Oil prices dropped to around $20 a barrel at the beginning of April, the lowest level since 2002.
The oil price slump is due to a combination of a coronavirus-related decrease in demand for oil and a price war between Saudi Arabia and Russia.
An initial drop in March resulted in the largest drop in crude oil prices since the Gulf War in 1991.
The need to contain the COVID-19 virus in China, a major importer of oil, led to travel restrictions and factories being shut in January and February, reducing demand for the commodity.
A handful of African countries are highly dependent on oil as a major export and they stand to be heavily affected by the oil price reaching lows that have not been seen in decades.
Here are five African countries whose governments will take the biggest hit from low oil prices.
Nigeria, Africa’s largest economy and oil producer, is projected to suffer substantial revenue losses as a result of the oil price slump. The country planned for an oil price of $57 in 2020, not the slashed prices of around $22 per barrel. High-cost oil producer Nigeria could suffer the biggest economic loss in Africa of around $15.4 billion, representing about 4 percent of the nation’s GDP, according to the Atlantic Council. Nigeria has more than $58 billion in oil projects on the go which could now suffer delays or cancellations due to both the coronavirus crisis and low oil prices.
Angola is Africa’s second-largest oil exporter and the low prices are hitting the country hard. Oil is responsible for two-thirds of Angola’s tax revenue and 95 percent of its exports, according to the International Monetary Fund. Heavily-indebted Angola has signed resource-backed loans worth around $22.8 billion with Chinese lenders. This means that the repayment of the loans comes from income from the country’s crude oil. With lower oil prices, Angola will be forced to pump more oil to repay the loans owed to China.
Crude oil exports and tourism will be negatively impacted in Cameroon after the country imposed strict measures to mitigate the spread of the coronavirus pandemic. The country is expected to suffer losses amounting to 2 percent of its GDP due to falling revenues from oil exports, according to IOL. Operations in the oil sector are under threat as companies suspend operations take place. U.K.-based Tower Resources has already suspended drilling after declaring force majeure on its development in the Thali block in Cameroon’s offshore.
The fall in oil prices and COVID-19’s economic impact will also hit Ghana’s oil industry. The West African country’s oil sector has experienced steady growth for more than 10 years since Kosmos Energy’s oil discovery west of Cape Three Points in Ghana’s offshore. This was complemented by Springfield Group’s discovery of an estimated 1.5 billion barrels in 2019. Planning ahead of the year, Ghana set a benchmark oil price of $58.66 per barrel until the end of 2020. With the severe dip in price, analysts predict that Ghana will get less than half of its projected revenue, according to the African Energy Chamber. After GDP growth of around 7 percent for the last three years, Ghana’s finance minister is anticipating low growth of 1.5 percent in 2020, which would represent the lowest real GDP growth in 37 years, according to Credendo.
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Since discovering oil in 2014, Senegal has emerged as a major player in the global oil industry, creating new entities such as oil producer COS-Petrogaz and revising local regulations. This resulted in the West African country enjoying increased foreign investment and the entry of international players into the market. The oil price shock and continued negative effects on demand from COVID-19 have destabilized Senegal’s oil sector. The country’s first oil development, the $4.2 billion Sangomar deepwater offshore project is under heavy pressure as project partner FAR Ltd has failed to finalize debt arrangements. Senegal has also seen U.K. firm Cairn Energy reduce its planned investment to below $330 million from the initial forecast of $400 million, according to Reuters.