Angola, one of the top oil-producing countries in Africa is now betting on reviving its oil industry and jumpstarting its oil-dependent economy, which has been in recession for five consecutive years.
According to multiple reports, the government plans to sell as much as 30% of Sonangol, the economic engine of Angola’s oil-dependent economy.
According to Baltazar Miguel, a member of Sonangol’s board, the stake is worth about US$6.4B, which will be sold after restructuring the company to create more transparency and root out corruption.
Angola was Africa’s top oil producer six years ago when oil prices crashed in 2015-2016, slashing oil-producing countries’ revenues and forcing international oil companies to reconsider their exorbitant spending plans made at US$100 oil.
After the price crash that began in 2014, Angola is now the third-biggest oil producer in Africa, behind Nigeria and even behind conflict-ridden Libya.
Nunes Junior, who’s in charge of reviving an economy that has been mired in recession for the past five years, expects a rebound in growth to help draw investors.
According to him, the Gross domestic product may expand about 1% this year on the back of higher oil prices and rising output from the non-oil sector.
The partial privatization of Sonangol, as well as a stake in the national diamond company Endiama, are part of a much wider privatization program that the OPEC oil producer has already launched.
Details indicate that the proceeds from selling by end-2022 stakes in nearly 195 state-held enterprises are expected to shore up the government finances and revive the economy that has been suffering since 2014.
The state-owned enterprises set to be sold include Sonangol, Endiama, banks, and national airline TAAG.
Angola was still struggling to recover from the previous oil crisis when the 2020 shock hit the oil market, oil prices, and company plans on capital expenditure.
Angola’s economic recession
Angola’s economy, in which oil production and supporting activities account for 50 per cent gross domestic product and around 89 per cent of exports, slipped into recession in 2015. Five years later, it has yet to exit that recession.
Due to the OPEC+ pact shrank oil revenues in 2020, Angola was one of the most hit oil-producing economies as low oil prices and lower production.
Furthermore, its currency, the kwanza, has further depreciated against the U.S. dollar.
The decline in oil production
Angola’s oil production was declining even before the OPEC+ agreement had it reduce its output, as the African producer was competing for lower-cost development projects with other deepwater basins such as Brazil—and lately Guyana—and losing.
Angola’s crude oil production has dropped to 1.247 million barrels per day (bpd) in 2020, from the 1.8 million bpd that was being recorded back in 2015.
According to a new strategy that was unveiled last year, Angola will need foreign and government investments to discover up to 57 billion barrels of crude oil by 2025.
Should new discoveries fail to be made, Angola’s oil production would continuously decline as oilfields mature, to just above 500,000 bpd by 2028, after peaking in 2008 at nearly 2 million bpd.
This is according to Angola’s upstream regulator ANPG which issued a forecast for oil production from existing fields.
Total and Eni
European majors Total and Eni are continuing their drilling and development activities in Angola, but this may not be enough for a major turnaround in oil production as mature oilfields are depleting.
Earlier this month, Eni announced a new light oil discovery in Angola’s deep waters, pursuing exploration opportunities close to existing infrastructure, which suggests it aims to keep development costs low.
A stable regulatory environment and wisely using the proceeds from the ongoing privatization program could be Angola’s best bet to revive its ailing economy, which has not seen growth since 2015.
In its Regional Economic Outlook for Sub-Saharan Africa earlier this month, the International Monetary Fund (IMF) said Angola’s economy is this year forecast to expand, albeit by just 0.4 per cent, for the first time in six years.