Oil price shocks to stifle long-term economic dev’t
The Executive Director of the Africa Centre for Energy Policy (ACEP), Dr Mohammed Amin Adam, has said the failure of African countries to effectively manage the effects of oil price volatility can have an adverse impact on development efforts.
He said the inability to manage the volatility over time would subsequently make it difficult for African countries to save resources to spur development efforts.
At the second Africa Oil Governance Summit in Accra, Dr Amin said the coincidence between the current oil price crisis and the launch of the Sustainable Development Goals (SDGs) was yet a call on Africa to always prepare for rainy days in its development planning.
“As I talk about resource-based development, I would like to remind us all that our failure to manage the effects of oil price volatility and particularly long periods of lower prices, could land a devastating blow on our development efforts” he said.
He added, “it simply illustrates the difficulties ahead of our countries, especially in Africa, as a result of our failure to save booming resource revenues for today.”
The last two years have seen many oil producing countries suffer under the heavy weight of declining revenues as a result of the oil price shock. African producers have been the worse hit by this development due largely in part to their less diversified economies, over-dependence on oil revenues, lower tax effort, fiscal indiscipline and corruption among others.
In spite of the lower benchmark prices of crude oil used by most of these countries in their national budgets, they have been compelled to make difficult fiscal adjustments which are not only unpopular with their people, but also affect their macroeconomic outlook.
“This assertion about the need to spend oil money efficiently and responsibly in spite of lower prices is true for our countries today as it has always been during the periods of higher prices,” he said.
Oil governance challenges
According to the Africa Oil Governance Report released by ACEP, governance challenges that undermine the efficiency of spending public funds from resource booming economies continue to persist.
The report, which focused on the 17 members of the African Petroleum Producers Association, revealed mixed results on the state of governance in oil producing countries.
It showed that the mandatory disclosure of oil and gas contracts was still not widely accepted; the right to Free Prior and Informed Consent has not been adopted as a norm, mandatory disclosure of beneficial ownership information remains a challenge; and the adoption of the right to information legislation has still not become widely attractive to our governments.
“These provide the evidence that with a concerted effort by our governments, and with the unending commitment and determination by our citizens to continue to push for the desired governance standards, Africa can make greater progress towards the transformation of our resource wealth to development,” he said.
A communiqué issued by participants after the second Africa Oil Governance Summit said the failure of government to take appropriate actions and measures to address the negative effects of oil price shocks could have adverse implications for the provision of social and economic infrastructure and services to our people.
They, therefore, recommended that African governments should introduce mechanisms for addressing the effects of oil price shocks on the economies and development of African countries through diversification of their economies.
According to participants, government must shift from the overdependence on petroleum revenues; establish sovereign wealth funds with proper governance structures to save for the future; introduce appropriate fiscal rules to stabilise the economy and create backward, forward and side linkages with the rest of the economy.
The communiqué also urged African governments to increase the quality of spending at all times to ensure that budgetary shortfalls resulting from oil price shocks did not affect development.
“To this effect, we demand that governments should spend petroleum revenues efficiently and responsibly by ensuring that there is value for money for projects funded with petroleum revenues,” it said.