March 25 2014 at 08:00am
By Colin McClelland
A construction crane stands above a building site near the shoreline in Luanda. Angola’s crude oil output will decline from 2017 unless new fields are found, so it must make stronger efforts to diversify its sources of revenue, the International Monetary Fund advises. Photo: Bloomberg
Luanda – Economic growth in Angola will slow in 2017 as oil output declines, according to the International Monetary Fund (IMF).
The economy is forecast to expand by 5.3 percent this year, and by 5.5 percent and 5.9 percent in the following two years before the rate slows to 3.3 percent in 2017, IMF figures show.
Crude oil production in Africa’s second-largest producer is set to decline to 1.77 million barrels a day in 2017 from 1.9 million barrels a day in 2016.
“This reflects the expectation that oil production from currently known reserves will peak and then start to fall,” Nicholas Staines, the IMF representative in Angola, said last week.
“The timing of this turnaround could well be pushed back as new reserves are discovered.”
Angola produced 1.69 million barrels of oil a day last month. The country is attempting to diversify its economy away from oil, which accounts for about 80 percent of tax revenue and 45 percent of gross domestic product (GDP).
The government is targeting $4 billion (R43.5bn) a year in foreign investment in areas including mining, agriculture, transport and hotels, but so far it has attracted about half of that amount.
The IMF forecasts economic growth of 6.4 percent this year in non-oil industries as the country boosts spending on infrastructure.
Growth excluding crude oil may reach 6.7 percent next year, followed by 7.1 percent in 2016 and 7.7 percent the year after, IMF data show.
The diversification effort “is behind expectations and a stronger effort is clearly needed”, Staines said.
“This is particularly important in the context of higher government spending, softening oil revenue projections and, now, fiscal deficits.”
IMF forecasts for non-oil growth were lower than the government’s because the bank saw potential difficulties in large capital projects and was more cautious about their spillover effects, Staines said.
For 2015 to 2017, the government forecasts 10.3 percent non-oil growth in GDP, while the IMF projects 7.2 percent.
The government had a budget deficit of 1.5 percent of GDP last year – the first since 2009, when the IMF began a $1.4bn loan programme to help Angola weather an oil price drop. This year’s budget deficit is expected to reach 2 percent and the fiscal balance will not be in surplus until 2019, the IMF believes.
The IMF expressed disappointment over the government’s inaccurate reporting of data on domestic arrears during 2010 and accounts payable the following year, which breached the terms of the loan agreement. The fund said it also regretted continued weaknesses in public financial management and called for decisive efforts to address arrears.
Angola “is very committed to address these difficulties” and passed legislation last year to improve arrears accounting and to give more oversight to the finance ministry, Staines said.
Domestic arrears should not have an effect on plans by the government to issue a $1.5bn eurobond in the third quarter.
“The international financial environment is currently difficult and perhaps not the best of times for Angola to consider a eurobond issue,” Staines said. “The government will presumably seek the advice of its capital market advisers to get a sense of the right timing.”
Economic growth probably slowed to 4.1 percent last year from 5.2 percent in 2012 as a drought slowed agricultural expansion, the IMF said.
“Addressing capital infrastructure constraints in transport, water and electricity will go a long way and should have positive spillover effects on the economy,” Staines said. “But the full benefits will require a much stronger effort to address the structural constraints summarised in Angola’s very low ranking in the World Bank’s cost of doing business index.”
The index ranks Angola 179th of 189 countries benchmarked to June last year.
Angola is estimated to have recoverable oil reserves of 12.7 billion barrels, according to the BP Statistical Review of World Energy published in June.
Drillers including Statoil and ConocoPhillips are testing the Atlantic mirror theory and plan to spend $3bn on more than 32 wells this year in Angola’s largest exploration campaign.
They are searching for structures similar to those off Brazil, where Petrobras is developing the western hemisphere’s largest oil find in three decades, estimated at 20 billion barrels. – Bloomberg