ACEP Wants Gov't To Transmit Lower Oil Prices To Support Industries, Consumers
Africa centre for Energy Policy (ACEP), has recommended that government should transmit lower oil prices to support industries and consumers of petroleum products due to the coronavirus hit on economic activities.
In order to support and save industries from collapsing while also ensuring that consumers of petroleum products are not overburdened, ACEP says, Governments should ensure the transmission of lower oil price.
Explaining why this is necessary, ACEP in a statement signed by Executive Chairman Benjamin Boakye said: “In Africa, the effect of the COVID-19 outbreak could be harsh for emerging SMEs and industries that are struggling to compete in the global space. Increased unemployment as a result of layoffs on the back of the pandemic is possible to occur. In a low oil price era, the temptation for many countries could be to increase taxes on downstream consumption to offset the revenue losses upstream.
It added, “This will be injurious to many businesses in Africa, particularly in the face of inadequate incentives and stimuluses compared to the developed countries. A full transmission of the lower price of oil is therefore required for businesses and consumers in general to boost economic activity. This minimizes production and service delivery costs to reduce the burden on consumers”.
The energy think thank has estimated that Ghana’s projected revenue at the end of 2020 will drop from $1.567 to $743 million, causing a revenue loss of 53 percent.
To additionally minimize the effect of the Coronavirus pandemic on Ghana’s economy, ACEP has recommended the following as well:
- A new budget that accounts for the extraordinary drop in oil prices is required for oil producing countries in Africa. It is encouraging to see that Algeria has already recognised this fact and is preparing a supplementary budget that will help manage the effects of low oil price. This also recognises that a mid-term budget will be too late for many countries to accommodate the full effect of oil price drop and the impacts of COVID-19 outbreak on the national budget.
- In future, governments must implement significant countercyclical mechanisms. An option will be for governments to have stabilisation funds with adequate buffer that is capable of smoothening significant shortfalls in the budget. Also, hedging portions of oil outputs will minimise the impacts of oil price volatility on national budgets.