On July 26, the Executive Board of the International Monetary Fund (IMF) enables the disbursement of US$43.7 million, bringing total disbursements under the arrangement to US$304.5 million for Madagascar.
The Executive Board completed the fifth review under the Extended Credit Facility (ECF) Arrangement.
Following the Executive Board discussion, the Deputy Managing Director and Acting Chair, Mitsuhiro Furusawa, said Madagascar’s performance under its economic program supported by the Extended Credit Facility (ECF) arrangement has remained generally strong.
Madagascar’s 40-month arrangement for US$305 million, or 90 percent of Madagascar’s quota was approved on July 27, 2016. Additional access of 12.5 percent of Madagascar’s quota was approved by the Executive Board in June 28, 2017, bringing Madagascar’s access to SDR 250.55 million (about US$347 million) at that time. This arrangement aims to support the country’s efforts to reinforce macroeconomic stability and boost sustained and inclusive growth.
Furusawa said the country’s growth has been solid, inflation has been moderate, and the external position has remained robust. Going forward, the authorities’ continued commitment to strong policies and an ambitious structural reform agenda will be key to mitigating internal and external risks, strengthening macroeconomic stability, and achieving higher, sustainable, and inclusive growth.
He noted that the authorities’ economic reform agenda requires continued efforts to enhance investment capacity, essential for scaling up priority investment spending.
He said, “Increasing social spending, as planned in the revised budget law, and developing social safety nets is also crucial. Further enhancing revenue mobilization through tax collection is central to this strategy and warrants renewed efforts to avoid eroding the tax base.
“Resolute actions are needed to contain risks to macroeconomic stability and debt sustainability, including fiscal risks from the financial situation of JIRAMA, the sustainability of the civil servant pension fund, and liabilities to the fuel distributors. On the latter, the recent progress towards the implementation of an automatic fuel pricing mechanism while limiting its impact on the poorest is encouraging.
“The recent adoption of the law on illicit asset recovery brings the anti-corruption legal framework into closer alignment with international standards. The authorities should continue to build on these efforts. Making further progress on modernizing public financial management and improving the business climate will be essential to promote good governance. Allocating sufficient human and financial resources will allow for effective enforcement of this framework.
“The ongoing reform agenda should continue to benefit from IMF technical assistance in various areas, such as fiscal policy, governance, and the monetary and financial sectors.”
Investment into local content development needs to be channelled and supported by strong regulations
There’s so much excitement about where Angola’s energy sector is headed. Sergio Pugliese, a successful entrepreneur and oil executive, is really hyped and enthused about recent developments and future direction of his country’s energy sector. Angola is ranked second largest oil producing country in Sub-Saharan Africa and an OPEC member with an output of approximately 1.55 million barrels of oil per day and an estimated 17,904.5 million cubic feet of natural gas production.
Production levels in Angola are expected to soar by 2020 following the country’s restructuring, including the reorganization of the state oil company Sonangol. In addition to a drastic revision of Angola’s legislation related to oil and gas, the government’s intent is to spur growth in the sector, encouraging exploration in development areas, improving operation efficiencies, reducing taxes, empowering the private sector, and attracting investors. Since the 2017 elections, Angola’s oil and gas sector has been featured in numerous conferences aimed at linking top government officials with the global energy industry.
The African Energy Chamber (AEC), the continent’s voice for the ongoing change and progression in the African energy industry recently named Sergio Pugliese as the AEC’s President for Angola. The appointment will be the first of many to follow across the continent as the AEC guides local content development that will enable African companies to grow and take the lead in the development of their continent. In an official statement, Pugliese notes:
“It is with great sense of responsibility towards Angola and the African Energy Chamber that I am assuming this new function. Angola is reforming is very fast and the need to provide accurate information and guidance for investors doing business in Angola is growing”. Prior to being named the AEC’s President for Angola, Sergio Pugliese most recently worked with BP and Statoil as top executive before founding Angola-focused oil and gas services companies Motiva LDA and Amipha LDA.
