Sunday - June 16,2019

Cheaper oil wreaks havoc on Angola´s spending plans

Cheaper oil wreaks havoc on Angola´s spending plans

Angola´s economy is set to slow this year, key infrastructure projects will be shelved and swathes of social spending are facing the chop as a global crude price slump takes its toll on Africa’s second-biggest oil producer.

The cabinet last week sent a revised budget to parliament, cutting the assumed oil price to $40 a barrel, from $81 previously, and slashing $14bn off spending, the finance ministry said.

The government’s failure to shield the economy from tumbling oil prices is likely to intensify public anger towards President José Eduardo dos Santos, who has been accused of enriching the elite and leaving the poor behind in his 35 years in power. He told Angolans last month that 2015 would be "difficult economically" and public spending would have to be cut, including on fuel subsidies — with a 20% cut planned — and infrastructure.

Oil accounts for about half of Angola’s gross domestic product (GDP), 80% of tax revenue and 90% of export earnings.

Standard Bank expects Angola’s GDP to grow about 3.1% this year, down from 4% last year and a peak of 12% in 2012. The finance ministry had predicted growth of about 9% before the budget cuts.

Samantha Singh of Standard Bank said she expected Angola to post a budget deficit of about 8.1% of GDP, the kwanza to weaken to record lows against the dollar, and inflation to accelerate from the current 7.5%. Economists also say Angola’s current account balance could slip into deficit for the first time since 2009 if oil prices stay depressed.

Much-needed efforts to diversify the economy will be undermined as public spending is slashed. "Many projects will not happen and that will have a big impact on the companies and Angola’s economy," said Ricardo Gomes, president of the Portuguese construction lobby group AECOPS, which represents companies such as Mota-Engil, Soares da Costa and Teixeira Duarte. He said projects that were under way should be concluded but major future developments would be delayed or cancelled, including a $5bn plan to expand electricity coverage.

China may look to fill the infrastructure gap by capitalising on lower oil prices to facilitate the expansion of its construction companies, which have played a dominant role in Angola’s economic development.

A drop in oil prices in 2008 left Angola with a nearly $7bn in delayed payments to building companies. But since then its banking system has become more sophisticated and it has a better relationship with global institutions such as the International Monetary Fund and World Bank. "In spite of the situation, Angola is in a better position to finance itself in the external markets," Mr Gomes said.