…Toward new imperatives for natural resource diversification
Humanity is witnessing some of the most profound changes seen since the Great Depression. And, again, it is the vulnerable among us who will suffer the worst consequences. We are out on a limb, witnessing the most disruptive global transformational mutations observed in the past 100 years.
Several parallels can be drawn between today’s coronavirus and Albert Camus’ 1947 classic La Peste – translated as ‘The ‘Plague’, set in Oran, Algeria. Truly, this new coronavirus pandemic, COVID-19, bears an eerie resemblance to Camus’ plague. Written at a time just prior to the Nazi invasion of France, his rather trenchant narrative that ‘we are all living through a plague’ has disturbing prophetic resonance. But perhaps the strangest parallel is Camus’ analysis that “…plagues and wars take people equally by surprise”.
Indeed, the fact is that the current pandemic has exposed our relative unpreparedness in the face of a global public health crisis of such magnitude, with many countries across the globe caught off-guard. Africa is often singled out as a continent used to being caught off-guard, especially as a result of its chronically weak health infrastructure and high reliance on global value chains.
The current crisis has significant implications for several sectors important to the development of African countries, not least the oil sector. Perhaps the greatest irony of it all is that fossil fuels – long-blamed for the environmental stranglehold exacted on several climate-sensitive sectors – are now being left in the ground due to price volatility and depressed demand. Refineries around the world are processing less crude oil. Indeed, one of the main polluting sectors has found itself on its knees as a result of reduced aviation and transport–related traffic as well as draconian measures to contain the coronavirus. Oil prices are at the lowest recorded in the past 18 years – driving global demand down, pushing the globalised world economy into a recession, and creating new trends.
Raw materials make up one-third of Africa’s export proceeds. Africa is a carbon market risk taker, as is evident in the recent fallout between Saudi Arabia and Russia that led to the drop in oil prices before the mighty blow from coronavirus struck oil consumption.
Oil exporting countries in Africa, not least Angola, Algeria, Nigeria and Libya, will become the main casualties, given their high dependency on hydrocarbon proceeds to balance their books. And as if this was not painful enough, the drop in oil prices is simply one of the many reverberations that African countries will face, long accustomed as they are to having a poor immune system and, despite impressive strides in economic growth, not becoming resilient enough to move beyond the proverbial ‘resource curse’. For instance, countries like Nigeria and Angola need the oil price to be around US$60 per barrel to balance their budget; but with the current price plummeting below zero, they are facing a grave economic crisis.
Depreciation of African currencies will create new complications for countries which are compelled to import heavily to maintain food supplies. In addition, even with a well-endowed resource base, many countries are subject to a history of predation and have remained vulnerable to the vagaries of exogenous shocks.
Even the most optimistic forecasts convey a world economy in distress, with global economic growth being halved to 1.5 percent (OECD figures); almost certainly triggering a world-wide recession. The UN Economic Commission for Africa (UNECA) predicts that annual growth will drop to 1.8% from a previous estimate of 3.2%. Oil-dependent countries such as Angola and Nigeria could lose up to US$65billion in oil-related incomes as a result of falling oil prices exacerbated by the current COVID-19 pandemic. The drop in oil demand combined with the crash in oil prices is already affecting exports. As of March 4, about 70 percent of the April-loading cargoes of crude oil from Angola and Nigeria were still unsold.
Whether there’s a quick or long recovery, resuscitating the world economy will require strong leadership and a keen eye kept on macro-economic fundamentals. Trade forecasts for other hydrocarbon-sensitive economies such as Gabon, Equatorial Guinea, Algeria and Chad – to name but a few, will be bleak.
Mature oil-established economies such as Nigeria and Angola rely on oil revenues for close to 70% of their national budgets. This absolute dependence on natural resources means that many countries are at the mercy of the world economy and dwindling commodity prices – their economic rents are predicated on prevailing trends of commodity goods; and when public health crises of pandemic scale strike, this reduces foreign exchanges reserves, compromises social spending and derails hard-won sustainable development achievements.
Africa faces a triple challenge of transition toward energy security, moving toward a low carbon emissions pathway, and charting a growth and transformation plan that will have to lift millions out of poverty. The coronavirus has made more apparent the vulnerabilities of highly dependent economies on hydrocarbon resources and the associated carbon exposure risks.
The United Nations University’s Institute for Natural Resources in Africa (UNU-INRA) research on stranded hydrocarbon assets, intended as an alert to mineral-rich countries, discusses in a widely circulated paper the strong likelihood of asset ‘stranding’. Stranded assets are ‘assets that become devalued before the end of their economic lifetime, or can no longer be monetised due to changes in policy and regulatory frameworks, markets forces, societal or environmental conditions, disruptive innovation or security issues’.
This paper was intended as a primer to send a message to African leaders, especially in oil and gas-rich countries, that if global economies move to a carbon neutral world wherein fossil fuels became the principal enemy, then Africa will need to look at new economic activities and markets. It signalled that with a growing number of companies and shareholders divesting away from fossil fuels, Africa may have to manage its exit from the sector to avoid potential jolts which economies might succumb to if severed from the main resource artery and deprived of fossil fuel proceeds.
The study showed that even in some emerging oil and gas countries, the proceeds of oil and gas are being strategically employed toward important safety nets – such as Ghana’s Free Senior High School policy. Today, given plummeting oil prices, there is little wonder that many African economies will be left severely wounded.
It is becoming increasingly urgent for African governments to diversify their economies and create other forms of growth poles beyond their natural resources. This pandemic, as unwelcome and untimely as it is, sends strong signals for Africa to move rapidly toward promoting diversified economies – given the vulnerability of the fossil fuel market, and the length of time it will take for Africa’s oil exporting countries to nurse themselves back to full recovery.
Climate change may not be the top priority of African governments in the post-coronavirus world; however, economy and ecology are two faces of the same development coin. Hydrocarbon resources are metaphors for greater resource planning and an effective strategy for African economies to enable a transition that results in a new model of growth.
Indeed, Africa’s energy deficit makes the energy sector an essential muscle in its growth and transformation plan; but at the same time, it says to African leaders that business as usual post-pandemic is tantamount to reinforcing widespread economic hardship. Recovery from this industrial scale depression must recognise the vulnerability of Africa’s resource base and the need to ‘stockpile’ new diversified economic alternatives in order to reboot the economy.
There are new predictions that the current pandemic will derail achievement of almost all the sustainable development goals. In Africa, where leaders are struggling to square the sustainable development circle and also manage onerous debt repayments, new health vulnerabilities in known hotspots will leave many economies gasping for breath.
With global economies heading toward a cliff-edge, Dr. Rieux’s famous ‘common decency’ retort in Camus’ Plague will go a long way to ensuring African economies are not given a wide berth or left to go on an indefinite social distance tour. Rather, the post-corona era should start with critically revisiting old paradigms and taking bolder moves toward diversification of natural resources. But, for a continent that has not had its share of the carbon budget and not exercised its full sovereignty vis a vis energy choices, adopting new perspectives on energy futures can be considered as enlightened self-interest. As the Ethiopian Prime Minister advises: “… if the virus is not defeated in Africa, it will only bounce back to the rest of the world”.
Fatima Denton is the Director of the Institute for Natural Resources in Africa at the United Nations University, Ghana.