In Africa, the twin challenges of the coronavirus pandemic and subsequent drop in oil prices are affecting countries in different ways: net energy exporters are braced for headwinds, but net importers have some relief from current account pressures.
Globally, lockdown and social distancing measures resulted in a sharp drop in demand for oil, particularly in the first quarter.
The price of Brent Crude fell from just under $59 a barrel on February 19 to a 20-year low of around $20 a barrel in late April, before an agreement from OPEC+ countries to slash global output helped prices recover to current levels of around $41.
Also in late April, with storage capacity running dangerously low in the US, the price of West Texas Intermediate (WTI) crude oil futures plummeted into negative territory for the first time in history, with prices falling as low as -$40 a barrel.
Exporters to bear the brunt
This impact of the price slump was felt in particular by the African continent’s net energy exporters, which in many cases derive significant proportions of GDP and revenue from the sale of hydrocarbons.
With annual budgets premised on higher oil prices, governments in these countries have had to look at cutting expenditure or sourcing additional finance to adjust to the fall in revenue.
Nowhere is this more evident than in Nigeria, Africa’s largest oil producer with an output of around 2 million barrels per day.
While oil makes up about 10% of the country’s GDP, it accounts for 57% of government revenues and more than 80% of exports, meaning that any drop in export income could have significant effects on the broader economy.
In its “Global Economic Prospects” report released in early June, the World Bank predicted that Nigeria’s energy sector is set to shrink by 10.6% this year.
In response to the price fall, the government’s revised budget, passed by parliament on June 10, altered the benchmark oil price from $57 a barrel to $25, while officials also approved $5.5 billion in additional loans to help fund the new budget deficit.
Austin Avuru, CEO of independent oil and gas firm Seplat Petroleum, told Oxford Business Group that, while the company was continuing to invest in gas projects, efforts were being made to reduce operational spending. “Overall, our target is to get close to a neutral cash flow position in 2020. So the main target of our budget restructuring is to be able to survive FY 2020, with the hope that during 2021 prices will climb back and we will manage to resume our planned investments. Meanwhile, in 2020 the key word is survival.”
In Angola, where oil makes up 90% of total export revenues, the value of oil exports fell by nearly 50% from April to May, while in Algeria, which similarly derives over 90% of export revenue and funds 60% of its budget from oil, the government announced in May that it would slash the 2020 national budget by 50%.
In an indication of…