THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015
CATHOLIC UNIVERSITY OF CENTRAL AFRICA
CATHOLIC INSTITUTE OF YAOUND
FACULTY OF SOCIAL STUDIES AND MANAGEMENT
Master Accounting and finance II

Expose of Business English

Theme: THE IMPACT OF THE DROP OF OIL PRICES
ON THE ECONOMY OF CENTRAL AFRICAN
COUNTRIES IN 2015

Written by:

NANA Lauranne
TONYE Benoit
WAMBA Leyna
YABET Kvin
YOUDOM Biko

Teacher: Mrs DJOCKOUA

Academic Year 2015-2016

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

Table of contents
INTRODUCTION ....................................................................................................................................... 3
PART 1: ORIGINS AND CAUSES OF THE CRISIS......................................................................................... 4
Demand of crude oil ............................................................................................................................ 5
Supply of crude oil ............................................................................................................................... 6
Financial markets................................................................................................................................. 8
Relation between oil and dollar .......................................................................................................... 8
Geopolitical context ............................................................................................................................ 9
PART 2: CONSEQUENCES OF THE DROP ON OIL PRICES ON CENTRAL AFRICAN COUNTRIES IN 2015 . 10
Case of Cameroon ............................................................................................................................. 10
Case of Gabon ................................................................................................................................... 10
Case of Equatorial Guinea ................................................................................................................. 11
Case of Congo .................................................................................................................................... 11
Case of Central African Republic ....................................................................................................... 12
Case of Chad ...................................................................................................................................... 12
Case of Democratic Republic of Congo ............................................................................................. 12
PART 3: SUGGESTED SOLUTIONS .......................................................................................................... 13
CONCLUSION ......................................................................................................................................... 15
SOURCES: ............................................................................................................................................... 15
Webography: ..................................................................................................................................... 15
Videography: ..................................................................................................................................... 15
Bibliography:...................................................................................................................................... 16

List of tables and of charts

Table 1: Macroeconomics indicators for Gabon ................................................................................... 11
Chart 1: Evolution of oil prices ............................................................................................................... 4
Chart 2: Global oil demand ..................................................................................................................... 5
Chart 3: GDP growth in the world .......................................................................................................... 6
Chart 4: Variation of oil demand (in millions of barrel per day) ............................................................ 6
Chart 5: Variation of production of oil (in millions of barrel per day) ................................................... 7
Chart 6: Relation between oil and dollar ................................................................................................. 8
Chart 7: Relation between dollar and oil (with opposite scale for oil) .................................................... 9
Chart 8: Geopolitical risk ......................................................................................................................... 9
Chart 9: Global production of biofuels .................................................................................................. 13

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

INTRODUCTION
Petrol is nowadays, the main resource used all over the world. In all the sectors of the
economy, products manufactured with crude oil are involved. This phenomenon is critical,
especially when prices rise or fall. In fact, the price of petrol affects all if not a large majority
of products in our society. This shows the link between petrol and the economy of a society, a
country, a firm, a personetc.
Africa is one of the richest, if not, the richest continent in the world in terms of natural and
mineral resources; as far as some engineers said that some African countries can be qualified
as geological bombs. Oil (crude oil) is one of the most exploited resources in Africa since
and even before the independence of these countries. Although the exploitation of crude oil is
made by many national African companies such as SONARA in Cameroon, many
international and transnational companies such as Schlumberger or Total are the real
recipients or beneficiaries of the activity of pumping oil in the subsoil or on the seashore of
African countries; and in fact, those corporations are working for their countries, which in this
case are Occidental Countries such as France, USA (United States of America) or UK
(United Kingdom, Great Britain).
But the problem is that despite of the possession of the most precious minerals in the world,
African countries are still struggling to come out of poverty, corruption, mismanagement of
funds; in order to reach emergence and development. The specific case of crude oil can be
examined to show why African countries economies are in mess, or are unable to improve in a
world set by globalization and internationalization. To achieve this goal, the analysis of the
drop on the price of crude oil which occurred during the month of June 2014 will be discussed
throughout this essay, and the focus of this study will be made on the impact of the drop on
oil prices on the economy of central African countries in 2015: cases of Cameroon, Congo
DR, Congo, Gabon, Equatorial Guinea, Chad and Central African Republic.
As an attempt to solve this problematic, the following plan will be displayed, in the next
paragraphs:
-

