It cannot be simultaneously true that there will be no fossil fuel emissions by 2050 (the net zero goal) and continued demand for crude oil. Many countries export oil, but few are as export intensive as the 10 African countries in the accompanying table.
Oil exports account for 50%-plus of all the exports of these countries, and for five of them, including the three largest — Algeria, Angola and Nigeria — oil accounts for 80%-plus of total exports. These countries are home to a quarter of Africa’s population and a third of its GDP. They are also relatively well governed islands of calm in increasingly unstable subregions.
Algeria, Angola and Nigeria earned about $110bn in foreign exchange from oil exports in 2021. If they had had no oil exports or other goods to export they would have had to find a source of foreign exchange to cover imports. Europe and Japan were in this position after World War 2 with little to export and much to import as they rebuilt their economies and restored their productive capacity.
The IMF was created to be quite literally an international monetary (foreign exchange) fund — a pool of foreign exchange from all members, which members can borrow from while they get their foreign exchange situation sorted out.
In 2021, when Kenya’s foreign exchange position was badly hit by Covid-19 restrictions on movement and global trade conditions, the IMF lent a record amount for Sub-Saharan Africa: $2.3bn. The Kenyan authorities were confident that workers could return to tea, coffee and cut flower production and that tourism would steadily recover. That is, that they met debt sustainability criteria and would be likely to return the foreign exchange.
Oil markets will not recover — their end is a clearly stated international policy objective. A foreign exchange shortfall of the equivalent of $110bn will be a problem every year for Algeria, Angola and Nigeria until they find new commodities or goods for export.
The fiscal crisis will be similarly catastrophic. The federal budget of Nigeria has averaged $40bn over the past three years. As is the case in most oil “mono-economies”, Nigeria does not have sophisticated systems of individual taxation, nor a large corporate sector.
The sources of government revenue are taxes, royalties and licences from the oil sector — and more and more foreign borrowing. Budget pressures in Nigeria in recent years have included the effect of Covid-19, the need to protect its northern borders and the provision of some social security in the face of serious food inflation.
The World Bank was created to provide cheap finance to country authorities facing challenges such as these, but again only a fraction of the $40bn would be available. The World Bank’s $3bn loan to Nigeria in 2018 is still the record for its largest loan to
Sub-Saharan Africa.
What should be done? Now that SA has assumed the Group of 20 (G20) presidency it should challenge conventional thinking on what “climate finance” is, redirecting attention away from “adaptation” funds for Africa and towards the enormous and perfectly predictable financing crisis that is unfolding, as well as its very profound human development and global security implications.
Global public institutions such as the IMF and World Bank are failing Africa, not because of the costs or conditions attached to their loans but because their policy guidance that goes with this lending does not have the permanent price decline and eventual collapse of demand for oil at the heart of its analysis.
Countries and their investors need to understand the implications of this from all angles — fiscal, financial and in the balance of payments.
New growth model
The advanced economy pledge of $300bn per year in “climate finance” is a fraction of the financing that will be required to head off this crisis. Oil exporters urgently need a new growth model and concessional funding for public investment to support alternative sources of growth.
They need access to technologies and capital goods to undergo the structural transition all other regions have moved through, and they need market access. They do not need development finance to be rebranded as “climate finance” and a recycling of old ideas.
Nor do they need a narrow focus on issues such as “greening” the budget process to support adaptation. Will it matter that a road is at a world class standard for coping with heavy rain if there will be no budget to build any roads?
In 2050 one in four people on earth will be African. Geopolitics and economics will be in profound crisis unless countries across the continent have diversified and the people of Africa have opportunities such as other developing regions. It is the development issue that will define the 21st century and Africa’s new place in the global economy.
It is also everyone’s problem and needs everyone’s attention — now — as we may have already run out of time.
• Dr Rose-Innes, a former senior Treasury official and adviser to the executive director of the World Bank representing Angola, Nigeria and SA, is a development finance consultant based in Washington. This article is based on a paper she wrote for the Centre for Global Development.
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