit about $6 billion as a result of the high oil price.
A major reason for the high oil price is the increased demand coming from the booming Chinese economy. Over the last few years, China’s national oil companies have been very active on the African continent, bidding for oil concessions in West Africa, considering participating in a Nigerian refinery privatisation everyone else is avoiding and paying for the upgrade of Sudan’s only oil refinery. They are even poised to be given a major stake in Zimbabwe’s electrical power sector.
Ironically, Africa’s major primary energy source is wood, not oil, a situation which has led to deforestation across the continent and could be made worse as high oil prices drive rural households with limited resources to drop gas and paraffin for firewood. The high oil prices will therefore result in further depletion of natural resources on the African continent.
AFRICA EARNS $53 BILLION SURPLUS
The African economy is expected to grow by 5.5 per cent this year and another 5.7 per cent in 2008. Oil-exporting countries are outpacing others by a substantial margin while other countries continue to face serious problems.
Overall, the outlook for much of Africa continues to be more favourable than it has been for many years. Continued global expansion means sustained demand and higher prices for African oil and other industrial raw materials. An increase in official development aid and improving economic stability have also contributed to Africa’s positive economic outlook. In addition, growth has been boosted by increased oil production in Southern and Central Africa.
However, conflicts and natural disasters in countries such as the Sudan, Zimbabwe, Ethiopia and Nigeria continue to dampen overall economic growth.
Democracy has started to take root in a number of countries in the last decade and that there are fewer conflicts. Inflation remains at historical lows despite increasing oil prices. Trade balances have improved for countries that export oil and metal ores, but oil-importing countries were adversely affected by higher import bills and lower prices for agricultural products such as cocoa and cotton.