A Tough Year Ahead for Africa’s Oil Exporters

Although the world oil price has partially recovered since hitting a six year low in January 2015, last year’s fall in price will continue to have an effect on Africa’s oil exporters throughout this year. The impact of the fall is likely to be compounded by respective governments’ previous overestimation of the price of oil in their budget predictions. The effect of this can already be seen in Ghana, where the government borrowed heavily based on expected oil earnings, and was subsequently forced to seek a bailout from the International Monetary Fund (IMF).

In April 2015, the Brent Crude oil price rallied and increased by 20 percent. In early May 2015, it reached a high for this year, trading at over $67 a barrel, and at the time of writing it is trading at $66.66 per barrel. Although this is a significant improvement, it is far from the average price of May 2014 ($109.41 per barrel). Furthermore, analysts are wary about labelling this increase in price a recovery. A top commodities official at Commerzbank told CNBC that the price rise is “premature” and that it could soon fall back below $50 a barrel. The increase in price has primarily been attributed to conflict in Libya and Yemen, which has disrupted supply and created fear of further disruptions. However, since Libya’s descent into civil war its oil production and exports have been volatile, so it is possible that they could pick up again very soon. Furthermore, the Iran Nuclear Deal could also spell the end of international sanctions opening the market to another supplier. Thus, the recent increase in price should be viewed cautiously. This is reflected in Société Générale’s recent 2015 average Brent price forecast of $59.54 per barrel. Moreover, in more broader terms, the Organisation of Petroleum Exporting Countries (OPEC) have predicted that oil prices will stay below $100 per barrel for the next decade.

If the recent recovery of oil prices is “premature” and another slump appears, this will put a strain on Africa’s oil exporters’ relationship with OPEC. In November 2014, OPEC decided to maintain production levels agreed upon in December 2011, meaning that prices continued to fall. This policy particularly hit countries with relatively high production costs such as Nigeria, where it costs $20-$40 per barrel compared to $4-$10 per barrel in Saudi Arabia. Although Nigeria did not publicly criticise this strategy like Algeria and Iran, a continuation of it after OPEC’s next conference in June 2015 could create greater opposition amongst Africa’s oil exporters.

Nonetheless, even after the recent recovery, Africa’s major oil exporters are still struggling. It has been calculated by the IMF and Deutsche Bank that Algeria, Libya and Nigeria all require oil prices of over $120 per barrel to balance their budgets, while Angola requires a price of $98 per barrel. This has unsurprisingly put pressure on these countries’ finances. In Nigeria, it was projected that even if the oil price averages at $70 a barrel for 2015, the expenditure levels outlined in the Medium Term Expenditure Framework from November 2014 would leave the country with a fiscal deficit of 1.3 trillion Naira. As a result, governments have reassessed their expected oil earnings and their budgets. As the IMF noted in April 2015 for Africa’s oil exporters the fall in price “will pose a formidable challenge” and it will “require them to undertake significant fiscal adjustment”.

In Nigeria the government has changed its benchmark price for crude oil to $53 per barrel and in Angola it is now $40 per barrel. The IMF has projected that in both of these countries GDP growth will be hit, with Nigeria’s growth falling by 2.5 percent from expectations in October 2014. This decrease in government revenue is reflected in the countries’ budgets. In Angola, the government cut spending by 1.8 trillion Kwacha in its revised budget in February 2015, and still predicted a budget deficit of 7 percent of GDP. Although Nigeria is not looking to cut its budget – which is waiting to be finalised – and are predicting a lower deficit of 1.12 percent of GDP, the House of Representatives have controversially proposed to remove the fuel subsidy and reduce capital expenditure to 21 percent of the budget. This increases the likelihood of popular unrest like that seen in January 2012 after the government first attempted to remove the subsidy. Due to the unreliable electricity supply provided by Nigeria’s national grid, a large proportion of citizens and businesses rely on subsidised fuel to power electricity generators. Thus, this will have a disproportionate impact on less well-off Nigerians and small businesses. The effect of the proposal to remove the subsidy is already being felt in Nigeria through fuel shortages which are set to worsen as marketers restrict imports over fears of the subsidy removal. Furthermore, with a restricted capital expenditure budget it is unlikely that the new All Progressives Congress (APC) government – under the leadership of President-elect Muhammadu Buhari – will be able to make the infrastructural investment needed to significantly improve the national electricity supply. Thus, in Nigeria and across Africa’s oil exporters societal tension and popular unrest are likely to increase as a result of governments’ attempts to restrict spending.