Part 1: Origins and causes

Part 2: Consequences on central African countries

Part 3: Some solutions for central African countries

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

PART 1: ORIGINS AND CAUSES OF THE CRISIS

Considering the Global economic prospects1, of the month January 2015, in its chapter 4,
four (4) causes can be listed, in order to explain why oil prices began to drop since the middle
of the year 2014 (June2).
Those factors are:
-

Trends in supply and demand

Changes in OPEC objectives

Receding geopolitical concerns about supply disruptions

U.S. dollar appreciation

Crude oil Brent

janv.-15
nov.-14
sept.-14
juil.-14

Crude oil Brent

mai-14
mars-14
janv.-14
0

20

40

60

80

100

120

Chart 1: Evolution of oil prices

Source: Data taken from The oil price shock of 2014, Zhenbou Hou and al. Page 8/53
According to the Zhenbou Hou and al3, the causes of the drop on oil prices could be:
-

Supply drivers

Global economic prospects | January 2015, Chapter 4 What are the causes of the sharp drop ? Page 156-157
Trois graphiques pour comprendre la baisse des cours du ptrole, www.lemonde.fr/
3
The oil price shock of 2014, Drivers, impacts and policy implications,
2

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

Demand drivers

Geopolitical and other considerations

The following argumentation focuses the description of the origin of the fall on crude oil
prices according to the channel Xerfi Canal, but also considers the notes given by:
-

the authors of the book The oil price shock of 2014, Drivers, impacts and
policy implications, and

a study published by the magazine Global economic prospects in January 2015

entitled Understanding the Plunge in Oil Prices: Sources and Implications.

Demand of crude oil

Great experts predicted the course of the barrel of crude oil around $200 to $250 between
2009 and 2010. But in the middle of the year 2014, the price of crude oil began to fall to the
extent that in the month of February 2015, the percentage of loss was about 30-50%. The first
reason to explain this phenomenon is the trend of both supply and demand.
In fact, after the recession following the 2008 financial crisis, the slowdown of the economic
growth in Europe (France, Spain, Portugal), the breakdown of the development of emerging
countries such as Brazil, the recent recession of the economy of China, had a significant
effect on the worlds demand for crude oil.

Source: Global economic prospects, January

2015, Chapter 4 What are the causes of the
sharp drop ? Page 156-157.

Chart 2: Global oil demand4

This graphic includes the demand for crude oil, biofuels and liquids

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

Source: Global economic prospects, January

2015, Chapter 4 What are the causes of the
sharp drop ? Page 156-157.

Chart 3: GDP growth in the world5

Because of these factors, the level of the demand for crude oil had reduced, and this was
clearly shown by a drop of the number of barrels asked on the market from 1.4 million barrels
between 2000 and 2007 to 738,000 barrels per day between 2007 and 2014, which represents
a reduction of 50%.

Chart 4: Variation of oil demand (in millions of barrel per day)

Source: XERFI Canal: Comprendre les mcanismes de la baisse des cours du ptrole.mp4
Another cause for the drop of oil prices is the increasing use of biofuels in time.

Supply of crude oil

This picture explains the breakdown of the development of emerging countries such as Brazil

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

- USA
The strategy of the United States of America of producing shade oil or schist oil had
significantly overthrown the price of crude oil on the market. In fact, the USA had limited
their importations of crude oil and at the same time, had overflown their national market by
producing oil made of schist. In 2014, USA produced schist oil for about $45 a barrel6,
which is a record and a challenge to the concurrence.
- OPEC: Saudi Arabia, Nigeria
Saudi Arabia, one of the leaders of the OPEC (Organization of Petroleum Exporters
Countries), decided to practice an aggressive policy of maintaining its market shares by
producing more oil, though the prices of crude oil by the time of that decision, were already
decreasing, and so will deeply fall. Other producers of crude oil like Nigeria or Venezuela had
no choice than to follow the leader, in order to maintain their principal foreign source of
income constituted by exportation of hydrocarbons, especially crude oil.
The direct consequence of these decisions was the rise of the level of production of crude oil
on the market, for about 7%, compared to its level between 2000 and 2007.

