By Anthony Osae-Brown
In many parts of Africa this year, the price of crude
oil, which is determined in the international market,
is shaping the way we live our lives and will con-
tinue to do so in 2015 and beyond.
April - June 2015 •
The Lion King
• 11
Factors Shaping
Africa’s Economy
C
rude oil prices have dropped by more than 50% in
the last 12 months and the outlook for prices does
not look good.
Oil-dependent countries are especially feeling the pressure.
Angola, for example, has announced plans to borrow $25
billion this year ($15 billion through treasury bills and the
balance via external borrowing), as the country’s revenues
take a hit from the steep drop in crude oil prices. The gov-
ernment has also announced plans to remove fuel subsi-
dies, which cost the country about $2.2 billion a year and
devalue its currency.
In Ghana, the government has announced that it will scrap
the remaining of its fuel subsidies by September 2015 in a bid
to reduce expenditure, which has come under pressure in
the face of dwindling crude oil prices. This is after success-
fully arranging a billion dollar facility from the International
Monetary Fund (IMF).
Nigeria’s successful and peaceful elections have raised
hopes, but the new government is faced with tough deci-
sions to make in the face of dwindling revenues from crude
oil and the resurgence of Boko Haram activities in Northern
Nigeria.
The new Nigerian government may be forced to eliminate
fuel subsidies and increase tax collection, while continuing
to deliver the many welfare projects promised. Meanwhile,
economic growth has slipped in the first quarter in Nigeria
while the unemployment rate has risen from 6.5% to 7.5%
amidst pressure on the country’s foreign reserves and the
Naira which has been devalued by 7.5% in the last six
months.
Femi Olaloku, Executive Director, Treasury and International
Banking, UBA Plc believes the Nigerian government will
have to move to diversify the productive base of the econ-
omy in order to overcome the challenges brought about
by dwindling revenues from crude oil sales. Speaking as
one of the panel discussants at a Bloomberg/Nigerian Stock
Exchange CEO Roundtable on the Banking and Oil industry,
Olaloku said devaluation of the naira is one of the options
that could be considered to make the importation of goods
into the country more expensive, which will encourage local
manufacturing and inflow of foreign capital.
But this economic despair is not present all over the conti-
nent. Kenya’s economy is still growing strong, though at a
slower pace. The IMF expects that the economy will grow at
a dampened rate of 6.5% this year, as opposed to the 7%
growth rate previously announced. This can be accounted
for by rising insecurity in the country, followed by the tragic
Al-Shabab attacks and the softening of commodity prices.
Democratic Republic of Congo’s economy is another bright
spot on the continent, with the IMF forecasting that the
country’s economy will expand by 9.2% in 2015, which will
make it one of the fastest growing economies in the world.
Additionally, following new deep sea recoveries off its south
coast, Tanzania’s current natural gas reserves have been
put at about 55 trillion cubic feet (tcf). These are expected
to attract new investments into the country, creating jobs
for many Tanzanians.
Perhaps, the biggest news that will shape Africa’s economic
future is the announcement that three existing trade blocks,
made up of 26 countries with a population of over 600 mil-
lion people, will create the largest free-trade zone on the
continent.
These trade blocks are the Southern African Development
Community (SADC), the Eastern African Community (EAC)
and the Common Market for Eastern and Southern Africa
(COMESA). The treaty will facilitate the movement of free
goods and services among the countries and will allow pref-
erential tariffs between them.
Q3 Outlook
|
Business