The rapid change and reform in Angola’s oil sector since the 2017 election has caught the attention of many. Will this enhance Angola’s work towards attracting more investment into local content development?
Investment into local content development needs to be channelled and supported by strong regulations. As more foreign investors get into the market, the country is currently working on a new regulatory framework to promote the development of the Angolan content and build domestic capacities. At the moment, several pieces of legislation touch on local content and there is a definitive need to make our local content framework more efficient and competitive. A draft presidential decree on local content has been in the works this year and is expected for release and public consultation this month. The oil Industry is looking forward to the Angola Oil and Gas conference organised by Africa Oil and Power in Luanda from June 2nd to 4th. The President is going to unveil the government’s oil and gas agenda. As the largest oil lobby in Africa, we will be working closely with the government and the oil industry on this. The Oil industry and Angola needs a champion and we will be that champion.
There was an announcement this year by the Angolan Government that it will create a regulatory body for the hydrocarbons sector – What do you expect this move to encourage within the Angolan Oil and Gas sector?
The creation of the new Angola National Petroleum and Gas Agency (ANPG), officially launched through Presidential Decree 49/19 in February 2019, is one of the most significant reforms since 2017. Its pioneer Chairman is non-other that experienced oil and gas executive and former Secretary of State Paulino Jeronimo, who has earned a very good reputation within the industry following an impressive track record stretching over many decades.
More importantly, it will be acting as Angola’s national concessionaire for hydrocarbon licenses and be in charge of regulating the industry and implementing government policy. The creation of the agency is part of Angola’s efforts to streamline and overhaul the governance of its hydrocarbons sector. Up until now, state-owned Sonangol was responsible for such licensing activities. Setting up the ANPG puts Angola at par with best oil and gas industry practices, and is a positive move to promote good governance and transparency within the Angolan industry. We expect foreign investors and operators to respond very positively to this measure.
What strategies does Angola have to further encourage the financing of expansion of SME’s in its petroleum sector?
The government of Angola currently runs a number of programs, some of them, jointly funded with multilateral organizations which offer soft loans to SMEs in all sectors of the economy. These loans are accessible via state-owned banks but have especially since the 2014 financial crisis stringent criteria for access attached to them. The Africa Energy Chamber continues to advocate for such loans to be made available to local entrepreneurs who are likely to employ more people in good-paying jobs whenever they have access to the right kind of financing. In the near future, I will lead a delegation to Europe, America and other African countries to see what they have done right and will build more coalitions to help the Angolan sector.
Are there any specific local content projects that Angola will be highlighting?
I think the current approach by the Angolan government to encourage and strengthen local companies via tools such as offering them soft loans, rather than legislate them into projects is the best way of building local companies in a competitive manner. That is, they are more likely to be capable of competing with internationally active companies and hence ensuring their survival in the long-term.
What in your view are the common challenges in implementing strong local content policies in the Oil and Gas sector?
Some of the common challenges include the absence of capital, technology and deep industry know-how for local companies to carry out the high paying services in the industry. This eventually leads to local content being relegated to low paying and low jobs that do not in the long run help develop the kind of capacity needed to run the industry in the future with reduced dependence on foreign staff or capital.
What is the importance of working with local companies across the value chain?
Local companies are the ones that support the local economy and create the most jobs. Engaging, partnering and working with them promotes technology, skills and know-how transfers. It is also beneficial for robust national employment growth. More importantly for business perhaps, local companies are the ones with the deepest and most relevant knowledge of the local market environment, its dynamics and the way to do business. Setting up a joint venture with a local company or partnering with them has proven a very sustainable and profitable business strategy for many foreign investors. The Chamber will be pushing for more joint ventures and encourage a lot of technology and skill transfer. Local companies have to also do their best to meet the industry demands and standards.
How can this strengthen capacities and transfer know-how and increase local capability?
