Drop in oil prices is a wakeup call for proper expenditure planning


Chaytoo, the sector director at Rand Merchant Bank told CNBC Africa that the drop in oil prices was a wakeup call for government to manage their expenditure properly and have long term plans.

“Banks will benefit in East Africa from falling oil prices because with a decrease in inflationary pressure there will be an increase in output and costs of goods will go down,” he said.

(READ MORE: Falling oil prices deal bigger economic blow to Africa than Ebola)


“The falling oil prices will not have a huge impact in the region as countries like Sudan has a minute exposure.”

Fuel prices and Brent crude oil fell towards the 84 US dollars a barrel last Tuesday after the IMF cut its global growth forecast for 2015.

The tumbling oil prices have been well received by non-oil producing countries as they rely on oil imports.

Chaytoo said the banking sector had been caught in the changing fortunes of the oil sector.

“There are mixed fortunes for a number of countries in Africa with regards to the falling oil prices. These fortunes particularly play positively in east Africa as the region is a net importer of fuel products,” added Chaytoo.

“It is important to note the knock-on effect the oil price has on importing nations particularly when you look at intra-regional trade.”

(READ MORE: East African oil & gas discoveries stir global explorer interest)

He also said, if one looks at South Sudan which has been a keen partner in East African regional intra-trade, one can foresee possible effects on trade as Sudan relies on oil for balancing its fiscus which might impact economic growth.

“While the drop in oil price remains a positive story for East Africa, we should not forget that there is a significant amount of foreign direct investment that is in the oil and gas space in the region,” he warned.

“Should oil and gas remain subdued in the short to medium term, there could be effects on FDIs going into the region.”