How poor nations ride high oil
prices By Thalif Deen
UNITED NATIONS - Contrary to expectations,
the sharp increase in world oil prices has not had
any devastating consequences on the fragile
economies of the world's developing nations,
according to a recent UN report. "Oil prices are
expected to remain high in the near term, and the
impact on growth and inflation will vary from
country to country," says the 160-page study on
the "World Economic Situation and Prospects 2005".
The price of a barrel of crude oil, which
averaged US$20 through most of the 1990s, hit $64
in mid-January but is expected to
stabilize around $60 per
barrel this year. With international oil prices
about 42% higher than in 2004 on average, the
combined oil export revenues of energy-rich Middle
Eastern nations are estimated to have reached a
hefty $300 billion in 2005, according to the
report.
The projected figure for 2006 "is
expected to stay at roughly similar levels",
although the US Department of Energy has predicted
revenues will reach a record $522 billion this
year, further strengthening the incomes of
oil-blessed economies.
Asked why most
developing nations aren't complaining about the
impact of high oil prices - at least, as bitterly
as they did in the 1970s - Rob Vos, director of
development policy and analysis at the UN's
Department of Economic and Social Affairs (DESA),
said many are currently benefiting from the higher
oil prices. This is "either because they are net
oil exporters, or because non-oil commodity prices
are [also] up and prices for many of the products
they import are down. So many have gained," Vos
said. High growth rates in much of the developing
world to a large extent are explained by their
buoyant export prices, he added.
As the
new UN report also explains, many oil importers
are feeling a bit more of a strain as oil prices
stay up and the subsidies many governments in
developing countries put on domestic energy prices
are more difficult to finance, so more of the
oil-price increase is passed on to consumers and
is increasing production costs. "So we expect that
during 2006 there will be more complaints about
high oil prices from groups of countries," Vos
said.
The 160-page annual report points
out that there are, however, a number of downside
risks to economic growth in 2006. A prolonged high
oil price over the next one to two years will have
a stronger inflationary impact on most African
economies.
Despite the higher oil prices,
however, many countries have registered
terms-of-trade gains owing to increased commodity
prices - particularly for minerals and base metals
- and lower prices for imported manufactured
goods, thus offsetting inflationary pressures
until recently. Although the report says higher
oil prices are taking a greater toll on
oil-importing countries, many of these countries
have adopted measures to protect domestic
consumers by introducing or strengthening energy
price controls and subsidies.
Taking a
broader view, the study says world economic growth
slowed noticeably in 2005 from the strong
expansion in 2004. The world economy is expected
to continue to grow at this more moderate pace of
about 3% during 2006. This rate of growth is the
same as the average of the past decade. According
to the report, the US economy remains the main
engine of global economic growth, but the dynamic
growth of China and India, and a few other large
developing economies, is "becoming increasingly
important".
Still, economic growth slowed
in most of the developed economies during 2005,
with no recovery expected in 2006. Growth will
moderate further to 3.1% in the United States,
while "lackluster performance" will still prevail
in Europe, with growth reaching a meager 2.1% in
2006. The recovery in Japan is expected to
continue but at a very modest pace of about 2%.
At the same time, economic growth in most
parts of the developing world and in the
"economies in transition" (former Eastern European
countries and ex-Soviet republics) is well above
the world average. On average, says the report,
developing economies are expected to expand at a
rate of 5.6% and the economies in transition at
5.9%, "despite the fact that these economies may
face larger challenges during 2006".
While
China and India are by far the most dynamic
economies, the rest of East and South Asia is
expected to grow by more than 5%. Latin America,
on the other hand, is lagging somewhat, with
growth of about 3.9%. But African economic growth
is expected to remain above 5%. Even if these
record levels are sustained, the report argues,
per capita growth is still not strong enough in
many of these countries to make sufficient
progress toward the eradication of extreme poverty
by 2015.
The study was a collaborative
effort by DESA, the UN Conference on Trade and
Development (UNCTAD) and the UN's five regional
commissions covering Asia, Africa, Europe, Latin
America and the Caribbean, and Western Asia (the
Middle East).