Exposing local companies to best international practices, be it on an operational or managerial level, is very beneficial. National oil companies have grown a lot this way, by having stakes in licenses operated by international oil companies, and acquiring de facto the technology, know-how and practices that they now use to operate their own blocks. This move wouldn’t have been made possible without their prior association with major IOCs and international oilfield services providers. The same thinking applies to engineering, procurement and construction, manufacturing and the overall value chain. Equatorial Guinea’s Minister Gabriel Obiang Lima has been very vocal about this and we will work with the Angolan oil sector to ensure this happens.
Given the highly technical and technological demands of the oil and gas industry, is the Angolan workforce ready to accommodate the growth of a local E&P industry?
Yes, certainly so. Similar to Nigeria’s experience, where the government created the right kind of enabling environment to spur the growth of local E&P companies, Angolan companies can do the same if provided the same opportunities. Nigeria can now boast of names like Oando, Sahara, Aiteo, Shoreline, Atlas Oranto and Seplat amongst others which are now respected brands in the region. Angolan banks have to develop capacity in terms of understanding E&P, be willing to lend to local players at reasonable rates and the government has to encourage joint ventures between Local and international companies. The Africa Energy Chamber strongly advocates for such measures to be taken.
What, in your view, is the most pressing problem for Angola’s energy sector?
Angola desperately needs more exploration, including in marginal fields to stem the declining oil production. This is currently being addressed by the government which set up a technical committee that includes IOCs and government stakeholders to discuss existing hindrances to investment in the sector. This committee is already bearing fruit with Total announcing that it will invest hundreds of millions into Angola, including towards the increasing of production in block 17. The government also set up an independent Petroleum and Gas agency which is tasked with action as a regulator in the industry and implementing government policy in the sector. The agency has already announced that it will carry out an auction for block licenses this year in an attempt to spur exploration in Angola.
Where do you see the greatest potential for Angola’s Oil and Gas sector in the future?
There is potential across the value chain. In upstream, our production has been decreasing for over a decade due to a lack of investment, especially in exploration. We are seeing the trend reversing now with several investment commitments from operators in the market. More importantly, perhaps, the rest of our value chain remains under-developed. Our midstream and downstream infrastructure needs billions of investment to connect existing and future fields to consumption centres, and to build the refineries, power plants, petrochemical plants and fertilizer plans who will be processing our future output of oil and gas.
What is your thought on what is considered an urgent need to develop a gas economy in order to fuel future electricity, enable renewables and support industrial development for the benefit of Angolans?
The major pillar that was needed to build our gas economy was the regulatory one, which has been passed last year. Presidential Decree No. 7/18 is the first law aimed at specifically regulating the prospection, research, evaluation, development, production and sale of natural gas in Angola. To date, only the Angola LNG Project had benefited from a special legal and tax framework. Before the passing of PD 7/18, the exploration and production of natural gas in Angola was subject to very broad principles only. These notably included making associated natural gas surplus available for free to Sonangol, and the possibility for oil companies to jointly-develop non-associated natural gas with Sonangol, with terms defined on a case-by-case basis. Sonangol was free to develop the non-associated gas discoveries on its own shall no agreement be reached with the oil company. Under PD 7/18, both Sonangol and oil companies have the rights to prospect, research, evaluate, develop, produce and sell natural gas in the international and domestic markets. More importantly, the decree provides for the possibility of specific and longer periods for natural gas exploration and production as compared with crude oil. Such periods can now all be extended so as to accommodate the particularities of developing a natural gas project.
However, and as experience has shown, the success of Angola’s gas economy will now rely on the creation of gas demand centres and the development of gas-consuming industries. These include power generation, petrochemicals and fertilizers, compressed and piped natural gas in the retail space, but also steel and cement. This is probably where the most urgent need currently lies as we want to make sure the future gas output will not be just exported internationally but used domestically to build industries and create jobs for Angolans.
With Africa been considered the last frontier, why does it seem to not have reached its full potential? What is causing this blockage in greater development? What role could Intra-Africa trade play in this regard?
