By Alistair Thomson and Daniel Wallis

27-05-04

Soaring crude oil prices are rattling nerves across Africa as some of the world's poorest economies struggle to absorb prices near historic highs, according to finance ministers and economists. Oil prices have hit record highs on concerns that supply is unable to meet soaring demand, coupled with geopolitical tensions.

"There's no doubt the overall effect for Africa is negative for both importers and exporters," Standard Chartered's Africa economist, Razia Khan, said on the sidelines of the annual meeting of the African Development Bank in Uganda.

Economists fear higher fuel prices will raise the production and transport component in the cost of goods, driving inflation and putting a damper on upbeat forecasts of 4.3 % growth in African economies in 2004, which are based on "moderate oil prices".
"I'm very worried about this," said Tanzania's finance minister, Basil Mramba.
Tanzania, which used to meet all its power needs from hydroelectricity, had been forced to switch off generation last November because of drought, leaving it more dependent on imported fuel, Mramba said.

"Fuel prices have already increased across the country, which means the price of goods and services could also increase, which could cause inflation. This is not good news for the economy."

Several African economies have received a boost as long-standing concerns over Middle East security have led oil majors to look for alternative sources of crude, especially in west Africa's oil-rich Gulf of Guinea.

Ngozi Okonjo-Iweala, the finance minister of Nigeria, the region's top producer, said the country had accumulated nearly $ 1.5 bn (R 10 bn) since the beginning of 2004 in a windfall profit because the oil price had been above the $ 25 a barrel level assumed in Nigeria's federal budget. However, she noted the damage being done to other African economies.
"Whenever we have these high oil prices it impacts on the weaker economies more. Sometimes they come to us for little loans," she said.

Khan said exporting oil did not entirely insulate oil producing nations from the inflationary pressures of high fuel prices.

"Even in the case of Nigeria, a big oil exporter, it still imports most of its refined products," she said, adding that high oil prices could threaten anti-corruption work in exporting nations as more money meant more temptation. Also, among exporters there is a huge push for reform and there is an expectation that higher oil prices will delay those reforms," she said.

But the continent's biggest economy, South Africa, which has successfully brought inflation within its target range, had escaped the ravages usually associated with high oil prices, despite price hikes at the fuel pump, Khan said.

"South Africa has long been recognised as a major oil importer, and the rand has traditionally been pressured by high oil prices. This time the rand has not been under pressure. The question is whether we will begin to see that, and whether that leads to inflation," she said.

Source: Business Report