Africa: High Oil Prices Bad

As I write the price of oil futures are still above $85 per barrel after a retreat following a high of just more than $90. Ten years back, oil was trading at below $ 30 per barell.

With most African economies being importers of oil, this is a real risk to may African investors, though some many argue that a well-run firm should be able to manage this risk and the value of investment should be unaffected.
While the increase in demand of oil has been mainly ascribed to high demand from the Asian economies, mainly China and India (Chindia), continuation of price increases would in the long-run affect the growth rates of these economies.

Chindia’s growth rates have significantly affected the performance of some African economies, especially those with a strong resource (mineral) base and oil.

A falter in these economies is likely to be a bad omen for most African economies that had seen an increase in export revenues due to higher demand of minerals, oil and other resource products. The bad thing is that Opec does not seem to want to increase production.

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