Angola, Africa’s second-largest oil producer, is seeking to raise up to $10bn from foreign creditors as it attempts to push ahead with key infrastructure projects in the face of severe headwinds triggered by the collapse in crude prices.
The southern African nation has slashed its budget for the year by a quarter, or about $15bn, after revising expenditure and halving its assumptions for oil price to $40 a barrel.
But in a rare interview with a member of Angola’s government, Abrãhao Gourgel, economy minister, said the country would continue to prioritise vital infrastructure spending, including building a $6bn refinery.
“There are projects that are being delayed and there are projects that did not begin . . . and ongoing projects will slow down,” he says. “But a big part of the [infrastructure] projects [are] financed by foreign credit lines, so these will not feel any impact.”
Until 2014, the government spent roughly $15bn annually on infrastructure.
Angola illustrates how vulnerable Africa’s crude exporters are to falling oil prices. Sub-Saharan Africa’s eight oil exporters account for half the region’s gross domestic product.
To raise funds, Mr Gourgel said Angola was seeking to launch its debut Eurobond — which would be the first test of investors’ appetite towards frontier market African debt since crude prices began to slump last year. The Eurobond would raise between $1bn and $1.5bn.
The World Bank is also preparing a $500m loan for Angola — the first of its kind of the country, while Mr Gourgel said bilateral credit lines could be extended with the likes of Brazil, Spain and China. Beijing is already a major investor in the country. Luanda has also approached Goldman Sachs and another London-based investment firm for loans.
In total, the government aims to raise 1,654bn kwanza ($15.2bn) through domestic financing and a further 1,105bn kwanza via external financing. The currency has depreciated sharply this year and is trading at about Kw110 against the dollar.
Angola’s government has set an ambitious growth target for Angola of 6.6 per cent this year, while the International Monetary Fund forecast growth of 4.5 per cent, down from its prediction of 5.9 per cent in August.
The former Portuguese colony has been among Africa’s fastest growing economies over the past decade, as it has sought to rebuild following the devastating civil war that ended in 2002. The ramping up of oil production has helped Angola achieve strong growth — including growth of almost 23 per cent in 2007 alone. Oil accounts for 98 per cent of Angola’s export earnings, three quarters of government revenue and 44 per cent of GDP.
Angola’s economy is also heavily centralised, with state-related activity estimated to account for 80 per cent of GDP. The private sector operates predominantly in the informal economy.
However, officials and bankers say the country is better prepared to handle the oil price slide than in 2009 when the ripple effects of the global economic crisis forced it to seek a $1.4bn IMF loan.
This time, the central bank has prioritised the allocation of foreign currency to the oil and food sectors to maintain its reserves, currently about $25.7bn.
While the policy has had a detrimental impact on struggling companies that face delays accessing dollars for imports, the government has insisted the measures are necessary to avoid a repeat of 2009, even as jobs are being shed in key sectors such as oil and construction.
José Filomeno dos Santos, son of veteran president, José Eduardo dos Santos, and head of a $5bn sovereign wealth fund, adds: “Obviously there is a sense of worry . . . . [but there is] much more calm and more stability than we experienced in 2009.
“We believe this situation will be managed much more smoothly.”
Mr Gourgel said the crude slump was a wake-up call that would help Angola diversify from oil and develop its non-oil private sector, including agriculture, mining, fishing and manufacturing.
“Now we have to increase the speed of implementation of the diversification — there is no way back,” he says.
Source: Financial Times