Weak governance structures and lack of investment in exploration have so far prevented Africa from exploiting its full potential. This particularly applies to Angola. The crash in commodity prices in 2014 was just the ultimate blow to our industries who were, in fact, relying on weak foundations. Tough lessons have been learned over the past few years on the need to reform our legislative frameworks, provide better clarity to investors, and diversify our economies. Intra-African energy cooperation has a major role to play in this regards as it is able to unlock massive deals and projects. The case of Senegal and Mauritania who are developing the giant Tortue gas field, or of Equatorial Guinea and Cameroon who recently signed a unitization agreement for gas, are prime examples. There is so much to be achieved from a greater African energy dialogue in terms of transnational projects and exchange of commodities. In this regard, we believe that not only the private sector, but also and above all African national oil companies (NOCs) have a major role to play in driving that cooperation forward.
Could you introduce yourself to our international audience and the scope of your role as AEC’s President for Angola?
I moved back to Angola two decades ago after I completed my studies at Cambridge and the University of Adelaide from where I earned my MBA. This was the golden age of Angola’s oil and gas sector, so I naturally started working with major international oil companies such as Statoil and British Petroleum. This is where I got firsthand experience into the commercial, financial and technical aspects of operating producing oil blocks. I am a strong advocate of our local industry and have always been an entrepreneur at heart, so I eventually went on to set up Amipa LDA and Motiva LDA, two Angolan oil & gas services companies.
In my role at the Chamber, I intend to both facilitate the entry of new players and investors and ensure domestic capacities and capabilities are developed and good paying local jobs are created for Angolans. The reforms led by H.E. President Joao Lourenço are profoundly transforming our oil and gas industry by improving its business environment. This is generating tremendous interest from the international energy community and the network of partners the Chamber has. With over a decade of experience in the sector globally, I am able to bring them the kind of local and sector expertise they seek when coming to Angola. Under the leadership of its Chairman NJ Ayuk, the Chamber has been at the forefront of the most important and recent deals in Africa’s hydrocarbons sector and we truly look forward to bringing these deal-making abilities to Angola. We are going to be champions for Angola. Our country needs champions.
What will be the strategic importance of African Energy Chamber to the Angolan Oil and Gas sector?
The African Energy Chamber will be channelling global interest for Angola’s oil & gas sector, providing local knowledge on the market and advisory support for investors and local companies. More importantly and in line with our mandate to build African capacities, the Chamber will act as a catalyst for training Angola’s oil & gas workforce, build domestic capacity and advocate for an enabling environment. Low taxes, limited government, fair local content, fair fiscal frameworks, market-driven policies, incentives to drill, judicial security and respect for the rule of law will get us to a fairer and balance oil sector.
What advice do you have for potential foreign investors looking at Angola as well as your own AEC members?
A major advice is to carefully choose a local partner. Investors tend to think that with enough capital and experience they can make it. While this is not entirely false, tying-up with an Angolan partner or establishing cooperation with a local entity on the ground always gives a major boost to a new business, especially in its early years. Operating in Angola does come with a few challenges that can easily be overcome if an investor works with the right people and the credible and efficient local companies that know the market and how to get things done. We also tell investors to not just look at the upstream segment but consider opportunities across the value chain, be it in midstream, downstream, fabrication, services and supplies. A market like Angola which produces almost 1.5 million bpd offers considerable opportunities across the industry and anyone looking at Angola shouldn’t consider exploration and production as the only lucrative investment to be made here.
Where do you want to take the AEC in your tenure of President for Angola?
