When prices rise, it is the poor who suffer most. This year’s surge in the oil price towards $100 a barrel has been no exception: it is a concern for rich countries but its greatest threat is to the poorest.
The oil shocks of the 1970s were one of the roots of the developing-country debt crisis of the 1980s. Fatih Birol, chief economist of the International Energy Agency, argues that as soaring oil import bills put pressure on fragile economies, there is a danger the pattern will be repeated.
He calculates that the additional cost of oil imports for his sample of 13 countries since 2004 is $10.6bn: equal to 3 per cent of their gross domestic product over that period. “It is a worrying trend,” he said.
The weakness of the infrastructure of many African countries makes them particularly vulnerable. Fragile electricity grids make diesel-powered generators an important source of supply, and high fuel costs have caused power cuts. The need to transport food over long distances in trucks means that expensive oil also pushes up the cost of food. There have been frequent protests over fuel prices.
The threat is reinforced by the rising price of food. More than 30 of the countries defined as low-income net food importers by the UN Food and Agriculture Organisation also import all or almost all their fuel.
Shamsuddeen Usman, Nigeria’s finance minister, told the Financial Times last month he was concerned that African countries without oil were finding it harder to spend money on health, education and poverty reduction. “Their chances of meeting their Millennium Development Goals targets are slipping back,” he warned.
Kwadwo Baah-Wiredu, Ghana’s minister of finance and economic planning, told the FT: “We don’t like the speed with which oil prices are moving upwards . . . We’re trying to economise on energy. The main thing is not to be complacent.”
Yet while $90 oil is causing hardship for some in Africa, its economic effects have so far been relatively muted, for three reasons.
First, the rise in the dollar price of oil has been offset for many countries, such as the euro-linked economies of western and central Africa, by an appreciation of their currencies against the dollar. The World Bank has calculated that while the price of oil has more than tripled in dollar terms since 2002, in trade-weighted local currency terms it has doubled.
Second, as oil has risen, so have the prices of other commodities that are important exports for some African countries without oil, including crops such as cocoa and metals such as gold. So although some oil-poor countries have suffered deteriorating trade balances, others have not.
Third, growth in Africa has been sustained by a strong world economy. This year is the fourth in succession in which the economies of sub-Saharan Africa have grown by close to 6 per cent, according to the International Monetary Fund.
As a result Ghana, for example, thinks high oil prices have contributed to only a modest shortfall in growth. It now expects its economy to have grown by 6.3 per cent this year, rather than the 6.5 per cent it initially forecast.
Many African countries have also pursued more cautious fiscal policies that have put them in a better position to withstand shocks, said Andrew Burns, a senior economist at the World Bank. “It does appear to be significantly different this time round,” he said. “By and large, the lessons of the 1970s have been learned.”
Yet while African economies may now be more resilient, that does not mean they are invulnerable.
Simon Johnson, the IMF’s chief economist, said recently the biggest issue for developing economies was whether the oil price would make a global economic slowdown deeper and more prolonged, by pushing up inflation expectations in the developed world and making it harder for central banks to cut interest rates.
“If the US and the eurozone slow down, that’s going to affect everybody,” he said.
As Mr Burns put it, the “perfect storm” for the oil-poor African economies would be a global slowdown and falling non-oil commodity prices, while oil remained high. He believes the chances of that are low, but nevertheless 2008 will be tougher for many African countries than 2007.
