With the massive decline in crude oil prices due to the COVID 19 outbreak and the crude oil price war between Russia and Saudi Arabia, oil-dependent nations in Africa and around the world will see a massive decline in revenue.
On Thursday, the International Monetary Fund (IMF) announced that they will be working closely with the Nigerian government in order to evaluate the vulnerabilities which may affect the nation’s economy as the price of crude oil continues to decline.
About 90% of Nigeria’s foreign currency revenue is earned from their exportation of crude oil. Although the Central Bank of Nigeria says that they do not have any plans to devalue the currency. The parallel market rates have been under pressure which resulted in a decline in the purchasing power of the naira against the US dollars.
Experts have predicted that the decline in oil prices would wipe out Nigeria’s revenue by about 50%. The fear of the price of Crude oil falling further has caused the Nigerian government to slash 1.5 trillion from their 2020 budget.
Angola is another African country that depends heavily on crude oil. It is the nation’s largest source of revenue. Experts have predicted Angola’s GDP to shrink from the slash in the price of crude oil.
The decline in crude oil prices may, however, have a positive impact on South Africa’s economy. In South Africa, transportation is a significant factor in its economy.
In the fourth quarterly report of the country’s economy, South Africa saw a massive decline of 7.2% in the transportation and communication sector. The lower cost of fuel would lead to a lower price in transportation, therefore, boosting its sector.
In extension, the cheaper cost of transportation will lead to a cheaper cost of goods and services which may have a positive impact on the economy’s state of recession.
Reduced price in crude oil will result in a lower cost of production in South Africa, therefore, improving the profit margin of producers. Farmers also use diesel engines and petrol powers engine while harvesting.
70% of South Africa’s food is transported by land, the reduced cost of fuel will decrease the inflation of food. The reduced cost of goods, services and food may further improve the purchasing power of South Africa’s currency.
