The COVID-19 pandemic a near-halt of the global economy as governments-imposed lockdown measures in other to reduce the spread of the virus. As vaccines are developed and citizens inoculated, governments have begun relaxing lockdown measures. At the height of the pandemic, lockdown and social distancing measures caused citizens across the world to stay at home, while global manufacturing and tourism were badly hit by the effects of the virus. Lower rates of domestic and foreign travel and weaker industrial activity caused demand for oil prices to fall.
As oil prices hit new lows, with WTI falling to $39.16/bl and Brent Crude slumping to 41.96%, fears of a protracted economic slump, with economic growth falling across the Euro Area by 5% on average in 2020. Meanwhile, China one of Africa’s most important trading partners equally saw its economy grew modestly at 2.3% following 6% growth in 2019, and it remains one of the largest importers of crude oil.
Where is China importing its crude oil from?
Despite the COVID-19 pandemic that blighted imports from most African countries, Angola was the fifth top crude supplier to China in April 2020. Demand and supply for crude oil are subject to changes in external factors such as lockdowns, demand for crude oil and petroleum products in industrial activity as well as energy and heating.
However, this suggests that major crude exporters from Africa continued to benefit from oil exports to China, with the latter rising 23.8% for Angola, one of the largest exporters of crude oil, bringing China’s total crude imports to 9.84 million.
Oil is important for Africa.
Africa is a large and diverse continent, with only 16 refineries. Meanwhile, over 75% of the oil produced is exported while the majority of petroleum products used in Africa are imported. Several countries implicitly rely on their oil industries. The majority of oil occurs in the central, northern, and Western regions, while the West and Eastern regions have nearly twice the proportion of consumption compared to the refinery output.
In Equatorial Guinea, the petroleum sector accounts for 50% of GDP, 90% of exports, and 80% of the government. The dirty fuel equally accounts for 60% of Congo’s state budget, while gas producers such as Algeria benefit from exports of energy products (IMF, 2020).
Algerai.com notes that 52% of the state budget and 25% of GDP are derived from exports of energy products. According to Reuters (2021), Oil accounts for 90% of Nigeria’s foreign currency earnings. The energy sector is important for African economies and the implications of future demand and global commodity prices have a significant balance of payment implications.
Can OPEC membership support Africa’s oil revenues?
Countries such as Algeria, Angola, Congo, Equatorial Guinea, Gabon, Nigeria, Sudan, and South Sudan are members of the Organisation for Petroleum exporting countries. This enables them to influence global oil prices under the auspices of Saudi Arabia and Russia. These countries account for 80% of Africa’s oil production. As such, the trajectory for future oil prices and demand from larger markets such as China has repercussions across budgets, social safety nets, government spending, and taxation.
The Organisation of Petroleum exporting countries (OPEC) has significant sway over oil markets and its decision to curb oil output by key members and partners can influence oil prices. However, cash-strapped governments such as Angola and Congo will have to find a balance between volume and prices.
While the compliance from African OPEC members is generally high, lower oil demand stemming from regulatory and green policies could force producers to boost exports to prevent the risk of stranded assets. It is equally costly to keep oil wells alive once exploration has begun. However, short- and medium-term demand-side pressures will provide support to oil prices, which have recently breached the $60/bl mark. It is impossible to forecast the future trajectory of oil prices and several scenarios could determine the value of exports, rather than volumes.
The latter tend to benefit from higher prices, even as low oil prices post COVID has depleted and restrained demand from advanced and emerging market economies such as China, India, and South Korea, and India owing to lockdown and social distancing measures. In Equatorial Guinea, the petroleum sector accounts for 50% of GDP, 90% of exports, and 80% of the government. The dirty fuel equally accounts for 60% of Congo’s state budget, while gas producers such as Algeria benefit from exports of energy products (IMF, 2020). Algerai.com notes that 52% of the state budget and 25% of GDP is derived from exports of energy products.
According to Reuters (2021), Oil accounts for 90% of Nigeria’s foreign currency earnings. The energy sector is important for African economies and the implications of future demand and global commodity prices have a significant balance of payment implications. Countries like Angola, Nigeria, Egypt, and Algeria stand to benefit from a resumption in trade and economic activity across the world.
So, what’s Cameroon’s trading relationship with China?
In 2019, Cameroon exported its products to over 120 countries, with China being its largest trading partner and importing 18% of Cameroon’s imports. The country’s exports to China were mainly constituted of crude oil (56.7%), natural gas (23.6%), raw timber (9.1%), sawn timber (5.2%), and raw cotton (3.4%). These five products constituted 98% of Cameroon’s exports to China. In 2020, China’s economy continued to expand at 2.3%, supporting imports from Cameroon. Even as its economy transitions to a service-driven economy, it will continue to import crude oil in the medium term, which suggests a boost to Africa and Cameroon’s oil exports.
Several economies across Asia and Europe will continue to import low value-added oil from African countries even as the COVID-19 pandemic has prompted a shift towards renewable energy and carbon-free economies. However, the economic recovery suggests that demand for Africa’s crude imports will rise in the medium term supported by the gradual relaxation of lockdown measures and the rollout of vaccines. Meanwhile, a mix of greater consumer and investor uncertainty, geopolitical uncertainty, and a weaker dollar will continue to support oil prices, providing much-needed support to external balances for governments across Africa.