The Length of Recovery is Unclear as Oil Price Heads in The Direction of $70 per Barrel

Oil & Gas
Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp

Friday, January 12, 2018 /09:22AM /FBNQuest Research 

As the crude oil price heads in the direction of US$70/b, we take the opportunity to comment on the efforts at, and challenges of diversification for some of Nigeria’s fellow producers. This month the Algerian government has taken draconian steps to tackle fiscal and current-account pressures. 

It has banned imports of an estimated 900 products, having earlier imposed 30% tax and duty increases on some of them. The list includes cellphones, building materials, vegetables and chocolate. 

The share of oil and gas exports in total exports in Algeria (95%) is similar to Nigeria’s. However, the list of banned items does not seem influenced by import substitution policies. This is a temporary measure that the authorities would be happy to abandon if a recovery in oil revenues permitted. Algeria has a high import requirement and an elite reluctant to open the economy.

In October Moody’s downgraded Angola, another candidate for diversification,  from B1 to B2 (the equivalent of B with Fitch and S&P). Like Nigeria, it saw recession in 2016 (-0.7% growth, compared with -1.6%). 

At the start of the oil price slide in mid-2014, Angola’s macro legacy was rather weaker. Its governments have historically been large spenders, with total expenditure averaging 39% of GDP in 2010-15. There was not therefore the choice of aggressive fiscal expansion to kick start the economy, Nigeria-style. The debt burden is far greater, too: public external debt in 2016 reached 42% of GDP, and Moody’s saw a peak for total debt of 54% this year.  

A combination of planning and inheritance have favoured Nigeria: a very good package for external debt relief in the 2000s, the fx reforms since Q1 2017, a huge population and a predominant non-oil economy. Radical thinkers (not our style) might add the FGN’s refusal ever to borrow from the IMF. 

Straying into the political economy, these producing nations share a track record for poor governance. Abdelaziz Bouteflika has been president of Algeria since 1999, suffered a stroke in 2013 and has become a declining influence. João Lourenço, the president of Angola since August, has made some sweeping reforms in the management of the economy to enhance efficiency but is no advocate of inclusive government.  

Tens of members of the Saudi princely and business elites have been staying against their will in the Ritz-Carlton Hotel in Riyadh since November until they surrender what the authorities insist are their corrupt gains over decades. 

The length of this oil price recovery is unclear but at some point the market will again slide. Nigeria’s adjustment, while limited, looks relatively good. 

Proshare Nigeria Pvt. Ltd.

Related News

  1. Shale Restraint Could Lift Oil To $80
  2. Oil Crosses $70 Per Barrel Rubicon Line
  3. Can Oil Break The $70 Threshold?
  4. The Casualty Effect of Sustained $68 per barrel on the Economy
  5. A Poor Use of Limited Resources; Fuel Shortages Highlight Nigeria’s Failure to Refine Domestically
  6. Nigeria’s Proposed PMS Pricing :Matters Arising
  7. Oil Markets Start 2018 With A Bang
  8. No Request from Presidency on Payment to Oil Marketers-Senate
  9. Oil Price Increases on Tighter Market Supply
  10. NEITI: Nigeria’s Oil Revenues Plunged by 55% to $24.8b in 2015
  11. Fuel Scarcity Dampens Christmas Celebrations
  12. Fuel Crisis: Senate Summons Kachikwu, Baru
  13. OilPrice Intelligence Report: Oil Holds Steady Through Holidays
  14. How Will Fossil Fuels Fare In 2040?
  15. Russia Sees OPEC and Co Exit Oil Cuts Pact Very Smoothly
  16. Fuel Scarcity: DAPPMA denies involvement in hoarding petroleum products
  17. Best Monthly Result Since May 2016; NNPC’s Operating Deficit Halved from N5.7bn to N2.8bn
  18. Local Refining, The Obvious Solution
  19. Buhari Approves $2.8bn North-South Gas Highway
  20. Average Prices of PMS, AGO, HHK and Cooking Gas – November 2017
Related News