Globally, lockdown measures to curb the COVID-19 disease from spreading further and a brief spat between Saudi Arabia and Russia for market share in the oil sector resulted in a sharp drop in demand and prices for the commodity.
International benchmark Brent crude fell from over $60 a barrel early this year to a two-decade low of around $20 a barrel in late April. United States benchmark West Texas Intermediate crude oil futures also fell into negative territory for the first time in history, with prices falling as low as -$40 a barrel, as north America ran out of storage space.
An agreement from OPEC+ countries to slash global output, and the gradual easing of coronavirus restrictions that has restored some demand, have helped prices recover to current levels of around $40. But the impact of the price slump is still being felt in Africa’s oil and gas exporters.
Oil sales account for a significant portion of gross domestic product in many of these economies, most of which have annual budgets benchmarked on higher prices. The apparent financial crunch means a lot of these economies find themselves in a dangerous footing with many forced to cut spending or source additional finance to make up for the fall in revenue.
Here is how the pandemic has hit some of the continent’s biggest energy exporters while posing a different challenge to a group of prospective producer countries in sub-Saharan Africa.
Nigeria is Africa’s most populous nation and the region’s largest oil producer with an output of around 2 million barrels per day. Although the oil and gas sector accounts for less than 10 percent of GDP, oil sales make up over 80 percent of the country’s exports, more than half of government revenue, and about 90 percent of foreign exchange earnings.
The World Bank expects Nigeria’s energy sector to shrink by 10.6 percent this year. With the drop in export income, the government’s revised budget, passed by Parliament on June 10, lowered the benchmark oil price from $57 a barrel to $25.
The country also just got a $3.4 billion from the International Monetary Fund, with about $3.5 billion loan request still outstanding with African Development Bank and World Bank while officials approved $5.5 billion in additional loans to help fund the new budget deficit.
Low oil prices are also having a significant impact on Angola – Africa’s second-largest oil producer with an output of 1.4 million barrels per day in March – which heavily relies on oil revenues.
Oil makes up 90 percent of total export revenues and the IMF estimates that it needs an oil price of $55 per barrel for fiscal breakeven. That means prices currently hovering around $40 a barrel would create fiscal imbalances.
Exports value fell by nearly 50 percent from April to May, getting Angola about $380 million in cash from its crude oil sales for the month. Both oil prices and production levels fell from 1.402 million barrels per day in March, to 1.313 million bpd in April, and then to 1.280 million bpd in May, according to OPEC figures.
Algeria similarly gets over 90 percent of export receipts and funds 60 percent of its budget from oil. With the crash in oil prices, the government announced in May that it would slash the 2020 national budget by 50 percent.
Prior to this year’s crisis, foreign exchange reserves had fallen drastically from $180 billion in 2014 to close to $62 billion at the end of 2019, presenting the northern African nation with a looming financial crisis and broader economic fallout from the COVID-19 pandemic.
Algeria is expected to go into recession this year, with its economy contracting 5.2 percent, and to have one of the largest budget deficits in the region due to the collapse in oil prices and the novel coronavirus, according to IMF projections.
According to the Central Bank of Egypt data for the first half of 2019/20, the petroleum sector accounts for 12 percent of Egypt’s GDP, and 37 percent of its exports. Natural gas makes a greater economic contribution than oil in Egypt due to a growing number of exploration and production projects, notably the Zohr gas field and other offshore discoveries in the Mediterranean.
The natural gas sector recorded a growth rate of 4.5 percent in the first half of the 2019/20 year but the effect on the pandemic on the industry is yet to be determined. A new gas export terminal that was set to reopen in June is currently facing uncertainty due to the collapse in negotiations between stakeholders.
Egypt’s expected progress in the coming year is likely to face a setback amid the uncertain circumstances – the Economist Intelligence Unit (EIU) expects the economic impact of COVID-19 could curb the expansion of the sector in the short term. And the longer oil prices remain depressed, the more extensive the impact will be on the exploration and production segment, Minister of International Cooperation Rania Al-Mashat said in an April webinar.
Embattled Libya produced almost 1.2 million barrels of oil per day in 2019, up more than 100 percent since 2016, during a temporary reduction in armed conflict in the country. But the surge in production hit a roadblock early this year as the civil war intensified, plunging production dramatically.
As of June, Libya was grappling with a war between the Government of National Accord and the Libyan National Army. The National Oil Corporation recently lifted the force majeure on all oil exports only to go back on its decision two days later, citing a renewed blockade on its oil export terminals and blaming it on interference from the United Arab Emirates.
Libya’s oil production is set to nearly halve in the coming years due to the oil blockade. The sharp decline in its oil output and the pandemic-triggered low prices make Libya one of the worst hit by the coronavirus outbreak, the African Development Bank has warned, with severe uncertainty now clouding the country’s oil industry and the broader economy.