Africa in a Low Oil Price World
International oil prices have plummeted by almost 50% since its peak of around US$115/bbl in mid-June 2014. On aggregate, this will have a negative impact on African GDP growth and current account balances due to the region’s position as net exporter. In fact, in January 2015, the International Monetary Fund (IMF) downgraded its outlook for real GDP growth in sub-Saharan Africa (SSA) from 5.8% to 4.9%, adding that “lower oil and commodity prices also explain the weaker growth forecast for SSA”. However, oil exports and imports differ significantly by region, with North and West Africa being home to some notable oil-exporting countries, while Southern and East Africa import most of its oil. The sharp drop in oil prices in recent months will therefore also have significantly different effects between regions; even within regions, the effects will vary significantly.
The drop in oil prices will have a significant impact on oil-exporting countries’ external positions. The exact impact will depend crucially on how reliant each specific economy is on oil exports. Some countries, such as Algeria, Libya, Angola, and Nigeria depend on hydrocarbons for as much as 95% of exports. Therefore, if oil prices are below US$50/bbl, these countries’ export revenues could half in 2015 relative to 2014.
In the following two graphs, we consider the examples of Angola and Nigeria, Africa’s two foremost oil exporters. Based on our assumptions for these countries’ oil export volumes,the graphs show the projected revenues earned from oil exports.
It shows that relative to an oil price of $100/bbl (roughly the level where most analysts expected oil prices to remain throughout 2015-16), Nigeria would lose over US$45bn in oil revenues per year in 2015-16 if oil prices average US$40/bbl; in turn, if oil prices average US$60/bbl in these two years, Nigeria would lose just over US$30bn p.a. As Angola exports less oil, its losses would be somewhat less in absolute terms: just over US$35bn p.a. on average at an oil price of US$40/bbl, and over US$23bn p.a. at an oil price of US$60/bbl.