East Africa: Falling Global Oil Prices to Improve EAC Balance of Payment

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 […]

Stay in the Know!

Sign up for the latest news and information on African Companies and Economy.

By signing up, you agree to receive MoneyInAfrica offers, promotions and other commercial messages. You may unsubscribe at any time.

Leave a Reply