Oil price impact on African economies

21 Oct 2016

A sharp decline in oil prices since 2014 has had a marked effect on African economies. Of the continent’s four major oil and gas exporters, Nigeria has been the most affected, and has instituted strict capital control measures to address the country’s depleting foreign currency reserves. According to World Bank estimates, crude oil sales fund up to 75% of Nigeria’s budget. 90% of Africa’s natural gas production comes from Libya, Algeria, Egypt and Nigeria.

According to World Bank Development Economics Prospects Group (DECPG) Senior Economist Gerard Kambou, “Sub-Saharan Africa’s oil exporters, which account for nearly half of the regions aggregate output, have been hit hard by the sharp decline in the price of oil.”

While there has been no major surge in business investment or consumer spending, some analysts suggest that the current slump in the industry may be an opportune time for re-invention.

In the PwC African Oil & Gas Review, organisations identified the price of oil and natural gas as “the most significant factor that would affect their companies’ businesses over the next three years”.

PwC Africa Oil & Gas Advisory Leader Chris Bredenhann believes that there are opportunities in the sector.

“It is an opportune time for local governments that want to attract oil and gas investors to reform their regulatory, fiscal and licensing systems… Change is the way to survive in the ‘new energy future’. We need to see new business models, new products, new energy sources and new strategies to meet the new reality.”

Although most African economies are not dependent on oil, the price of oil does have a direct effect on major industries. In South Africa, for example, commodity prices affect the viability of industry and development, so fluctuations in fuel prices can influence operating costs.

Frost & Sullivan Africa Senior Economist and Programme Manager for Mobility Craig Parker says the impact is variable.

“The impact on business will vary depending on the level of fuel dependence on the value chain of the sector. The lower oil price combined with the volatility in the rand is resulting in minimal impact on lowering the fuel price. If the rand would strengthen, it will lower logistics costs for many businesses. The sectors that would be most significantly impacted would be the transport, fast-moving consumer goods (FMCG), retail and mining industries.”

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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