i^M Wj^gW - ■'■• E/CN.14/AMA/57
>S>y ^a< ■ 1T Ootober 1974
UNITED NATIONS ' Original: BBUSE
ECONOMIC AND SOCIAL COUNCIL
ECONOMIC COMMISSION FOR AFRICA
ASSOCIATION OF AFRICAN CENTRAL BANKS Second Seminar of the Association
of Afrioan Central Banks Addis-Ababa, 5—16 August 1974
IMPACT OF.SHE"ENERGT CRISIS ON TRAIE AND IEVELOPMENT OF AFRICAN-COUNTIES MEASURES TO. BE TAKEN BY AFRICAN CENTRAL BANKS TO CHECK OR MITIGATE . ■
THE AlVERSE EFFECTS OF THE SITUATION
(Paper presented by Bank of Tanzania)
1. When the oil exporting countries steeply escalated the oil prices in October and December 1973, the action inevitably struck hardest at the poor, meaning the developing (and partly industrialized) countries that do not have oil* Hardest hit of course are the poor countries of Afrioa, where also are the majority of the least developed of the developing countries.
For analysing the impact of this action it is convenient to distinguish the countries of the world into four groups: (i) the rich oil-rich countries,
(±l) the rich oil-poor countries, (iii) the poor oil-rich countries and (iv) the poor oil-poor countries. Most of the Afrioan countries fall into
the last category and the remaining few fall in the third category. Thus in Africa we can distinguish between the oil producing African countries (mainly Libya, Algeria, Nigeria and Gabon) and the non-oil producing African countries, comprising of the rest of the 42 independent nations.
2. The steep rise in oil prices has threatened not only current payments of the non-oil producing African countries but also their development plans which had been financed in the past from the joint ourrent surpluses of industrial countries. Besides hurting the chances for additional aid from the developed countries, these countries have to pay for the huge additional bill for oil and oil related products. The magnitude of these payments deficits can be seen in table 1, whioh hi^ili^its the enormous change in the deficits in the trade balance of the non-oil producing African countries.
It will be seen that the combined trade accounts deficit for the non-oil producing African countries will rise from US$700.0 million in 1972 to the projected US$3,738.0 million in 1974. Table 2 shows how the total oil
import bill of the non-oil producing African countries is likely to increase from US$515.7 million in 1972 to US$2,06*2.8 million in T974. Table 3 shows
how the foreign exchange reserves of the African countries have risen over the last 3 years. It will be seen that the reserves of non-oil producing Afrioan countries were only 35.7 per cent of the total in March 1974. Okoseof the oil producing African countries which stood at US$5,177.4 million and
Page 2
accounted for 64.2 per oent of the total, have risen "by US$1,313-3 million in the first three months of 1974. Those of the non-oil producing African countries have instead fallen during the same period. These extraordinary growth rates do not take full account of the 1974 increase in oil revenue in 1974 due to the increase in prices •
3. The chances of financing the payments gap threatening the non-oil
producing African countries look bleak if one takes into account the actions taken so far and the amounts pledged by the only sources of assistance
available - namely, aid from oil producers and additional funds from the IMP and World Bank.
4. The oil producers have not so far channelled much aid to the non-oil producing African countries, Tkelr enormous oil revenues have gone partly to seek high yielding short-term and long-term assets in the world's leading financial centres and partly to increase armaments. The resources they have volunteered to lend to the IMF and the World Bank are small and the amount allocated to the African countries is far too inadequate. Moreover, the money the World Bank can secure either directly from the oil producers or indireotly through the Euro-rmarkets is given on hard terms - at market rates.
Yet, most of the non-oil producing African countries will have no alternative but to be forced into the world capital markets for very large sums, tfbe result of this action on their economies is bound to be very harsh. For one thing, many of these countries are already hear the limits of prudent
indebtedness. Besides, it is one thing to-borrow for a promising investment
which will generate revenues in the future* but quite a different (and dangerous course) to borrow large amounts to cover current consumption,
5» The most obvious result of the. oil crisis is a considerably slow down in the rate of growth of the economies of the non-oil producing African
countries. However, the oil producing African countries (together with other oil producers) have the ability to see that the slow down does not turn into
a serious dislocation of the economies of the non-oil producing African countries. To achieve this, immediate assistance in the form of grants and soft loans is necessary. Then attention can be turned to other medium and
long-term arrangements. .
