The effect of $100 oil price on African economies

During the past week, the price of crude oil eventually and finally reached the $100 record mark per barrel thanks to the unrest in Nigeria's Niger Delta, the locked production in Iraq, surging demand in growing Asian economies...
Kpalimé, Togo

...and the cold winter months. This forebodes many things for different groups. Ordinarily, when the price of any commodity goes up, it means good news for the seller or producer.

African nations make up 6 of the 23 top oil-producing countries and this ought to mean good news for these African nations. These nations would be awash with cash, never mind that the oil companies too would also go away with large profits. The windfall these nations would experience could not have been dreamt possible some 5 years ago. The question is what does this translate to for the African nations and by extension the people of Africa?


Nigeria, Angola, Gabon, Libya, Egypt, Algeria - to a lesser extent Cameroon, Congo, Equatorial Guinea, Tunisia and Cote d’Ivoire - all have significant production and income generation from the sale of crude oil and natural gas. Nothing stops these countries from deploying the windfall into laying a solid foundation and investment in infrastructure. The UAE, Kuwait, and Qatar -not to mention the oil rich Saudi Arabia- are but few examples of what a purposeful government can do with accumulated wealth- transform the landscape and by extension the living conditions of your people.


Africans for decades have complained of poor development and blamed poverty and thin financial capacity as the excuse for not being able to grow their economies, but with this unprecedented gold-mine in high oil prices, one wonders why there is yet so much despair and so little progress being seen in changing the fortunes of the African people. At least, for a start, let these nations set the example for the rest of Africa to follow.


Corruption and blatant mismanagement of resources has been a recurring malaise in most African nations. Governments and politicians sit tight and amass the wealth meant for the people and instead of building the social infrastructure that will galvanise growth and generate employment opportunities to the average person, they feather their own nests, and steal stupendous mind bogging sums.


The high technology dependent world of oil business makes it difficult for the small scale investor to be a player in the business. Big multinationals and government corporations like the NNPC, are the ones that can provide the financial muscle and skill to play in this big game.


In Nigeria, insecurity and unrest in the Niger Delta has become the natural fall out, as the local communities allege years of neglect while bearing the brunt of social and environmental degradation occasioned by the activities of exploring and drilling for crude oil. Corporate Social Responsibility and partnering with the communities are attempts being made to douse the angst and raging insecurity in the region. These efforts have been described as too little too late.
African governments have to formulate policies and muster the discipline to execute programmes that will develop the continent, provide adequate infrastructure including education and health care to the suffering people that have become victims of this blessing turned curse.


Oil being a depleting resource needs significant investment to ensure new reserves are found and developed. The IOCs are therefore not in this for charity. They also have to compete among themselves and ensure they keep their shareholders happy. It behoves on these lucky African governments to ensure that revenues including taxes and royalties, they generate in these auspicious times, are judiciously deployed in the best interest of the people.


Overdependence on oil, as a mono-cultural economy, is a bane of most of these African economies.
There should be an effort to diversify away from oil to other sectors where the ordinary medium scale business person can participate, such as in local home-grown industries and the services sector.

Esi Ejumabone currently resides in the Netherlands and works for an international oil and gas company. His interests cover studies into how local governments and private organisations can partner with rural communities to achieve sustainable small scale business growth in Africa.