Oil exports to China are ‘cushion’ for drop in Angola’s revenues

Due to the fall in oil revenues, Angola needs to recalculate its public accounts – and rethink the economic model by enhancing diversification – but has a “cushion” in the form of oil supply contracts to China.
Due to long-term supply contracts, which mainly began to be established in 2002, China is now the largest buyer of oil from Angola, absorbing about half of the West African country’s oil exports in 2013.
The Africa Intelligence Monitor, citing senior Angolan officials, reported that the sharp fall in the price of oil is worrying the authorities, but internally they also point to a number of mitigating factors that allow some leeway for managing the situation.
These factors include the sale of oil futures to China and the way in which the price is set in Angola’s favour in turbulent times in the market, according to the same source.
Another argument is that the country has significant foreign exchange reserves and a great capacity for accessing credit to address specific problems that may occur.
Last week, Angola secured funding of US$500 million, from Goldman Sachs and the UK’s Gemcorp Capital, after having securing a loan in December of US$2 billion from China for the oil sector.
Also according to the Africa Intelligence Monitor, the Angolan authorities are betting on the price crisis being short-lived.
In his New Year message, President José Eduardo dos Santos hinted of some concerns about the impact on the budget plan and the economy.
On the economic front, the situation has made efforts for economic diversification even more pressing, including development of sectors such as agriculture and industry involving key partners such as China, Brazil and Portugal.
According to the Economist Intelligence Unit, the current situation will accelerate economic diversification, and there are signs of hope especially in industry, which accounts for less than 10 percent of GDP, but is booming, largely due to the new, more protectionist, tariff system.
New industrial zones, the biggest of which in Viana, on the outskirts of Luanda, “tend to generate more jobs, including unskilled jobs, and their development” can help Angola to reduce its dependence on imported goods,” the EIU said in a recent study on the impact of a drop in oil revenues.
The government has shown it is very interested in attracting foreign investment and is offering highly favourable tax benefits to investors.
According to the EIU, if Angola improves its energy supply and eliminates red tape, it will be in a “strong position” to develop its regional exports, mainly because of the recently rebuilt railway lines.
It may even make sense, finally, for Angola to join the free trade area of ​​the Southern African Development Community (SADC), the EIU said.  MDT/Macauhub