Wistful Oil Spending To Stagnate SDGs In Africa

Dr. Mohammed Amin Adam

The Executive Director of Africa Centre for Energy Policy (ACEP), Dr. Mohammed Amin Adam has expressed worry that Africa is more likely to experience negative progress in the 15year United Nations Sustainable Development Goals (SDGs) as oil resource producing countries failed to save booming resources for difficult times.

He said the next recovering in oil prices may not likely to impact positive in the progress of the SDGs in the current oil price shocks because of the failure by African governments to meet the numerous targets in the past Millennium Development Goals (MDGs) during the boom periods.

Dr. Amin noted that history has shown that in spite of the oil and mineral price boom of the last decade, most of Africa including many oil producing countries failed to achieve the Millennium Development Goals (MDGs).

He indicated that this period has variously been described as that of a wasted development opportunity.

“Is it therefore safe to predict that the next boom if it happens at all will also be wasted even as we increase the development targets from the MDGs to the SDGs?” he intimated.

Dr. Amin Mohammed Adam said this at the opening ceremony of the Africa Oil Governance Summit 2016 held in Ghana under the theme, “ Rising Through the Rubbles of Oil Price Shocks-Strategies for Inclusive Growth and Sustainable Development” organised by ACEP.

He added that failure to manage the effects of oil price volatility and particularly long periods of lower prices, could land a devastating blow on our development efforts.

“It simply illustrates the difficulties ahead of our countries especially in Africa, as a result of our failure to save booming resource revenues for today,” he stated.

Dr. Amin emphasised that the last 2 years have seen many oil producing countries suffering under the heavy weight of declining revenues as a result of the oil price shock.

He added that African producers have been the worse hit by this development due largely in part to their less diversified economies, over-dependence on oil revenues, lower tax effort, fiscal indiscipline and corruption among others.

In spite of the lower benchmark prices of crude oil used by most of these countries in their national budgets, Dr. Amin noted that they have been compelled to make difficult fiscal adjustments which are not only unpopular with their people, but also affect their macroeconomic outlook.

“For some countries therefore, the oil price crush provided room for the introduction of tough fiscal measures. For example, the government of Nigeria, in its 2016 Budget, outlined a plan to increase taxes and remove fuel subsidies. The government of Ghana imposed new taxes and levies on petroleum products and electricity, and withdrew subsidies from petroleum,” he stated.

According to him, there are many others who are still faced with policy dilemmas whilst their economies are suffocating from the oil squeeze.

Dr. Amin said the governance challenge is that the competitiveness of oil companies declines and there is potential for companies to demand a water-down of strict standards when negotiating new contracts as some companies consider such standards as cost premia.

He added that the attractiveness of oil producing countries declines forcing them to relax high governance standards as a way to attracting investments from investors that are opposed to open governance rules.

In this situation, Dr. Amin posited that investors who are weakened by the diming prospects of making supernormal profits but who are strengthened in their negotiation positions against broke governments, exploit these vulnerability to further demand lower fiscal terms, exposing these countries to budgetary shortfalls and imposing thereby unpalatable consequences on the public well-being.

According to him, in both instances, governments are likely to slow down governance reforms such as open contracting standards, the adoption of open and competitive bidding, disclosure of beneficial ownership, higher environmental standards, etc.

He intimated that these fiscal measures are no doubt hurting the citizens and have put pressure on our incomes and living conditions.

“Our governments call this “austerity” or as it is often said in Ghana “tightening your belt”, he stated.

Addressing the conference, Dr. Amin concluded that the relevance of diversifying our economies from oil dependence, the need to improve on our tax efforts to match with the potential of our economies, the importance of fiscal rules and fiscal responsibility legislations, and above all the development of good governance structures; are certainly not new to us.

He however indicated that the issue at stake now is how do we implement these measures? What strategies do we have to adopt to achieve the desired results?

Dr. Amin said he has no doubt that the experts from Ghana, Nigeria, Mauritius, Kenya, Sierra Leone, Tanzania, South Africa and others gathered at the two day conference will show us the way.