Tuesday, April 05, 2016

You Could Almost Substitute "Alberta" for "Africa"

Foreign Policy magazine on the plight that has befallen Africa's petrostates. It does sound just a little familiar.

Africa’s petrostates are crashing hard. A cool $115 in the summer of 2014, a barrel of Brent crude, the international pricing benchmark, now fetches below $40. And having failed to build massive foreign exchange reserves like Saudi Arabia or other Gulf monarchies, African oil exporters are now being forced to grapple with depreciating national currencies, mounting inflation, and deep cuts in government spending.

Some of these states are now dangerously unstable, staring down popular unrest or domestic insurgencies that left unaddressed could set them back years, if not decades, in development terms. The “Africa rising” narrative, built on climbing income levels and an emerging middle class on the continent, is now under strain.

But instead of across-the-board decline, Africa is witnessing a gradual shift in the continental balance of economic power — away from petrostates like Nigeria and Angola and toward less flashy but more diversified economies like Ethiopia and Tanzania. After decades of lavishing attention on the oil-powered economies of West Africa, investors are now flocking to the economies of East Africa, which have demonstrated their resilience to lower commodity prices and challenged outdated perceptions of Africa as resource-dependent and burdened by irredeemably poor governance.

...And Nigeria is not the only African petrostate on the brink. The continent’s second largest oil producer, Angola, has also felt the sting of plummeting oil prices. No other petrostate in Africa — perhaps not in the world — benefitted from the dramatic surge in oil prices over the past decade as much as Angola. Emerging from a devastating civil war in 2002, the West African nation watched the price of crude rise more than three-fold at the same time as its production doubled to nearly 2 million barrels per day. Between 2002 and 2014, the country generated a staggering $468 billion from its oil industry.

But the petrodollars were squandered. Pervasive corruption within the ruling party and a construction boom in the capital, Luanda, that ignored the rest of the country did little to develop other sectors of the economy or reduce Angola’s dangerous dependence on oil. When the bottom fell out of the oil market last year, the government was forced to slash its budget by 25 percent. Meanwhile, the loss of thousands of jobs, rising fuel and food costs, and a recent yellow fever outbreak have engendered popular resentment toward the ruling elite.


Toby said...

"But the petrodollars were squandered."

With the exception of Norway, that seems to be the rule with petro states.

The Mound of Sound said...

Yes, it does. Taking royalties into general revenues promotes a mardi gras mentality in government fiscal planning. It always seems to end the same way.