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Africa’s Oil Emergency

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View graph showing a breakdown of the effects of higher oil prices:

Throughout the world, high oil prices are hitting consumers and economies hard, but the impact is most severe in sub-Saharan Africa. According to estimates from the International Energy Agency, the economies of oil-importing and debt-burdened countries in sub-Saharan Africa are impacted ten times as much as the United States. For every $10 increase in the price of oil, they lose more than three percent of GDP.  

As a result, many of the relative gains of the hard-fought debt relief provided over the last decade are fast being eroded. Since 1996 the Heavily Indebted Poor Country Initiative (HIPC) has provided significant debt relief to 29 countries, most of them in sub-Saharan Africa. In the world’s poorest countries, debt savings are being invested in national health and education programs, but it is precisely these countries that are suffering the most from the new budgetary constraints caused by skyrocketing oil prices.  

In Ethiopia, a country that has benefited substantially under HIPC, the cost of importing fuel doubled in 2005 to $669 million, or six percent of the country’s GDP, according to the IMF. This year the increase in cost of importing oil will exceed the budgetary resources freed up by debt relief by 20 percent.   

As the data in the accompanying chart illustrates, some of the poorest countries in sub-Saharan Africa, many of them 100 percent dependent on oil imports, are spending far more on the increased cost of oil than they are on social programs that target the root causes of chronic poverty. Mauritania, for example, will spend more than 20 times the equivalent of its debt savings on the increased cost of oil in 2006, four times what the government expects to spend on education and health care combined. Guinea-Bissau will spend the equivalent of 12 percent of its GDP on the increased cost of oil, twice as much as what it will devote to health and education. And these figures — based on the assumption that the average cost of oil this year will be $60 a barrel — represent conservative estimates.   

While increased aid to Africa, HIPC, and the other debt relief programs signal the international community’s increased willingness to invest in Africa’s economic future, we cannot afford to rest on our laurels. When energy security is discussed at the G8 meeting in St. Petersburg this July, it is critical that world leaders address the disproportionate impact that high oil prices have on the developing world. At the very least, they must commit to reducing this impact by helping developing countries to diversify their energy supplies away from oil and toward more affordable and sustainable alternative fuel sources.  

View graph showing a breakdown of the effects of higher oil prices:

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