African Future, 21 July - Hiking energy prices are seen as a plague and danger to the economy in most African countries, in particular non-oil producers. However, a new study shows that the record surpluses by oil producers are "recycled" by banks, often invested in African non-oil economies.

A new study sponsored by the International Monetary Fund (IMF) looks at where the large funds earned by oil exporters due to soaring prices are flowing. As in earlier eras of high oil prices, petrodollars are "recycled" by international banks where they are placed, and invested as loans into emerging market economies, IMF researcher Johannes Wiegand has shown.

Around half of this new risk capital is pumped into emerging Eastern Europe, with Asia coming second (though at a reduced rate) and Africa coming third. Investments in Africa are quickly growing.

According to Mr Wiegand, the "new" issue in this round of petrodollar recycling is mainly its source, with Russia, Libya, Angola and Nigeria being new major players. In particular the African oil exporters are investing in the Middle East but also in non-oil producing African countries, while Russian petrodollars are mostly directed towards Eastern Europe. "Bank recycling of petrodollars to emerging market economies is found to be almost as important as in the 1970s and 1980s," the study highlights.

In particular since 2005, the loan market has boomed and large investments are poured into emerging markets. A bit more than one-sixth of these new emerging market loans have gone to the Middle East and Africa, Mr Wiegand points out. Africa is also showing one of the most rapid increases in bank loans by recipient regions, only second to the booming investments into Eastern Europe, statistics gathered by the IMF shows.

In conclusion, while non-oil producing countries in Africa are paying a heavy price for the soaring transport costs due to record oil prices, much of these funds indirectly are ploughed back into the African economy as investments and loans.

The study does not break down results on a country-basis, only looking at recipient regions. However, Africa's emerging economies are believed to receive a much greater part of these investments than the least developed countries. Thus, differences again are set to increase as a consequence of this "recycling" of petrodollars, according to afrol News analysts.

By staff writers

© afrol News

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