The oil price spike following Russia’s invasion of Ukraine has had divergent effects on the currencies of Africa’s major oil producers, a report produced by AZA Africa’s largest non-bank currency broker by trading volume at over $1 billion a year.
Angola, currently Africa’s third-largest oil producer, has seen its currency, the Kwanza, jump nearly 15% against the dollar in the past month, making it the world’s best-performing currency, the report says.
By contrast, the report shows that Libya, Africa’s second-largest producer, has seen its currency, the Dinar fall by 1.7% over the same period. This is due in part to the fact that the central bank has been buying dollars, but also because oil output has declined after militias shut down two oil fields, including the country’s largest, Sharara.
It is a different scenario in Nigeria, the continent’s biggest oil producer, where the Naira has appreciated only marginally from a record low in the unofficial market. Since the Central Bank of Nigeria stopped FX sales to the country’s Bureau de Change outlets last July, the potential uplift from higher crude export revenue on CBN reserves no longer feeds through to the unofficial rate, which is now solely a reflection of dollar demand and supply.
The impact on the real economy is more mixed: Nigeria exports crude oil but it imports the refined product for fuel, creating higher import prices that risk accelerating inflation.
Nigeria is thus currently facing a revenue challenge when in fact the country should be heading to the bank with excess earnings from the higher income made possible by the higher oil prices. Thus, while the government used a benchmark price of $62 per barrel for revenue projection in the 2022 budget, the country will not enjoy any form of windfall in the current high-price environment. What could have accrued to the excess crude account to act as a stabilization fund is being frittered away in the importation of refined products, now at higher prices.
Nigeria has four refineries with a daily refining capacity of 445,000 barrels of oil. All of that local refining capacity is lost to the nation, with the consequence that the country now depends on imports to meet local requirements.
This has contributed in part to the current scarcity and rise in the price of diesel, which has become a threat to the local businesses. Many of them are now struggling to operate their machines with diesel at a price of over N700 per litre.
