The coronavirus pandemic continues to take its toll on the African continent. While the continent as a whole still accounts for relatively few deaths from the disease, the numbers are rising, with more than 4,700 confirmed cases and 127 deaths. As countries scramble to contain the virus—and are affected by the efforts of other countries to do the same—the economic impacts grow.
Here’s a selection of this week’s coverage on the observed and expected economic impacts across the continent, divided into growth and income, sectors and sub-populations, policy responses, and commentary.
Growth and income analysis
- McKinsey proposes different scenarios for Africa’s growth in the wake of COVID-19. Before the crisis, the 2020 growth estimate for the continent was 3.9 percent. In the “least-worst case,” characterized by the outbreak being somewhat contained both globally and in Africa, growth drops to 0.4 percent. In other scenarios (including a lack of containment globally and in Africa), the rate drops as low as -3.9 percent. The scenarios explicitly do not take into account either fiscal stimulus packages or currency devaluations.
- Breisinger and others estimate monthly GDP losses for Egypt under a range of scenarios, with estimates around 0.7 to 0.8 percent.
Sector and sub-population analysis
- The World Food Programme’s analysis for West and Central Africa highlights that 2019/2020 had been a strong agricultural season “with overall higher than average production of cereals,” which is good for food security. But despite that, the “consumer price index for food is at its highest since 2008 in the Monetary Union of West Africa zone.” They talk about informality, remittances, and migration, and here’s their take on agriculture:
“More than 80 percent of rural population rely on subsistence farming in West and Central Africa. The 2020 off season harvests should be reaching markets and providing substantial incomes of stallholder farmer. However, market closure, restriction on internal and cross borders movement limit markets access. Planting period starts in May/June for the main agricultural season while the Covid-19 epidemic is forcing governments to cut agricultural expenses and to prioritize health-related expenditures. If the above-mentioned restrictions continue, famers won’t have access to market to buy good quality seeds and fertilizers.”
As coronavirus shocks the energy sector and economy, is now the time for a new energy order?
- COVID-19 has sent shockwaves through the economy, including the energy sector.
- Unprecedented global collaboration has been explored to stabilize energy markets.
- The crisis offers an opportunity to consider a new energy order to enable the energy transition in a sustainable way.
The COVID-19 pandemic has affected every industry in one way or another. For oil and gas, prices have plummeted with the potential to cause disruptions well beyond the energy sector.
Though this is the worst possible way to begin a decade, the coronavirus pandemic and the collapse of oil prices also offer an opportunity to consider unorthodox intervention in the energy markets and global collaboration to support the recovery phase once the acute crisis subsides.
The most important element of this agreement, beyond the cut in oil production, is the mobilization of parties with competing interests to work towards the shared and optimal objective of market stability.
Oil and gas are still considered key elements of the economy, with an important role in enabling prosperity for everyone (producers and consumers alike). While oil-producing countries make money from each barrel of oil sold, oil-consuming countries also generate an income on oil through the tax system at the state level and through dividends in saving funds, pension funds and the like, which are owned by individual citizens. And in some countries, the revenue from these taxes is used to finance green infrastructure projects.
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As COVID-19 continues to make its way through Africa, this global pandemic poses a huge threat to the off-grid energy sector and the millions of customers it serves. UN Sustainable Development Goal (SDG) 7 – energy for all – unlocks the potential of people, businesses, communities and whole countries at scale. Access to energy is the trigger for economic growth as it powers sustainable development by providing opportunities not previously possible.
Yet governments are faced with an almost impossible task: the competing duality of putting health of citizens first while also ensuring economies do not collapse, which itself would lead to irretrievable damage to health, education and livelihood opportunities for all.
While 840 million people still live without electricity and a further 1 billion live without a reliable electrical supply, significant progress has been made in recent years on expanding energy access globally. But without urgent action, off-grid energy could essentially be wiped out – a major step back for universal energy access and economic development.
The Covid-19 coronavirus was first identified in China’s Hubei province in December 2019 and has since become a global health threat, impacting 140 countries and triggering the World Health Organisation (WHO) to declare it a global pandemic.
Many companies are taking precautions against the spread of the Covid-19 coronavirus pandemic. How will it change the offshore industry in 2020?
The World Health Organisation has declared the Covid-19 coronavirus outbreak a pandemic, and many companies are taking precautions against the impact and spread of the virus.
The virus has forced companies to slow or halt physical operations, impacting production in the upstream sector. Meanwhile, downstream operations are upgrading their systems and pushing to work more flexibly.
Offshore Technology examines the measures put in place and predicts the potential future impact of the Covid-19 coronavirus on the offshore industry.
1. Oil price crash
One important impact of the coronavirus outbreak on the downstream oil industry is that the price of crude oil has fallen significantly in a short time, taking billions off the stock prices of major oil and gas companies.
Covid-19 was first identified in China, where it caused an economic slowdown for the world’s largest energy consumer. The decrease in demand led to fears of over-supply for fuel and oil products, and a resulting fall in prices. The Organisation of the Petroleum Exporting Countries (OPEC) met to discuss this on Friday 6 March.
At their summit, OPEC countries agreed to cut another 1.5 million barrels per day from production. They then met with Russian representatives to propose it took 500,000 bpd of the cuts, but Russia did not agree. Talks continued as stock markets closed.
