12 | The Lion King
By Anthony Osae-brown
Business
Described as the continent of promise,
Africa’s economic growth is facing
a stiff test as different factors come
together to shape its economy, some
for good and some for bad. We look
at the different factors that will be
shaping the African economy in the
next quarter.
Elections in Africa
The Nigerian elections has dominated
the first quarter of the year with
significant impact on the economy
as investors took refuge outside the
country over the uncertainty generated
by the forthcoming polls. However, as
the uncertainty over elections subsides
in Nigeria, many other African countries
will see the uncertainty rise from next
quarter as elections in their country
approaches. The different African
countries that will be holding elections
this year include Ivory Coast, Guinea,
Burkina Faso, Togo and Central African
Republic while Benin, Cape Verde,
Chad, Gabon, Niger and both Congos
are all expected to hold elections in
2016.
Considering the nature of elections in
Africa and that democratic culture is
still relatively emerging, political tensions
are expected to rise as the elections
approach leading to slowdown in
businesses, and investment inflows.
However, the successful and peaceful
election outcome in Nigeria is expected
to have a positive impact on elections
across all other African countries.
Crude Oil prices
Crude oil prices have lost almost half
of their values since June 2014 when
Brent crude plunged from a high of
Q2 2015
Africa
Economy
Outlook
$115 per barrel. Oil dependent African
countries like Nigeria and Angola have
taken a significant hit on their planned
expenditures in 2015 as a result of this
ugly development. Nigeria’s Senate,
for example, has cut the crude oil price
benchmark for its 2015 budget to $52
per barrel from an initial proposal of $75
per barrel.
The drop in crude oil prices is also
having a negative impact on the
new oil and gas explorations in many
African countries. Tullow Oil, which is a
major explorer in Ghana and Kenya,
for example, has cut its budget from a
peak target of $1 billion to around $200
million in 2015 and this is expected to
affect its exploration activities mainly
in Kenya. However, operating costs of
around $10 a barrel for Tullow’s Ghana
Jubilee field means that its exploratory
activities in Ghana will remain largely
unaffected.
Besides Ghana, there are other oil and
gas exploratory spots that are unlikely
to be negatively impacted by the drop
in crude oil prices. Stuart Lake, CEO of
African Petroleum, which has licences
offshore Senegal and Ivory Coast in the
West Africa Transform Margin, says the
firm has no plans to cancel projects
in the area he called one of Africa’s
“sweet spots”, he was quoted by
Reuters as saying.
Paul Eardley-Taylor of Standard Bank Oil
and Gas was also quoted by Reuters
as saying that he expected liquefied
natural gas projects in Mozambique -
home to an estimated 180 trillion cubic
feet of gas, enough to supply Germany,
Britain, France and Italy for 18 years - to
go ahead.
There are other oil exploratory spots
in Nigeria, Angola, South Africa and
Gabon that oil analysts expect will be
negatively impacted if crude oil prices
remain low unless their governments
introduce appropriate incentives to
encourage further exploration.
Job cuts in both the government and
private sector, increased taxation and
business restructuring will dominate the
second quarter as governments and
the private sector reposition in the face
of dwindling revenues or increased
taxation and levies.
Currencies
African currencies will continue to
experience difficulties in the second
quarter of the year due to low
commodity prices and rising demand
for the green back as business activities
pick up in 2015. Nigeria, for example,
has seen significant downward pressure
on its currency following the steep drop
in crude oil price. The Nigerian Naira
has dropped about 28% in the last six
months and the pressure is expected
to remain on the currency as long as
crude oil prices remain in the $50 range.
Crude oil revenues make up about 90%
of Nigeria’s export earnings.
Angola’s parliament has also slashed
$17 billion off its original spending plans
for 2015. Ghana also slashed its 2015
oil revenue forecast to 1.5 billion cedis
($417 million) from 4.2 billion cedis when
the budget was presented in November
due to lower crude prices while another
Oil-producer Gabon plans to revise
its 2015 budget and cut spending
on goods, services and fuel subsidies
following a sharp drop in oil prices.
These cuts are expected to have a
negative impact on economic activities
as government expenditure forms a
key part of the economies of these
countries.
