Low-carbon energy transition in oil-dependent African countries: implication on fiscal revenue

Abstract

Purpose The purpose of this study is to empirically analyse the fiscal revenue implications for oil-dependent African countries in the face of low-carbon energy transition (LET). Design/methodology/approach The study combined the novel fully modified ordinary least squares, dynamic ordinary least squares and canonical cointegrating regressions estimators to analyse secondary data between 1990 and 2020 for the three major oil-dependent African Countries (Algeria, Angola and Nigeria). Findings The result shows that LET reduces oil revenue and non-revenue for specific countries (Algeria, Angola and Nigeria) and the panel, suggesting that low-carbon energy transiting is lowering the fiscal revenue of oil-dependent African nations. Research limitations/implications The seeming weakness of this study is its inability to broaden the scope to include all oil-producing African economies. However, since the study selected Africa’s top three oil-producing states, the sample can serve as a model for others with lesser crude oil outputs. Practical implications Oil-dependent African countries must urgently engage in sincere economic diversification in sectors like industry and manufacturing, the service sector and human capital development to promote economic transformation that will enhance fiscal revenue. Originality/value With the pace of energy transition towards low-carbon energy, it is not business as usual for oil-rich African countries (Algeria, Angola and Nigeria) due to fluctuating demand and price. As a result, it becomes worthy to examine how the transition is affecting oil-dependent economies in Africa. Also, this study’s method is unique as it has not been used in a similar study for Africa.