Business

IEA says higher oil prices hurt the world's poorest the most

High oil prices have made it more difficult for the world to close a persistent energy supply gap.

Chris Stanton

September 22, 2010

High oil prices have made it more difficult for the world to close a persistent energy supply gap that has left more than 1.4 billion people without access to electricity and double that number dependent on burning wood and waste to cook food, an official report warns. Governments and international aid organisations would need to invest US$36 billion (Dh132.23bn) a year over the next 20 years to give everyone on the planet regular access to electricity and modern cookers, the International Energy Agency (IEA) said yesterday.

Relatively high prices for oil and gas would preclude poorer countries from relying on fossil fuels, creating incentives for the development of renewable energy sources including so-called "off-grid" sources such as gas from landfills, the IEA said. "For net oil-importing developing countries in particular, rising and volatile prices have amplified the challenge of expanding energy access and put an extra burden on fiscal budgets," said the IEA, a Paris-based group of industrialised oil-importing countries. "In a high energy price and climate-conscious world, it makes sense for governments ? to choose a course consistent with long-term sustainable development goals, rather than choose the energy technologies and mix used in [industrialised] countries in the 1950s and 1960s."

Among oil-exporting countries, including poorer members of OPEC such as Nigeria, Angola and Ecuador, continued energy subsidies tend to flow to wealthier members of the society and have not always succeeded in providing low-cost energy to the poor. The $252bn spent this year on subsidy programmes for products including petrol and kerosene in developing countries has often benefited richer members of society and encouraged wasteful consumption patterns, the IEA said.

The agency noted that "the cost of providing electricity and LPG [liquefied petroleum gas] stoves and canisters to those households without access in the 10 largest oil and gas-exporting countries in Sub-Saharan Africa would be roughly equivalent to only 0.4 per cent of the governments' cumulative take from hydrocarbon exports through 2030". @Email:cstanton@thenational.ae

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Price, base / as tested Dh99,000 / Dh132,000

Engine 3.6L V6

Transmission: Six-speed automatic

Power 275hp @ 6,000rpm

Torque 350Nm @ 3,700rpm

Fuel economy combined 12.2L / 100km

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

At a glance

Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.

 

Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year

 

Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month

 

Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30 

 

Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse

 

Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth

 

Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances

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