Thursday, December 3, 2009

Oil and Gas in Africa: Channelling Natural Resources for Growth

Africa’s natural resources (especially oil, gas, and metals) and the wealth they generate are more important than ever before as nations on the continent strive to accelerate progress towards achieving the Millennium Development Goals (MDGs). Considering the continent’s significant oil and other natural resources—and the decades of resource exploitation—the gains in terms of economic growth have been modest. In other words, resource abundance has not translated into improved livelihoods and increased welfare, implying that thus far, African countries have not been able to fully take advantage of their natural resource endowments. Yet, natural resources constitute an asset for lifting the poor out of poverty, provided an appropriate strategy to harness these resources is established.

The Bank has developed a new open-economy macroeconomic model to quantify the impact of high oil prices on oil-importing and oil-exporting African economies. The results of the model suggest that high oil prices have very harmful effects on African oil-importing countries, especially those that are heavily debt-burdened. Rising oil prices lead to a decrease in output and consumption, and worsen their net foreign asset position. However, this recessionary effect can be cushioned through government intervention in the form of limited pass through of the oil price increase or through foreign aid. The Bank has just published, in collaboration with the African Union Commission, a new book entitled Oil and Gas in Africa that provides a rich discussion on this important development challenge.