Africa’s Largest Oil Producers Are In Trouble

Africa's Largest Oil Producers Are In Trouble
Oil is the backbone of Nigeria’s economy

AFRICANGLOBE – The Nigerian and Angolan governments’ decision to approach the World Bank and the African Development Bank (AfDB) for concessionary loans could lead to a devaluation of the countries’ currencies.

Both countries, Africa’s biggest oil producers, desperately require support to help survive the regime of low crude oil prices and strained public finances.

Nigerian President Muhammadu Buhari’s government is seeking to spend its way out of an economic crisis triggered by a collapse in oil prices.

Mr Buhari has proposed boosting this year’s budget to a record 6.1-trillion naira ($30.6bn). Nigerian Finance Minister Kemi Adeosun said last month the authorities would borrow about $5bn in external debt from multilateral agencies and the Eurobond market to plug a budget gap of 3-trillion naira.

Legislators in Nigeria’s parliament would begin deliberations this week on the 2016 spending plan, Ms Adeosun said at the weekend. Authorities would begin nondeal roadshow meetings with investors to sound out a potential sale of $1bn of Eurobonds this month, she said.

While discussions were taking place, a formal request had not yet been made to the World Bank for $2.5bn and the AfDB for $1bn, Ms Adeosun said.

“A loan from multilateral lenders would be much cheaper than borrowing on the open market,” John Ashbourne, an Africa economist at Capital Economics, said on Monday.

Angola has also held talks with the World Bank about securing funding support in a deal that could see the country implementing unspecified reforms.

The World Bank and other institutions such as the International Monetary Fund have recommended that Nigeria and Angola devalue their currencies.

Devaluation could form part of loan deals, two banking sources said on Monday. Mr Buhari is against devaluing the naira, which trades at about 197/$ officially, compared to street rates as weak as 305/$, while Angola’s kwanza is worth 155/$, but changes hands at more than 400/$ on the secondary market.

 

By: Chris Kay