The AEC will become the entry door to Angola’s oil & gas sector. We want to ensure that there is an enabling environment for oil and gas investments. Oil companies must be given the incentives to invest but we are the oil industry also know we have an obligation to the Angolan people. We have to work with policymakers and implement strategies and solutions that will work in Africa. Look at Gabon’s leadership on the environment, Equatorial Guinea on Gas monetization, Ghana on building regulatory frameworks. Also, also look at Nigeria when it comes to empowering Africans. We are already receiving lots of queries from new investors wishing to enter the market, and having local representatives on the ground is positioning us as a strong advisor and facilitator for foreign investors, while being able to properly communicate what is happening on the ground to the international energy community. On the second hand, we also want to be building domestic capacity, both by training and skilling Angolans so they can take on additional responsibilities across the value chain, but also by bringing in more technology and best practices to our local companies so we contribute to boosting local content.
South Africa’s state-owned oil company Strategic Fuel Fund (SFF) will own and operate Block B2; In 2018, South Africa agreed to invest $1billion into South Sudan’s energy infrastructure; South Sudan has the third-largest oil reserves in sub-Saharan Africa, estimated at 3.5 billion barrels, with just 30 percent of the country explored.
South Africa today signed an exploration and production sharing agreement (EPSA) with South Sudan for Block B2.
The deal – which is strategic for South Africa as an energy consumer – will see Block B2 operated by the state-owned Strategic Fuel Fund (SFF), the Ministry of Petroleum and Nilepet – the national oil company of the Republic of South Sudan. This is the second EPSA signed since South Sudan gained independence in 2012 and shows progress for the country’s oil industry as production resumes at existing oilfields and new exploration begins.
South Sudan is an established, world-class petroleum producing region, whose territory includes a large part of the Cretaceous rift basin system that has proved petroliferous in Chad and Niger as well as Sudan. It currently produces 160,000 bopd, and aims to increase production capacity to 270,000 bopd by the end of the year. The country has the third-largest oil reserves in sub-Saharan Africa, estimated at 3.5 billion barrels, with just 30 percent of the country explored to date.
Under this new EPSA which includes a six-year exploration period, the SFF alongside Nilepet, will launch a comprehensive aero gravity survey exploration campaign, seismic acquisition and drilling wells with great prospectivity. The SFF will also invest in capacity building initiatives, training of South Sudanese citizens, investing in social and community development projects and ensuring local content and women empowerment.
“The petroleum resources of Block B2 are vast. For South Sudan to reach its target of bringing back production levels of around 350,000 barrels of oil per day (bopd) and beyond, we need committed new entrants like the SFF,” said the Minister of Petroleum Hon. Amb. Ezekiel Lol Gatkuoth. “South Sudan has great potential, yet our country remains vastly under-explored, and we believe the entry of new players like the SFF will lead to new world-class discoveries very soon given the aggressive exploration program and great petroleum viability of Block B3. This will support South Sudan’s economic revival and improve trade with other African countries.”
“We are bullish about this strategic and unique opportunity into Block B2 with great petroleum potential. It provides South Africa with a chance to further strengthen its energy security while entering one of the top three most lucrative onshore oil and gas markets in Africa,” said Hon. Jeff Radebe, South African Energy Minister. “South Africa has supported peace and economic development in South Sudan since the country’s independence and this is the continuation of long-term cooperation between both our countries and people. Investment is key to guaranteeing the economic progress of South Sudan”
Last year, South Africa’s Department of Energy pledged to invest $1 billion into South Sudan’s petroleum industry, with the aim of securing affordable energy supplies for South Africa. The countries are now in talks to set up a 60,000 barrel per day refinery to supply oil products to the local market in South Sudan, as well as to secure exports to Ethiopia and other neighboring countries.
“SFF is looking forward to working with our partners in South Sudan to make discoveries on this block. We believe there are highly significant quantities of oil in Block B2. Our work program and acquisition of new seismic will reveal better information on various structures. We look forward to a few wildcats and appraisal wells in the near future. We are thankful to the Government of South Sudan for this opportunity,” stated Godfrey Moagi, acting CEO of SFF.
The B2 area includes productive parts of the Muglad Basin and is part of the 120,000km2 Block B which was split into three in 2012. There has been much interest in South Sudan’s Block B acreages since the entry of Oranto Petroleum to Block B3 in 2017. Much of South Sudan’s oil and gas blocks are yet to be fully explored and resources assessed.
