Falling crude oil prices ‘worse than Ebola’

Decline in oil prices has affected Africa more than Ebola if both situations were to be judged on purely economic terms.

According to an economic analysis by Reuters, recent fall in oil prices across the world has dealt more severely with Africa’s economy than the deadly viral disease, causing a setback on investment in exploration and plans to industrialise Africa.

According to the report, Nigeria, Africa’s top producer of oil, has been the biggest victim of the economic blow, forcing the country’s apex bank, the Central Bank of Nigeria (CBN), to devalue the naira.

The central bank devalued the naira, Nigeria’s official currency by 8% on Tuesday, after the bank admitted dwindling reserves were making it difficult to defend it.

The devaluation of the naira has cost Africa’s leading economy N7.02 trillion ($40bn), an amount that is N140m ($8m) more than the World Bank projected cost of Ebola if the worst happened in the entire sub-Saharan African.

On November 19, Francisco Ferreira, World Bank chief economist for Africa, said Ebola had cost Africa less than expected, with an estimated cost of about N70.2 to N52.7m ($3b-$4b).

The cost of Ebola has been less than expected, but the cost of falling oil prices has been higher than expected.

With the CBN devaluation and a 100 basis point hike in interest rates, the naira came under more pressure, hitting a record low of 178.85 to the dollar.

The same fate has befallen Angola, Africa’s second-largest exporter of crude oil, as the country’s currency, kwanza, keeps falling almost daily, shedding more than 3 per cent since September.

As the Nigerian government set a budget benchmark of $73 per barrel for 2015, Angola is staying on the optimistic side of $81 per barrel for the same economic year, despite the fall of brent crude oil to $76 per barrel on Thursday.

Ghana, Kenya, Ethiopia, Somalia, Equatorial Guinea, Chad, Sudan, South Sudan, Niger and Mali have all been affected by the economic downturn.