When Russia did not negotiate, OPEC countries decided to increase production until Russia relented. Talks continued while markets closed on Friday. When they reopened on Monday 9 March, most companies lost millions of pounds of value.
The Covid-19 pandemic has shattered oil demand, sunk prices and is posing a significant risk for those involved in oil extraction and processing. Is an industry traditionally thought of as resistant to change, properly equipped to deal with this crisis?
The spread of Covid-19 poses a significant threat to the global oil and gas industry. The increasingly drastic action taken to reduce the spread of the virus interferes with many of the sector’s key processes: offshore workers have to balance maintaining social distancing while living and working in confined spaces; travel bans and quarantines inhibit companies’ ability to travel and conduct meetings; and the uncertainty that runs through the pandemic does nothing to reassure a historically volatile industry.
This uncertainty is furthered by the lack of an obvious historical precedent for the phenomenon in the oil and gas sector. The International Energy Agency (IEA) has pointed to the 2003 SARS pandemic as a loosely analogous event, but noted that a centrepiece of both the Covid-19 outbreak and the global oil industry, the part played by China, has changed dramatically in the last two decades.
As the agency notes, since 2003, China’s oil demand had more than doubled, and by 2019, Chinese growth accounted for more than 80% of global oil demand growth.
The disruption to Chinese oil has had repercussions felt around the world; in February, the IEA noted demand had fallen by 435,000 barrels per day (bpd) in the first quarter of this year alone, the first quarterly contraction in demand in more than a decade. The following month, the agency reported that the shutdown of the Chinese economy in the wake of the virus has triggered a collapse in global oil demand of 1.1 million bpd compared to 2019 figures, and slashed its annual growth forecast by more than a quarter, to 825,000 bpd, the lowest growth figure since 2011.
Energy research firm Rystad Energy went a step further, predicting that a 25% decline in oil prices could see oil and gas investments cut by $30bn globally, severing an economic lifeline for an industry that has already been casting its eye towards long-term decommissioning projects rather than new drilling opportunities. As a result, the pandemic could prove to be an existential threat for the oil and gas industry, as social and economic challenges force a historically conservative sector to adapt to a rapidly changing environment.
While there are some causes for optimism, notably the industry’s response to the 2014 oil crash providing a basic framework for future crisis management strategies, it remains unclear if the oil industry is properly structured to respond to this emergency.
As Covid-19 sweeps the world, the mining sector is just one of many that has been adversely affected. With quarantines preventing people and employees from meeting up to work, to uncertainties across the supply chain affecting commodity prices, we consider some of the impacts of the pandemic on the mining sector, and whether any good can come from this uncertainty.
The Covid-19 pandemic has spread around the world, affecting people at an unprecedented rate and sending many businesses and communities into taking desperate quarantine measures to protect themselves and those around them; and mining has not been spared from the outbreak.
Miners across the world, both local operators and international giants, have taken steps as drastic as closing down mines or quarantining whole parts of their operations, in order to protect employees and prevent the spread of the virus. Yet in a sector that is highly reliant on effective and predictable operations within its supply chain, any deviation from traditional working practices can trigger intense uncertainty, and threaten both production and profits. With this in mind, the pandemic has already affected mining operations and the trading relationships building upon them, and has left the future of the industry shrouded in doubt.
Workers at risk
The tight working conditions of mining facilities means workers are at the greatest immediate risk, and mining operations around the world have been placed into shutdown. The Democratic Republic of the Congo (DRC), imposed a two-day lockdown in late March in the Haut-Katanga province, following the news that two people tested positive for Covid-19 in the provincial capital of Lumbabashi, while China Molybdenum’s Tenke Fungurume Mining placed its mine in the Lualaba province under quarantine.
Similarly, the Atla Zinc has shut down its Gorno mine in Italy, shutting off access to up to 3.3. million tonnes of reserves as the pandemic hits Italy particularly hard.
Production hits and financial losses
The Gorno mine closure is not the only operation to impede production, as mines around the world have been thrown into uncertainty; 21-day nationwide lockdown in South Africa has unsettled the platinum group metals industry, with the country responsible for 75% of the world’s platinum production.
The oil and gas industry is facing unprecedented headwinds, buffeted by the intertwined forces of the COVID-19 pandemic which has sickened more than 1.2 million people across the world and killed more than 70,000, dropping oil prices, the result of drastically lower demand, and uncertainty about how much oil will keep flowing into the global markets.The industry’s workforce is caught in the crossfire, labeled “essential” employees in the United States and elsewhere but all too aware of the risks to both their livelihoods and their industry. A University of Houston survey of workers from across the industry found points of optimism – workers gave their employers overwhelmingly high marks for how they have handled the crisis, from pre-crisis planning to support for workers struggling to juggle work-life balance as schools and many businesses shut down. But the workers also reported worries about both their immediate job security and about the future of the industry as a whole.
The survey findings suggest that, despite the market turmoil, companies will need to remain tightly focused on core issues to maintain strong relationships with their workforce, relationships that will be critical when the market stabilizes. This includes continuing strong, two-way communication with employees – most employees currently say their companies have done a good job with this, but continuing lines of communication over the long haul will take conscious effort – as well as a heightened awareness of potential safety lapses as workers are distracted by concerns about the coronavirus and job security. More than ever, best practices for environmental, social and corporate governance will require providing support for the workforce and engaging in community concerns when possible.