By Manuel SoqueMichael Cohen
Builder Joao Victor is witnessing the havoc plummeting crude prices are wreaking on Angola’s oil-addicted economy.
“I used to have government contracts to build schools and health centers,” Victor, 40, said in a July 22 interview in Luanda, the capital. “Now I can’t get anything because of the oil prices.”
Angola, Africa’s largest crude producer after Nigeria, relied on the fuel to generate about 70 percent of taxes and 95 percent of export income last year. As the price of oil plunged 50 percent in the past 12 months, the government slashed this year’s budget by a quarter, cutting fuel subsidies and freezing hiring. The state crude company separately announced $1 billion of cost reductions by the end of 2015.
With government spending accounting for more than a third of Angola’s $129 billion gross domestic product last year, austerity is putting the brakes on what was one of the world’s fastest-expanding economies. Growth, which has averaged more than 10 percent annually since a 27-year civil war ended in 2002, is set to slow to 3.9 percent in 2016, from about 4.5 percent this year, International Monetary Fund projections show.
The hardship wrought by the oil market meltdown extends beyond government cutbacks. The kwanza has lost 18 percent against the U.S. dollar on the interbank market this year, the most among 24 African currencies tracked by Bloomberg after the Ugandan and Tanzanian shillings and Zambia’s kwacha. The central bank has raised its benchmark interest rate three times since March to 10.25 percent to contain soaring prices.
The oil price is hampering the government’s ability to raise revenue and run the economy, and if the situation isn’t properly managed, it could affect economic and social stability, President Jose Eduardo Dos Santos said in a Feb. 10 speech when he announced the budget cuts.
“All Angolans should face the situation together,” he said.
Finance Ministry spokesman Amilcar Xavier didn’t respond to six calls seeking comment.
“Angola’s credit profile remains vulnerable, with reserves under pressure, debt rising and growth slowing sharply,” Fitch Ratings, which cut its outlook on the nation’s BB- rating to negative from stable in March, said by e-mail on Wednesday.
The inflation rate rose to 9.6 percent in June from 8.9 percent the month before, according to the national statistics agency, and the central bank expects it to accelerate to 10.4 percent by the end of the year. Fuel prices have almost doubled since the government started removing subsidies last year.
“The increase in the fuel price put me against the wall,” taxi driver Antonio Damiao, 37, said in an interview in Luanda. “The prices of all basic goods have gone up.”[pro_ad_display_adzone id=”70560″]
With about half of its 24 million people living on less than $2 a day, Angola ranked 149th out of 187 countries on the United Nations Development Program’s 2014 human development index. About a quarter of the workforce is unemployed and the oil price slump is swelling their ranks.
“The company I worked for just laid off 40 people last week, including me,” bricklayer Pedro Guimaraes, 60, a father of seven, said in an interview in Viana on Luanda’s outskirts. “They say they aren’t being paid by the government so they can’t keep us. Life has been really tough.”
On July 1, the World Bank said it had approved a $450 million loan and $200 million of guarantees to help shore up Angola’s economy. The aid, the first to be granted since 2010, will help the government implement reforms to boost revenue, strengthen its investment management systems and reduce fuel subsidies, the Washington-based lender said.
The kwanza needs to be devalued by 10 percent to 20 percent to increase the nation’s competitiveness and shield small- and medium-sized businesses, according to Jose Severino, president of the Angola Industrial Association. Efforts also need to be stepped up to diversify the economy away from oil and encourage the development of the natural gas industry, he said in an e-mailed response to questions.
Victor, the builder, is banking on a commodity-market revival to keep his business afloat.
“I have a family to feed and workers to pay,” he said. “I hope the oil prices go up soon.”(Bloomberg)