6. There ir very little the non-oil producing African countries can do
themselves immediately to reduce the adverse effects or their continued dependence on imported oil., Even the future does not augur well for them.
The distribution of world ojil resources are concentrated in very few countries indeed. Out of World proven reserves of around 567.8 million barrels, 61.1 per cent are in the Middle East. The 6*1.1 per cent is distributed as follows:
Saudi Arabia 24,8 per cent, Kuwait 12.8 per cent, Iran 10.6 per cent, Iraq 5.5 per cent, Abu Dhabi 3.8 per cent, Qatar 1.1 per cent, and other Middle East countries, 3.1 per cent. . African countries have 11,9 per cent of. proven world reserves distributed ,as follows: ;Libya 4.5 per cent* Nigeria 3.5 per cent, Algeria 1.3 per cent and other African countries; 2*6 per cent. North America has 8.8 per cent of World proven reserves broken down into United States 6.1 per cent, Canada; 1.7.per cent and Mexico 0.6 per cent. South America has 5-0 per cent: of proven World reserves broken down into Venezuela 2.5 per cent, Equador 1.1 per cent and other South American countries 1.4
per cent. Asia has 2.8 per cent of World proven reserves with Indonesia
accounting for 1.1 per cent. Western Europe has only 2.8 of World proven reserves ak& the socialist countries of Eastern Europe and Asia have 7-.6 per centvwitfcr the' USSR accounting for 6.6 per cent.
-* 7. In relation to World cruder production and consumption, the African countries produce 5.8 unMlion barrels per day,- but consume only 1.1 million
") barrels per day. The Middle East produces 21.4 million barrels per day but consumes only 1,1 per cent; Western Europe produces only t.4; million
"barrels per day but consumes 15-5 million barrels per day. The United,
States produces 9.2 million barrels per day but consumes 17.3 million barrels per' day- South America produces r1.5 million barrels but consumes 3.4 million barrels per day. like socialist countries of Eastern Europe and Asia produce 9.8 million barrels but consume 9.1 million barrels per day. In the case: of Japan production is negligible but consumption is 5.4 million barrels per day* Australia produces 0.4 million barrels per day and consumes about the same amount. Canada produces slightly more than she consumes*
8. The information above reveals the African paradox - viz. although the hardest hit countries are in Africa (wi& the majority of the least developed among the developing), the African region as a whole produces five times more than it can consume. This might suggest a wide scope for co-operation within the region. However,, there are practical problems which have not yet been overcome and which this papej* will discuss later.
9. Recent estimates are that the. steep escalation of oil prices will alone yield aggregate current account surpluses in the neighbourhood of
$60 billion for the .oil exporting countries in 1974. The combined current account deficit for the developed countries resulting from increased cost
of oil imports will be in the region of $50 billion. For the, developing
countries the current account deficit due entirely to increased cost of oil imports will be about % 10 billion - of this the Current account deficit that for non—oil producing African countries will be about $3 billion. Uiilike the industrialized countries the non—oil producing African countries have no offsets in the way of higher exports to the OPEC countries, or the
attraction for surplus funds for investment. Moreover, their oil import and consumption pattern has no "comfort margin" oh which they could out to affect savings. Oil is essential to their plans for economic development and their balance of payments cannot quite obviously stand the strain of the high prices*
10. The phenomenal rise in the monetary reserves of the oil exporting countries will find their way to the developed countries which will be able to increase exports to OPEC countries and attract funds from them for
investment. Thus the richer..will be made richer and the poorest poorer still.
However, the problem does not end there. TEere could be a boomerang effect*
There are simply no investment vehicles or opportunities that can cope profitably and in full with the huge and suddenly rising monetary reserves of OPEC countries. Although some oil expprting countries like Iran, Nigeria and Indonesia have large populations and ambitious development programmes,
these cannot be spee4®cLup at a stroke in the way that oil prices were increased. Worse .still, those.(SfEC countries without large populations
cannot suddenly create the absorptive capacities to handle the vast sums over night. Omnibusly, the most immediate result of the surpluses that will arise may be the creation of a galloping inflation and far-reaching ec'onpmic and social tensions in some of the ;oil exporting Countries. 5Ms fii
Page 4
the need for the oil exporting countries to consider, seriously the short- term difficulties of the non-oil producing developing countries. It would be unfortunate and even more injurious to the world eoonony if the oil exporting countries would feel tempted to restrain oil output in order to keep it in line with their own financial needs. Some Arab states have argued that their oil assets were increasing in value more rapidly in the ground than they would as currency in the bank. However, the danger of "this
is sufficiently clear even to the oil producing countries themselves. The
crucial issue for the time being is how the position of the hardest hit non-oil producing countries is accommodated this year and in the next few years in relation to the unmanageably large monetary reserves of the oilproducing countries*
11» The problems of the non-oil producing African countries do not end with the immediate problem of meeting the cost for oil and oil products.
