Saturday, 29 December 2007

Africa aid wiped out by rising cost of oil

By Ed Crooks and William Wallis in London

Published: December 28 2007 22:04 Last updated: December 28 2007 22:04

The rising cost of oil has wiped out the benefits many African countries were expecting from western aid and debt relief over the past three years, new research from the International Energy Agency has shown.

The situation is raising fears that, in spite of the strong growth many African countries have seen in recent years, there could be a repeat of the 1980s’ debt crisis in the developing world that was caused in part by the oil shocks of the 1970s.

Africa enjoyed a surge in western engagement during the UK’s presidency of the Group of Eight leading industrialised countries, culminating in a commitment by world leaders to a broad package of debt relief and increased aid at the 2005 Gleneagles summit in Scotland. But since then oil prices have steadily risen towards $100 a barrel.

Surveying 13 non-oil-producing African countries, including South Africa, Ghana, Tanzania, Ethiopia and Senegal, the IEA found that the increase in the cost of oil bought by the countries since 2004 was equivalent to 3 per cent of combined GDP.

This was more than the sum of debt relief and aid received over the past three years by the countries, which have a combined population of 270m, of whom 104m live on less than $1 a day.

The IEA’s warning comes as Senegal’s President Abdoulaye Wade said “crippling” oil prices threatened to provoke “unrest and violence” in Africa.

Mr Wade, who has been among the most active African leaders on the issue, told the FT he was encouraging 15 non-oil-producing African countries to form a multinational energy corporation of their own to compete for oil concessions on the continent in order to hedge against further price spikes.

“There is a growing understanding that the most urgent need in Africa today is the challenge of providing affordable energy,” he said.

Africa’s economic growth has remained strong this year, but increased fuel costs have put upward pressure on inflation and slowed growth in some countries. They have also contributed to social problems including rising food prices, power cuts due to the use of diesel-powered generation in many areas – and an increasing burden of fuel subsidies.

Copyright The Financial Times Limited 2007

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