WHY AFRICA HAS NOT BENEFITED FROM LOW CRUDE OIL PRICE

WHY AFRICA HAS NOT BENEFITED FROM LOW CRUDE OIL PRICE

By Johnstone Chikwanda

Presentation to the Africa Energy Indaba held on 16-17th February, 2016 at the Sandton Convention Centre, Johannesburg, South Africa.

The crude oil price has been falling since 2013 and has fallen by over 60% as of today. This has had a tremendous impact on oil producing African economies.
• This fall has wrecked havoc on oil exporting African economies in terms of revenue generation which has been lost.
• This scenario has slowed down investments around exploration works for oil and gas in Africa
• The scenario is likely to persist for the next couple of years.
• Diversification of economies into agriculture, aquaculture, tourism and other identified segments must be pursued urgently.
With depressed oil price on the global market, one would think that this would benefit African countries by passing on the benefits of low price to consumers.

However, Africa has not benefited from low prices because of currency deterioration in most African countries to the point that some countries have actually been increasing pump prices during this period.

It must be reiterated that fuel pump prices are fundamentally dictated to by a dichotomy of the exchange rate and the spot price on the global market.
Africa needs to increase refinery capacity including building new ones which could support regional economic growth and invest in projects such as pipelines, rail and fuel storage facilities.

These projects will strength regional integration and intra-Africa fuel trade. At the moment, a lot of African countries that produce crude oil export the product and then import refined fuel at great cost.

It is anticipated that by 2025, increased demand for fuel would create serious logistical challenges in terms of critical shortage of storage facilities and transportation of fuel by road would not solve the problem in a significant way.

Hence the case for investing in rail and pipeline remains valid.
Furthermore, I would like to call upon investors to assist and collaborate with African governments to set up Strategic Fuel Reserves that can last a minimum 90 days which is about a globally accepted benchmark for fuel reserves. It is a sad scenario that most of African countries have no strategically held fuel reserves which can last a number of months.

They also do not seem to know how to set up robust national fuel reserves without putting pressure on the national treasury for capital expenditure and stock procurement.
The Africa Energy Indaba was attended by some government Ministers, senior government officials from Africa, Funders, Investors from other continents, Regulators, Banks, media, and various industry players.

JOHNSTONE CHIKWANDA
INDENI PETROLUEM REFINERY CHAIRMAN OF THE BOARD OF DIRECTORS
AND ENERGY FORUM ZAMBIA CHAIRPERSON

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