Nigeria and Angola, OPEC’s African members and two of the largest crude producers on the continent, are warning a tougher time in a few months following the global oil market turbulence earlier this week.
Driven by a demand dislocation amid the global spread of COVID-19 following a price war between Saudi Arabia and Russia last week after the collapse of a supply cut deal between OPEC and its alliance, Brent and West Texas Intermediate (WTI) crude oil prices plunged by more than 25 percent on Monday.
Mele Kyari, head of Nigeria’s state oil firm Nigerian National Petroleum Corporation, said on Wednesday that Africa’s largest economy is beginning to see the effects of the global oil market slump, adding that when the oil market collapsed everything would collapse, especially in a country like Nigeria where oil is the mainstay.
The national oil corporation chief said the reality on the ground is beginning to dawn on Nigeria.
The latest data from Nigeria’s National Bureau of Statistics (NBS) showed that the oil sector, which sees average daily oil production of 2 million barrels, accounted for about 8.78 percent of the country’s total real GDP in 2019.
Angola, Africa’s second-biggest crude oil exporter after Nigeria, is also facing the challenges where the oil sector has already underperformed. In 2018, Angola’s oil production reduced by 9 percent due to the aging of oil production infrastructure and poor performance of new oil fields, according to the African Development Bank.
The National Agency of Petroleum, Gas and Biofuels (ANPG) said in a statement released on Wednesday that it is still investigating the impact of the global oil price crash.
The oil price crash could not come at a worse time for two of the largest economies in Sub-Saharan Africa whose recovery remains fragile following the sharp drop in oil prices in 2014.
According to the World Bank, growth in Angola and Nigeria has subdued in 2019, remaining well below historical averages and contracting for a fifth consecutive year on a per capita basis.
Global ratings agency Moody’s Investors Service said on Thursday that although oil prices have recovered a bit, they remained below 40 U.S. dollars per barrel. Low oil prices and possible foreign-currency shortages will filter through the economy, resulting in low economic activity in Nigeria.
The agency warned that Nigeria’s foreign-currency reserves, which declined to around 36 billion U.S. dollars at the end of February, will be under pressure, triggering a possible depreciation of local currency naira and further diminishing investor and business confidence.
London-based economic research consultancy Capital Economics said on Wednesday that Angolan economy is projected to fall by 3.5 percent in 2020 and an 18-percent devaluation in local currency kwanza, due to the global oil price drop amid the coronavirus outbreak.
The think tank estimated that oil prices may drop about 35 percent in total this year, which will be “painful” for main producers such as Nigeria and Angola.
Nigeria’s economy slipped into recession in 2016 following oil price falls in 2015. According to official statistics, the economy contracted 1.58 percent in 2016 and grew by only 0.82 percent in 2017. The country recorded a 2.27 percent expansion in 2019, slightly higher than a growth rate of 1.91 percent in 2018.
In its latest African Economic Outlook 2020 report released earlier this year, the African Development Bank said a real GDP contraction of 0.1 percent is estimated for Angola in 2019, indicating that the recession has not yet ended.
Industry watchers noted that Africa’s petroleum producers will suffer from the oil price dive as they need the prices to meet spending requirements while balancing national budgets. The global oil pressure, coupled with the COVID-19 outbreak will have various impacts on African markets.
At the end of last year, the Nigerian government pegged the oil price at 57 U.S. dollars per barrel in its 2020 national budget, predicting that the economy was expected to grow by 2.93 percent in 2020.
“We can take oil production to three million barrels if we are determined, but the problem still remains that we have a huge challenge which is the capacity to finance oil development in Nigeria,” said Kyari, while speaking at a conference held in Abuja to cushion the effects of the decline in the global oil price.
Mary Uduk, acting director-general of Nigeria’s capital market regulator Securities and Exchange Commission (SEC), told reporters in Abuja on Wednesday that the effect of the declining global prices would be felt in various countries’ markets.
The Nigerian government has already convened a conference led by the Central Bank of Nigeria to look at possible ways out of the situation, she noted.
According to the official, Nigeria’s 2020 national budget had already been threatened by the fall in the oil price, but concerted efforts are required to tackle the issue as it affects the local benchmark for crude oil.
“It is a serious thing, so all of us need to sit down and say what we can do. It is not just one sector, it has to be concerted efforts by all,” she added.