Oil price good for us, not so much for Africa
During his keynote speech at Ipsos’ 40th Anniversary celebration, independent economist, Cees Bruggemans, outlined the pros and cons of the decrease in the oil price in terms of our economic prospects for 2015 – 2016.
The price of oil has a direct effect on South African consumers and businesses – upping their purchasing power by about R100 billion, says Bruggemans. This in turn has a positive effect on the possible growth of our economy.
The major game changers for the South African economy, as cited by Bruggemans, included the positions of central banks and the oil price and demand for oil. The Fed – the US central bank – is set to bring about very orderly policy normalisation and thus should not have a negative effect on South Africa as it seeks to tighten control. Bruggemans believes that “the huge liquidity injections will keep yield seeking alive and support capital flows into South Africa, keeping our conditions stable”.
In addition, after a generation of high-priced oil, we can now expect a boost in consumer and business buying power with what appears to be a long term reduction in oil price (although some of this windfall has since been lost ).
With the oil price and position of central banks being the positive forces on the economy this year, there are other factors that will work to slow down South Africa’s performance in 2015. At the top of this list is the pressure on the electricity supply and its effects on productivity and business investment and confidence. Strikes and labour unrest will again contribute to lower output and therefore also negatively impact our growth. There is also the issue of slow demand growth for our exports – an issue compounded by our electricity and labour woes.
Beyond South Africa, Bruggemans addressed the economic prospects for the rest of Africa – speaking mainly about the effects of reduction in the oil price on energy based industries. The effect of the oil price reduction likely has a negative effect on what has been a period of great growth for Africa over the last 10 – 15 years.
Unlike previous periods with a reduced price in oil, this is set to slow down the growth of Africa due to a prolonged oil windfall. This is largely because most of the countries – mainly in West Africa, but also in East Africa – are heavily reliant on energy based commodities. Those countries with greater diversification should not be as badly affected, says Bruggemans, mentioning Botswana, Uganda and Kenya as examples.
Bruggemans concluded that while the South African prospects are looking up (with obvious threats to our performance in the form of restrained power supply and labour unrest) we are still not reaching long-term potential of 5% growth. However the advantage in the form of a decreased oil price, allowing us some respite this year will unfortunately be Africa’s weakness for the foreseeable future.
