At its Nov. 27 meeting in Vienna, the 12-member Organization of Petroleum Exporting Countries (OPEC) – including Nigeria and Angola – voted to keep their output unchanged despite a 40 percent fall in the oil prices since June.
OPEC is responsible for almost 40 percent of global oil supplies and their decision sent prices even lower, dropping below $63 a barrel – a price not seen since August 2009. And there are predictions of a continuing slump next year.
The problem is that the economic stability of many countries is principally tied to their oil exports, with their current budgets based on oil sales remaining around $100 dollars per barrel.
“For Nigeria, it’s already having an impact and there’s some expectation that Angola may be put into recession,” Jennifer Cooke, director of the Center for Strategic and International Studies’ Africa program told AFKInsider.
“Those countries are still heavily dependent on oil revenues and they’ve not budgeted for this dramatic fall in oil prices.”
Angola’s Oil Minister, Botelho de Vasconcelos, told a press conference on Dec. 12 after the approval of the State General Budget for the 2015 economic year that all the country could do was “just wait,” since the new budget was based on oil being estimated at $81 a barrel.
Nigeria and Angola are the main oil producers in sub-Saharan Africa. But imports to the United States of light crude from Africa declined by 92.7 percent between 2010 and 2014, particularly from Nigeria and Algeria, according to the U.S. Energy Information Administration.
“The U.S. is importing much less oil from Nigeria and Angola as we become more energy independent,” Cooke told AFKInsider.
“When I was ambassador to Nigeria, we imported one million barrels a day. Last month we imported zero,” John Campbell, a Senior Fellow for Africa Policy Studies at the New York-based Council on Foreign Relations and U.S. ambassador to Nigeria from 2004 to 2007, told AFKInsider.
“And the reason for that was simply the increase in American production and also production in places that are much closer at hand – such as Canada and Venezuela. But to go from a million barrels to zero, that’s really quite extraordinary,” Campbell told AFKInsider, noting the U.S. use to be Nigeria’s biggest oil client.
Nigeria’s Dilemma
Nigeria recently claimed the title of largest economy in Africa, with a gross domestic product of $510 billion. But Nigeria depends on oil for most of its government revenues and has been hammered by the drop in oil prices.
“Before oil prices plunged, oil amounted to more than 90 percent of Nigeria’s exports and something like 80 percent of the revenue of the government,” Campbell told AFKInsider.
What complicates Nigeria’s situation is the upcoming presidential election in February.
Incumbent presidents in Nigeria “have access to unlimited money – basically oil money,” Campbell told AFKInsider. “In other words, it’s not the best time for oil to be dropping.”
Campbell says that another variable is the amount of oil that’s being stolen, and the amount stolen tends to increase in pre-election periods.
“I would expect it to increase now, not just because it’s a pre-election period, but because oil prices have fallen so far that if you wanted to have the same revenue from bunkered oil you’re going to have to steal more of it,” Campbell told AFKInsider.
“Nigeria is already in a difficult spot because it hasn’t passed the Petroleum Industry Bill, so that has held back a lot of new investment as investors are looking, ’OK, what are the rules of the game going to be, we don’t want to invest until that legislation is clear,’” Center for Strategic and International Studies’ Cooke told AFKInsider.
If companies are reluctant to invest in Nigeria’s oil infrastructure, that, in turn, will cause production to decline, exports to drop and the lack of revenues will force the government to increasingly tap into its declining reserve funds.
According to a Dec. 11 statement, Nigeria’s Bureau of Public Enterprises estimates that the country requires about $113 billion for the development of the oil and gas, power and transport sectors. The agency also estimates the country is losing about $287 million a month from non-passage of the Petroleum Industry Bill.
“With the plunging oil prices, the Naira has also fallen massively – about 10 percent. It’s been devalued once already and may be devalued again,” Campbell told AFKInsider.
Nigeria’s currency – the Naira – has weakened below the central bank’s target as the government slashed the oil price assumed in its 2015 budget for a second time in a month. This has lowered Nigeria’s foreign reserves even as the central bank devalued the currency by eight percent to protect its reserves.
The Woodrow Wilson Center hosted an Oct. 31 discussion – Impact of Low Oil Prices: Petro Power or Petro Poverty? – exploring the impact of lower oil prices on the petrostates, including Nigeria. One takeaway of that discussion was that: “In the face of economic and potentially political upheaval, petrostates around the world are adjusting their energy policies, cutting spending, and preparing for what could be a prolonged and destabilizing crisis,” notes the Center.
Dr. Raymond Gilpin, Academic Dean at the Africa Center for Strategic Studies, National Defense University, told the panelists that while “resource driven” Nigeria is still producing more than 2 million barrels per day; many of its wells are past their peak.
