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Fitch warns of sub-Saharan squeeze
ExPoRtERs
FaLLING oil prices will take their toll on sub-Sa- haran producers, Fitch Solutions has warned, citing Nigeria and angola as likely to see GDP growth weakening. Political unrest may increase in fragile states such as South Sudan and Equato- rial Guinea, it said on august 9.
e warning stemmed from Fitch’s revisions to Brent prices. e research analysts said this would weaken from $71.7 per barrel in 2018 to $67 this year, $65 in 2020 and $61 in 2021, in a statement last week. It had previously forecast prices in 2019 of $70 per barrel and $76 per bar- rel in 2020, reaching $80 in 2021.
Explaining its bearish forecast for oil prices, Fitch said there had been a sharp slowing in global demand. is will come despite produc- tion controls from OPEC and russia, coupled with sharp declines from Venezuela and Iran.
Oil is not particularly important to Nigeria’s GDP, but it does dominate export earnings – at around 90%. Lower prices will therefore slow the deliveries of US dollars. is would endanger the country’s ability to spend on infrastructure and also run down foreign exchange reserves. as a result, Fitch has cut its GDP growth projections to 2% in 2019, from 2.3%, and 1.6% in 2020, from 2.1%.
Further out, the problems increase for Nige- ria. Prices continue to slide, Fitch predicts, while production begins to ebb, down 0.7%. as a result, growth will slow to 1.4%, from 2.5%. e naira may weaken in late 2020, it continued, which is particularly likely should Nigerian President Muhammadu Buhari relapse into illness.
angola faces similar problems. Oil accounts for around 50% of its GDP and 90% of its exports. The government has projected GDP growth of 0.3% in 2019, which Fitch disagrees with. e agency expects “angola to experience a fourthsuccessiveyearofrecessionin2019”.
Low oil prices will deter new investments in the country. Production will continue shrinking, Fitch predicted, down 2.3% in 2020 and 4.3% in
2021. Production in the rst half of the year was 1.44mn barrels per day, according to OPEC, suggesting output of 1.4mn bpd for 2020 and 1.34mn bpd in 2021.
Given the reliance of angola on Chinese demand for its oil, Luanda will be keeping a close eye on Beijing’s prospects. Slowing growth in China, and increased rhetoric of a trade war with the US, suggests slowing oil demand.
instability
Of greater systemic concern are the possibilities for instability as a result of lower prices. Equato- rial Guinea has seen its real GDP decline since 2013, in line with falling oil production. Higher oil prices had been expected to boost investment – but the inverse appears more likely now, Fitch has warned. e country will remain in reces- sion beyond 2022, the analysts said.
Economic woes will bring pressure to bear on the ruling family, where Equatoguinean President Teodoro Obiang Nguema Mbasogo is grooming his son, Vice-President Teodoro Nguema Obiang Mangue, to succeed. “ e gov- ernment’s ability to ‘buy o ’ the local population will be constrained by low oil prices”, Fitch said.
Similar pressures will also manifest in South Sudan. e signing of the peace deal in Septem- ber 2018 is anticipated to see output rise 40% this year and 15% in 2020. However, low oil prices will limit the cash ow to the state, “increasing the risks to the transition process”.
Equatorial Guinea is in the process of com- pleting a licence round, covering 24 new blocks, while South Sudan will launch its own o ering later this year. Lower prices, and worries of insta- bility, are likely to deter new investors.
Not all countries are producers, though, and those countries reliant on imports of oil will ben- e t. Fitch cited Ethiopia’s investment plans as driving expansion in East africa. Sub-Saharan growth will run at 3% in 2019, the agency said, and average 3.5% in 2020-21.™
Week 32 13•August•2019 w w w . N E W S B A S E . c o m P9