For Africa’s oil exporters, 2015 is likely to be an extremely tough year if prices stay at their current level or drop once more. Although Nigeria’s finance minister – Ngozi Okonjo-Iweala – pronounced last year that “we no longer want to be known as this oil economy”, Africa’s oil exporters have not been able to significantly reduce their reliance on oil. In Angola, Nigeria, Equatorial Guinea and the Republic of the Congo oil represents over 70 percent of government revenue, and in Gabon and Algeria it represents over 50 percent. In pre-civil war Libya it even reached over 90 percent of the government’s revenue. It also accounts for a large proportion of foreign exchange earnings, with Angola owing 90 percent of its earnings to oil. This dependence has been reflected in depreciating exchange rates, as illustrated by the Naira, which reached a record low against the dollar in February 2015. As a result, governments have not only looked to cut public spending but also increase borrowing. For example, in Nigeria the government have already used over half of its projected borrowing allowance of 882 billion Naira to meet recurrent expenses, such as government employee salaries.

The outlook for 2015 in Africa’s oil exporters remains bleak. Governments are likely to increase debt considerably while depleting their foreign exchange reserves and sovereign wealth funds. Cuts in public spending are likely to cause significant social unrest and it is highly unlikely that companies will pursue new projects due to their loss of revenue. This was indicated by Shell’s and Total’s decisions to delay offshore projects in West Africa in April 2015. Africa’s oil exporters’ dependence on oil has made the impact of the fall in prices particularly acute. Only through significant restructuring of their economies will they be able to avoid such shocks in the future and adapt to OPEC’s predicted long-term slump in prices.

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Nigeria: Back to the Future?

Silhouettes of People Holding Flag of Nigeria

 

Julian Fisher writes: ‎

“Historic” and “amazing” are clichés that I try to avoid. But both may apply to the just-concluded Nigerian election. That Africa’s largest economy has overseen a peaceful and democratic transition of power from an incumbent president to an opposition leader mounting his fourth bid for the job through the ballot box is not to be underestimated. I can’t help but feel that African politics will never be quite the same again. This is not least because president-elect Muhammadu Buhari will have greater democratic authority than almost any post-independence leader in Africa, with the obvious exception of Nelson Mandela. It is to be hoped that he exerts this authority during elections elsewhere on the continent, ably assisted by his predecessor Olusegun Obasanjo (himself twice elected, though on neither occasion did he face a serious challenge from a national party) as a roving ambassador.

But, without wishing to rain on Nigeria’s parade, I would comment that it is the fact of the transition itself, rather than the personality of the incoming president, that is to be celebrated. As the results trickled in on Monday, one of my followers on Twitter posted a comment “President Muhammadu Buhari. How does that sound?”.

And I thought, “it sounds familiar”.

Lest it be forgotten, Buhari has led Nigeria before, between December 1983 and August 1985. His rule was not altogether auspicious, though he is respected for his attempts to curb official corruption and to build national discipline. Here are some pertinent points to remember about his first presidency:

  • he came to power through a military coup
  • he was deposed by a military coup
  • he passed some of the most draconian legislation seen in Africa
  • he curbed the freedom of the press with alacrity
  • his regime arrested hundreds of oppositionists, including the renowned singer Fela Kuti
  • he was roundly criticised by the Nobel-prize winning writer Wole Soyinka in his publication “The Crimes of Buhari” of 2007.

Of course, Buhari was previously president some thirty years ago and he and his supporters present him as a born-again liberal democrat. He has four years to demonstrate the truth of this.  The world will be watching.

Second Time Lucky?

Ballot Box

After the postponement of Nigeria’s election in February 2015, the new date set by Nigeria’s Independent National Electoral Commission (INEC), 28th March 2015, is fast approaching. However, there continues to be concern over the validity of the reason given for the delay and growing speculation that another postponement may follow.