Afrioa as a whole is largely dependent on agriculture which depends more and more on the use of fertilizers. The fertilizers in turn are dependent on oil and therefore the quadrupling of the oil prices has affected the prices of fertilizers by almost to the same extent. The implication is a reduction in the rate of growth of agricultural output for the African countries and therefore a slow down in the growth rate of their economies generally. Until this problem is overcome it is quite obvious that the economies of African countries will stagnate for the foreseeable future.
In addition all the mechanical equipment used in agriculture are dependent on oil. The steep increase in the oil prices is bound to increase the cost of agricultural, production quite considerably. In Africa, whole transporta tion systems are dependent on oil - whether they be road or railway systems.
There are no such other alternatives as electrically run trains. All these added costs have deep implications on the movement and distribution of
agricultural produce as well as on future agricultural development in Africa*
12. It. is obvious that the problems caused by the current energy crisis go far beyond the capacity of African Central Banks alone to solve them. They require the full, involvement of the Governments, However, oentral banks are in a very special position in any economy. They can give advice to their
Governments on specific courses of action and they can facilitate the attainment of the objectives in relation to that course of action. It is in this light that this paper aims to suggest some broad strategies for action.
13. The oil exporting countries must introduoe some form of preferential price system for the non-oil producing African countries. If this is not possible, some grants will have to be given, coupled with some system of longer term credit facilities. There are several other alternatives that can be offered in case the oil producers find it difficult to have two
price systems for their oil*
14 • An agreement could be worked out through which the African oil producing countries would supply oil to the non-oil producing African countries on
long term credit and at reasonable prices. The non-oil producing African countries would reciprocate "by supplying other goods which the oil producing countries would require ou longer term basis. Moreover, the oil producing countries are.likely to experience considerably stronger growth in; their GNPs resulting into a strong demand for imports. This means that these countries will considerably increase their capacity to import raw materials
and other products. Opportunity cculd be taken to work out jointly an arrangement on how the oil producing African countries can increase imports from the non-oil producing African countries.
15« In the longer term the African non-oil producing countries shuu3d consider developing alternative Eources of energy, particularly hydro— • electricity where the potential is known to be enormous. Coal resources,
>&3rsthey exist, would have to be developed also. One of the most important effect of the oil crisis is that most of the non-oil pioducin^ African
countries will be forced to change drastically their development planso They will be forced to alter their priorities and embark on ways of seeking alternative sources of energy. The oil producing countries should consider giving long—term loans on preferential terns to enable the non-oil producing African countries to develop alternative sources of energy,
16. This is the moment when the imagination of the Governments of the oil producing and the1 non-oil producing African countries can rise to the challenge sjid effect the African dre&jn of economic .co-operation.
Page 6
/
Table 1: Trade Balance Deficits for Non-Oil producing African Countries
(See tables 2 & 3 for 2ones)
(Millions of US Dollars)
1974 Exports
1974 Imports
Oil fton^Oil Total
Trade Deficit
1972 1974
Eastern Zone ! 2,870
I
Western Zone I 2,450
i
Northern I 2,598
1
Central Zone I 1,170 1
i
620 ! 3,630 ! 4,250
457 I 1,384 i 2,841
! !
729 ! 3,132 ! 3,861 258 ! 1,616 ! 1,874
I
- 352
+ 59 - 297 - 110
1,380 391 1,263 704
Total 9,088 2,064 ! 9,762
I !
12,826 < - 700 ; - 3,738 J
1
w ^_ ^^ ^ >• ^* ^E ES Cl S* ^B «^ •— ^— ^" ^~ — *S ^— ^— ^— •■ ^» ^» ^" ^™ ^" ^" ^" "" ■*■" ^^ "■ ^" ^^ *^ •™I ^~ ^^ ^~ ^~ ^~ »— ^^ ■" ^~ ^™ ■*■ "•' ^^ ™* *
Source: Derived from Tafcles of Exports and Imports for each Country within the four zones
Table 2: Oil Imports (Petroleum Products) By countries ~
(Millions of US Dollars)
Countries I967 1968 1969 1970 1971 1972 1973 1974
Eastern Zone Ethiopia Somalia Kenya Uganda Tanzania Malawi' * Zambia Lesotho Swaziland Botswana Madagascar Mauritius .
