LAST UPDATED: APR 9, 2020 – 12:33:26 PM
During a press conference in Addis Ababa, Ethiopia, Vera Songwe, executive secretary for the Economic Commission for Africa (ECA) predicted the continent’s growing COVID-19 cases are set to deal with African economies a severe blow.
“Africa may lose half of its GDP with growth falling from 3.2 percent to about two percent due to a number of reasons, which include the disruption of global supply chains,” she stated during the March press conference. The continent’s interconnectedness to affected economies of the European Union, China, and the United States was causing ripple effects, Ms. Songwe added.
According to Quartz Africa, “Not only are African countries fully integrated into the global economy, but many states are often playing a weak hand as (have) exporters of commodities whose prices have been falling precipitously.”
Additionally, countries whose currencies are losing value against the dollar and that are importing goods, are facing possible severe challenges “as international investors start to turn away from Africa to worry about the problems at home,” the outlet reported.
Nigeria, the continent’s largest economy, which relies on oil sales for 90 percent of its foreign exchange earnings, has come under increasing pressure, resulting in a possible oil price plunge war, following disagreements between Saudi Arabia and Russia.
The website oilfieldtehnology.com predicts that “COVID-19 would cause the country to suffer the biggest loss in the continent with $15.4 billion, representing about 4% of the nation’s GDP, a fair assessment considering the country has over $58 billion in oil projects set to suffer delays or cancellations,” reported The Atlantic Council.
Not only Nigeria but oil-reliant Angola, which depends on the oil sector for over one-third of GDP and more than 90 percent of its exports, has had to revise its national budget.
Finance Minister Vera Davis de Sousa said that “Angola would … be freezing 30 percent of its goods and services budget and its CAPEX would be suspended pending completion of the budget review. Meanwhile, the Angolan sovereign wealth fund has agreed to offer $1.5 billion on condition of future repayments through increased tax in the Bank of Angola’s growing debts.”
CAPEX is capital expenditures, or funds used to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment.
Senegal’s first oil development faces debt arrangement challenges; analysts predict. The country’s first oil development, the $4.2 billion Sangomar Deepwater offshore project has suffered immense pressure as project partner FAR Ltd. fails to finalize debt arrangements.
Citing current environment as a major contributor, FAR said, “The company’s ability to close the Sangomar Project debt arrangements that were ongoing during this time have been compromised such that the lead banks to the senior facility have now confirmed that they cannot complete the syndication in the current environment. …”
Ghana will get only half its projected revenue. The country set a benchmark of $58.66 oil price per barrel until the end of 2020. Its projected old revenues are set to take a hit, according to the oil industry publication. “Analysts already predicting the country will (only) get half its projected revenue,” it noted.
The United Nations Economic Commission for Africa has estimated that the continent could lose up to 1.4 percentage points of GDP growth as a result of the pandemic. This figure may be much too conservative in light of the massive destruction of trade and economic activity happening in just about every region on the earth.
Foreign Policy in a recent headline noted: “Africa is bracing for a head-on collision with coronavirus,” and declared that not only will the continent face a “health crisis,” but also “an economic shock.”
The co-authors of the article estimate African countries including Angola and Nigeria that export oil could together lose up to $65 billion in income. The Brookings Institute estimates that up to “2.1 percentage points in lost GDP growth for sub-Saharan Africa if the pandemic and global disruptions are severe and endure.”
The Republic of Congo’s oil minister recently wrote OPEC secretary-general Mohammad Barkindo, asking for urgent talks to assist with keeping some members from sliding into recession, reported wkzo.com.
But while pleading out of desperation for the Organization of the Petroleum Exporting Countries (OPEC) plus Russia to ride to the rescue, Africa’s oil producers, have little leverage. “They have no power,” one unnamed oil industry source told Reuters. “All they can do is ask.”
To add insult to injury, Nigeria is struggling to sell its oil, which is rich in the gasoline and jet fuel that the world has all but stopped using as a result of travel restrictions because of the coronavirus.
The irony of the coronavirus pandemic, according to commentary titled: “How coronavirus could permanently change our lives according to Goldman Sachs,” is that “low oil prices are forcing massive cuts to supply, which will be slow to return when demand bounces back.”
The article explained that when demand outpaces supply, the result is inflation. “And suddenly, industries that rely on petroleum will feel the pain of surging costs, and they, in turn, may be forced to make long term changes,” the article noted.
Jeff Currie, in a note to his Goldman Sachs client wrote, “The global economy is a complex physical system with physical frictions, and energy sits near the top of that complexity.”
The most telling portion of this commentary was the importance of adapting, it noted. Mr. Currie wrote the economies began as a temporary change and now it may become routine. The longer it lasts the more people are willing to embrace ascents of the lifestyle, he explained.
“People are adapting to a more local existence and living off more sustainable activities, consuming less globally-produced fresh food, producing less waste with a more conservative approach to consumption, all of which may have lasting impacts on demand,” wrote Mr. Currie.
“Further, commuters and airlines account for 16.0 million b/d (barrels per day) of global oil demand and may never return to their prior levels.”