The reason provided for the initial postponement by INEC was that the security of the elections “could not be guaranteed”. This assessment was primarily based upon a letter sent by the President’s National Security Adviser, Sambo Dasuki, which led to allegations that the decision came from within the People’s Democratic Party (PDP) and not INEC. Sources from the opposition All Progressives Congress (APC) and within INEC told Africa Integrity that they saw this as a political rather than a security decision, made by a party which faces its greatest electoral threat yet. This assertion is not merely political rhetoric as all indicators point to this being the closest election in Nigeria since its return to democracy in 1999.

The main security threat cited in the initial postponement was the Boko Haram insurgency in the northeast of the country. This helped stoke speculation that further postponements should be expected as questions were raised over how the Nigerian military could end an insurgency, currently in its sixth year, in six weeks. Although there have been significant successes for the Nigerian military, and their regional partners – such as the retaking of Bama in Borno State on 16th March 2015 – Boko Haram still poses a threat, especially to the election. The militant Islamist group appear to be resorting to their previous tactics, using suicide bombers and focussing on ‘soft targets’, and the group’s leader, Abubakar Shekau, has specifically vowed to disrupt the election. This is significant as polling stations may well be considered ‘soft targets’.

Thus, as the new date approaches concerns increase amongst the opposition over the possibility of another delay. As insecurity in the northeast was accepted as the initial reason for a postponement, the grounds for further delays remain until the threat posed by Boko Haram is removed. Nonetheless, opposition sources informed Africa Integrity that if the election is postponed again, their reaction will be far less tame than first time round. A number of sources, including some from within the PDP, said that large scale protests and unrest should be expected if another postponement is announced. Furthermore, the same sources also told Africa Integrity that even if the election goes ahead on 28th March 2015, any evidence, either real or perceived, of electoral fraud on the part of the PDP, will spark similar protests. Thus, INEC’s impartiality, and the public’s perception of this, will play a vital role in the election. In the eyes of the opposition, the security of INEC’s Chairman, Attahiru Jega, within the organisation is key to ensuring its impartiality. Following the postponement of the election, some APC members alleged that the PDP was using the delay to try to remove Jega and replace him with a more pliable figure, who would help them to rig the election. This suspicion has been given greater credence recently as pro-Jonathan supporters marched in Lagos on 17 March 2015 calling for Jega’s removal. If the PDP government decides to remove Jega before the election, political tensions will increase and it is highly likely that the APC will accuse the government of electoral fraud and organise protests over the decision.

Given these conditions, the likelihood of large-scale social unrest and political violence is high as Nigeria prepares to go to the polls. This election has the potential to cause widespread instability across the country and, as well-informed sources told Africa Integrity, the Nigerian military is willing to intervene if any unrest that does occur appears to be out of control. On balance, such intervention is likely to favour the PDP rather than the opposition.

Boko Haram on the Backfoot?

On 25th February 2015, 11 days in to the six week postponement of Nigeria’s general election on the grounds of the insecurity posed by Boko Haram, President Goodluck Jonathan was reported as stating that the “tide has turned” in the battle against the Islamist group. Although the president has been known to make similar statements in the past, such as the numerous times the Nigerian Government has claimed to have killed Boko Haram’s leader, Abubakar Shekau, in this instance there appears to be some evidence behind the president’s statement. The increased regional cooperation in the fight against Boko Haram seems to be greatly improving the Nigerian military’s ability to capture towns and areas previously under the group’s control. For example, on 25th February 2015, the Chadian military reported that it had killed 207 Boko Haram fighters near a Nigerian town close to the border with Cameroon and regional forces have reported capturing eight major towns in recent weeks, including Baga, the site of a massacre brought to the world’s attention by Amnesty International in early January 2015. Although large areas of the northeast, particularly in Borno state, are still under Boko Haram control and the campaign against the group is likely to be a long arduous process, these signs are undeniably positive.

