The ongoing oil price war could lead to another global meltdown in 2015, according to Lawrence Nazare, executive director at Continental Re. In an interview with RISKAFRICA, Nazare said that if Organisation of the Petroleum Exporting Countries (OPEC) maintains production, prices will continue to fall below the economic production price for US oil fracking and may lead to another US recession with a consequent ripple effect on the rest of the World.
“Slowdown in China and drastic change in OPEC, particularly Saudi, views on crude oil prices will negatively impact established oil exporting countries in Africa and all the new and expectant countries looking forward to hydro-carbon inspired boom,” added Nazare.
The broader outlook for 2015
According to Nazare, additional risks that Continental Re foresees for 2015 include overcapacity within the African insurance market due to an influx of foreign capacity; regulatory ‘activism’ could result in unpredictable regulatory terrain; social unrest in restive disadvantaged populations, particularly the urban youth, due to depressed commodity prices, particularly oil leading to capital flight, fiscal pressures on government, negatively impacting all sectors particularly insurance.
With regards to economic risks, Nazare warns of lower commodity prices leading to GDP growth stagnation, currency pressures, high inflation and balance of payment constraints as well as the lack of fiscal space for governments and reduced budgetary commitments to social services and infrastructure spend.
Nazare suggests that key global geopolitical risks worldwide will continue to present grave medium- to long-term consequences, which will persist into 2015: “The escalating extremist spawned terror crises threaten security across the Middle East, part of Asia, North Africa, East Africa the Sahel and, increasingly, in major cities around the globe.”
Nazare highlights the ‘New Cold War’ between Russia and the West, precipitated by events in the Ukraine, has resulted in a new bipolar schism with no fundamental ideological base. Furthermore, territorial claims motivated by resource prospects, such as the dispute in the South China Sea, continue to threaten future global peace.
For 2015, Nazare considers that infrastructure, power and transportation sectors are at risk of facing stagnation due to slowing investments, as well as sectors requiring intensive capital, such as mining and hydro-carbons, which are facing severe capital constraints.
Conversely, Continental Re sees opportunities in consumer driven sectors such as fast-moving consumer goods, real estate, telecoms, and health due to sustain expansion with the expanding African middle class.