The International Monetary Fund (IMF) says oil-exporting African countries could lose revenue to clean energy, a progression that may affect economic and fiscal stability, as well as those countries' currency valuations.
To remedy this, the Washington-based institution said oil-exporting countries in Africa should save earnings from the boom in crude oil price as transition to low-carbon energy sources could drag turnover down.
Economist at IMF’s African department Hany Abdel-Latif said they expect oil revenues in the region to fall as much as a quarter by 2030, and by half in 2050.
“Building buffers now would help the region’s oil exporters navigate the transition toward clean energy while managing oil price fluctuations,” said Abdel-Latif.
“For many countries, this means they will need to maintain annual fiscal surpluses up to 1% per annum over a 10-year period.”
According to the IMF’s latest regional economicoutlook, oil prices have, over the last two years, fluctuated from lows of $23 a barrel to a peak of $120 resulting in highly uncertain revenues in oil-dependent economies.
A study by American economist Adam Gerval shows that from January 2014 to June 2021, there were 37 periods of oil-price falls, averaging about 10%.
During the great recession of 2007 to 2009, the price of crude oil fell more than 25% in October 2008 and more recently, oil prices fell more than 42% in March and April 2020 during the onset of the Covid pandemic.
“That was the second largest drop since World War 2,” Gerval said. “That creates disruptions in trade. For example, the Nigerian currency, the naira, depreciated 140% between 2010 and 2020 as the average annual closing price for West Texas International crude oil fell from $79.48 to $39.68 per barrel.”
When export revenue streams slow, currency exchange rates depreciate and foreign exchange decreases.
Explaining challenges of economic risk countries in the region are likely to face, the IMF said oil exporters in sub-Saharan Africa should target buffers of around 5 to 10% of gross domestic product to manage large swings in oil prices.
“However, most oil exporters in the region haven’t accumulated enough savings to insure against unpredictable oil price changes,” Abdel-Latif said. “In fact, sovereign wealth funds in sub-Saharan Africa hold assets of just 1.8% of gross domestic product — compared with 72% in the Middle East and North Africa — forcing countries to borrow or draw down financial assets when oil prices fall.”
Abdel-Latif said as a result, in the decade through 2020, the region’s oil producers have grown over 2 percentage points slower per year than nonresource intensive countries.
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