Coronavirus Oil Price Collapse Threatens Vulnerable African Economies

Pump jacks are seen at dawn in an oil field over the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is on the verge of a boom on March 24, 2014 near Lost Hills, California. Critics of fracking in California cite concerns over water usage …
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Many nations in Africa face potential devastation by the recent collapse of oil prices due to the Chinese coronavirus pandemic, and reports this week indicate the damage has already begun.

For the first quarter of 2020, trade between Africa and China fell by 14 percent to $41.23 billion, the South China Morning Post (SCMP) reported on Wednesday.

In the January-March period, China’s imports from Africa, mainly raw materials for industry, such as oil and metals, fell by 17.5 percent in the quarter to $19.8 billion, while Chinese exports to Africa dropped 10.5 percent to $21.4 billion compared to last year, according to data from China’s General Administration of Customs.

Oil demand has dropped in recent months due to a disruption in global supply and demand chains caused by the coronavirus pandemic. Economies around the world have been severely hindered by government-mandated lockdowns, designed to slow the spread of the Chinese coronavirus. As nations force their citizens into house arrest and shut down businesses, citizens and large cargo vehicles use less fuel as they make fewer trips.

On Monday, oil prices went negative for the first time ever.

China is the world’s largest oil importer. Oil accounts for more than half of sub-Saharan Africa’s exports, the Council on Foreign Relations (CFR) reported on Wednesday. According to the Brookings Institute, most of the global poor live in sub-Saharan Africa, meaning countries in this region are uniquely burdened by the oil collapse.

Africa’s largest oil producer, Nigeria, relies upon the commodity almost entirely. In Nigeria, oil accounts for less than ten percent of GDP, but amounts to more than 90 percent of the country’s foreign exchange and can contribute as much as 70 percent of the country’s government revenue, according to CFR. Nigeria is Africa’s largest economy.

In recent years, other African countries besides Nigeria – such as Angola and the Republic of Congo – have entered the oil market, causing African governments to become exceedingly reliant upon oil revenue.

Nigeria and the Republic of Congo were among the African countries that reported a decrease in Chinese demand for oil this quarter, according to SCMP. In February, China canceled an oil shipment from Angola due to port closures caused by the coronavirus pandemic, forcing the African nation to resell the oil at a discount, Capital Economics, an economic research consultancy, told SCMP.

The two-fold problem of having to respond to the coronavirus pandemic while simultaneously experiencing a severe loss in revenue will likely cripple African nations’ economies in the months and years to come, CFR said. Africa must cope with the healthcare costs of responding to the coronavirus pandemic and also to the humanitarian costs, such as feeding its already starving population. Famine poses a serious threat to Africa in the coming months as the coronavirus pandemic rocks global supply and demand chains, disrupting food supplies.

According to CFR, given these dire conditions, African governments will grow desperate for revenue and foreign exchange, both of which are drying up; they will be forced to find relief from international financial institutions and foreign governments.

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