By Patrick McGroarty in Joannesburg, Drew Hinshaw in Abuja, Nigeria, and Matina Stevis in Nairobi, Kenya
Plunging oil prices are threatening Africa's economic
ascent.
Recent oil and gas discoveries were hailed as a godsend for
African nations aspiring to middle-income status. But billions of
investment dollars are moving into projects just as crude prices
have tumbled, raising fears that some may be put on hold.
Total SA, Exxon Mobil Corp. and other companies are at work on a
$16-billion oil project in Angola that will be profitable only if
oil prices average more than $70 a barrel, Citigroup analysts
estimate. The price of Brent crude closed at a new five-year low on
Thursday, falling nearly 1%, or 56 cents, to $63.68 a barrel.
Anadarko Petroleum Corp. and Eni SpA have spent more than $5
billion developing natural-gas fields in Mozambique that threaten
to become much less profitable if global supply expands too
rapidly. Ugandan officials say they fear lower oil prices could
deter companies, including Tullow Oil PLC and China's Cnooc Ltd.,
from following through on plans to invest up to $15 billion to
develop the country's oil fields.
Cheaper fuel will help many African countries suppress inflation
by keeping energy import costs down. But the continent's biggest
economies have staked their futures on robust prices for oil and
gas. Pumping high-price crude has generated rapid economic growth
and spending that spilled across borders.
Now, those flows are set to slow sharply. Capital Economics says
falling commodity prices will cut growth across sub-Saharan Africa
by one percentage point next year, to around 4%, the slowest rate
since the late 1990s.
"It's bad for all of Africa," said Jack Allen, an economist at
the research firm.
Nigeria is a case in point. Africa's top economy and crude
producer has grown 7% a year for the past decade. As retail and
telecommunications companies have taken off, the oil industry has
shrunk to a more balanced 14% of economic activity.
But Nigeria's government revenue hasn't evolved with its
economy. Oil still fuels more than 70% of the budget, leaving
public institutions dependent on the ebb and flow of global energy
prices. As Brent crude prices fell below $70 a barrel this month,
Nigeria's naira currency plummeted to record lows.
Nigeria's Finance Minister Ngozi Okonjo-Iweala says the drop in
oil prices could drag economic growth down by a percentage point to
5.3% in 2015.
Earlier this month, the central bank raised interest rates to
draw back investors as the currency fell. The higher rates will now
make it more expensive for the government to borrow.
Now Ms. Okonjo-Iweala is scrounging for new revenue to hold
elections in February and fight the Islamist insurgency Boko Haram.
She plans to raise taxes on yachts, private planes and sparkling
wine. She has said she may even impose a mansion tax--small steps
toward filling a big hole.
"Undoubtedly, it's going to be tough times," she said in an
interview.
Cheaper oil is also complicating nearby Ghana's efforts to dig
out from deep trade and budget deficits. Ghana's cedi currency was
tumbling even before oil prices started dropping. In August, the
country requested a bailout from the International Monetary Fund
that could be worth around $500 million.
To meet the IMF's terms, Ghana is taxing oil at the pump, which
Ghanaians won't notice, since the tax is being rolled in as prices
fall. But the long-term picture is murkier. Ghana is set to nearly
double oil production from around 100,000 barrels a day to 190,000
by 2016--output the government hoped would finance road, power and
port expansions to help the economy grow. Now it isn't clear where
that revenue will come from.
"We are woefully short," said Sydney Casely-Hayford, a financial
consultant and former adviser to Ghana's treasury.
Countries along Africa's Indian Ocean coast fear oil and
natural-gas projects that have drawn more than $25 billion to the
region over the past five years could look less attractive as
energy prices fall.
Officials in Mozambique are speeding up legislation backing
natural-gas projects by Texas-based Anadarko Petroleum and Italy's
Eni. The Anadarko project alone could add more than $30 billion to
the country's gross domestic product by 2035, according to
Johannesburg-based Standard Bank Ltd.
"The recent fall in oil prices seems to be increasing the sense
of urgency to close the deal," said Paul Eardley-Taylor, Standard
Bank's head of oil and gas for southern Africa.
The head of Anadarko's business in Mozambique didn't respond to
requests for comment, and an Eni spokesman declined to comment.
Exxon Mobil referred questions about the Angolan project to Total,
its partner in the development, which also declined to comment.
A Tullow Oil spokesman in London said the company has no plans
to change its investment plans in Uganda or elsewhere in Africa.
"We believe that such fluctuations in the oil price do not
fundamentally change the value of these projects," said spokesman
George Cazenove.
East African neighbors Kenya and Tanzania have signed
exploration and extraction deals with Tullow as well as Statoil
ASA, Exxon Mobil and others on the heels of substantial
discoveries. But until those projects start pumping fuel, both
countries remain net energy importers.
That's not a bad spot to be in as oil prices are sinking. Many
governments spend billions of dollars a year subsidizing fuel
prices for their citizens. High oil prices can push up inflation
and the portion of meager incomes that many Africans devote to the
fuel they depend on for transport and cooking.
Citing the global oil-price slump, Tanzania cut the price of
gasoline, diesel and kerosene last week by about 7%.
But for countries banking on large oil projects, such benefits
will be wiped out if prospective investors pause or retreat from
exploration and production plans. "With decreasing oil prices,
companies will now have to examine the opportunity costs even more
so with respect to new frontier markets," says Ahmed Salim, a
Dubai-based senior associate at Teneo Intelligence consultancy.
Falling prices for oil and other commodities are hurting African
economies in other ways, too.
South Africa's central bank said Monday that falling fuel prices
cut the country's import bill in the third quarter. But slack
demand from China and Europe is pushing down the price of many
minerals and crops, in addition to oil. That dragged down South
Africa's gold and iron exports from the previous quarter.
As a result, South Africa's current-account deficit was wider
than expected, sending South Africa's currency to a six-year low as
investors retreated from the slowing economy.
Persistent weakness in the rand undermines any lift from cheap
oil, said Nico Bezuidenhout, acting chief executive of South
African Airways.
"You've got the break on the fuel price," he said. "But the
currency has gone to the dogs."
Nicholas Bariyo in Kampala, Uganda, and Inti Landauro in Paris
contributed to this article.
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