This year has seen policy-makers reassess their responses to the impacts of renewables and distributed (off-grid) technologies, while analysts focus on how changing consumer behaviours could radically change the global energy industry. Conservative development finance institutions have bought into the ‘off-grid revolution’ – underlined by the World Bank’s decision to end decades of support for upstream oil and gas projects – and even the most petrol-headed of oil majors have changed their traditional tone, highlighted by ExxonMobil’s 11 December announcement that it will start publishing reports on the possible impact of climate policies on its business. But in many African capitals there is still only one figure that really counts: the crude price, which at $65/bbl is feeling healthier than for several years.
The world may be living through an energy transformation, but the signs are that most African oil and gas producers are emerging from the 2014-16 slump much as they did from previous recent episodes of commodity revenue decline. The International Monetary Fund (IMF)’s most recent Regional Economic Outlook emphasises the benefits of economic diversification and fiscal discipline, but observes that one-off factors – “particularly, the rebound in Nigeria’s oil and agricultural production” – were mainly responsible for the expected increase in regional GDP growth from 1.4% in 2016 to 2.6% this year. The IMF points to some progress in economic diversification and performance, notably in resource-poor smaller economies. It reported that “some progress has been made to address the policy inertia” in Central Africa, where “most hard-hit oil exporters have embarked on adjustment programmes to facilitate economic recovery” (AE 354/21). But it was higher oil that did most to push up growth.
“While 15 out of 45 countries continue to grow at 5% or faster, growth in the region as a whole will barely surpass the rate of population growth, and in 12 countries, comprising over 40% of sub-Saharan Africa’s population, income per capita is expected to decline in 2017,” the IMF said. Growth is expected to continue its slow recovery in 2018, at around 3.4%, “but will likely remain flat in 2019, and well below the levels achieved earlier in the decade”. The Fund said the increase “will be driven by a few one-off factors, including the expected full-year effect of the recovery in oil production in Nigeria, which started in 2017, and, to a lesser extent, the long-anticipated coming onstream of new oil fields in the Republic of Congo and Ghana.”
With the oil price still the critical variable for Africa’s oil and gas producers, forecasts that crude prices are likely to maintain their 2017 levels or even rise a little more as global growth picks up are very welcome news. Markets will be watching closely for the impact of other variables such as Libya’s ability to maintain output near 1m b/d and its reinsertion, along with Nigeria, into the Organisation of the Petroleum Exporting Countries (Opec) quota regime. Other indicators include Russia’s willingness to maintain its production-cutting pact with Opec as President Vladimir Putin enters another election year, China’s consumption of commodities as the global economy enters a new phase of growth, and the progress of electric cars and other ‘disruptive’ technologies.
Higher prices are likely to be accompanied by announcements about final investment decisions but there is no room for complacency. In its analysis of the economic diversification needed to boost growth and jobs, the IMF observed that its “strongest finding” was that “a high share of oil exports in total exports is matched by lower economic diversification. Natural resource endowments, when developed, do hold back diversification.” Among its other findings is that: “Infrastructure, here measured by access to electricity, is linked with higher economic diversification”. Whether a resource curse or driver of change, energy holds the key to Africa’s future. Higher oil prices may help to balance producers’ budgets, but they do not in themselves hold the key to a more sustainable, prosperous long-term future.
- Browse our subscription options.