The CEF group is responsible for discovering solutions that will meet South Africa’s energy needs. Through its subsidiaries, the Petroleum Oil and Gas Corporation of South Africa (PetroSA), Petroleum Agency South Africa (PASA), Strategic Fuel Fund (SFF), African Exploration Mining and Finance Corporation (AEMFC) and iGas, the group also manages the operations and development of the country’s oil and gas assets.
The African Energy Chamber (www.EnergyChamber.org) is pleased to announce that it has appointed Mr. Sergio Pugliese as President for Angola, effective May 1st 2019.
In this role, Mr. Pugliese will lead the chamber’s activities in Angola and support the Chambers’ partners in unlocking value in Angola’s multi-billion-dollar oil and gas market. Mr. Pugliese will also lead the chamber’s efforts to support the government of His Excellency President João Lourenço in its current drive to restructure and strengthen Angola’s oil & gas sector.
Mr. Pugliese is a seasoned entrepreneur and Angolan oil executive with multiple years of experience gathered working with international oil companies BP and Statoil. He also founded and is the Executive Chairman of Angola-focused oil & gas services companies Motiva LDA and Amipa LDA, and Africa-focused investment company AIDAC.
“Sergio’s credentials, experience and knowledge of the oil and gas industry make him the ideal addition for the African Energy Chamber as we increase our footprint in every oil producing country,” declared NJ Ayuk, CEO of Centurion Law Group and Executive Chairman at the Chamber.
“The Chamber notably continues to receive tremendous interest from the international oil community about Angola since the election of President João Lourenço,” commented Verner Ayukegba, Senior Vice President of Public Policy. “From the passing of dedicated gas regulations, the promotion of marginal fields, to the organization of a new oil-licensing round overseen by the newly-created Petroleum Agency, Angola has made a tremendous comeback as one of Africa’s hottest oil & gas frontier.”
“It is with pleasure and a great sense of responsibility towards Angola and the Africa Energy Chamber that I am assuming this new function,” declared Sergio Pugliese. “Angola is reforming very fast and the need to provide accurate information and guidance for investors on doing business in Angola is growing.
As the African Energy Chamber develops its network in Angola, we truly look forward to facilitating more investment into the market for the creation of good paying jobs in Angola. We invite the world to join us in Luanda next month on June 4-6 at the Centro de Convenções Talatona (CCTA) for the first ever edition of the Angola Oil & Gas Conference 2019. The first edition of the conference is endorsed by the Ministry of Mineral Resources and Petroleum of the Republic of Angola and will notably see the launch of the country’s first marginal fields bidding round.”
Crude oil prices are expected to average $66 a barrel in 2019 and $65 a barrel in 2020, a downward revision from the October forecast due to the weaker-than-expected global growth outlook and greater-than-anticipated U.S. production, the World Bank said.
Metal prices are expected to continue a recovery in 2019 that follows a sharp drop in the second half of 2018, the World Bank said in its AprilCommodity Markets Outlook. The recovery has been spurred by stabilization of activity in China after weakness around the turn of the year, as well as various supply shortfalls.
“It has become clear that the commodity price cycle has come to an end, which is causing strains for exporters but may offer opportunities for importers,”saidCeyla Pazarbasioglu, World Bank Equitable Growth, Finance & Institutions Vice President. “Exporters may have to adapt to slower gains in commodity revenues with economic diversification, while importers could take advantage of lower commodity prices for increased investment.”
Agriculture prices are projected to fall 2.6 percent this year but rebound in 2020 due to lower crop production and higher costs for energy and fertilizers. An escalation of trade tensions would likely push prices lower, but higher-than-expected energy costs could lift prices more than expected.
“The outlook for commodity prices is sensitive to policy-related risks, especially for oil,”saidAyhan Kose, Director of the World Bank’s Prospects Group. “The outlook for oil could be swayed by a range of policy outcomes, including whether the Organization of the Petroleum Exporting Countries (OPEC) and partners extend production cuts, the impact of the removal of waivers to the U.S. sanctions on Iran, and looming changes in marine fuel emissions regulations.”
