By Clár Ní Chonghaile
As leaders of some African countries brace themselves for a rocky financial year, they might reflect ruefully on the words of Polish author Ryszard Kapuściński: “Oil is a resource that anesthetizes thought, blurs vision, corrupts.”
As the wheels come off a decade-long commodities supercycle, Africa’s oil-producing and metal-rich giants find themselves facing a dangerous mix of lower export revenues, depreciating currencies, declining financial flows from China, falling domestic demand and higher debt costs following last month’s US interest rate rise.
For the continent’s oil importers, there is a different story: lower prices mean more money for governments, and possibly cheaper goods.
For those on both sides of the oil coin, the first year of the new global development agenda – introduced with much fanfare in September – is a challenging start to a 15-year project to enshrine sustainable development in national policies across the globe.
The question is: have some African countries squandered their chance to invest in the building blocks of sustainable development, and is it now too late?
Since September 2014, the price of Brent crude oil, the global benchmark, has plummeted from around $100 (£70) a barrel to below $30 this week. Prices for other commodities, such as copper and zinc, have also fallen, mainly because of slowing demand in China, once hailed as the no-strings economic saviour for African countries tired of dealing with former colonial powers.
More than 80% of African exports are still linked to commodities, and particularly extractive industries.
“The commodities supercycle is dead in the water … It’s already sent some big African sub-Saharan economies into a tailspin,” said Aly Khan Satchu, an independent trader in Nairobi. “In Zambia, the currency has pretty much collapsed. If you put $100 in the Zambian market at the beginning of last year, at the end of the year, you would be taking out 14.” But Satchu remained bullish on east Africa.
“The sharply reduced oil prices have really improved the dynamics of the east African economies because we are still net oil importers … you are already seeing it improve the current account deficit in Tanzania and Kenya, and I think it’s going to provide some momentum to our economies,” he said.
In early January, the World Bank warned that a synchronized slowdown in the biggest emerging markets, the so-called BRICS, could be intensified by a fresh bout of economic turmoil.
In its annual Global Economic Prospects, the bank said growth in developing countries reached a post-crisis low of 4.2% in 2015, down from 4.9% in 2014, and warned that 2016 could be another difficult year. In sub-Saharan Africa, growth slowed to 3.4% last year, and was expected to rise to 4.2% this year.
According to the International Monetary Fund, Africa’s real gross domestic product fell from 5% in 2014 to 3.7% in 2015 and is expected to climb to 4.3% this year.
Debt will be a problem. Some oil-producing African countries have accepted loans from China, and some of these are collateralised by oil priced at a level that is now just a fond memory. To add to their woes, the cost of their dollar-denominated debt is rising; the US Federal Reserve said December’s rate hike is just the start of a “gradual” tightening cycle.
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Courtesy of Guardian News & Media Ltd