Africa Awaits A Post COVID-19 Recession
…Oil and gas producing countries too – W/Bank
The World Bank has said that Africa may fall straight into a steep recession shortly after the COVID-19. Oil and gas producing countries are expected to take particularly hard hit in a looming recession the World Bank predicts will be induced by the COVID-19 pandemic.
Currently, the presence and impact of the epidemic have caused an incredible drop in energy demand for oil. Demand has declined by shocking 30 million barrels per day during the pandemic, as 4 billion people across the globe have been ordered to stay home and businesses closed.
Low demand, coupled with the oil price war between Saudi Arabia and Russia in March, oil prices have fallen to record lows. According to the World Bank, Nigeria and Angola, for example, could see growth fall by more than 7%.
In the report, the World Bank said that the African continent will also face its first recession for the region in 25 years, as growth declines from 2.4% in 2019 to between -2.1% and -5.1% for 2020. The estimated costs in terms of output losses in 2020 for the continent — including oil, metals, tourism, foreign aid, FDI, etc. — range from $37 billion to $79 billion, the report said, adding that countries that import the majority of Africa’s goods, including China, the US and Europe, are experiencing economic tumult, which has halted many of country’s exports.
In February, China announced it was taking a third less oil from West Africa, with traders saying they had difficulty selling crude from Nigeria and Angola in March.
“The COVID-19 pandemic is testing the limits of societies and economies across the world and African countries are likely to be hit particularly hard,” said Hafez Ghanem, World Bank Vice President for Africa. “We are rallying all possible resources to help countries meet people’s immediate health and survival needs while also safeguarding livelihoods and jobs in the longer term.”
“From the oil perspective, COVID-19 has clearly affected demand,” said Paul Eardley-Taylor, Oil & Gas Coverage for Southern Africa for Standard Bank. OPEC has recently announced a major agreement and the industry reaction has been to cut CAPEX by around 25% across the board. Everyone is watching to see the duration of the COVID crisis.”
Crude storage around the world is expected to reach capacity in just a few weeks, putting further constraints on oversupply. The impact, on gas, however, could be different.
“From a gas perspective, falling oil prices are likely to encourage fuel switching to gas, although the demand for electricity will also be affected by the duration of the COVID-19 crisis. However, we are also seeing some delays in gas investments,” Eardley-Taylor said.
Foreign Direct Investment, especially in energy, mining and infrastructure, will also be “severely affected”, the report states, as “access to financing flows from China and capital markets become more restricted.”
“For African producers, a lot of programs are getting shut down,” said NJ Ayuk, Chairman of the African Energy Chamber. “We are seeing force majeure in Cameroon, in Senegal. Exxon Mobil is delaying a gas project in Mozambique. In Uganda, some companies are delaying exploration. Frankly, most projects are going to get delayed.
“Now you are seeing the rig counts are reducing drastically. The current market doesn’t encourage banks and financial institutions to invest, as they won’t get the right kind of return. And if projects aren’t bankable, no one is going to put money in them. This will have an impact on the African producers, even in a country like Nigeria, where you have mature and marginal fields,” Ayuk said.
Oil companies are hunkering down to weather the crisis, delaying nonessential work, cancelling projects and cutting nonessential expenses. “2020 is going to be a tough year for everybody,” said Ayuk. “Everyone needs to buckle up for the ride.
The real question is: are we paving the road for a smooth ride in the future? That is really key to what we want to do. You have twin issues of the price war and the coronavirus — you can’t make this up. Hollywood couldn’t have written out this script. 2020 is done. So, you have to look at 2021 and form the policy that will drive you forward. You have to be in a strong position to go forward and really deal with a future that works for the industry.”