The impact of COVID-19 on African Oil Sector: A special report by AFREC on the implications on African Countries
The Coronavirus (COVID-19) is bringing unprecedented changes to the world. Its impact and the necessary response of governments will mean that the next one to two years at least will be very challenging for economic and social development in all countries of the world. One of the sectors that will see significant challenges is the oil sector, globally and in Africa.
For African crude oil exporting countries, the expected fall in demand means that exports of crude oil in 2020 will be down by at least 10% on average compared to recent years. Prices are also expected to fall. At $40/barrel or lower, the value of African oil exports could fall to levels last seen 20 years ago. These lower prices coupled with reduced output could see Africa’s larger oil producers facing $20 billion or more of lost oil value in 2020. For consuming countries, the low per capita consumption of oil for transportation in many African countries will not significantly gain from lower prices which limited by low demand and a very likely limitation on storage.
The evolving situation provides a further opportunity for countries with an oil sector to explore:
- How economies can be diversified away from an reliance on oil;
- How to maximise the local value added of the whole oil chain including exploring the merits of:
- Investment in refining facilities;
- Increasing cross boarder trading between African countries and investment in its relevant infrastructure; and
- Reducing oil demand in the power sector by expanding renewables.
All countries can take this opportunity to explore how to improve the efficiency of oil consumption; where possible, take the advantage of lower prices to see if fuel subsidies can be reduced or eliminated; and strengthen National Energy Information Systems to support decision making and investment at the national level.
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