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Lower Oil Prices Affect Economies Throughout the Continent

Whoever wins Nigeria's national election, the country will face the significant consequences of lower oil prices. The government depends greatly on oil export revenues for its budget, and the current government has already trimmed its budget to accommodate these lower prices. The value of the naira, Nigeria's currency, has also suffered, and this could impact Nigeria's ability to afford important imports such as food and petroleum products. While the price of exported oil has dropped, the price of domestically consumed petroleum products, has not, and demand for fuel subsidy increases could put yet more strain on the government budget as Nigeria's citizens wish to see lower oil prices reflected in domestic petroleum product prices.

Other African countries will also notice the effects of the lower oil prices. Angola will be forced to rethink its current development plans to carry out large infrastructure projects across the country. Angola already has announced austerity measures and now will have to reprioritize public expenditures. This puts an increased strain on the government's already limited efforts to diversify the Angolan economy away from its dependence on oil exports and specific infrastructure projects connected to those exports. Politically, low oil revenue will not significantly alter or strain the relationship between the national oil company — Sonangol — and the ruling Popular Movement for the Liberation of Angola and President Jose Eduardo dos Santos. This relationship is multifaceted and has lasted nearly 40 years despite a civil war and long periods of lower oil revenue. The Angolan government may have to slow down spending on some public policy and infrastructure initiatives, but the ruling party will not relax its grip on Angola, so the country's robust security services will contain any popular dissent arising from poor economic performance.

In other, smaller, West African oil producers, domestic budgeting will be affected similarly, but in general investment in the oil industry is not expected to slow down. Particularly in areas where exploration is occurring or about to begin, larger investments and oil production are still five to 10 years away. The current low oil prices will not necessarily affect the smaller investments required to continue with exploration, particularly in areas with a great deal of potential.

In East Africa, the process of initiating oil production in Uganda and Kenya will continue, although in 2015 it will reach only the preliminary stages of development. In Tanzania and Mozambique, the development of offshore natural gas fields will continue, and security and political dynamics hold little potential as disruptors. Tanzania will hold elections in October but the interests in natural gas development will be the same regardless of who wins. The Tanzanian government will support the approval of a new national constitution that redefines areas of responsibility between the Tanganyika mainland and the Zanzibar archipelago. However, the promising offshore natural gas sector will remain within the purview of the national government.



South Africa, while not a significant oil producer, will also feel the consequences of slowing growth in global oil markets. The South African economy depends greatly on mineral exports and globally determined commodity prices more generally, which means that constraints on public spending and the weakness of the rand will continue. There is no single pressing event such as an election taking place in 2015, however, so the African National Congress-led South African government will delay making difficult policy decisions and instead will carry out policy adjustments that tweak the economy rather than making more fundamental changes. The exception is the power sector, where moderate reforms and a bailout package for Eskom, the national electric utility company, will take place in early 2015. Labor negotiations in South Africa's gold sector also will be impacted by the government's limited ability to accommodate the demands of the workforce and the potential resulting strikes could further affect the South African economy.


Date: 2016-04-22; view: 814


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