Likely impact of rising oil prices on non—oil exporting countries

The recent rapid increases in the international oil prices have raised many questions; from policy makers, the media and the public. However, countries that have the most reason to worry are landlocked, non oil exporting countries.

The recent rapid increases in the international oil prices have raised many questions; from policy makers, the media and the public. However, countries that have the most reason to worry are landlocked, non oil exporting countries.

The impact of rising oil prices on their economies, will result in the decline of the purchasing power especially of families of fixed income earners and other vulnerable groups.

Consequently, the majority of the population whose incomes currently barely cover the basic needs, will suffer harsher conditions.

Here in Rwanda, the domino effect of the rise in global oil prices, will be particularly felt in the agricultural sector.

In which increases in fuel prices have also raised the costs not only of producing agricultural commodities in non oil producing countries, but also transportation costs have the marginal propensity to increase. For example if Mr. X has been fueling his truck at 50,000 Rwandan francs to transport Irish potatoes from up country in June last year.

Let us supposse, today he fuels the same truck at 60,000 Rwandan francs to transport the same produce from the same place up country; automatically Mr. X will have to raise the costs of Irish potatoes in order to cover his costs.

In this case, the price on the markets will have also to increase as a result of increasing of oil prices in order to cover the transportation costs.

Also the impact of high oil prices will affect domestic budgets and expenditures; as budget allocations in some sectors, will be cut of in order to pay for high fuel bills.

Some governments may divert capital development allocations; as part of these funds will go to recurrent expenditures in the form of wages and salaries, due to inflationary pressure demands. 

Obviously, the current rises in oil prices, raise fears in the EAC (East African Community); that funds earmarked for infrastructure development to increase the levels of Foreign Direct Investment, will be reduced in order to cater for high domestic commodity prices and high rising fuel prices.

If a company is using diesel powered generators, the cost of a unit has to increase, raising the cost of production.

The continued rise of oil prices on non oil exporting countries may have a negative impact on foreign exchange earnings; incomes and the welfare of many countries.

Especially, if the non oil exporting countries are net importers of both fuel and food they will particularly be hit hard.

Creating,  severe constraints on the ability of these countries to import essential commodities necessary for the welfare of their population.

Another implication to these countries is that higher fuel prices will translate into external shocks making it difficult for these countries to adjust. Increasing inflation further.

In short, the rising food prices due to high oil prices can hurt the economy and the poor net food consumers because food accounts for 70 percent to 80 percent of expenditures by the poorest quarter of the population.

In such circumstances of hiking food prices can have a large negative impact on the purchasing power of the majority population.

On the other side, high food prices as a result of high oil prices will be beneficial to farmers who are net food producers in non oil exporting countries.

Since farming is the major source of income for large parts of the rural population in non oil producing countries.

For example if Irish potato  farmers in Ruhengeri and banana growers in Kibungo, as a result of increased production will lead them to get higher prices hence leading to alleviate rural poverty.

In this situation, children will be able to go to school provided that producers are integrated into the market, with the benefits being related to the size of farms and the access to other agricultural resources such as fertilizers, machinery that allows farmers to respond to higher food prices.

The best way to reduce food prices is to increase agricultural productivity; through public investment in agricultural research, rural education and rural infrastructure to create efficient markets.

In addition, non oil exporting countries need to provide support to small farmers to increase productivity so they cope with high food prices.

Contact: sfeston2000@yahoo.com

 

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