Low oil prices have again left hydrocarbon-dependent country leaders scrambling to assure themselves and their populaces that it’s all under control, that the economy will not always be a one-trick pony, that the future holds more than rising unemployment and falling subsidies.
Nigerian president Muhammadu Buhari said this month: “Our objective is to build an agribusiness economy capable of meeting our domestic food security requirements, generating exports to strengthen our current revenue base and supporting sustainable income and job growth potential through wealth creation, promotion of entrepreneurial activities, youth employment and enhancing national productivity … The present hardship we are encountering is as a result of over-reliance on oil and gas.”
- In 2012-13, the two years before the oil price crash, oil accounted for 96pc of Nigeria’s export revenues.
Angola’s finance minister Armando Manuel rushed to assure the country that recently announced IMF assistance is not a bailout and that the government has embarked on a strategy of economic diversification away from oil.
- In 2012-13, oil accounted for 97pc of Angola’s export revenues.
Algeria’s trade minister Bekhti Belaib is adamant that the promotion of non-hydrocarbon exports is not just a short-run, “conjunctural” policy.
- In 2012-13, oil accounted for 64.4pc of Algeria’s export revenues.
In those same years, oil accounted for 84.2pc of Saudi Arabia’s export revenues. And, yesterday, man-of-many-portfolios deputy crown prince Mohammad bin Salman unveiled his vision of the future, a vision redolent of December’s prescription from McKinsey.
So, the prince spoke of a future of trade, arms manufacturing, tourism, part-privatisation of Aramco and a public investment fund of such magnitude that it would dwarf all that have gone before. The country’s addiction to oil “has held up the development of many other sectors over the past years”, he warned. But, he said, “I think that in 2020, if oil were to stop, we could live. We need it, we need it, but I think in 2020 we can live without oil.” After all, he said, the country was founded without the benefit of oil.
Saudi officials have been sniffy about the complaints of their poorer Opec brethren since Riyadh hustled the organisation into accepting a market-share defence strategy in November 2014. Saudi Arabia, they noted, could ride out low prices for years because it had been more prudent with its earnings while prices were high. (The massive disparity in barrels per head of population wasn’t mentioned.)
An IMF report on diversification of Gulf Co-operation Council economies of December 2014 may give the prince and his acolytes pause for thought. Not only is its assessment of progress to date in the region one of at-best muted praise, but it warns that countries elsewhere that have managed the transition have taken 20 years to do so.
The economic, demographic, and political challenges faced by, say, Algiers or Abuja are scary. But those that Riyadh will face if it tries to wean Saudi Arabia off oil too quickly are also daunting — removal of subsidies viewed as a birthright; removal of dependence on cheap, migrant labour and a concomitant shift from the very low local labour force participation rate; starting from a standstill in developing new industries capable of competing globally and satisfying the high-income expectations of the citizenry; appropriate education and skills; and avoiding the trap of moving from an oil-based rentier economy to an investment fund-based rentier economy. And, if the economic transition is successful and Saudi Arabia becomes a country of mass participation in the productive economy, and government funding shifts towards taxation of private-sector firms and private individuals, how long will it be before there are calls for political reform?