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5 major African economies affected by the gradual reduction of fossil fuels.

Published

4 month ago

15 December 2023

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5 major African economies affected by the gradual reduction of fossil fuels.

As the Earth gets hotter, so do discussions aimed at limiting global warming. In the final weeks of the hottest year on record, the global body charged with mitigating the impact of climate change urged nations to abandon fossil fuels .

While the result may not fully meet the aspirations of many countries advocating a clear "phase-out" of fossil fuels, it does mark a historic development. For the first time, there has been a declaration to abandon oil and gas, the fundamental fuels that have fueled the global economy for decades and contributed significantly to the rapid change in the Earth's climate.

This development means that countries whose economies depend on fossil fuels need to consider diversification to keep their economies dynamic. Failure to do so exposes them to the risk of reduced investment and a shrinking market for their fossil products.

Many African countries belong to this group, and could see less money from oil in the future. This is bound to have a major impact on many of the continent's economies, which are already caught in a web of heavy debt and declining revenues.

However, African countries assert that they have the right to exploit their natural resources and progress, just like wealthier countries. Nevertheless, this approach is unsustainable, particularly from an investment point of view. Engaging in fossil fuel production or investing in projects without a viable market presents significant risks.

OPEC expects oil demand to rise to reach 116 million barrels per day (b/d) by 2045, compared with 102 million b/d today. By contrast, the International Energy Agency, which represents industrialized energy consumers, forecasts that oil demand will fall to 93 million b/d by 2030 and 55 million b/d by 2050.

While many of the continent's oil economies would be affected, some would suffer more.

Below are five major African economies that could be strongly affected by the gradual reduction of fossil fuels:

1. Nigeria

Nigeria is Africa's leading oil producer. It plays a central role in the Nigerian economy, contributing significantly to government revenues and foreign exchange earnings. The country relies heavily on oil exports to support its budget, making it vulnerable to fluctuations in world oil prices. Oil accounts for 90 percent of foreign exchange earnings and finances 80 percent of total government revenues.

2. Libya

As one of Africa's leading oil producers, Libya's economy is deeply linked to the fossil fuel industry. A move away from oil and gas would likely lead to a decline in demand and investment in Libya's main export, impacting its economic stability. Libya's real GDP per capita is among the highest in Africa, thanks to its vast oil and gas reserves. Hydrocarbons account for around 95% of exports and government revenues.

3. Angola

Angola is Africa's third-largest oil producer, and its economy is heavily dependent on its oil and gas resources. gas industry. Oil and gas products account for over 90% of its exports. Crude oil exports alone accounted for $39.94 billion in 2022, an increase of 44% on 2021.

4. Algeria

Oil revenues are the country's main source of income, accounting for almost 25% of GDP. Algeria is essentially dependent on the hydrocarbon industry, and at the same time vulnerable to the volatility of the oil market.

5. Egypt

With substantial reserves of both resources, Egypt has long been a major player in the oil and gas sector. The country's oil and gas industry accounts for around 15% of GDP and 31% of foreign direct investment (FDI).