Chart 5: Variation of production of oil (in millions of barrel per day)7

Source: XERFI Canal: Comprendre les mcanismes de la baisse des cours du ptrole.mp4

La baisse des prix du ptrole, impact sur les budgets des Etats africains ; interview realized on Africa n1
by Stphanie HARTMAN to Jos L. BERRE MENE on Tuesday 27th January 2015
7
The graphic here shows the increase of the production of crude oil by measuring the intensity per day, but to
see clearer the effect on the market, it is necessary to multiply the amounts to obtain the results per month, and
so per contract of exchange.

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

The excess of production of oil was first stocked, but the warehouses became quickly
saturated. The level bar of $110 then was broken in the month of July 2014.

Financial markets
In the futures markets where oil is traded, 35 virtual barrels are exchanged for only one real
barrel of crude oil. As a result of this situation, financial bubbles are created, and when these
bubbles explode (like the subprime crisis in 2008), the effects are dramatic not only on the
traders, but also on the investors, and then the economies involved at the level of the
transaction.
Similarly, the speculative behavior of hedge funds in financial markets amplifies the impact
of the crisis. This occurred during the year 2014 when the speculative bubble on crude oil was
released, and then due to the exaggeration and the amplification of financial transactions on
the market, the impact and the result was a crisis.

Relation between oil and dollar

It is important to note that oil and dollar have an opposite relation. When the price of oil
rises, the course of dollar falls; and when the course of dollar rises, oil prices drop. This is
proved by the correlation ratio between dollar and oil by January 2000 to March 2015,
which is about -0.92. This reveals the intensity of the link between dollar and oil.

Source: Global economic prospects | January 2015,

Chapter 4 What are the causes of the sharp
drop ? Page 156-157

Chart 6: Relation between oil and dollar

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

Chart 7: Relation between dollar and oil (with opposite scale for oil)

Source: XERFI Canal: Comprendre les mcanismes de la baisse des cours du ptrole.mp4

Geopolitical context
Oil is a very powerful weapon in diplomatic and economic relations between countries. Oil
has become a geostrategic issue in the 21st century (and even before). In fact, the fall of the
prices of crude oil affected mostly countries like Russia, Venezuela, Iran and also ISIS
(Islamic State in Iraq and Syria).

Source: Global economic prospects, January

2015, Chapter 4 What are the causes of the
sharp drop ? Page 156-157.

Chart 8: Geopolitical risk

THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

PART 2: CONSEQUENCES OF THE DROP ON OIL PRICES ON CENTRAL

AFRICAN COUNTRIES IN 2015
The precipitate and unexpected drop of the price of the barrel was an important shock for the
countries producers of oil of the central Africa. It resulted in less incomes bound to the export
of the hydrocarbons. It touched especially some more dependent countries of the crude oil
production (Congo, Gabon, the Equatorial Guinea and Chad) and less the other (Cameroon
and The Central African Republic).The present forecasting of many observers indicate that
the prices of the crude oil will remain relatively low for the short/medium term (drop of more
than 46% of the price of the barrel in relation to 2014)8.

Case of Cameroon
Mainly exporter of crude oil and agricultural products also none transformed, Cameroon is
classified in a group of African countries greatly touched by the decrease of the world courses
of these raw materials and responsible of a continuous deterioration of the terms of the
exchange, of about 10% currently for its national economy, according to the World Bank.
This deterioration of terms of the exchange is especially owed to the decrease of the prices of
the cocoa and oil, of which the impact on its returns settles respectively to 7 and 4%,
according to the editorial staff of the report Africa's Pulse conducted by Punam Chuhan- Pole
and Francisco H.G. Ferreira. Thus, the objective of growth fixed to 6% in 2014 had cannot be
achieved. Indeed after a jump to 5.5% in 2013, the Cameroonian economy had contracted
itself then to 5.3%.
Besides, this crisis is going to involve a revision of the budget of 2015. Indeed, the oil returns
represent, more or less, 1/5th of the budget of the state. However, according to Bella Lazare,
technical adviser to the ministry of finance, this budget would have been elaborated on
forecasting of 89 dollars/barrel, whereas the price of the barrel on the world market oscillates
around 50 dollars since the beginning of the year.

