January 12, 2014 By Gabriel Benjamin
A few years ago, oil prices were rising through the roof and many expected high oil prices to be the new norm. However, that hope has been dashed as the price of crude oil hit a current level of $51.02 per barrel at the global market. It is unlikely OPEC – Organisation of Petroleum Exporting Countries – will want to tolerate low oil prices for too long. But crude oil importing countries and importers are currently having a field day, Sierra Leone and her importers not exempt. Indeed, it has been a great boom for countries that depend heavily on imported oil.
In recent months the price of crude oil has nosedived by over 50% in the international market. This fall has a corresponding significant impact in reducing transport, consumable goods and business costs. One will not be out of order to opine that the falling oil prices is good news – amid the Ebola outbreak – for oil importers in Sierra Leone and Sierra Leoneans alike since inflation rate in the country is measured by a broad rise or fall in prices that consumers pay for. This also applies to other oil importing countries.
Be that as it may, it is bad news – doom for oil exporting countries and exporters – Venezuela, Kuwait, Iraq and Nigeria our own ‘Big Brother’ and partner in progress. This is because they rely on tax revenue from oil production to fund government spending. They are now faced with budget deficits, and will require to develop new monetary and fiscal policies, higher taxes or cutting government spending. To this end, a social problem awaits them.
The impact the fall in crude oil prices has on consumers is more of a blessing than a burden. It helps to reduce the general cost of living alongside a lower inflation rate. It is worthy to note that the falling oil prices is one key reason behind the recent fall in UK inflation in a 12-year low in November, 2014 to 1.2% as measured by the Consumer Price Index and reported by the UK Office for National Statistics.
On the contrary, falling oil prices, rather than help increase spending among Sierra Leoneans, has succeeded in pushing up the headline inflation rate by making actual deflation a real impossibility. This is because the impact of the falling oil prices globally – a key determinant of the various market forces – has not been directly proportional to the prices of consumable goods and services in the country.
With moribund real wages in the country, this fall in prices of oil should be seen to have given us more disposable income (more income to spend). It ought to be effective like a free tax cut – a huge relief; but with high inflation rate alongside low consumer confidence following the outbreak of the Ebola virus, we have been unwilling to spend, rather preferring to save.
Suffice (it) to say, that oil importers in the country have ‘solely’ been benefiting significantly from the falling oil prices because the value of oil imports and current account deficit has been reduced drastically. Sierra Leoneans have been on the receiving end as the fuel pump price is yet to reflect the reduction in oil prices in the global market where the country’s importers purchase oil from. We only hope that the Consumer Protection Council and other relevant agencies expand the scope of their activities to this critical sector for the utmost benefit of ‘ordinary Sierra Leoneans’ whose livelihood is overtly or covertly proportionate to the prices of oil in the local market.
As importers in the country embrace the falling oil prices, there is however a growing concern and a deep fear about the prospects of the global economy. This is because the fall in oil prices is largely a reflection of a ‘weak global demand’ as continued low growth around the world is holding back ‘huge demand’.
On the interest rates and national productivity, Sierra Leone is expected to witness lower inflation and higher output. However, theoretically, the fall in oil prices could lead to higher spending on other goods and services and add to the country’s real GDP. Notwithstanding, the falling prices of oil in the global market, if properly utilized and prudently managed, can become the harbinger of economic recovery in post-Ebola Sierra Leone.
Finally, whilst taking into cognizance the overwhelming impression of a ‘very weak’ Sierra Leone economy which is currently struggling with a dangerous mix of austerity, inflation, weak growth and increase debt as precipitated by the Ebola virus, Sierra Leoneans are optimistic about the falling prices of oil in the global market. This, they hope, will help strengthen the economy and put it back on the right footing – one of the fastest growing economies in Africa and the world.
We look forward to a significant reduction in the fuel pump price and headline Consumer Price Index (CPI). We are also positive that the Bank of Sierra Leone (BSL) will avert any rise in interest rates that might have been occasioned by the Ebola scourge in the country.