After a drop in late 2018, oil prices have risen steadily since the start of the year, as OPEC and partners have cut production, and output has declined in Venezuela and Iran. U.S. shale production is expected to remain robust after surging in 2018. Energy prices overall – which also include natural gas and coal ‒ are expected to average 5.4 percent lower in 2019 than in 2018.
A special focus section shows that when countries intervene to dampen the effect of food price fluctuations on their citizens, the collective intervention of many countries can produce the opposite of the intended effect and amplify movements in world prices – to the detriment of the most vulnerable populations.
Oil prices are forecast to average $65 a barrel over 2018, up from an average of $53 a barrel in 2017, on strong demand from consumers and restraint by oil producers, while metals prices are expected to rise 9 percent this year, also on a pickup in demand and supply constraints, the World Bank said on Tuesday.
Prices forenergy commodities – which include oil, natural gas, and coal — are forecast to jump 20 percent in 2018, a 16 percentage point upward revision from October’s outlook, the World Bank said in its AprilCommodity Markets Outlook. The metals index is expected to rise as an 9 percent drop in iron ore prices is offset by increases in all base metals prices, led by nickel, which is forecast to rise 30 percent.
Agricultural commodities, including food commodities and raw materials, are anticipated to see a price rise of over 2 percent this year on diminished planting prospects. Weather disruptions are expected to be minimal.
“Accelerating global growth and rising demand are important factors behind broad-based price increases for most commodities and the forecast of higher commodities prices ahead,”saidShantayanan Devarajan, World Bank Senior Director for Development Economics and acting Chief Economist.“At the same time, policy actions currently under discussion add uncertainty to the outlook.”
Oil prices are expected to average $65/bbl over 2019 as well. Although prices are projected to decline from April 2018 levels, they should be supported by continued production restraint by OPEC and non-OPEC producers and strong demand. Upside risks to the forecast include constraints to U.S. shale oil output, geopolitical risks in several producing countries, and concerns the United States may not waive sanctions against Iran. Downside risks include weaker compliance with the oil producers’ agreement to restrain output or outright termination of the accord, rising output from Libya and Nigeria, and a quicker-than-expected rise in shale oil output.
“Oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly.” saidJohn Baffes, Senior Economist and lead author of the Commodity Markets Outlook. “Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit.”
Upside risks to the metals price forecast include more robust global demand than expected. Supply could be held back by slow incorporation of new capacity, trade sanctions against metals exporters, and policy actions in China. Downside risks include slower-than-expected growth in major emerging markets, the restart of idle capacity, and an easing of pollution-related policies in China. Precious metals are expected to climb 3 percent this year in anticipation of U.S. interest rate increases and higher inflation expectations.
Grains and oils and meal prices are expected to rise in 2018, mostly due to lower planting intentions. The mild La Niña cycle that extended into the early part of the year only affected banana production in Central America and soybean production in Argentina and did not impact global markets for those crops substantially. The possible introduction by China of countervailing duties in response to U.S. tariff increases could impact the soybean market.
A special focus section examines the changed landscape for oil-exporting economies after the 2014 oil price collapse. The oil price plunge eroded oil-related revenues, forcing abrupt cuts in government spending that accentuated the slowdown in private sector activity in many regions. Income inequality and political instability also weakened the ability of some oil-exporting economies to weather low oil prices.
“Oil exporters with flexible currency regimes, relatively large fiscal buffers, and more diversified economies have fared better than others since the oil price collapse,”saidAyhan Kose, director of World Bank’s Development Economics Prospects Group.“However, most oil exporters still face significant fiscal challenges in the face of revenue prospects that have weakened since 2014.”
Leif Wenar: Chair of Philosophy & Law, King’s College London
Leif Wenar has received research funding from The Leverhulme Trust. He is the founder of the NGO Clean Trade.
