The slump in oil prices is weighing on African producers’ GDP and foreign exchange reserves. This pressure looks set to continue as global oversupply keeps pushing crude markets down and production costs remain high.
When oil rallied after the financial crisis, African OPEC members Nigeria and Angola and smaller oil-rich countries like Gabon and Equatorial Guinea enjoyed significant gains. Gabon is the most reliant of the four on oil, which accounts for 43 percent of its GDP. Gabon’s economy surged while foreign exchange reserves exceeded $5 billion in 2013, up from $237 million 10 years earlier.
The damage on the way down has been almost as impressive. Equatorial Guinea has lost 70 percent of foreign exchange reserves since the end of 2013. The other three West African oil giants shed more than 20 percent of foreign reserves in the same period.
Oil economies are slowing down accordingly. In Nigeria — where oil exports account for more than 90 percent of total export revenue, according to IMF and OPEC data — GDP growth fell to 4 percent in 2015 from 6.3 percent in 2014, Bloomberg data show.
In Angola, which has a less diversified economy, GDP growth fell to 3.5 percent last year, from 4.8 percent in 2014 and 6.8 percent the year before.
At the same time, costs of production have remained high. Angola had a breakeven price of $98 a barrel last year, while Nigeria’s was almost $123. West Texas Intermediate futures dropped to $26.13 a barrel on Feb. 12, the lowest since May 2003.
Oil could fall below $20 a barrel as the search for a level that brings supply and demand back into balance makes prices even more volatile, Goldman Sachs predicted. With capacity to store oil exhausted in some places, prices may need to drop low enough to halt crude output that can no longer be stockpiled, said , Goldman’s head of Jeff Currie commodities research, on Feb. 10.
– Bloomberg brief