Angola: China guarantees increase in demand for Angolan oil

6 October 2008

Lisbon, Portugal, 6 Oct – Angolan oil exports, the country’s main source of revenue, will continue to increase in the near future thanks to growth in demand from China which will compensate for possible setbacks in other markets, according to analysts from Portugal’s Banco BPI.

“Despite certain conditions that could limit the demand from developed economies, China’s strong growth provides guarantees that, in the near future, demand for Angolan oil should be maintained,” say the BPI analysts in the latest report on Angola, published in September.

Throughout this year Angola has boosted its position as the largest and most reliable oil producer in Sub-Saharan Africa, with estimated production of 1.9 million barrels per day, ahead of Nigeria where the Niger delta conflict has seriously affected production.

Over the next few months an important strengthening of Angolan production capacity should take place, with new oil fields such as Saxi and Batuque starting production and Mondo and Cabinda stepping up their output.

“The demand from other emerging economies, and in particular from China, where demand continues to be high, should be a long term supporting factor. Although the USA still has a significant role, China has established itself as an important candidate for the main destination for Angolan exports,” say analysts, Cristina Casalinho, Paula Carvalho, Susana Santos and Joao Sousa.

In 2007, China represented 28 percent of Angolan foreign sales, 10 percentage points up on the previous year; these oil exports were worth US$ 10.605 billion dollars, second only to exports to the US which reached US$12.855 billion dollars.

However, BPI emphasises that oil export fluctuations to the USA and China follow differing tendencies: the first, historically more important, though losing ground, and the second gaining ground. “It is expected that China will consolidate its position as the main destination” thanks to “the increased closeness of [bilateral] trade relations.”

For the first time in June this year, China’s oil consumption rose above the target 8 million barrels per day.
Currently oil represents around 80 percent of Angolan exports and, directly, over 57 percent of its GDP, which is why it is “vulnerable” to a possible inversion of the oil cycle, which has in recent weeks fallen in the international markets, says BPI.

It is above all thanks to oil, exports of which have been steadily increasing in quantity and value, that the Angolan balance of payments# has undergone a “significant improvement” over the last five years, even with imports increasing three-fold to US$11.7 billion dollars last year.

Linked to this increase in buying from abroad is “the enormous reconstruction drive undertaken by the Angolan authorities, which, in view of the non existence of a developed national industry sector, has meant that all necessary machines and equipment have had to be imported, and also the increased buying power of the population, within an economy which is not diversified,” says the report.

Up until May this year, Chinese exports to Angola grew by close to 140 percent, according to the latest available official statistics, reaching US$ 972 million.

The value for the first five months of this year is close to last year’s total (US$ 1,241 million) and is well over the total for 2006 of US$ 894 million.

“China has intensified its relations with Africa. Aware that the growth of China’s economy is dependent on access to raw materials, the authorities have strengthened relations with African countries, particularly exporters of natural materials, namely via credit lines,” says BPI.

With oil exports taking the Angolan economy to grow at record levels, it is difficult to control inflation, which in July reached 12.5 percent, a big leap compared to the previous month and the highest rate since July 2006, requiring exceptional measures from the government which has for a long time been trying to bring it down to 10 percent.

“Faced with the possibility of speculative prices,” particularly for services, catering and in the hotel industry, Luanda announced that it is preparing legislation to “minimize these effects,” although “rejecting the possibility of imposing administrative prices,” and on the other hand “carefully monitoring the price setting” in the relevant sectors, said the analysts.

Prices for the Angolan consumer have been influenced by logistical restrictions, namely difficulties in the unshipping of goods, but also by the so-called “import inflation”, most recently due to food bought from international markets.

BPI is the main stakeholder in Angolan private banking leader Fomento Angola. (macauhub)