VARIOUS-AFRICA OIL CURRENCIES Global oil price slump squeezes Africa’s oil producers, currencies feel the pain.

Record ID: 344593

  • Title: VARIOUS-AFRICA OIL CURRENCIES Global oil price slump squeezes Africa’s oil producers, currencies feel the pain.
  • Date: 28th November 2014
  • Summary: ACCRA, GHANA (FILE) (REUTERS) VARIOUS OF MARKET STREET / PEOPLE WALKING VARIOUS OF FOREX BUREAU / CUSTOMER AND TELLER COUNTING CEDIS AND US DOLLARS
  • Embargoed: 13th December 2014 12:00
  • Keywords:
  • Topics: General
  • Reuters ID: LVA7YICOUV3JZ6YMHD58FA9I3G4N
  • Story Text: ==PLEASE NOTE EDIT CONTAINS 4:3 MATERIAL==
    Nigeria, Africa's biggest oil producer, is grappling with financial difficulties owing to a 30 percent fall in the price of oil since June. The central bank devalued the naira by 8 percent on Tuesday (November 25) because it was running out of forex reserves with which to defend the currency. The Naira touched a record low against the dollar the following day.
    Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including Angola, where the Kwanza also hit a record low on Wednesday.
    In Angola, the continent's number two oil producer, the kwanza has shed more than 3 percent since September, hitting record lows on an almost daily basis amid concerns about the state of government finances.
    Plunging world oil prices have dealt a blow to Africa far greater - in purely economic terms - than Ebola, setting back investment in exploration and plans to industrialise.
    In dollar terms, the devaluation of Nigeria's naira knocked 40 billion US dollars off the value of the economy - considerably more than the 32 billion US dollar worst-case scenario the World Bank projected in October for Ebola's economic impact on the entire sub-Saharan region.
    "Clearly for large oil producers like Nigeria and Angola, the implications of falling oil prices are fairly serious because they are countries whose economies depend almost exclusively on their oil production and the fact that oil prices fall means that they see an almost direct reduction on their export revenues and therefore run short of foreign exchange and therefore need to reduce imports of all other goods and services, which in turn implies reduction in economic growth in those countries," said economist, Dr Azar Jammine.
    Ghana, which became an oil producer in 2011, has already had to go the IMF route to try to stabilise a plunging cedi and pull itself out of a fiscal crisis caused in part by lower-than-expected oil receipts.
    Even beyond sub-Saharan Africa's established oil producers, which also include Equatorial Guinea, Chad, Sudan and South Sudan, the effects are being felt as frontier exploration projects contemplate shrinking margins.
    Toronto-listed junior explorer Africa Oil, which has interests in Kenya, Ethiopia, Somalia and Mali, said this month its plans in Kenya might be brought into question if the long-term outlook saw prices dropping below 70 US dollars a barrel.
    However, not everyone is that pessimistic.
    Britain's Tullow, a major regional player, told Reuters this month that "short-term variations" in oil prices would not cast a shadow over projects that may last decades.
    "One could argue that what we are seeing now is an overreaction and the prices at 76 (US) dollars a barrel have overshot on the downside and will rally back to about 80 dollars. But clearly a lot depends on what happens to the global economy. If the kind of positive forecast of economic growth made by the International Monetary Fund - we see higher growth next year than this year materialise, the oil prices shouldn't fall much more than their current level. But there is a danger that the world economy slides into a much deeper downturn and if that happens, oil prices could still fall a lot further," said Jammine.
    Although they have vast agricultural potential, the likes of Nigeria and Angola import nearly all their food and consumer goods, which will become more expensive, fuelling inflation and even raising the prospect of social and political unrest.
    Weakening currencies also make imports of machinery more expensive, hampering Africa's efforts to capitalise on above average growth rates by building industries to employ the millions of young people entering the labour market each year.
    "There is a good chance that countries like Angola and Nigeria, Gabon... big large oil producers would need to go to the IMF for assistance but fortunately the entire African continent is not driven solely by oil," said Jammine.
    African commodity have long been urged to diversify to reduce reliance on global prices that leave their economies vulnerable.
    Ghana's cedi currency has fallen more than 30 percent against the dollar this year and Standard & Poor's cut the country's rating last month, expressing doubts about the government's ability to reduce the deficit. Ghana until recently was seen as one of Africa's star economies due to its political stability and rapid growth through exports of gold, cocoa and oil.
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