It is hard to think of an industry that has not been affected by the COVID-19 pandemic yet. However, it is crucial to note that not all of these effects have been negative, and the amount of impact has been different for all sectors. Unfortunately, the energy sector has not been so lucky and has seen a significant dip in oil prices. According to Wood MacKenzie, upstream investments amounting to 33% will not be likely for a while in certain countries like Ghana. The deficit in investment will no doubt affect businesses, mainly small and medium-sized ones.
Effects of Petroleum Prices on the Economy
Ghana's economy does not hinge on petroleum prices, unlike other Sub-Saharan countries such as Angola and Nigeria. Yet, the economy still could not avoid the aftermath of the fall in crude oil prices. In fact, the country is expected to experience its slowest economic growth in 37 years. This has taken a massive hit on the Ghanaian economy since the annual growth for the oil sector doubled for three consecutive years at 6.3%. To safeguard the economy, Ghana has already obtained $1 billion in aid from the International Monetary Fund (IMF).
Moreover, the Finance Minister of Ghana recently disclosed that the expected revenue of about $1.5 billion for the petroleum sector was short by two-thirds of the total, and was less than a billion. Such a significant reduction in revenue is posing a great challenge to the national budget for 2020, creating long-term effects on the economy.
Medium to Long-term Impact on Investment
The pandemic has also delayed major investment projects and funds that were expected for fiscal 2020 in the petroleum sector. For example, the Aker Energy investment of about $4 billion has been put on hold, postponing the anticipated project in the Pecan field indefinitely. Furthermore, investments for Tullow Ghana to improve some of its oil fields will also not be happening anytime soon. The impact of these delays has put the economy at further risk, and companies that have expected to benefit from these investments will have to look elsewhere for patronage. If not, it will only be a matter of time until they go out of business.
The Finance Ministry of the country must take a second look at the calculations to adapt to the current situation and explore other sources of funding to finance plans. Diversification is essential if developing countries such as Ghana, Nigeria, and Cameron hope to recover from the aftereffects of the pandemic. This process will provide resilience for future external and internal economic challenges, and may even prevent commodity price shocks.
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