Oil crash comes at ‘worst time’ for exporters
UNTIL Monday evening, many might have found the idea of living in a world where someone selling oil would have to pay the “buyer” to take it off of their hands completely fanciful, more so of all emerging economies with commodities to sell.
For the first time in history, crude oil prices into negative territory this week because of the Covid-19 pandemic that has sent demand for the fuel crashing as the world’s leading economies have ground to an almost complete halt over the past few weeks.
Oil producing nations, such as Nigeria and Angola, with their disproportionately high reliance on the fuel, are set for a difficult period.
In Nigeria “. . . oil is almost 90 percent of revenue. Even though the economy is diversified, the export of oil makes the country very dependent on oil for foreign exchange and revenues,” economist Diana Games said.
Some of South Africa’s largest companies such as MTN, Shoprite and Standard Bank have large exposure to Africa’s biggest economy that has come under significant economic pressure since the oil price peaked in July 2014.
The country “is not out of the woods yet,” Games added.
Nigeria produces an estimated 2,5 million barrels of oil per day and contributes just less than 10 percent to the gross domestic product of Africa’s largest economy.
The oil price crash comes ahead of a Wednesday meeting where President Cyril Ramaphosa is expected to chair an African Union Bureau virtual meeting of business leaders to discuss the continental impact of Covid-19 pandemic.
Economies in the Maghreb and west African regions are set to reel in the fallout as well.
According to its latest report, the World Bank projects economic growth in Sub-Saharan Africa will decline from 2,4 percent in 2019 to -2,1 percent to -5,1 percent in 2020.
This would thrust the region into its first recession in 25 years, the report said.
Angola is the second largest producer of oil in Africa, producing an estimated 1,9 million barrels a day.
According to the World Bank, oil production in Angola accounted for a third of its gross domestic product and 90 percent of the country’s exports in 2018.
Azwimpheleli Langalanga of Tutwa Consulting said the oil price crash had especially tragic timing for African oil exporters.
“The oil slump could not have come at a worse time for African countries.
“They are too dependent on oil for revenue. Because of Covid-19, their resources are stretched as they need to fight the pandemic . . . but this is an opportunity to re-engineer their economies.”
Langalanga said the most oil-rich African countries depend more than 70 percent revenue from oil but their budgets were already being diverted towards fight Covid-19, meaning that they cannot immediately focus on diversifying their economies.
“The oil slump almost wiped out their revenue for the year.”
The crash in the market will not only damage the prospects of the continent’s established producers that have been feeding the world with oil for more than 50 years, but emerging players like Ghana and in east Africa such as Kenya and Uganda.
These countries are “. . . new exporters in the early phases of exporting. They have set aside budgets for these operations and this will have a knock-on effect,” Games said.
Investment strategist for Old Mutual Wealth Izak Odendaal said the oil price crash could present challenges for African economies that have been looking to make a foray into gas production, including Tanzania, Mozambique and South Africa.
“Appetite for exploration in riskier jurisdictions like Mozambique, Lake Tanzania and South Africa will see the effects. This is a negative for oil and gas in Africa where the business is already seen as high-risk-highreward. — fin24.