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25.01.2015 Angola

For Angola, plunging oil price jeopardises budget

By Estelle Maussion
Offshore oil rig in Luanda, Angola, on October 14, 2003.  By Martin Bureau (AFP/File)
LISTEN JAN 25, 2015
Offshore oil rig in Luanda, Angola, on October 14, 2003. By Martin Bureau (AFP/File)

Luanda (AFP) - With oil prices collapsing over 50 percent in the past six months, Angola -- Africa's second-largest oil producer -- has had to introduce austerity measures and overhaul its budget to deal with a severe drop in expected revenue.

"We will go through a difficult time now because the government cannot afford to implement the budget they had adopted for the year," said Jose de Oliviera, an independent consultant in the oil sector.

Angola draws about 70 percent of its income from its oil resources. A price collapse like this, with supply outstripping demand, means a big revenue hit for the government.

The country's budget was adopted late last year and, for the first time since the end of its civil war in 2002, the government planned to spend more on public services than on defence and security.

But that was based on the assumption that a barrel of oil would sell for $81. Today, that figure has plunged to less than $50.

"Some public spending will be cut, including fuel subsidies, projects will be postponed, and the government's fiscal discipline will be strengthened," warned President Jose Eduardo dos Santos late last year.

About 54 percent of Angolans live on less than two dollars a day, according to official statistics released in October.

Dos Santos ran his 2012 presidential campaign on a promise to improve living standards -- promises which may now be thwarted.

- Risk of bigger problems -

"There is a risk of even bigger problems, like being unable to pay the salaries of civil servants, or a drop in the quality and quantity of basic social services, which will affect the poorest the most," said Elias Isaac, director of the Open Society Foundation in Angola.

And with the next general election just two years away, Dos Santos now also runs the risk of social unrest.

"Youth protest movements, which are viewed more and more favourably, are going to increase," said journalism professor and political analyst Celso Malavoloneke.

Demonstrations have been held with increasing frequency in Angola since 2011 and are quickly repressed by the police.

The young people behind these gatherings are demanding the resignation of Dos Santos -- already in power for 35 years -- while denouncing poverty, inequality, a lack of access to water and electricity, and failures in the health and education systems.

Following a brutal civil war which ended in 2002, Angola has seen a decade of strong economic development boosted by its oil reserves -- a wealth that has seen them courted by China, the United States and Europe.

But the 2008 global economic meltdown was a painful hit. Then too the oil price plunged, leading to a stagnant economy, a widening deficit, a rise in unemployment, inflation and a devaluation of the national currency.

"It's very possible that Angolans will again be subjected to a bit of everything now," wrote Carlos Rosado, of weekly newspaper Expansao, in an editorial earlier this month. "The question, is how much."

In a sense, Angola is better prepared to deal with a shock to the economy than it was in 2008. The country has implemented tax reform, built up its financial reserves and made efforts to expand non-oil sectors of the economy.

But, says Malavoleneke, "even if the country is better equipped economically, the situation in the country is more explosive than in 2008. The expectations of the citizens have grown."

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