At first glance it appears that Nigeria’s electoral commission’s decision to postpone elections might be vindicated and the northeast of the country will be substantially more secure on 28th March than on 14th February. However, on 24th February 2015 Boko Haram demonstrated its continued threat by launching twin suicide bomb attacks in Potiskum and Kano, the largest city in the north, which claimed at least 26 lives. As elections loom, the president has taken to commenting on such attacks, and a statement from his office read “President Goodluck Jonathan condemns the reversion by the terrorist group Boko Haram to the callous bombing of soft targets…in the wake of the rapid recovery by Nigerian troops and their multinational allies of areas formerly controlled by the sect”. This statement is correct in pointing out that the attack on 24th February does appear to represent a reversion to the group’s original tactics and it could be an indication of the group’s future strategy in response to the Nigerian military’s successes in the northeast. As the Nigerian military continues to regain territory it increases the likelihood that Boko Haram will resume their original strategy of conducting hit and run attacks from the Sambisa Forest and launching suicide bombings in towns and cities across the northeast. Thus, it seems that Boko Haram may turn its focus back on to “soft targets” rather than the Nigerian military. However, this raises the question of what are soft targets?

This year’s general election was postponed on the grounds that the security of the election could not be guaranteed in the northeast of the country. However, if the effect of the Nigerian military’s offensive against Boko Haram is to move the group’s strategy towards targeting “soft targets” the threat to polling stations is likely to be the same or possibly worse. Polling stations are the type of “soft targets” Boko Haram may well be turning its attention to and the threat is likely to spread beyond the area under its control, as was shown in Kano on 24th February 2015. Thus, although the postponement appears to have aided Nigeria in its fight against Boko Haram it is questionable what impact it will have on the security of the elections, which was the reason provided for the delay. A six week offensive may be long enough for the Nigerian military to regain some of the territory held by Boko Haram, but the campaign to defeat the group and return security to the northeast of the country will be a much longer process.

Six weeks to defeat Boko Haram, Really?

Bring Back our Girls

On 7th February 2015, one week before elections were set to take place, Nigeria’s electoral commission (INEC) announced that it was postponing elections for 6 weeks. The reason provided for this postponement was that INEC had received a letter from the national security adviser warning that the security of the elections “could not be guaranteed” due to the Boko Haram insurgency in the northeast of the country. The letter requested a six week delay to election proceedings so that Nigeria’s military could secure this region before elections take place.

The ruling People’s Democratic Party (PDP) supported INEC’s motionand President Goodluck Jonathan described it as not a “big deal”, which is unsurprising seeing that the request came from within the current administration. However, the opposition All Progressives Congress (APC) heavily criticised the action referring to it as a “major setback for democracy”. APC members also alleged that this was a ploy by the PDP in order to help it secure another electoral victory. Although the PDP were quick to deny these allegations, with its spokesperson, Olisa Metuh, quoted as stating that the PDP “did not stand to benefit from it”, there did appear to be growing support for a postponement within the PDP prior to the announcement. In January 2015, President Jonathan’s national security adviser, Sambo Dasuki, urged the electoral commission to delay the elections whilst speaking at Chatham House. Furthermore, the PDP’s leader in Lagos state, Olabode George, similarly stated his support for a postponement in January 2015, despite previously dismissing suggestions of a delay in 2014.

Many APC members claim that this shift towards support for a postponement on the part of senior PDP figures indicates that the delay is politically driven and a result of the first serious electoral challenge the PDP has had to face. This argument is given greater credence by the fact that before the announcement on 7th February 2015, proponents of an election delay, including Dasuki, had argued that it should be postponed in order to allow more time for voter card distribution. Thus, insecurity caused by the Boko Haram insurgency appeared to be used as a secondary justification for delaying elections after it became clear that INEC would not postpone the elections on the grounds of voter card distribution. Moreover, the level of the security threat posed by Boko Haram has not suddenly increased in the past few weeks. Although it has increased over the past year, this has been a consistent unfolding situation of which the government and security forces have been fully aware. It is also a justification which can be used continuously until Boko Haram are eradicated, which raises fears that another postponement may follow in the future.

