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Posted on Friday, 27 November 2015 11:00

Angola Country Profile 2015: The oil-barrel blues

By The Africa Report

altThe government, run by the Movimento Popular de Libertação de Angola (MPLA), is focused on dealing with lower levels of oil production and a dropping oil price.

The opposition has mainly been quiet, but campaigners continue to criticise the cosy relationship between the regime and its business partners. The country's development needs remain vast, and the government is pouring money into electricity generation and transportation.

In a state of the nation address at the opening of parliament in October 2014, President José Eduardo dos Santos dampened expectations about the year ahead, saying that the government was revising its growth estimates downwards for 2014. The creation of a sovereign wealth fund in 2011 has not altered the government's ability to manage the ups and downs of the oil price. He said Angolans had turned the page of war forever and that Angola's efforts were "now oriented toward the consolidation of the democratic institutions where, may it truly be said, we are noting great progress".

'Distorted picture'

Angola's opposition disagrees and has been largely restrained in its activities since an activist was killed by security forces in November 2013 just hours ahead of countrywide protests in which 292 people were detained by police.

In an alternative state of the nation address, União Nacional para a Independência Total de Angola leader Isaías Samakuva said that Dos Santos painted "a distorted picture of the extent of poverty and nature of corruption". Dos Santos set out a list of ambitious targets that are likely to be missed if the downturn in the oil sector continues.

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The government plans to more than quadruple electricity production from 2,062MW to 9,000MW in 2025 through the construction of new dams and rehabilitation of old ones. He said his administration also aims to provide clean water to two-thirds of the population by 2017. Agriculture and education are other priority areas for public investment, but there too campaigners say that corruption is rampant.

The government approved a power-purchase agreement in October 2014 between the Companhia de Bioenergia de Angola (Biocom) and state energy company Empresa Nacional de Electricidade, in which it commits to purchase all electricity produced by Biocom for 20 years.

Biocom, a $500m venture, is 40% owned by Brazil's Odebrecht, 40% by Angolan company Damer Industria and 20% by state-run petroleum company Sonangol Holding EP. The power plant, which will produce electricity from sugar cane, should be operational in the first quarter of 2015 with output forecast at 40,000tn of sugar per annum. It is the country's largest renewable energy project and will use 15% of its sugar to produce ethanol to sell to Sonangol.

Centralising power

Civil society groups have criticised the deal for the lack of transparency in terms of Biocom's deciding on its local partner. Damer is jointly owned by vice-president Manuel Vicente, General Manuel Helder Vieira Dias Júnior and General Leopoldino Fragoso do Nascimento.

The government is dragging its feet on the organising of local elections, which were due to take place in 2014 but have been postponed. It prefers to centralise power and limit opportunities for opposition parties to develop local followings. As a step towards the polls, the government organised the first post-independence census in mid-2014.

With the Angolan civil war just over a decade in the past, the country is likely to miss many of the 2015 targets for the Millennium Development Goals. Under-five mortality dropped to 158 per 1,000 live births in 2011 from 243 in 1990, but that will not be enough to meet that goal. However, the government met the target for reducing hunger in 2013 and reported in October that the number of Angolans living on less than $2 per day fell from 92% in 2000 to 54% in 2014.

Oil production in Angola decreased in the first half of 2014 which, combined with uncertainty about future output and declining crude prices, fuelled anxiety about the impact on government revenue, the economy and the potential political fallout in a heavily oil-dependent country.

Government revenue from January to July 2014 was down by 13% from the same period in 2013, and the price of oil continued to decline toward the end of the year. The government's gross international reserves, which have been increasing for several years, declined to $28.8bn in August 2014 from a historically high level of $36.6bn reached in September 2013, according to government statistics.

The International Monetary Fund (IMF) said the drop in reserves was due in part to a transfer of $5bn from the Oil for Infrastructure Fund to Angola's sovereign wealth fund. Vice-president Manuel said the Organisation of Petroleum Exporting Countries member planned to increase output to 2m bpd by 2017. This is two years behind an earlier target of 2015 stated on several occasions by petroleum minister José Maria Botelho de Vasconcelos.

The industry is eager to see a repeat of Brazil's pre-salt boom in offshore Angola, given the geological similarities between the two countries. Results of drilling in the Kwanza Basin are expected at the end of the first quarter of 2015 at the earliest, industry sources say.

Growth in exports

In 2013, oil exports accounted for about 97% of total exports and 42% of gross domestic product. Growth in the non-oil economy, driven by the agricultural sector and to a lesser extent manufacturing and services, has remained robust.

The government continues to push for the development of local content in the oil and gas sectors. While Angolanisation appears to be working in terms of the numbers game, analysts say it is not addressing the underlying need for Angolans to develop skills.

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Due to a lack of technical training, most positions occupied by Angolans are lower-skilled jobs. The country's $10bn liquefied natural gas project, which had been expected to run at full capacity throughout 2014, has been beset by problems.

Oil giant Chevron, which has the largest stake in the venture, said in September that it would learn from its experiences after several electrical fires, pipeline leaks and a worker's death. It planned to have the project up and running again by 2015.

Given the uncertainty surrounding the future of the oil industry and the pressing needs of Angola's population of 21.5 million, the diversification of the economy away from hydrocarbons appears more urgent than ever.

The construction of dams and roads is essential to support industries, and good roads, railway lines and ports too will ensure reliable transport of goods. The government may not meet all of its investment targets in 2015 because it is looking for ways to reduce expenditure.

In September 2014, Angola took the decision to cut back fuel subsidies and raise retail fuel prices. The cost of a litre of gasoline rose 25% to K75 ($0.76). Angola spent around 4% of its 2013 budget on fuel subsidies.

The health of the banking sector is crucial to domestic industries, and the authorities are still dealing with the impact of the mid-2014 crisis at Banco Espirito Santo Angola, the local subsidiary of a Portuguese bank. A new bank, Banco Economico, has been created from the ashes of the old bank and Sonangol is now the biggest shareholder.

While its direction remains uncertain, analysts say the financial sector is stable. The central bank will increase supervision of the sector over the coming year and mergers and acquisitions among the country's 24 banks are likely.

The MPLA looks to the future without discussing the succession

Most agree that the only person who really knows the succession plans is President José eduardo dos santos himself. Although the Movimento Popular de Libertação de Angola (MPLA) will hold its fifth extraordinary congress in December 2014, Dos santos, 72, has told his central committee that leadership issues will be off the agenda until the party's congress in 2016.

Under the slogan 'MPLA – revitalise the structures to strengthen the Party', the congress will look to consolidate peace and the rule of law, assess party structures and reaffirm its political and ideological principles of democratic socialism, the party says on its website.

Government officials say the MPLA will make minor adjustments to its structures that could point to which of its members are shifting in time for elections in 2017. Talk of the succession continues nonetheless. Vice-President Manuel Vicente is now better-known in diplomatic circles, especially after attending the UN general assembly in September 2014.

It remains anyone's guess whether he will assume the presidency after Dos santos, who has so far clocked 35 years in power. Although he has no base within the MPLA leadership, some say the president's son José Filomeno dos santos, who is the director of Angola's sovereign wealth fund, is a possible contender.



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