Movement of oil prices is unpredictable, so also the impact on the global economy. Downward pressure on prices, while hard hitting the oil producing countries, which are now categorized into OPEC and OPEC plus groups, the non oil producing countries stand to benefit since the foreign exchange outflows due to oil import come down. Even this generalization in the context of Africa is misleading since almost all oil producing countries in sub-Saharan Africa and even in North Africa are paradoxically importers of refined oil due to inadequate processing (refining) capacities.
In the recent months, oil prices have soared high thanks to the economic pickup, though slow, in some quarters. The crude prices now rule as high as over US$ 70 plus for a barrel as against below US$30 in the worst ever patch for the oil producing countries. Will that augur well for the African oil producing countries? Conversely, will a drop in the oil prices, as had happened in the recent past, gets translated into advantage to the non-oil producing countries?
Empirical evidence l does not conclusively prove that hypothesis, though in a limited sense that holds well. North Africa is a case in point. Oil revenue boosted its economic prospects. But sustainable growth of the economies needs peace and tranquility. The region experienced economic growth decelerations when oil production was interrupted by the Arab Spring, which commenced in the latter part of 2010 in Tunisia and spread to other countries. Higher levels of production and export of oil by Libya contributed immensely to the improved economic growth of the region after 2016. What everyone is eagerly looking forward to is the end of the internal strife to pave the way for an all-round growth.
Nigeria in West Africa, has become the most industrialized country in the continent riding on the back of oil wealth. The flip side of that growth traction has been the neglect of agriculture, with the result that the country known as the granary of the continent is now importing everything from staple food like rice and wheat to fruits. Not alone that, the largest crude oil producer of the continent is now importing 90% of its refined fuel from other countries at a higher price than it exports its crude, due to lack of refining capacities.
The onset of Covid-19 pandemic, which drastically reduced the demand for oil due to production dislocations, should be an eye-opener for oil producing countries. Prices can be influenced by many extraneous factors and not always economic reasons. The tussle between OPEC and OPEC Plus countries in the case of production cuts is a case in point. Also, there is historical evidence to prove that oil can be subjected to speculative overtures creating man-made shocks. Political overtones in fixing oil targets, prices and demand and supply are well known. Imagine a situation when China and India, the largest guzzlers of oil in the world cut their imports, prices can tumble down to naught. Equally significant is the focus on alternative energy sources to replace fossil fuel due to its adverse impact on the environment.
Should that bode well for the oil? To expect that fossil fuel will be replaced in the immediate future could be wishful thinking by the advocates of clean energy. But no one can discount that it would happen sooner or later. That instructs the continent to chalk out an alternative strategy for growth. Implicit in that is the predominant role to be assigned to agriculture, manufacturing and of course services sector. That is also the right pathway for an inclusive growth paradigm for Africa.