As a result of this, a number of rumours and accusations have been spread about the motivations behind such a delay. This has included the allegation that the PDP plan to remove INEC’s chairman, Attahiru Jega, and replace him with someone who would help the PDP rig the election. Although the PDP have strongly denied this allegation and maintain their support for Jega, allegations such as this gain a lot of traction in countries like Nigeria, where elections have so often been marred by accusations of electoral fraud and corruption. Even some of the PDP’s primaries in late 2014 were surrounded by such allegations. Furthermore, accusations of plans to commit electoral fraud are likely to be stronger this year due to the fact that these are the closest fought elections since Nigeria’s return to democracy in 1999. Despite only forming in 2013, the APC has made substantial ground in Nigerian politics, drawing together previously divided opposition parties and receiving a number of defections from the PDP, which has caused the eradication of the PDP’s majority in the National Assembly. In the APC’s presidential primary its members voted unanimously in favour of former military head of state and runner-up in the country’s past three presidential elections, Muhammadu Buhari. Although there is a certain degree of reservation concerning Buhari’s military past and alleged association with radical Islam, his reputation as an anti-corruption disciplinarian seems to strike a chord with a large section of the Nigerian electorate. Buhari’s APC has positioned itself as a viable alternative to Jonathan’s PDP, whose popularity has been severely damaged by a number of corruption allegations and its inability to deal with the Boko Haram insurgency. It appears that even voters who are unsure about supporting Buhari may support the APC because of their disappointment at the record of the current administration. Thus, this year’s election is set to be very close with a small majority for either the PDP or APC being the most likely result, if it is held at all.

Indeed it is questionable what effect a limited postponement will have on the election results. Although a delay will certainly favour the wealthier PDP in terms of campaign budgets, the perception that the party was behind the delay has the potential to damage their popularity further and play into the hands of the APC. This was illustrated by comments made by former President and senior figure in the PDP, Olusegun Obasanjo, on 10th February 2015. He warned against the delay, suggesting that it might have been planned, and was quoted as stating “why shouldn’t I support him” in reference to Buhari. This was then followed by his resignation, or possibly expulsion, as argued by the Ogun State chapter of the PDP, from the party on 16th February 2015. There is also the possibility that the extra time will be used to enable electoral fraud, as alleged by certain APC members. The risk of this has definitely increased due to how closely-fought the elections are projected to be but any large scale electoral fraud would draw considerable condemnation from the international community and cause protests across Nigeria. Nonetheless, merely the perception of electoral fraud can have its own consequences.

With regards to the official reason for calling the postponement it is highly unlikely that the Nigerian military will be able to secure the country’s northeast region in 6 weeks from an insurgency which is in its sixth year. Although military successes against Boko Haram will help to boost the PDP’s waning popularity, it will also highlight its previous failures against the group over the past year. A degree of improvement can be seen with the increase in regional co-operation but Boko Haram continues to launch attacks on towns and villages across the northeast. Furthermore, on 17th February 2015, the group released a video in which their leader, Abubakar Shekau, explicitly vowed to disrupt the elections. In the video he stated “this election will not be held even if we are dead…Allah will never allow you to do it”. It is therefore highly likely that even after the six week delay elections taking place in the northeast will suffer from a similar insecurity to that which existed on 14th February.

The most likely outcome of the postponement is increased political tension and in turn a greater likelihood of election violence. This has already been made apparent by reports of an explosion and gunshots at an APC rally in Rivers State on 17th February 2015. Furthermore, although Buhari’s initial call for calm following the postponement helped to prevent any large scale unrest, people still took to the streets to protest against INEC’s decision. These protests were overwhelmingly peaceful but if it appears that the PDP are attempting to use this time to create an artificial advantage or possibly initiate another postponement the ensuing protests may be harder to control. Moreover, due to the competitiveness of the election, a longer campaign will increase the probability of accusations concerning electoral fraud and intimidation. This will create a tenser post-election environment, which is more conducive to election violence. Furthermore, this is exacerbated by Nigeria’s struggling economy which has been hit hard by the fall in global oil prices. This will help to accentuate societal pressures, particularly if the winning party is perceived to be favouring states controlled by them in terms of proposed austerity measures, and increase the probability of political violence.