The rise in our construction industry value forecast this quarter reflects higher oil prices that are a crucial factor in Angola’s oil-dependent economy. As such, our previous forecast of real industry growth of 2.3% for 2009 has now been revised upwards to 8.1%. We reiterate that for Angola, forecasting is exceptionally difficult as official data only cover up to 2003, forcing us to estimate our historical data from 2004 onwards. Therefore our forecasts are heavily reliant on oil price levels, which in turn determine the level of oil windfalls and also forecasts for investments in the country’s capital stock, which also includes construction and infrastructure. Previous quarter’s forecasts for gross fixed capital investments were AOA788bn (US$9.5bn), a growth of 2% for 2009. This has been revised upwards to 7% real growth for 2009, with investments in gross fixed capital at AOA842bn (US$10.9bn).
The Africa Cup of Nations 2010, which will be hosted in Luanda, has been the major driver behind investments in new infrastructure in Angola’s capital, fuelling growth in the entire sector over 2009. New projects recently announced in transport indicate that activity in the infrastructure sector could pick up from 2010 onwards. Russian mining company Alrosa is planning to invest US$500mn in the construction of homes, schools and dams, a plan announced following the visit of Russian Prime Minister Medvedev’s official visit in the country. In the ports sector, shipping company Maersk will invest US$95mn in the construction of a new terminal in Luanda port. Last but not least, the government approved plans for the construction of a new international airport near Luanda, a project that has been in discussion for years, though no more specific details have been announced. However, the projects above remain in a state of flux, which means that actual implementation may be months or (in the case of the airport) even years away. We maintain our view that the downstream oil and gas sector presents the largest opportunities for foreign investments in Angola’s infrastructure sector, as oil output is set to increase over the coming years.
China and India will provide foreign credit lines for infrastructure in Angola in return for access to the country’s oil and gas sector. The former has expressed an interest in the construction of a new international airport, while the latter in a railway project. Export credit guarantees are also going to play a role in getting other foreign companies to partake in Angola’s infrastructure rebuild, one of the most recent ones being the US$1bn guaranteed by Export Development Canada in October 2008. Despite being the continent’s second largest recipient of foreign direct investment (FDI), the climate for doing business in Angola is regarded as one of the least clement in the world. Corruption, a weak legal framework and the economy’s vulnerability to oil prices are all factors that drag the country’s Infrastructure Business Environment score down. However, because our forecasts for real industry value growth have risen, they have bolstered Angola’s overall infrastructure rating, from the previous 36 to 40 out of 100.
In Project Finance Ratings, Angola’s score is also low, reflecting the lack of regulations governing concessions, the lack of regulators and uncertainty over tariff structures. In addition, there is little precedent to gauge the success or causes of failure for large concessions and public-private partnerships (PPPs) in Angola’s infrastructure. As such, the country’s score is among the lowest globally at 44.6, though it should be noted that it is higher than that of Nigeria.
Angola Infrastructure Report Q1 2010: http://www.companiesandmarkets.com/r.ashx?id=N42PLGNS3264575
