Cape Town – The Angolan government is working with Standard Bank to ensure the availability of enough capital to keep specific industries afloat, as its economic mainstay, oil, takes a beating.
Investors are cautious after the more than 50% drop in the oil price and recent credit rating downgrades in Angola. 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.
Executive Head of Corporate and Investment Banking for Standard Bank Angola, Luis Teles, said in a statement on Thursday the group has been in discussions with the government and the central bank and will work to ensure enough dollars can be provided to help specific industries, like the food and oil industries.
“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 co-ordinating with the Central Bank to find new ways to incentivise banks to lend more to the real economy,” he said.
“There is no derivative exchange for example, and we are busy with discussions to improve access to capital and create more liquidity,” says Teles.
Other important facilitation roles being played include pushing for more local content development and production by advising local investors at a strategic level; raising financing for production facilities; advising on mergers and acquisitions; the provision of financing for joint venture structures; trade and receivables finance down the value chain and bridge facilities for equity investors.
The government had planned for an $80 dollar per barrel oil price in 2015, but had to revise that down to just $40 after the crude oil plunge that started in June last year. This meant it had to reduce $14bn off this year’s budget and raise its budget deficit expectation to at least 7% of GDP.
The Angolan government needs to raise funding to finance the 7% 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 $24bn in net oil export revenue in 2014 (unadjusted for inflation), $3bn less than in 2013 because of decreased production and the decline in average annual crude oil prices.
According to the US Energy Information Administration the vast majority of Angola’s natural gas production is associated gas at oil fields, and it is vented and flared (burned off) or re-injected into oil wells to enhance oil recovery.
There is however a lack of the infrastructure needed to commercialise more of Angola’s natural gas resources.
Teles said 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,” said Teles.