Energy (Oils and Natural Gas) Producing  Countries

1. Response posts

1. Select two peers to respond to.

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2. Take on the role of a consultant. Read their recommendations thoroughly then provide some rationale as to why you think their recommendations are persuasive (or not).

Carl Stuerke

Provide specific examples that describe the key role energy (oils and natural gas) producing  countries, such as Nigeria, Angola, and Equatorial Guinea, can play in their domestic economic growth. 

 

The economic history of Africa is filled with agricultural and resource extraction as the primary drivers; and because the price of oil has fluctuated dramatically over the past decade, this has both helped and hurt African economic growth. The collapse of oil prices in 2020, along with other underlying problems, was a factor that contributed to the recession in Nigeria (African Development Bank Group, 2021). There is a resource curse, causing an erosion of institutions, GDP volatility correlated to commodity price, and Dutch Disease which is the negative impact felt when a nation’s currency exchange rate spikes (Subramanian & Sala-i-Martin, 2003).

 

Energy producing countries must concentrate their efforts on economic diversity. “Africa is home to eight of the world’s 15 least-diversified economies… [but,] specialization can be disastrous if what your country specializes in is a raw commodity, particularly oil or minerals. The commodities often fall under the control of a corrupt elite, resulting in extreme inequality and undemocratic government” (Coy, 2021). The undiversified economies in SSA suffer from two primary issues: the resource curse and an inefficient and expansive informal economy caused by an under-developed financial sector (Usman & Landry, 2021).

 

Provide specific examples to describe the key role of energy producing countries on the global market.

 

Highly developed economies are reliant on oil and natural gas to provide energy that enables businesses to thrive. The price of oil impacts the price of goods downstream, meaning that if the cost of fuel increases dramatically, so will the cost of other goods (Kemp, 2021). Energy producing countries determine the output levels of oil and natural gas, which determines supply. Africa has a large number of oil producing countries, but not all are members of the Organization of the Petroleum Exporting Countries, which meets to agree on the supply of oil on a per country basis. While limiting supply would increase the cost of oil, “high prices can spur [oil] importing countries to make investments in alternative [or non-carbon] fuel sources, a dynamic that is already underway” (Chatzky & Siripurapu, 2020). This means that energy producing countries have the ability to move the cost of goods up or down depending on the level of production. Currently

 

Provide recommendations to encourage the efficient utilization of the energy resources in SSA.

Countries in SSA have the opportunity to use their oil revenues to improve their economies. The United Arab Emirates is the best example of how to use oil revenue for economic diversification, where in 2015, 70% of GDP was from non-oil sources (Embassy of the United Arab Emirates, 2021). This is an oil rich nation that understands the importance of economic diversification. However, the only feasible way to move toward a diverse economy is to efficiently use oil revenue. From this perspective, it is incredibly important that SSA ensures that public institutions remain working toward the public good, which means eliminating corruption. This will have the added benefit of helping the region become more desirable for FDI, as corruption is a blocker for many businesses. Similarly, fiscal policy must ensure that the nation’s currency does not become “overvalued” and when commodity prices deflate, there is a shock and extreme inflation. In general, reversing the erosion of public institutions and having them work toward the public good is the best plan of action for oil rich economies as this will provide a base from which the country can grow.

 

African Development Bank Group. (2021). Nigeria Economic Outlook. Retrieved from  https://www.afdb.org/en/countries-west-africa-nigeria/nigeria-economic-outlook (Links to an external site.)

Subramanian A. & Sala-i-Martin, X. (2003, July 1). Addressing the Natural Resource Curse : An Illustration From Nigeria. IMF Working Papers. Working Paper No. 03/139. Retrieved from  https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Addressing-the-Natural-Resource-Curse-An-Illustration-From-Nigeria-16582 (Links to an external site.) 

Coy, P. (2021, October 1). How African Countries Can Overcome the ‘Resource Curse’. The New York Times. Retrieved from  https://www.nytimes.com/2021/10/01/opinion/africa-economy-oil-trade.html (Links to an external site.) 

Usman, Z. & Landry, D. (2021, April 30). Economic Diversification in Africa: How and Why It Matters. Carnegie Endowment for International Peace. Retrieved from  https://carnegieendowment.org/2021/04/30/economic-diversification-in-africa-how-and-why-it-matters-pub-84429 (Links to an external site.) 

Kemp, J. (2021, November 3). Rising oil prices are fuelling expected inflation. Reuters. Retrieved from  https://www.reuters.com/business/energy/rising-oil-prices-are-fuelling-expected-inflation-kemp-2021-11-03/ (Links to an external site.) 

Chatzky, A. & Siripurapu, A. (2020, April 19). OPEC in a Changing World. The Council on Foreign Relations. Retrieved from  https://www.cfr.org/backgrounder/opec-changing-world#chapter-title-0-5 (Links to an external site.) 

Embassy of the United Arab Emirates. (2021 UAE Economic Diversification Efforts Continue Thrive. Retrieved from  https://www.uae-embassy.org/news-media/uae-economic-diversification-efforts-continue-thrive

 

Victor Vazquez

Nigeria, Angola, and Equatorial Guinea, for example, have a lot of potential to enhance their domestic economic growth by using the following methods:

· Through the exploration of oil and natural gas, these countries may be able to support their economic growth.

· Through the export of natural gas and oils, these countries may be able to support their basic infrastructure.

· Most significantly, they must establish refineries and begin exploring their natural resources, which will aid these countries in boosting their economies and establishing a global presence.

As we can see, the countries with abundant natural resources are economically powerful. Saudi Arabia, Iraq, Iran, and other countries, for example, have risen to the top of the global economy thanks to their natural riches and other factors. When countries like Nigeria, Angola, and Equatorial Guinea begin to explore natural resources to such a degree, the same thing can happen.

The following are some of the recommendations to encourage the efficient use of energy resources in SSA:

· By assisting poor countries in boosting their economies

· By supporting renewable energy sources or other means to improve these poor countries’ living standards

· By ensuring that energy resources are properly utilized throughout the world

· By ensuring that energy resources are distributed proportionately on a global scale

When it comes to energy producing countries, these industries are primarily responsible for their domestic economic growth. The following is an example of the impact:

1. Employment: It promotes employment to a large extent because abundant resources mean an adequate number of industries to harness the resources, resulting in an increase in employment.

2. Backward and forward linkages: The industries that rely on the power supplied by these industries would be able to exploit the oil and natural gas produced, allowing them to grow with the necessary amount of energy.

3. Trade’s Influence: Foreign trade will flourish as well, stabilizing the economy and generating earnings in all sectors.

4. Healthcare and education: Profits from the industries might be put toward improving healthcare and education.

5. Infrastructure development- These industries can help a country’s infrastructure development by building townships and other projects that strengthen the country’s infrastructure.

 

“Global Connections. Natural Resources.” PBS, Public Broadcasting Service, https://www.pbs.org/wgbh/globalconnections/mideast/questions/resource/index.html.

Ouedraogo, Nadia S. “Africa Energy Future: Alternative Scenarios and Their Implications for Sustainable Development Strategies.” Energy Policy, Elsevier, 13 Apr. 2017, https://www.sciencedirect.com/science/article/pii/S0301421517301684.

Iea. “Energy Sector Is Key to Powering Prosperity in Sub-Saharan Africa – News.” IEA, https://www.iea.org/news/energy-sector-is-key-to-powering-prosperity-in-sub-saharan-africa.

“The New Frontier.” Deloitte Insights, https://www2.deloitte.com/us/en/insights/industry/oil-and-gas/africa-oil-gas-industry-energy-reserves.html.

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