Africa and the price of oil

Africa and the price of oil
The Niger Delta fuels a great part of Africa's largest economy, Nigeria

The Niger Delta fuels a great part of Africa’s largest economy, Nigeria

Deutsche Welle – Lower state revenues, higher inflation and hesitant investors are only some of the reasons African oil producers are suffering from drop in the oil price. This is how eight African countries are affected.

Nigeria: Huge economy deeply in debt

Oil revenues make up almost 80 percent of Nigeria’s export revenues. The oil money finances a great part of the budget of Africa’s biggest economy. “We expect Nigeria’s current budget deficit to double due to the low oil price,” said Francesca Beausang, Africa analyst at the London based BMI Research firm. According to the Financial Times, Nigeria expects a budget deficit of around $15 billion. The public expenditure has also risen sharply, as the country tried to boost its waning economy through increased spending. The problem is, with the rising national debt, investors are also asking for higher interest rates for new loans.

Sudan and South Sudan: The cost of pumping the oil

Crisis surrounds the oil regions that straddle the border between Sudan and South Sudan. In 2011, South Sudan which now owns the majority of the region’s oil fields, gained independence from Sudan. Since that time, South Sudan has had to pay transit charges to its northern neighbor which runs the pipelines. These charges amount to around 22,50 euros ($24.42) per barrel in addition to the pumping costs. At an oil price of less than 30 euros, South Sudan is suffering major losses. If Sudan’s government does not agree to lower its charges, South Sudan would have to stop its production altogether, stated South Sudan’s oil minister in January.

Angola: One sack of rice, a bottle of cooking oil and a bag of sugar

In 2013, Angola exported $68 billion worth of oil. That’s according to data from the United Nations. Since the oil prices have dropped by two-thirds in the last year, ordinary Angolans have felt the pinch. Angola imports a great amount of its food from abroad . Due to the reduced revenues that have come with the falling oil price, the country has also had to reduce its imports. “There are fewer goods on the market and that is pushing the food prices sky high,” said Antonio Panzo, an Angolan economist.

In many parts of Angola, supermarkets and traders have started rationing their goods: One sack of rice per customer, one bottle of cooking oil and a packet of sugar. The traders hope that this will stop a run on the goods and prevent the growth of the black market. Additionally the state has announced a 25 percent reduction of the national budget. Infrastructure projects like the building of new roads, sea ports, airports, hospitals and schools will particularly be affected by this.

Congo (Brazzaville): Spending to boost the economy

As elections draw closer, the Republic of Congo, has set a different course. The government in Brazzaville aims to triple its budget even though the country’s growth slowed down to a staggering one percent. In 2014, the economy was still growing by 6.8 percent but according to the International Monitory Fund (IMF), the country’s debts almost doubled at the same time.

Oil remains an important source of income for Congo. The country hopes to attract more investment through new oil projects. At the same time, it plans to diversify its economy by putting more emphasis on infrastructure, forestry and mining. Yet experts doubt that the country can sustain its new budget, without falling even further into debt.

Mozambique: Not only oil, but gas prices are low

Mozambique has experienced an economic upswing in the last couple of years and has set its hopes on newly discovered gas fields. Companies from the US and Italy said that they plan to build facilities to produce liquefied natural gas. But unfortunately for them, not only the oil price, but also the gas price is at an extreme low.

The fear is therefore, that Mozambique won’t get the billions it had hoped for from its gas fields. Yet oil and gas expert Chris Bredenhann of Pricewaterhouse Coopers says there is no reason to panic. The commodity prices constantly go up and down. “Companies make long-term investments where they can see the potential of the future return. So they are not trying to get a return in a two or five year period. It is a 20 or 30 years planning horizon they are looking at,” he explains.

Zimbabwe and Malawi: Profiting from the cheap oil

The falling oil price is however not bad for all. Landlocked countries like Malawi and Zimbabwe which have no oil deposits themselves profit from the lower fuel and transport costs. The two countries have some of the highest fuel prices in Africa. The low price of oil has reduced fuel costs in Malawi by a quarter in the last two years.

A few days ago, Gloria Magombo, head of Zimbabwe’s energy authority (Zera), announced that fuel prices would drop even further in the next few weeks. In late February, Zimbabweans could buy a liter of petrol at $1,24 and a liter of diesel at $1. “Zimbabwe is relying on diesel for quite a bit of its power generation. So the cost of doing business in generating power is reduced,” explained Bredenhann.

The benefits for the economy? “I suppose there is more disposable income in the hands of the general population because the transportation and energy costs go down which means investments and spending in the economy that could stimulate the economy growth a little bit,” added Bredenhann.

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