*O*al :,.,,
Western Zone Ghana
Nigeria
Sierra Leone Gambia
' Ivory Coast 'Senegal
Guinea* '
Upper Volta*
. Mali Liberia Togo
Mauritania Dahomey
12.42
• 2.08'
35.60
* 1.50
■14.71
• -2.80
•17-57
9.18.
5^25 101 ./11
18.00 11.45 6.49
O.74 14.34
■■\ -
<\-
2.33 2.59 8.02
■ 2.13:
1.84
10.68
• 1*95
■36.36
•"'1.69
■18.63 - 3-74 -18.58
-
10.21
6.35
108.19
20.71 40,30
6*75
O.67
;. 16.71
' '5.49
2.71
2.64 8.23
2'59 2.47'
2.27
11.08
■ 2.62 35-83.
- 6.56 19.24 - 3.99 20.66
•
.11-75
5.6O 119-31
22,07 42.90 6.81 0.60 17-38 '14.78
3.26 3.41 4.60 2.77
1.86
.13.33 2.80 .'40.96 - 1.11
21.92*
• 4.37
= 20.85
.■
■,
; 12,22 5.26 122.82
23.10
29.65 5.37 0.63
18.39
9.55'3.77 3.98 : 9-32 3-80
3.7&
2*36
14.97
" 3*45
35-83 2. 7 29.26
■ 9-61
■22.11
.15-54 4.79
138.53
' ■ ■ *.
24/40 1,1.53 v,4'-5O 0.61 19.29 13.53
■' - '■
; 4-45
;v4*89 :1-2-27
6.14 3-74 2-4117-41
• 4-08.
36.15-
■. 4.11- ,32.45.
,15-53;
;-22,8Cl
'-
. 17.98 4.43 155-02
25^66 8.60 ... 3..88 0.62 20.32
■; 13.96 -'""-* '. -.,
5-20 c
'20^51-- 5^6
■' 9-16, 3.64
2 ."76
29.60 6.94;
.61.46
6.99
46.38 .26.40 38,9030.57 7.53
254.71,,
43.62
—
6.60 ;
.1.05v-•^34^$4 '
•"'■ 8^84r/
;'i?'-i3
34.87 , 15-57
6.19 -
4/69
69.64 16,32.; _.,,.ji
i6-44-
12=9.80 62>;12 91.52
■"■■;'-.;f-
71^2
17.72 620.08
r
102.64
—
15-52
'2.48 81.28 55-84
20.80 23.84
82.04
36.6414.56
11.04 /2...Page 8
/
Table 2s
Countries
Niger
Bisau*
Total
Northern Zone Koroooo Tunisia Algeria Egypt Sudan Libya Total
Central Zone
Chad Cameroon Central
A.Republic Gabon
Congo Zaire Rwanda
Burundi*
E.Guinea1
Total
Grand Total
Oil imports (petroleum products)
1967
2.67
59-15
23.37 3.19 8.68 48.65
8.35
15.49 83.765-45
-
1.89 3-94 4.81 14.12 1*22
27.49 271.51
1968
2.26
74.50
31.08 3.36 7.15 42.37 13.69
18.17
90.50
5.48 10.76
1.68 1.08 2.41
16.45
1.4138.19 311.38
1969
2.01
79.55
30.56
5.69
10.51 ,44.5125.30 20.62 106.06
7.50 11.62
2.92 1.14 2.46 21.30 1.50
47.30 352.22
1970
2.24
86.29
34.66 8.50 12.23 61.61 25.92 16.73 130.69
8.58 12.71
0.42 1.04 1.15 21.87 1.59
46.32 386.12
by countries (00
1971
2.24
98.47
42.73 7.00
16.75
75.00 25.61 22.51 150.34
11.45 15.08
0.39 1.02 2.52
25.39 1.69
56.52 443.86
1972
2.37
114.04
50.57 8.11 21.22 97.56 25.93 24.28 182.17
14.19 17.19
0*36 0.97 3.17 27.77 T.79
64.47
515.70 at'd)
1973
4.03
211.79
85.97
36.07 I65.85 44.08 41 -28 537.36
24*12 29.22
0.61
-
5.39 47-21
3-04
109.59 1113.51
1974
9.48
456.16
202.28
-
84.88 390.24 103.72 97.12 728.68
56.76 68.76
1.44
-
12.68 111.08 7.16
257-88 2062.80
Totals exclude figures for the oil imports of major oil producers, i.e.
