Revenue Dampening Effect of the Oil–Dollar Inverse Relationship for Sub-Saharan African Economies

We investigate the revenue impact of the inverse relations between oil price and the US dollar exchange rates for the following Sub-Saharan African countries: Angola, Ghana, Kenya, Nigeria, and South Africa. These countries were chosen either because of their reliance on oil exports or due to their economic dominance in the region. Existence of a negative relationship suggests that falling oil prices result in two interrelated outcomes: lower oil export revenues in US dollar terms and greater (lower) purchasing power of the dollar (domestic currency). For the oil exporters in our sample, we find evidence of revenue dampening in that reduced dollar receipts during periods of falling oil prices were dampened by higher revenues after conversion to the local currency. Also, we find evidence of both short-run and long-run reverse causality between oil price and exchange rate. But this is only for the currencies of the key oil exporters. On that basis, we recommend a policy shift that emphasizes domestic resource utilization as the basis for exploiting the benefits of the oil–dollar inverse relationship.