Angola Struggles as Oil Prices Suffocate Revenues

Angola, the largest African crude-oil producing country after Nigeria, has turned to international lenders, including, but not limited to, major financial institutions like Goldman Sachs Group Inc. for help. The move has come as the nation probes for cash in a desperate attempt to adapt to the lowest crude-oil prices in over five years. The African country has reportedly secured over 250 million dollars, each from New York-based investment banks as well as Gemcorp Capital LLP of London.

Angola, the largest African crude-oil producing country after Nigeria, has turned to international lenders, including, but not limited to, major financial institutions like Goldman Sachs Group Inc. for help. The move has come as the nation probes for cash in a desperate attempt to adapt to the lowest crude-oil prices in over five years. The African country has reportedly secured over 250 million dollars, each from New York-based investment banks as well as Gemcorp Capital LLP of London.

Angola should send thank you cards to the states of New York and California for not pursuing fracking because if they did the price of oil would even be cheaper. This would hurt countries like Angola even more because oil-producing countries, except maybe Saudi Arabia, do not understand the potential America has in terms of fracking and oil shale.

All its Eggs in One Basket

Angola’s Finance Ministry has taken other strict measures, such as cuts on spending on education, a government imposed recruitment freeze and is even preparing to cut oil outflows by up to 20% this year in a bid to offset the impact of shriveling oil prices. Dos Santos, the nation’s president, has stated that many large infrastructure projects will face delays, be put on hold, or even abandoned. Angola, which is Africa’s third-largest economy, depends on crude oil for more than 75% of its tax revenue and almost all of its exports.

Borrowing from institutes such as Goldman Sachs and Gemcorp precedes a two billion dollar loan to the state-run oil company Sonangol, from China’s Development Bank. Dos Santos is also in negotiations with the World Bank for a global aid package. Brent crude, which is the global benchmark for crude oil, rose as high as $116 dollars a barrel in June 2014, before slumping to $45.19, the lowest ever, since 2009.

The Crumbling Eco-Political Fabric of Angola

A spokesman for Angola’s Ministry of Finance has reportedly not responded to phone calls, e-mails and even text messages seeking comments on the nations’ financial situation. Joe Stein, spokesperson for the Goldman Sachs office based in London has said that the company has also declined to comment on the matter.

According to Goldman Sachs, it owns one percent of Houston-based oil exporter Cobalt International Energy Inc. (CIE), which owns offshore wells in Angola and has political ties with Vice President Manuel Vicente. This has subsequently prompted a Securities and Exchange Commission investigation into the matter. Goldman also has ownership of nearly a tenth of the shares it initially owned when it invested in Cobalt in 2012.

Angola, a member of the Organization of Petroleum Exporting Countries (OPEC), had reportedly pumped out around 1.62 million barrels of crude a day during December and is targeting an output of around 1.83 million barrels a day this year.

Projections Indicate Uncontrollable Rise in Public Debt

Angola’s net foreign reserves dipped to 26 billion dollars in November 2014. Inflation levels had also sharply risen to about 7.5 percent from 6.9 percent during the same time.

The nations’ Finance Ministry has estimated that public debt could surpass $47 billion this year unless there are budget revisions.  The budget is based $81 oil.  The World Bank had estimated Angola’s 2013 gross domestic product (GDP) at roughly $124 billion. Luanda, the nations’ capital, had only begun reaping in the benefits of recent oil wealth with a newly developed skyline of offices and trendy apartment buildings within a renovated bay area.