Nigeriar Algeria, Libya and Gabon
#ot available
Data for 1973 is estimated} data for 1974 is projected assuming 1972 consumption levels.
TaDie j : ±±
Countries
—. — i i. ■' '
Eastern Zone Ethiopia Somalia Kenya
Tanzania Uganda
Malawi Zambia Lesotho Swaziland Botswana Madagascar Mauritius
Total
Western Zone Ghana
Nigeria Sierra Leyne Gambia
Ivory Coast Senegal Guinea Upper Volta Mali
Liberia Togo
Mauritania Dahomey
(For Monetary Authority Only)
1971
■ —-—^^—-m«**—W—
68.3 27.7
171.0
60.3
-
31.9
283.5
: -
-
-
45.2 51.7 T39.6
47.7
432.0
38.4 10.9 89.4
29.3
-
43.0 2.1
—
40.5 7.6 24.6
(Millions of US ;
1972
92.7 31.3 202.1 119.6
—
36.2 164.8
—
—
—
51.2 76.7 774.6
107.4 385.O 46.4 12.8
&7.2
38.5
—
47.5
3.8
—
36.5 13.5 28.4
1973
176.8 35.0 233-6 144.6
•"*
67.O 192.6
^m
mm'
mm
67.1 66.8
. 983.5
I89.O 592.0 50.4 20.2
88.4
. 12.1
™ .
62.6
—
—
37.5
42.0
33.1
Dollars)
1974-Maroh
— " "■
201.7 35-0 237.9 127.8
68,0 219.2
47.5 67.4 1,CC4«5
139.6
1,230.0
57.6 .
19.4
IO5.7**
12,3**
64.9**,
38.f^
sat46.(f*
23.9^
Page 10
Tablo 3; foreign exchange position by countries (cont*d)
Countries 1971 1972 1973 1974-March
Niger 33*6 41.3 50-6 45-8* |.;
V
3issau - ™ - — 1
Sub-total oil producing countries 432*0 385.0. 592.0. 1,230.0 j *
Sub-total non-cil producing countries 367-1 46j»3 5^6*1 553-9 !
Total .. . ... 799.1 848.3 13178.1 1,783*9
Northern Zone
Morocco 174o0 237-0 267.0 244»0
Tunisia 147-9 222.7 307-3 332.8
Algeria* 506-0 493.0 1,134.0 1,416*0
%&£+ 167.0 153.0 442.0 • 416*0
Sudan ■ 27.9 35.6 44.9 27.9
Libya* 2,666.0 2,925-0 2;127-0 2,478.C
Sub-total oil producing countries 3,172,0 3,4186O 3,261.0 3P894»O Sub-total non-oil producing countries. 516*8 648.3 1,06*1.2 1,020,7
Total. 3,688*8 4jO66.3 4,322*2 4,914*7
Central Zone
Chad - 11.2 10,1 1.5 0+9**
Cameroon 73*6 43.6 51.2 59*45fiG
Central ^Republic , 0.2 1.7 1.6 1.9**
Gabon2 23.2 47-9 11-1 53.4**
Congo 10,8 10.3 7-9 8.9**
Zaire • 145.6 178.4 234-6 194-9
Rwanda ' 7<»7 6.4 15.6 15-1
Burundi 18.5 21.7 18.8 22,9
E,Guinea ' — — — —
Sub-total oil producing countries • 23*2 47»9 11-1. 53-4 Subtotal con-oil producing countries 267.6 272«8 331.4 304»0
Total 290*8 320.1 342.5 ■ 357-4
Grand total for oil-producing countries 3,627<,2 3,850.9 3,864*1 5
Grand'total for non-oil producing ■ , '
^nn+-r3»R 1,891.1 2,158.4 2,962.2 2t883.1
Grand total 5,518=3 6y009o3 6,826,3 . 8",060.5
Oil producing Countries
Figure3 are for January or February
