Africa’s resource-dependent economies are braced for a slowdown as coronavirus hits demand from one of their biggest buyers, China, sending oil prices lower and prompting the International Monetary Fund to downgrade growth forecasts for Nigeria, the continent’s largest economy.
The IMF late on Monday slashed its economic growth forecast for Nigeria, citing falling oil prices, as it urged Africa’s biggest crude producer to diversify its oil-dependent economy. Oil still provides more than half of Nigerian government revenues and 94 per cent of its foreign exchange, according to the IMF.
Oil prices have fallen about 13 per cent this year on plunging Chinese demand, reflecting a slowdown in economic activity caused by the coronavirus outbreak. Nigeria does not export much oil to China but “every $10 drop in oil prices costs Nigeria about $500m per month in lost export revenue”, said John Ashbourne, economist at London-based Capital Economics.
“As a major purchaser of natural resources from the continent, the impact of China’s economic engine shifting downward due to the coronavirus could have a deep impact on quite a number of African economies,” said Harry Broadman, chair of the emerging markets practice at Berkeley Research Group.
The impact of coronavirus will come as a further blow to the 21 African countries that the IMF defines as resource-intensive, which the fund in October said would see their growth “move in slow gear” of about 2.5 per cent. A slowing Chinese economy had already hit trade between Africa and China, which grew 2.2 per cent last year to $208.7bn, compared with a 20 per cent rise a year earlier.
Not much is happening at the moment. We’re just living off our
stock. Everybody is affected by coronavirus. We are heavily dependent on China
Tsedenia Mekbib, Pittards
The fund has now cut its forecast for Nigerian gross domestic product growth this year from 2.5 per cent to 2 per cent “to reflect the impact of lower international oil prices”. “Under current policies, the outlook is challenging,” the IMF said.
Other countries on the continent could be hit far harder. While China takes just over 1 per cent of Nigeria’s oil, Chinese buyers accounted for 95 per cent of South Sudan’s exports and 61 per cent of Angola’s in 2017, in the form of crude oil, according to data from MIT’s Observatory of Economic Complexity. China took 58 per cent of Eritrea’s, mostly in zinc and copper ore. For the Democratic Republic of Congo, the figure was 45 per cent, mostly in the form of cobalt shipments.
Angola, which is the continent’s second-biggest oil producer after Nigeria and has deep ties to the Chinese market, has reportedly already diverted some cargoes destined for the country because of lack of demand.
Exports to China account for 23 per cent of Angola’s GDP, according to data compiled by Renaissance Capital. A prolonged fall in oil markets would threaten one of Africa’s biggest IMF programmes there, as the government of President João Lourenço has counted on prices staying at an average of $55 a barrel to help stabilise public finances.
Given such reliance, “a double whammy of lower export volumes on a hit to Chinese oil demand plus a lower oil price could be something of a perfect storm [for African economies] without some sort of stimulus [in China]”, said Vikram Lopez, analyst at RenCap.
For South Africa, the continent’s second-biggest economy, the impact of coronavirus pales next to domestic problems such as the power outages that have hit the mining sector. Moody’s cut its forecast for the country’s economic growth this year to below 1 per cent owing to these local factors rather than the virus.
On Tuesday, Anglo American-owned Kumba, South Africa’s biggest iron ore producer, said the effects of the outbreak would “be offset by supply constraints we’ve seen so far this year”. First Quantum, a Canadian copper miner operating in Zambia, Africa’s second-biggest producer of the metal, has said the virus had held up talks with Chinese suitors for a stake in its local operation.
Tsedenia Mekbib, managing director of the Ethiopian operations of Pittards, a UK leather and apparel producer, said coronavirus had affected the company’s supply chain. It imports thread and packing materials from a plant in Tianjin, northern China, but the factory there had not resumed operations since the lunar new year holiday, she said.
“Not much is happening at the moment. Until that is cleared, we’re just living off our stock,” she added. “Everybody is affected by coronavirus. We are heavily dependent on China for inputs.”