JOHANNESBURG: Plunging world oil prices have dealt a blow to Africa far greater — in purely economic terms — than Ebola, setting back investment in exploration and plans to industrialise.

The highest profile victim so far has been Africa’s top producer, Nigeria, which was forced to devalue its naira currency by 8 per cent this week after the central bank admitted dwindling reserves were making it hard to defend it.

In dollar terms, the devaluation knocked $40 billion off the value of Nigeria’s economy — considerably more than the $32bn worst-case scenario the World Bank projected in October for Ebola’s economic impact on the entire sub-Saharan region.

Last week, the bank’s chief Africa economist said the latest assessments of the epidemic suggested the economic fallout might not be as bad as feared, and was likely to be closer to the $3bn-4bn end of its projected range.

The same cannot be said for crude-backed African currencies.

Even after the Nigerian devaluation and a 100 basis point hike in interest rates, the naira came under more pressure, trading at a record low of 178.85 to the dollar.

It opened flat on Thursday around 177.0, a level that is already weaker than the de facto 176.40 lower limit of the central bank’s target band, revealing scepticism the currency can hold at that level.

In Angola, the continent’s number two oil producer, the kwanza has shed more than 3]pc since September, hitting record lows on an almost daily basis amid concerns about the state of government finances.

A year ago, Luanda was projecting growth of 8.8pc with a fiscal deficit of 5pc of GDP as it poured cash into reconstruction from a long civil war that ended in 2002.

But its spending plans were all predicated on oil — which accounts for half of GDP and 90pc of foreign exchange earnings — at $98 a barrel.

The government is budgeting a more sober $81 for next year but even that might be over-optimistic after Brent crude hit a four-year low on Thursday of $76 as ministers from oil-producing Opec countries met in Vienna.

Reserves are at a relatively healthy $27bn — enough to prevent a full-scale currency blow-out, analysts say — but if oil stays below $80 for some time, the kwanza will continue to weaken and the budget deficit will balloon.

The result is likely to be sharply reduced spending, a big increase in foreign borrowing, either through Eurobonds or syndicated loans, and possibly even an International Monetary Fund (IMF) bailout, as happened after the 2008 financial crisis.

“If there’s no support for oil prices, the budget deficit could be much larger than 7.6pc and then you could see an IMF programme,” said Samantha Singh, an African currency strategist at Standard Bank in Johannesburg.

Published in Dawn, November 28th, 2014