Case of Gabon
The impact of the decrease of the prices and the production of oil on the public finances
underlines a new time the vulnerability of Gabon facing the external shocks. Indeed, the fall
of the oil returns drove the authorities to review the budget of the state of 11.4% to the
decrease. This contraction penalized, with delays of payment, the financial situation of the
8

AFRIKIPRESSE.fr, consulted the 22/07/2015

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THE IMPACT OF THE DROP OF OILS PRICES IN CENTRAL AFRICAN COUNTRIES IN

2015

small and medium enterprises (SME), whose state constitutes the main customer. The year
2014 has been marked otherwise by inflationary tensions, with an increase in prices estimated
to 6%. The country also knew social tensions in 2014 and during this year, with the recurrent
strikes of the agents of the public function as well as the main union of the sector of the
hydrocarbons.
Table 1: Macroeconomics indicators for Gabon
Elements

2013

2014 (e)

2015 (f)

2016 (f)

Growth of the GDP

5.6%

5.1%

4.6%

4.7%

Growth rate of the real GDP 3.2%

2.8%

2.3%

2.4%

6%

3%

2.9%

Budgetary balance (% GPD) -3.2%

-6.6%

-13.2%

-11.8%

Checking account (% GPD) 12.1%

6.7%

-8.1%

-4.6%

per capita
Inflation

0.5%

Source: Figures of the national administrations; calculations of the authors for the
evaluations (e) and the forecasting (f).

Case of Equatorial Guinea

Essentially carried by its hydrocarbons, with a production of about 300,000 barrels of oil per
day, the Guinean economy crossbar today of the difficult moments. The drop of the prices of
oil since the beginning of the year entailed a decrease unavoidable of the returns of the
country. Indeed, the price of oil is lowered of near 50%, passing $115 in last June to $60 in
end September. According to the Guinean economist AGAPITO EDU, for every million of
barrels that it exported in beginning of year, the country hoped to receive CFA F 100 million
of them; today her in doesn't wait less nearly half.

Case of Congo
During several years, the dynamism of the economy of Congo has been carried by the price
raised of the barrel of oil, generating important returns to the point to accumulate reserves of
considerable mottos. The brutal reversal of the course of the barrel affected all its economy.
On the occasion of the meeting of the ministers of the union economic of the central Africa,
held in this case in Libreville in December 2014, the monetary authorities of the countries of
the CAEMC (Central African Economic and Monetary Community), the governor of the

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2015

Bank of the States of the central Africa reviewed to the decrease its growth rate, bringing back
it of 6.7% to 5.4%. According to the Ex-president of the Commission of Inspection of the
financial market of the Central Africa, Alexander GANDOU9 "the falls of the prices increases
the risks of instability or even in Congo country exporter of oil, placing it brutally in the
difficulties, in the inability to finance its social politics". Indeed, with a budget financed to
80% by the returns of oil of which the price to fallen of half, the shock is resounding and call
a suitable riposte.

Case of Central African Republic

The CAR has not really been touched by the crisis because his economy is essentially carried
by its agricultural sector. Indeed this last represents more than 50% of its GDP and constitute
the main source of employment. So, according to Economic Commission for Africa of the
United Nations, thanks to the decrease of the international prices of oil the inflation in CAR
would move back from 6.4% in 2014 to 3.3% in 2015. Let's note that this country has
numerous resources as oil and the energy hydroelectric, potentially important but that remain
under-exploited on this day.

Case of Chad
The Chadian economy is strongly dependent of oil. Oil represents more of 80% of the total
exports and more of 60% of the public returns. This strong dependence of the public finances
of the economy to the oil returns the perspectives very sensitive to the variations of the price
of oil. Indeed the present downfall of near 50% of the price of oil should entail a decrease of
the oil returns of at least 30% and of the global public returns of the order of 19.5%10.

Case of Democratic Republic of Congo

Although its economy is not totally depending on oil like the neighboring Congo, the crisis of
oil seems to have negative impacts on the finances of the DR of Congo. Indeed, the fall of the
courses entailed the decrease of the oil returns to the budget of the state; these passed of 30
million USD per month to about 16 million per month. Following this crisis, the minister of
the Congolese economy promised" the decrease of the prices of the fuel liter to the pump.

