AfricaPress-Tanzania: THE Balance of Payment of the East African Community (EAC), member states are expected to improve due to the global fall of oil prices.
The BoP per each member states, minus South Sudan—net oil exporter—since they spend considerable amount for importation of petroleum products.
Though most of the EAC countries are buying refined products but the price expected to follow the crude oil movements.
This will have positive outcome for EAC states’ balance of payments (BoPs) and the balance saved directed to repair the ailing region economy post coronavirus pandemic era—minus South Sudan, an oil economy while Kenya and Uganda have oil but has yet to reach significant commercial level.
The Orbit Securities Head of Research and Analytics, Imani Mr Muhingo said oil makes up more than 20 per cent of Tanzania imports, thus a drop in price favours current account and thus lowers exchange rate risk.
“In both Uganda and Kenya oil [imports] makes up a substantial part of their imports, though I don’t how much by percentage and how much it affects their currencies.
“Theoretically lower oil prices are good for both markets as it lowers the exchange rate risk,” Mr Muhingo said.
Conventional wisdom holds that an increase in oil prices will raise input costs for most businesses and force consumers to spend more money on gasoline, thereby reducing the corporate earnings of other businesses.
“The opposite should be true when oil prices fall. So the impact will derive from the performance of the overall economy due to drop in oil prices,” Tanzania Securities Senior Investment Analyst Ombeni said.
On governments side there will be an bearing on taxes, fees and charges as it is known that for every litre of fuel be it petrol or diesel a consumer pays, a certain percentages goes to the government in the form of direct taxes.
“For Tanzania,” Dr Shayo said, “[and other EAC] the net oil importer, cheaper oil will help lower current account arrears through imports.”
Dr Shayo said specifically a country could benefits more if it has a bulk procurement system, like Tanzania, and have in place enough storage capacity.
According to Bank of Tanzania (BoT), the value of oil imports, accounts for 21.1 percent of goods import rose by 9.8 percent to 1.84billion US dollars, owing to the increase in imported volume as prices fell in the world market.
Tanzania’s value of import of goods and services stood at 10.61billion US dollar at end of February.
The Central Bank of Kenya report showed that oil imports increased by 11 percent to 1.02billion US dollars in quarter two last year compared to similar period previous year.
The increase in oil imports is attributed to the higher international crude oil prices…” CBK said in its Quarterly Economic Review, April-June 2019.
Bank of Uganda said the import bill grew by 11.7 per cent to 6.81billion US dollars in the 12 months to last December, mainly driven by increased imports of non-monetary gold.
The only country in EAC that could suffer monetary policy due to low international oil prices is South Sudan, with ill-featured economy, where over 90 per cent of its exports come from oil.
Zan Securities Chief Executive Officer (CEO), Raphael Masumbuko said local investors should not worry since there “is no direct correlation” between US oil price drop and stock trading in the EAC.
“No worries” Mr Masumbuko said adding “There is no direct correlation between US oil price drop and stock trading in Tanzania. Even in the US the impact is very hard to ascertain”
The oil price movement will have little impact on Dar es Salaam Stock Exchange (DSE), since the only oil related listed company is Swala Energy and is engaged in exploration.
“Moreover”, the Zan CEO said “Swala has been illiquid for quite some time and we do not think the new developments will affect its trading”.
Mr Masumbuko said Nairobi Securities Exchange poised to be affected since it has oil listed company—Vivo Energy and Total Kenya.
“NSE will be affected due to presence of oil listed companies such as Vivo Energy and Total Kenya.
“For USE [Uganda Securities Exchange], there is no listed oil company and there should not be any direct effect,” Mr Masumbuko said told Daily News.
On his part, Mr Muhingo, saw “no impact” on Swala prices because it still exploring with no revenue to date.
“Swala is still exploring,” Mr Muhingo said “it has recorded any revenues ever since it was formed, I don’t think the news will change anything on the counter’s price”
For Mr Uhuru, the effect on price movement to New York Stock Exchange will be on listed oil companies as the economy will be affected and same on the stock market.
“We don’t expect that to impact our market(s), remember oil is traded in contracts such as future contracts so negative price doesn’t mean you can get oil for free.
“That’s why the oil prices is still the same but the higher storage cost lead to reduction in prices of the future contracts,” Mr Uhuru said.
However, an economist-cum-investment banker Dr Hildebrand Shayo said the US futures oil price dipping to negative level might affect the trading of DSE since its signalling slow global growth.
“Investors might be concerned that dipping prices are a sign of falling demand due to slowing global growth, hence investors in importing nations might cut back on capital outlays,” Dr Shayo said.
Oil prices fell yesterday on signs that worldwide oil storage is filling rapidly, raising concerns that production cuts will not be fast enough to fully offset the collapse in demand from the coronavirus pandemic.
US West Texas Intermediate (WTI) June futures fell 1.49 US dollar, or 8.8 per cent, to 15.45 US dollars a barrel by 0452 GMT, while Brent crude was down 44 US cents or 2.1 per cent at 21.00 US dollars a barrel.