King’s College London King’s College London provides funding as a member of The Conversation UK.
Donald Trump tweeted something true recently. Responding to the protests in Iran, the US president stated that “The people are finally getting wise as to how their money and wealth is being stolen and squandered.” Trump’s point is correct: what vice-president Mike Pence called Iran’s “unelected dictators” really have been stealing the oil that belongs to the people and spending the money for their own purposes, including (as Trump also said) “to fund terrorism abroad”.
Though right about Iran, Trump’s tweets have been too selective. In neighbouring Saudi Arabia, an ally of America’s, the elite spends public money gained from selling off the country’s oil. There, as in Iran and elsewhere, the people’s wealth is being “stolen and squandered” by the few who enrich themselves on its profits.
This is the biggest story that almost no one is reporting. In dozens of countries around the world, authoritarian regimes and armed groups are selling off the oil that belongs to the people, and using the money to fund repression, corruption, conflict and terrorism.
Oil is the world’s largest traded commodity by far, so the amounts going to these autocrats and militias are gigantic: hundreds of billions of dollars a year. Many of the crises in the headlines over the past few years – coming from Syria, Iraq, Yemen, Libya, Russia and more – have been powered by money from selling oil stolen from citizens.
Oil belongs to the people
The odd thing about this story is that nearly everyone agrees that a country’s oil belongs ultimately to its citizens. In America, this is a bipartisan idea, declared by both George W. Bush and Bill Clinton. And it is easy to find leaders of many other countries saying, “the oil belongs to the people” – the leaders of Britain, Australia, Mexico, Ghana, and even Iran, for example, have declared just this. The principle is also enshrined in dozens of national laws and constitutions. And 98% of the people in the world live in a country that has signed one of the main human rights treaties, whichsay that all peoples have the right to control their country’s natural resources.
If the oil belongs to the people, then no one should be able to sell it off without their possible consent. But that’s just what the world’s autocrats and armed groups are doing. When I investigated this issue for my book Blood Oil I found that oil sold off beyond any possible consent of the people accounts for more than 50% of the world’s trade. Over half of the oil in global trade is literally stolen goods.
This oil is being stolen not only from headline countries, but also from places like Equatorial Guinea where the president has allegedly had his political opponents tortured in one of the world’s worst prisons, and Angola where the elite live in luxury while the country’s children die from poverty at one of the highest rates in the world.
The source of the problem is an archaic law left over from the days of the Atlantic slave trade. This is the law, versions of which exist in every country, that makes it legal to buy the natural resources of other countries from whoever there can control them by force. So, to take one example, when Saddam Hussein’s junta took over Iraq in a coup years ago, America’s law made it legal to buy Iraq’s oil from them. And then in 2014 when Islamic State (IS) took over some of those same wells, all countries’ laws made it legal to buy oil from IS (that’s why sanctions had to be imposed: to block legal purchases from IS).
This law is so ancient we take it for granted. But it makes no common sense. If an armed gang takes over a gas station, after all, no one thinks it should be legal for us to buy the gas from the gang. But our laws do put us into legal business with whichever foreigners can control oil by force. Over recent years the average American family has sent up to US$250annually to foreign authoritarians and armed groups, just by filling up their cars.
The obvious solution would be to make it illegal to buy oil from anyone who is not at least minimally accountable to the citizens of their country.
That might sound difficult. But in fact the movement has already started. A senator in Brazil has just introduced legislation which would make it illegal to import oil from authoritarian or failed states – and would prevent its national oil company from signing any new contracts with autocratic regimes.
Brazil is the fifth largest country in the world. It’s a lot poorer than Western countries, and in the midst of a financial crisis and corruption scandal much worse than anything in the UK. If Brazil can discuss a ban on stolen oil, why can’t Europe? Why can’t Britain? Why can’t the US?
Leif Wenar will be discussing his work at the event Blood Oil taking place at Second Home, London on January 31.