Angola’s economic upturn fuels credit boom

30 July 2007

Luanda, Angola, 30 July – The reinvigoration of Angola’s economy is sparking an expansion in bank credit, but also threatening the government’s hopes to reduce inflation to 10 percent this year.

Figures from Angola’s central bank, cited in a report by the Portuguese BPI group on Angola, show that credit in May grew by 81 percent in a year-on-year comparison to reach a value of around 600 million kwanzas (US$ 8.06 million)

Despite this total credit level still being small, “invigoration of the non-oil sectors leads to acceleration of credit, which will show a trend to expand in keeping with thriving investment opportunities,” said BPI analyst Susana Jesus Santos, adding “prospects for the future evolution of these figures are encouraging.”

At the close of 2006, Angola had 15 private banks and credit accounted for only 0.5 percent of GDP, with the Fomento bank of BPI being the main played in the sector.

“The normalization of economic activity favors the emergence of other business exluding petroleum, diamonds and trade, widening the possibilities for the granting of credit,” added Santos.

Consequently, it will be possible for Angolan banks to “diversify portfolios, which will have less weight on public debts funds requiring less efforts to absorb liquidity by the monetary authority.”

Among projects outside the oil and diamond sectors BPI highlights the Capanda Agro-Industrial Complex, a public investment of nearly US$ 900 million over eight years that is expected to create 63,000 jobs and an annual export volume valued at around US$ 500 million.

Angola’s oil sector is experiencing an era of “strong expansion” with the coming on-stream of the Rosa field (Sonangol/Total) and the startup of onshore production projects in Cabinda province. The Angolan authorities forecast total daily production of 1.8 million barrels for this year, up 400,000 bpd from 2006.

New diamond prospecting ventures are underway in Quito, Bie province, by the Newhorizon consortium and mining companies Endiama and Dourang.

“Reports of various international bodies, with special mention for the IMF, conclude there is a climate of optimism surrounding the Angolan economy, with some positive surprise relating to the capacity of the authorities to rehabilitate infrastructures and improve conditions for people. Structural reforms are progressing, even if the pace is to slow, in the opinion of some,” the said the BPI report.

“There are increasing signs that permit predictions of increased drive in Angola’s economy.”

But economic growth, coupled with constraints in the supply of goods and services, are also putting upward pressure on inflation, putting at risk the 10 percent target for this year that the government could fail to meet for the second year running.

“Inflation has broken its sustained downward fall and, in the first months of the year, its behavior has been very similar to that observed in the same period last year, suggesting it will be difficult to lower it to the defined rate.”

The BPI financial analysts also warned on the need for better control of prices, both in the formal and casual sectors.

Angola’s central bank said recently it was “confident” of hitting the 10 percent inflation target for this year and of lowering this to single digit inflation in 2008. But the bank admitted that some deficiencies in the economy could jeopardize these goals.

“Some price adjustments, associated to structural questions in the economy, could prevent inflation from reaching 10 percent in 2007. Whatever happens, it will be below the 12.2 percent rate recorded in 2006,” the central bank added. (macauhub)