Africa’s major oil-producing nations are bracing for a huge economic hit as global shutdowns caused by the coronavirus pandemic pummel prices and demand. Prices have fallen by more than half during the past month as global travel grinds to a halt. With the global economy slowing – including in China, the world’s largest oil importer, where the virus first was reported, and in many countries operating under lockdown — purchases of African oil have been slashed. The situation has been exacerbated by a price war between Saudi Arabia and Russia, the second- and third-largest oil-producing countries, respectively. On Monday, the global oil benchmark Brent crude fell at one point to US$22.58 a barrel, its lowest level since 2002. US West Texas Intermediate (WTI) fell below US$20 a barrel, closing at an 18-year low, but recovered slightly on Tuesday. The swoon has handed massive losses to oil-producing African countries such as Nigeria, Angola, Ghana, Algeria and the Republic of Congo (Brazzaville). Most of the continent’s oil-rich nations are expected to slip into recession. Yvonne Mhango, an economist at Renaissance Capital, called the situation “devastating for Sub-Saharan Africa’s oil-exporting countries, the biggest of which are Nigeria and Angola, which are also two of the five biggest economies in the region”. For both countries, Mhango said, oil is the biggest source of foreign exchange, accounting for more than 90 per cent of exports and more than 60 per cent of government revenue. “The collapse in oil prices implies [that] Nigeria’s economy is likely to fall back into recession and Angola’s [is to] remain in recession for a fifth consecutive year,” Mhango said. Angola, Africa’s second-largest oil producer after Nigeria, sells two-thirds of its crude to China and relies heavily on oil revenue; as a consequence of the collapse, it has cut its national budget. The Angolan government will base its budget on a reference oil price of US$35 per barrel – a significant cut from the initial peg of US$55 per barrel, Finance Minister Vera Davis de Sousa said on Friday. National oil production is expected to tumble to 1.36 million barrels per day from a 2016 high of 1.8 million barrels per day, she said. Davis de Sousa also said Angola would freeze 30 per cent of its goods and services budget and suspend its capital expenditure (Capex) until the budget review was completed. In Africa, an economic shutdown may be more deadly than Covid-19 China, Angola’s biggest export market, faces economic headwinds driven by the coronavirus outbreak that saw factories shut and travel restricted in January and February. In 2017, Angola sold 67 per cent, or US$18 billion, of its crude to China, according to data compiled by the Massachusetts Institute of Technology. The southern Africa nation has also agreed to receive resource-backed loans from Chinese lenders, with repayment collateralised by income from the country’s oil. Owing to the lower prices, the country will be forced to pump more oil to repay the loans owed to China and other foreign financiers. At US$30 per barrel, the Atlantic Council estimates that Angola will suffer a revenue loss of about US$13 billion, or 13 per cent of the country’s GDP. Why crashing oil prices are good news for most of Asia “In this time, the Angolan economy will be best served by swift government action,” said NJ Ayuk, executive chairman of the African Energy Chamber, a lobbying group. “With the finance minister already confirming that the country’s economy will shrink by 1.21 per cent this year, [signalling] the fifth year of recession, Angola needs a solid action plan that involves intense renegotiation strategies with domestic and foreign creditors, if it is to make it out on the other side,” he said. John Ashbourne, a Capital Economics senior emerging markets economist specialising in Sub-Saharan Africa, said that in Angola, “we think that export revenue will fall by almost 2.5 per cent of GDP in the first quarter alone”. And Nigeria, Africa’s largest oil producer, is facing a massive revenue loss after budgeting for an oil price of US$57 in 2020. One forecast sees Brent crude going as low as US$5 a barrel Capital Economics, a London-based consultancy, estimates that oil exports from Nigeria fell to US$2 billion in March, further pressuring foreign exchange reserves. The Atlantic Council, a US think tank, predicts that Covid-19 will cause Nigeria to suffer a continent-leading US$15.4 billion loss, representing about 4 per cent of the nation’s GDP. The country has over US$58 billion in oil projects set to suffer delays or cancellations. Other countries will also suffer multibillion-dollar losses, including Congo-Brazzaville, which could see a loss equal to 34 per cent of its GDP in a country where the debt-to-GDP ratio is already around 90 per cent, according to the Atlantic Council. Meanwhile, Equatorial Guinea, Gabon and Chad could see losses of almost 10 per cent of GDP amid the crisis. Ghana, a recent entrant into oil production, had set a benchmark price of US$58.66 per barrel until the end of 2020. Analysts already predict the country will generate just half its projected revenue, setting it up for a major revenue hit. Mhango, however, said that lower oil prices are a positive development for Sub-Saharan Africa’s oil-importing countries, especially those in East Africa, such as Kenya. The price drop will reduce import bills, enhancing current account balances and currencies, she said. Inflation, the Renaissance Capital economist said, is likely to slow on the back of lower transport and energy costs, allowing for monetary policies that would be more supportive of credit and GDP growth.