BRAZZAVILLE – Driving around the Republic of Congo’s capital, it is clear that the small African state’s oil reserves have helped boost the country’s economic development.
However, the decline in the oil price has come at a particularly bad time for the smaller African producers, Chris Weafer, a senior partner at Moscow’s Macro Advisory, told New Europe. “Countries such as the Republic of Congo based their ambitious budget spending on an assumption of higher for longer oil. But now they are faced with spending plans they simply cannot afford,” he said.
The Republic of Congo or Congo Brazzaville has oil reserves of 1.6 billion barrels as of end 2015 and oil production 290,000 barrels per day in 2015, according to data from the Oil and Gas Journal and other sources.
West Africa has drawn interest from international energy companies eager to tap into unexploited reserves. Companies involved in Republic of Congo’s energy resources are Anglo-French Perenco, France’s Total, Italy’s ENI, UK-based Soco and Canada’s EnerGulf Resources. Gennady Timchenko’s Stroytransgaz, a Russian engineering construction company, built the main pipelines in Congo. Russian gas giant Gazprom is also trying to gain a foothold in Congo-Brazzaville. The African country’s only refinery is in Pointe-Noire in the south.
Meanwhile, the Democratic Republic of the Congo (DRC) or Congo Kinshasa (former Zaire) has oil reserves of 180 million barrels as of end 2015 and oil production of just 28,000 barrels per day in 2015 but hopes that further exploration offshore and near Lake Albert, which straddles the eastern border with Uganda, will boost that figure significantly in coming years.
Many African states have developing oil and natural carbon fuels being developed and the slumping oil prices with the other fall back in metal commodities has been very damaging to their economies, Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe. “After nearly a decade of regular growth this may put several nations into a technical recession until prices start to pick up again,” he said.
Weafer said that the issue for Congo-Brazzaville is that it had raised public expectations for improving incomes and lifestyles and now can’t deliver without putting the country into deeper debt and risking a financial crisis in the not too distant future if the oil price does not recover.
The African state started to behave as of it were already an oil rich nation while in reality it had securitised the country’s future on the false assumption of rising oil revenues, Weafer said.
Without a rapid recovery in the price of oil, the only way many African states can avoid an economic crisis and subsequent effects is to reverse the plans made under the false assumption of rising oil wealth, he said. That means increased taxation across the economy, reduced budget spending and greater efforts to stimulate growth in other industry sectors, he added.
Small oil-dependent nations in Africa are in the same position as a lottery winner who started to spend their winnings only to find out they had one wrong number on the ticket and couldn’t collect, Weafer said.
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