Oil Rebound Puts Pressure on East African Economies

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Crude oil’s continued rebound is putting pressure on East African countries as prices and inflation rates fluctuate across the region.

Oil prices have risen from a low of $29 per barrel earlier this year to $47 more recently, which is resulting in a rise of energy and transportation costs. Meanwhile, inflation rates are tightening the squeeze even further for some countries.

 

Rising energy, transportation costs

Rwanda has cited increased energy and transport costs for rising inflation, increasing from 4.1 percent in March to 4.6 percent in April. Kenya, Uganda and Tanzania have also recorded higher fuel prices in the past month but all saw inflation rates drop in April.

Falling interest rates in Kenya prompted Kenya’s Central Bank Governor Patrick Njoroge to say measures could be loosened as a result. However, the rise in oil prices is also forecast to hit the country’s import expenses, placing new pressure on the shilling.

The rise in energy and transportation costs also impacts food prices across the region. Uganda had recently enjoyed lower inflation rates thanks to a drop in food prices, resulting from an oversupply of fruit and vegetables. The concern will be oil prices hit the food sector in Uganda and remove that cushion once again.

 

 

Commodities still on the low side

Despite the recent rebound in oil prices, its value on the whole is still at a low due to oversupply. Oil isn’t the only commodity stuck in a rut either; metals are also down 50-70 percent since 2011. The danger is these lower prices can put developing economies under greater pressure as debts incurred from investment don’t generate the calculated return.

Countries that have borrowed heavily can find their debt becomes unmanageable when the rate of growth falls below expectations. Energy prices, including oil, natural gas and coal are due to fall 19.3 percent in 2016 from last year – a smaller drop than 24.7 percent forecast back in January.

 

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