ECONOMIES TO GROW AS GLOBAL OIL PRICES PLUMMET

An attendant fuels a car at a petrol station. The cost of goods and services is influenced by oil prices.

East African economies are expected to register higher growth rates next year if the global oil prices remain low in 2015. According to experts, the decline in oil prices has been a boon to the region’s weak economies, helping keep inflation rates and cost of living at manageable levels.

“Low oil prices will also enable East African countries to make huge savings in foreign exchange, which can be used to finance much needed development projects,” said Mwendia Nyagah, chief executive officer of Oil and Energy Services Ltd, a Nairobi consultancy.

The price of oil has fallen to new five-year lows, and experts predict the trend will continue into next year. The price of Brent crude has fallen by 43 per cent since mid-June, to around $60 a barrel, prompting mixed reactions from economists on whether the trend is good or bad for the global economy.

While some economists view the low prices as a negative for overall global economic growth, others view it as a positive for the majority of developing countries that are non-oil producers. The International Monetary Fund is one of those viewing the decline as a positive for the global economy.

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Recently, at a meeting in Washington, IMF managing director Christine Lagarde said the decline will provide a net boost to the global economy, but pose a risk for oil-dependent countries in Africa, Asia and Europe. The IMF director said Middle East countries, Venezuela and oil-dependent African countries would be among those hit hard by the low prices.

In East Africa, Mr Nyagah said the low oil prices will help keep the cost of living at manageable levels, saying energy prices were a major determinant of prices of goods and services. “Low oil prices are normally positive as the cost of production of goods and services falls.

As a result, consumers have extra money to save and spend,” said Mr Nyagah. In fact, all East African countries have managed to maintain a single-digit inflation rate, a situation some economists associate with low oil prices.

As of last month, Rwanda had the lowest inflation rate, which stood at 0.7 per cent, followed by Uganda at 2.1 per cent, Burundi at 3.5 per cent, Tanzania at 5.8 per cent and Kenya with the highest at 6.09 per cent.

However, oil producing countries like Nigeria and Angola are already experiencing difficulties in meeting their budgetary demands and have begun cutting back on expenditure. Last month, the Organisation of Petroleum Exporting Countries (OPEC) failed to agree on restricting output.

The East African