Alexandre Gandou La chute des cours du ptrole accrot les risques dinstabilit au Congo, http://www.dacpresse.com/actualites/a-la-une/economie/1994-2015-01-24-20-13-19.html
10
http://www.crosted-td.org/2015/05

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2015

PART 3: SUGGESTED SOLUTIONS

African countries should begin now to look for alternatives solutions than crude oil, because
by the end of the 21st century, if the rhythm of consumption of crude oil continues like this,
this source of income will disappear. Indeed, many countries have begun to exploit biofuels
and other mineral resources, such as shade oil or schist oil. The coming conference about
global warming COP 21 at Paris will enlarge the shape of the clean energy, certainly by
laws and rules which will enforce countries, governments and societies to be more responsible
of the environment (Corporate Social Responsibility). So there is a need to promote
ecological and renewable energies (solar energy, biofuels, wind energy);

Source: Global economic prospects | January 2015,

Chapter 4 What are the causes of the sharp
drop ? Page 156-157

Chart 9: Global production of biofuels

Really to avoid political fights and corruption, which occurs over the management of mineral
resources such as crude oil in Africa, there is a need to set a sophisticated system of barter
where oil is not exchanged for money, but oil is traded for technology, but also to fight
corruption inside the government and societies concerned about the management of mineral
resources. Indeed, many countries have discovered their mineral resources; examples are
USA, France and China with shade or schist oil. The diversification of the economy through
agriculture, fishing, cattle rearing, can help African countries to not be so dependent on crude
oil for meeting their needs for development. This crisis is a very great occasion for central
African countries to stop and cut the subventions provided for the reduction of the price of

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2015

crude oil. But the problem which remains is the industrialization of the central African
economies with the creation of factories which will not only transform crude oil, but also
enlarge the industrial sector to collateral uses of oil in term of manufactured products.
These are good ideas for a long perspective, but now, central African countries need to
reduce interest rates at the level of the Central Bank (BEAC), reduce the expenses of the
government and companies (such as SONARA, GDE) in charge of the production of crude
oil. Also governments have to review national budgets in order to make some cuts where the
need is not urgent. Central African countries can issue Treasury Bonds, use their reserve
assets (gold) or constitute a large sovereign wealth fund in order to reduce the impact on
their economies.

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2015

CONCLUSION
In summary, the weak prices of oil will have different impacts in the Central Africa zone
according to the economic structure of each country. A less expensive barrel will expose
the countries producers to new risks. Oppositely, that situation will reduce the pressure on
the countries which import crude oil. For a prospective outlook, if central African
countries apply successfully these recommendations, definitely they will leave their
position of followership to a position of leadership..

SOURCES:
Webography:
-

http://www.congo-site.com;http://www.dac-presse.com/actualites/a-laune/economie/1994-2015-01-24-20-13-19.html; posted at 11 October 2015

http:// www.Journal Du Cameroun.com ;

http:// www.allAfrica.com;

http://www.bsi-economics.org.

http://www.lemonde.fr/ ;Trois graphiques pour comprendre la baisse des cours du

ptrole; consulted at 22 October 2015
http://www.Afrikipresse.fr

Videography:
-

AFRICA NEWS ROOM - Chute des cours du ptrole en Guine quatoriale.mp4 ;

https://www.youtube.com/?hl=fr&gl=FR ; downloaded at October 13 2015

La chute des cours du ptrole pose des dfis pour le Moyen-Orient et lAfrique du
Nord.mp4 ; https://www.youtube.com/?hl=fr&gl=FR ; downloaded at October 13
2015

XERFI Canal: Comprendre les mcanismes de la baisse des cours du ptrole.mp4 ;

https://www.youtube.com/?hl=fr&gl=FR, downloaded at October 16 2015

La baisse des prix du ptrole, impact sur les budgets des Etats africains ;
https://www.youtube.com/?hl=fr&gl=FR ; interview realized on Africa n1 by
Stphanie HARTMAN to Jos L. BERRE MENE on Tuesday 27th January 2015

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2015

Bibliography:
-

Bigsten, A. (2014), Dimensions of income inequality in Africa, WIDER Working

Papers, No. 2014/050, United Nations University World Institute for Development
Research, Helsinki;

Paulais, T. (2012), Financer les villes dAfrique : lenjeu de linvestissement local,

Banque mondiale et BAD, Washington, DC, et Paris.

Global economic prospects | January 2015, Understanding the Plunge in Oil Prices:
Sources and Implications; http://www.worldbank.org ; downloaded on October 16
2015

Zhenbou Hou and al., The oil price shock of 2014, Drivers, impacts and policy
implications; http://www.odi.org; downloaded on October 16 2015

16