How the rise in global crude oil prices impacts East African markets
Kenya has extended by one year a deal to purchase fuel on credit directly from three state-owned Gulf firms in what could help ease pressure on the countries’ forex. CNBC Africa spoke to Sylvester Kasuku, Chief Executive Officer, Actiri for more.
Mon, 18 Sep 2023 15:38:32 GMT
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AI Generated Summary
- Fluctuating global crude oil prices have significant consequences for East African economies, with factors like exchange rates, inflation, and geopolitical events playing a crucial role in determining fuel prices in the region.
- The rise in fuel prices due to currency devaluation has led to challenges in production costs, transportation expenses, and export competitiveness, impacting low-income earners and local businesses.
- Kenya's decision to extend the fuel purchase deal with Gulf firms aims to provide the country with a buffer against economic pressures, stabilize the local currency, and create an environment conducive to sustained economic growth.
East African countries, such as Kenya, are facing significant challenges due to the recent rise in global crude oil prices. Kenya, in particular, has extended a deal to purchase fuel on credit from state-owned Gulf firms in an effort to ease pressure on the country's foreign exchange reserves. Sylvester Kasuku, CEO of Actiri, highlighted the complexities involved in the oil market dynamics affecting the region. Factors such as exchange rates, inflation, and global events like the Russia-Ukraine war play a crucial role in determining the prices of oil imported into East Africa. The fluctuating value of local currencies, especially against the US dollar, has also added to the challenges faced by countries in the region. These currency fluctuations have led to a considerable increase in fuel prices, affecting both local consumers and businesses. The high cost of fuel has a domino effect on the cost of production, transportation, and export of goods, ultimately leading to economic challenges for low-income earners. To address these issues, Kenya has decided to extend its fuel purchase deal with Gulf firms as a strategic move to manage the impact of the current economic conditions. By extending the credit facility by one year, Kenya aims to allow its economy to stabilize and create a conducive environment for local economic growth. The decision to postpone payments is also intended to mitigate the pressure on the local currency, the Kenyan shilling, which has been under strain against the US dollar. The recent drought and subsequent rise in food prices further exacerbated the country's economic situation, making it essential for the government to take proactive measures to support the economy. Looking ahead, experts predict that pump prices will continue to rise in the near future, driven by factors such as unstable exchange rates, global production cuts, and the unsustainable nature of government subsidies. As global crude oil prices trend upward, consumers in East Africa are likely to face higher costs at the pump, posing additional challenges to the region's economy. Despite these challenges, proactive measures by governments and strategic partnerships with key stakeholders will be crucial in navigating the volatile oil market landscape and mitigating the impact on local economies in East Africa.
