Two recently released World Bank reports — one on commodities and the other on remittances — lend insight into an unfolding dynamic in the world today. As oil prices dropped from more than $100 per barrel in June 2014 to as low as $27 in the last few months, the money sent home from people working abroad in oil-producing countries also fell. This drop is a major reason remittances to developing countries declined in 2015 to their lowest growth rate since the 2008-2009 financial crisis.
Back in 2012, the news of Kenya’s oil discovery spread fast. Stock markets roared, politicians gushed and the Twitterati tweeted. Fast forward to today: with $70 off oil prices and at least another four to five years to go until the first commercial production, one cannot help but ask, has Kenyan oil been overrated?
With a tip of the hat to Clint Eastwood, the prospects for Kenya’s oil wealth can be characterised as the Good, the Bad and the Ugly.
Although there exists plenty of analysis of the Dutch disease, the resource curse, and Hotelling’s rule to fill several large libraries, there is nonetheless still ample room for debate about optimal policies in resource-rich countries. What is the optimal pace of extraction? Should they diversify? If so, how should they diversify and when should they diversify? What role should sovereign wealth funds play? Can the destabilizing adjustment process in the wake of an oil price collapse be avoided?
In a recent blog, Ulrich Bartsch and Donato De Rosa revisit the issue of resource revenue management. There are many good elements in this analysis, but there is one big problem: The same rigor that is used to analyze the goods markets is not used to analyze the accumulation of assets. While market forces are declared essential in the goods markets, little is said about the role of market forces in the accumulation of assets.
Let’s explore a bit more the relation between market forces, asset accumulation, and comparative advantages.
The recent collapse in oil prices is a good time to revisit the issues of resource revenue management. A good crisis should not go to waste, and it is in times like these that policy makers clearly realize their failures in the past and bemoan the lack of economic diversification away from oil.
The World Bank's forecast for the average oil price in 2016 is $37 per barrel. Commodity Markets Outlook provides a quarterly analysis of international commodity markets, and the oil forecast reflects factors including a slowing global economy, high oil inventories and unchanged OPEC policy prioritizing market share.
Kazakh scientists navigate this winding, unpredictable road for years and generally come to the realization that great scientific research is not enough in itself. Too often, they face a lack of support when it comes to applying the results of their scientific research in a useful, practical way.
Fortunately, a team of Kazakh scientists at the Private Entity Institute of Polymer Materials and Technology in Almaty has had a somewhat more positive experience. This team has been working on a truly innovative project: developing a solution to improving the recovery of oil from old oil wells in Kazakhstan.
But why, you might ask?
Luck has struck the region of East Africa: for a couple of years now, new announcements of natural resource discoveries are being made every few months. Mozambique has found some of the largest natural gas deposits in the world, while Tanzania, Uganda, and Kenya have also discovered gas and oil. Exploration is still ongoing, so even more discoveries could be forthcoming. Luck has definitely struck the region, but the main question is: how will the people in these countries benefit from this?
Iraq has been a nexus of fragility for the last three decades, and has experienced multiple types of conflict: internal insurgency, international war, sectarian strife, terrorism, internal fragmentation, and the spillover effects of conflict from other countries. As another crisis unfolds, does the recent past, marked by relative stability, hold any lessons for the future?
Why are petroleum prices dropping so fast anyway? Have they reached rock bottom yet? Should we be worried if they continue to fall? These are questions that probably every finance minister in either oil-rich or oil importing nations is trying to answer.