Angola's economy set to slow as oil prices collapse

Teixeira Duarte SA

29/01/2015 11:21

* Cabinet proposes $14 billion in budget cuts 
    * Growth to slow, deficit widen, currency weaken 
    * Construction, electricity projects to be shelved 
    * President dos Santos faces public anger 
 
    By Joe Brock 
    JOHANNESBURG, Jan 29 (Reuters) - Angola's oil-dependent 
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 producer. 
    Angola's cabinet last week sent a revised 2015 budget to 
parliament, cutting the assumed oil price to $40 a barrel, from 
$81 previously projected, and slashing $14 billion off planned 
spending, the finance ministry said.  ID:nL6N0V52Z5  
    The government's failure to shield sub-Saharan Africa's 
third largest economy from tumbling oil prices is likely to 
intensify public anger towards President Jose Eduardo dos 
Santos, who has been accused of enriching a political elite and 
leaving the poor behind during his 35 years in power. 
    Dos Santos told Angolans last month that 2015 would be 
"difficult economically" and some public spending would have to 
be cut, including on fuel subsidies and infrastructure. 
    The austerity drive is a result of a halving of global oil 
prices in the last six months  LCOc1 . Oil accounts for around 
half of Angola's GDP, 80 percent of tax revenues and 90 percent 
of export earnings. 
    "The impact of low oil revenues will be reflected in 
growth," said Samantha Singh, analyst at Standard Bank, which 
expects Angola's GDP to grow around 3.1 percent this year, down 
from 4 percent last year and a peak of 12 percent in 2012. 
    Angola's finance ministry had predicted growth of around 9 
percent this year but that was before the budget cuts. 
    Singh said she expected Angola to post a budget deficit of 
around 8.1 percent of GDP, while the kwanza  AOA=  was likely to 
weaken to new record lows against the U.S. dollar and there was 
further upside to inflation, currently at 7.5 percent. 
    It is also likely Angola's current account balance could 
slip into deficit this year, for the first time since 2009, if 
oil prices remain depressed, economists say. 
    Much-needed efforts to diversify Angola's economy are also 
set to be undermined as public spending is slashed. 
     
    "BIG IMPACT" 
    "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 like Mota-Engil  MOTA.LS , 
Soares da Costa and Teixeira Duarte  TDSA.LS . 
    Gomes said projects that were underway should be concluded 
but major future developments would be delayed or cancelled, 
including a $5 billion plan to expand electricity coverage and 
billions more in road construction. 
    China may look to fill the infrastructure gap by 
capitalising on lower oil prices to facilitate the expansion of 
its construction firms, who have played a dominant role in 
Angola's economic development. 
    A drop in oil prices during the global financial crisis in 
2008 left Angola with a nearly $7 billion in delayed payments to 
building companies. Since then, however, Angola's banking system 
has become more sophisticated and it has a better relationship 
with international institutions like the IMF and World Bank. 
    "In spite of the situation, Angola is in a better position 
to finance itself in the external markets," Gomes said. 
    The treasury is also saving cash by trimming 20 percent off 
fuel subsidies, estimated to cost 4.5 percent of GDP in 2014. 
    Cutting subsidies will please the IMF and many investors but 
half of Angolans living on less than $2 a day are likely to be 
angered at paying more for petrol, while infrastructure 
deteriorates and public services are cut back. 
    The full details of the amended budget have not emerged but 
the public will be eyeing security spending, usually the biggest 
portion of the budget, prompting accusations by rights groups 
that Dos Santos uses the military to maintain his grip on power. 
    "They will not cut the military and security expenditure. 
They will cut development and social services that help the real 
people," said Elias Isaac, country director at the Open Society 
Initiative for Southern Africa. 
    After emerging from a 27 year civil war in 2003, Angola's 
oil boom aided growth and development but the public often 
accuse Dos Santos' government of using the spoils of peace to 
enrich the ruling elite at the expense of the poor. 
    "If they couldn't help the poor when oil was high, how will 
they do it now? This is going to cause a lot of public tension," 
Elias said. 
   ($1 = 103.6110 kwanza) 
 
 (Editing by Giles Elgood) 
 ((joe.brock@thomsonreuters.com; +27117753142; Reuters 
Messaging: joe.brock.thomsonreuters@reuters.net)) 
 
Keywords: ANGOLA ECONOMY/