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Emerging markets remain optimistic despite hurdles

Emerging markets remain optimistic despite hurdles

Oil and economics have been inextricably linked since the exploration of oil. Oil has become the primary revenue earner and economic engine for many countries from Asia and Africa. Consequently, the fluctuation or decline in oil prices has impacted the emerging economies of the South that depend mainly on the oil revenues with social and political implications. It is observed that countries of sub-Saharan Africa, Latin America, and the Middle-East may suffer the most because they are oil exporters. On the other hand, Asia and Central and Eastern Europe would benefit as they are the leading importers when the prices of oil are at their lowest. This has put a dent into expectations about economic growth.

The Slow-down of economies

Economic development is impeded as a result of the oil price decline. Vulnerable countries would need financial support to accomplish economic programs in terms of building the necessary infrastructure. Countries like Nigeria require heavy foreign involvement that may directly impact the value of the currency. Thus, oil-rich countries had been obliged to initially reduce oil production but later moved away from that position, plunging oil prices to their lowest. The big expectations for rebuilding the economies have been put to hold in emerging countries. The recovery will take some time as the world comes to terms with this shock for generations.

Socio-political Implications

The social and political implications emanating from the low oil process are real as oil is the primary source of many oil-exporting countries’ economic survival. If the prices fall, that will inevitably affect all society sectors: health, education, social services, construction will all suffer as a result. Countries attracting expatriates would start looking more inward, thereby directly and indirectly creating tension between nationals and foreigners. Job opportunities in sectors dominated by foreign labor would become squeezed and crowded.

Global Picture

The plunge in oil prices has seriously affected the nature of coordination between OPEC countries concerning supply and demand. Different countries approached the matter in a way that reflects their own economic and political situation. Notwithstanding, there was a need for a more coordinated effort to deal with the problem considering the global challenge.

Opportunities and challenges

The historic low oil price can create opportunities and challenges. The main option is the need to overhaul economic policies that are real and sustainable. It would require the most vulnerable countries to diversify their economies rather than depend entirely on oil revenues. One of the challenges is that it has also exposed the fragility of economies and ways to deal with those challenges. The other challenge is how national and international oil policies can be coordinated to deal with this sort of shock. The volatility of oil prices has prompted countries that heavily rely on oil to think about diversification strategies. Failure to diversify sources of revenue makes a country susceptible to economic shocks related to volatile commodity prices. 

Oil-dependent African countries, in particular, face serious risks due to heavy dependence on petrodollars, hence the need to think out of the box to implement an effective diversification program.

Going Forward

The historic low oil price can create opportunities and challenges. The main option is the need to overhaul economic policies that are real and sustainable. It would require the most vulnerable countries to diversify their economies rather than depend entirely on oil revenues. One of the challenges is that it has also exposed the fragility of economies and ways to deal with those challenges. The other challenge is how national and international oil policies can be coordinated to deal with this sort of shock. The volatility of oil prices has prompted countries that heavily rely on oil to think about diversification strategies. Failure to diversify sources of revenue makes a country susceptible to economic shocks related to volatile commodity prices. 

Oil-dependent African countries, in particular, face serious risks due to heavy dependence on petrodollars, hence the need to think out of the box to implement an effective diversification program.

Opportunities and challenges

Oil-rich countries will have to revisit their oil economic policies from a broader perspective. They will have to diversify their economies possibly, instead of depending solely on oil to explore other industrialization, manufacturing, information, and technology. Most of the merging countries heavily relied on consumerism putting aside the aspects of production. There is a possibility for the removal of pegging national currencies of oil countries to the dollar. There would be serious soul searching regarding the need to strengthen regional cooperation on all levels of economics.

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