Published On: Fri, May 15th, 2015

Angola investors vigilant as oil prices drop


Oil production in Angola

LUANDA – ANGOLAN investors have adopted a cautious attitude following the massive drop in the oil price and the recent credit rating downgrades in the Southern African country.

Amid the setback, the government had planned for an $80 dollar per barrel oil price in 2015, but had to revise that down to $40 after the crude oil plunge that started in June last year, meaning it had to reduce $14 billion off this year’s budget and raise its budget deficit expectation to at least 7 percent of gross domestic product.

“The government is reducing investment plans for this year and there is some reduction in terms of government spending. This is affecting the whole country in terms of economic activity,” says Luis Teles, Executive Head Corporate and Investment Banking, Standard Bank Angola.

The government has acknowledged it needs to raise funding to finance the 7 percent deficit. While its view is that the oil price will not go back to $100 a barrel any time soon, it feels the price could be above $60 in the second half of the year.

The US Energy Information Administration estimates that Angola earned $24 billion in net oil export revenue in 2014 (unadjusted for inflation), $3 billion less than in 2013 because of decreased production and the decline in average annual crude oil prices.

However, one of the solutions to bringing about stability to the market is coming from the government and banks themselves, which are acting quickly to find new avenues of funding, Teles says.

The government is already working with major banks like Standard Bank to ensure enough dollars can be provided to help specific industries, like the food and oil industries.

“We have been in discussions with the government and the central bank to come up with answers. We are certainly seeing the government moving quickly to counter the negative effects of the drop in the oil price.

“The Government is pushing hard to diversify the economy and is coordinating with the Central Bank to find new ways to incentivise banks to lend more to the real economy,” says Teles.

Teles says significant development opportunities exist, including in the downstream sector but it is all about balancing timing.

“This could be a good time to invest. The country is keen to attract foreign direct investment and is making it easier and faster to come in. Investors can then take time to find a local partner and invest in their structures without feeling pressure to be profitable immediately.

“Of course, when the oil price increases, the growth potential will arise quickly again,” saysTeles.

Oil export revenue accounts for close to 98% of total export revenue in Angola, which is the second-largest oil producer in sub-Saharan Africa behind Nigeria.

– CAJ News




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