GPPi fellow says time is running out for Africa’s oil boom

Africa’s oil-rich economies have enjoyed a decade-long boom without sufficiently investing in pro-poor, structural development. But an impending decline in oil prices means that time is running out for the region to make good use of its oil revenue, writes GPPi Fellow Ricardo Soares de Oliveira in an article published by Foreign Affairs on 16 April 2014.

With the shale-gas revolution in the United States and growth slowing in the emerging economies, the price of oil may be facing a decline. If the barrel goes below $60, Oliveira warns, African petro-states may soon encounter a fiscal crisis they are ill-prepared for.

Oil-rich African states such as Nigeria and Angola continue to be led by entrenched elites who lack developmental ambitions or concern for the poor. Instead of being used for pro-poor development, oil revenues have gone towards vanity projects like sports stadiums, shopping malls and presidential palaces. Elite rulers have been siphoning off oil money to offshore accounts so that the principal beneficiaries of the oil boom have been in London, Zurich, New York and Lisbon, not Luanda or Abuja. Although states like Angola have long talked of industrialization and economic diversification, more than 80 percent of government revenue continues to be derived from oil.

If the price of oil falls, Oliveira writes, oil-dependent economies will ​“risk entering a post-boom era with pre-boom developmental challenges virtually untouched by an era of fleeting prosperity.” 

Oliveira suggests that outsiders can play an important role in preventing new oil producers in the region going down the same path – such as Tanzania, Kenya, Uganda and Mozambique. But the window of opportunity to carry out normally slow-moving reforms is closing fast. Whatever institutions and patterns of state-society relations are established within the next five to eight years will define these countries for a generation or more.

“The opportunity afforded by this extraordinary decade was unprecedented and most likely will never recur,” writes Oliveira. ​“Sadly, decision-makers have, for the most part, squandered it… a sense of urgency totally at odds with more patient approaches to reform is needed.”