With the outbreak of COVID-19, prices for oil fell precipitously. On December 31, 2019, North Sea Brent crude, a benchmark, sold for approximately $68.00 a barrel. However, when on April 20 traders recognized that the coronavirus was a global pandemic, prices for Brent dropped to a little more than $25.00 per barrel. In the United States, West Texas Intermediate (WTI), another benchmark, dropped to negative values when producers confronted a choice to shut down their installations or pay buyers to stock their crude. Recovery has been slow; on 18 September 2020, prices per barrel were $41.00 for WTI and $43.09 for Brent. Without question, the international price for crude oil has serious implications for African exporters. By any measure, the global pandemic had a major impact on African oil and gas exporting countries.
In 2020, the coronavirus spread internationally. Oil exporting countries in Africa awaited COVID-19 in an already precarious situation. The African media made dire predictions. In African oil democracies, transparency about the infection and death rates is probable. To no less an extent, it is possible that authoritarian regimes limit information about infection rates and deaths. Fears were that COVID-19 cases in Africa could exceed the caseloads that had upended public health elsewhere. Especially alarmed were leaders in countries with high population density like Nigeria and South Africa, the continent’s two largest economies.
In the spring 2020, exports decreased from Africa as international demand dropped. Although most of the larger exporters benefitted from years of high growth, smaller producers like Gabon, Equatorial Guinea, Congo, and Chad were far more vulnerable. Alongside the decline in oil prices was an unraveling of OPEC+ Agreements. Saudi Arabia and Russia engaged in a price war and increased oil production; a glut followed when supply outstripped international demand. In Angola, Ghana, and Nigeria, three governments that set production rates and a benchmark price per barrel to fund their budgets, a decline in the international benchmarks bode risky implications. This essay considers first the impact of COVID-19 on Ghana, Nigeria, and Angola. Second, it briefly discusses other oil exporters.
A relatively new oil exporter, in early 2020, Ghana produced a little over 192,000 barrels a day. Its 2020 budget forecast a $62.60 a barrel benchmark price, however, the crash in oil prices that followed the outbreak of COVID-19 left generated a budget deficit. However, Ghana has a diversified economy; agriculture (cocoa), manufacturing, mining, and services protect it from the most negative effects of oil price volatility. The country’s gold mining operations are critical; Ghana is Africa’s second leading producer of gold. McKinsey reports that unlike petroleum, prices for gold have increased 28% from January 1, 2020 to August 14. Even if gold prices decline in 2020, it remains a critical source of wealth that will buffer the worst effects of COVID-19. In Ghana, the coronavirus has thus far infected 45,434, of whom 286 have died, and 44,342 have recovered. The country, unlike Angola and Nigeria, is a democracy that has hosted multiple elections and alternations of parties in government. In the post-COVID Ghana, a strong recovery is most probable.
With at least 201 million people, Africa's largest population, Nigeria is a semi-democratic government. It is a country with many cities and high population density. This poses difficulties for strategies to combat COVID-19. Its enormous oil industry, located in southern Nigeria, is vital as a source of foreign revenues. With a capacity to export 3 million barrels a day, Nigeria is Africa’s leading oil exporter. Still, the Nigerian economy endured bank crises in 2008-2009 as a consequence of fraudulent borrowing; banks held substantial portfolios of non-performing loans. These conditions buffeted the national economy. Only the steady income from oil exports, approximately 10% of GDP and 85% of export revenues, allowed the Federal Government to finance its budget and prevent a collapse. In its 2020 budget, the Nigerian government initially set a benchmark of $57.00 per barrel and 2.18 million barrels a day. However, collapsing oil prices compelled a reduction in the benchmark price to $30.00 a barrel while keeping production constant. Reduced income has compelled the government to reduce budgetary allocations to the states and local governments thus forcing them to pay their recurrent expenditures with loans. The deficits reduced funding to fight the virus. Still, Nigerians, a dynamic people who for decades suffered under brutal dictatorships, now enjoy representative democracy. Indeed, Nigeria has an enormous informal sector that, according to some measures, dwarfs its formal economy. In the post-COVID Nigeria, these impulses may be expected to continue.
When the effects of COVID-19 hit Angola, the country’s economy was already in a marked slowdown. Although an economic boom had followed the end of the 27-year civil war in 2002, declining oil production after 2017 reduced its fiscal revenues. Angola possesses reserves of 9.5 billion barrels that are almost entirely in deep-water blocks located in the Lower Congo Basin. According to OPEC, in 2019, Angola earned 50% of its GDP from oil, which constituted 89% of its exports. In 2019, before the pandemic, the IMF reports that prices for Angolan oil declined 8% from 2018 and there was a 6.5% drop in production. The price volatility depressed production and forced the government to pass a conservative budget for 2020 that anticipates continued reductions in oil production and earnings. In June 2020, the National Assembly set a benchmark price of $37.00 a barrel. Even these cautious figures leave the country vulnerable to unanticipated impacts of COVID-19.
Other producers post-COVID-19
South Africa is a democracy and a minor oil producer. It is Africa’s second largest economy with abundant natural resources and a population of 58.6 million people. It sadly has among the highest infection rates on the continent with 648,214 people infected of which 576,423 have recovered. The death toll is high; the virus has killed 15,427. The South African economy, like Ghana, Angola, and Nigeria has slowed.
To no less an extent, Congo, Chad, Equatorial Guinea and Gabon experienced a decline in oil exports and revenues. However, economic diversification was hardly a fact among the former cocoa exporters in Equatorial Guinea, the cotton producers in Chad, or the loggers in Congo and Gabon. These countries confront a strong possibility of a return to poverty. In these countries, the global pandemic is having an immediate and severe effect. How COVID-19 is affecting the long-term development of these countries may be a retrenchment of authoritarian regimes. Whereas the economies of Nigeria, Ghana, and Angola may expect continued growth, albeit at a slower rate; Chad, Congo, Gabon, and Equatorial Guinea are especially vulnerable to economic downturn that bode poorly for their peoples’ liberties. As the men who control these governments confront a reduction in revenues, their incentives may actually be to seize more rents and reduce expenditures in health and education. A tragic development in the post-COVID-19 reality in these countries, and other authoritarian Africa oil exporters, may be a reduction in liberties, transparency, and accountability.