Falling Oil Prices Spell Trouble For Angola’s Struggling Economy

Falling Oil Prices Spell Trouble For Angola’s Struggling Economy

Oil prices
Falling oil prices spell trouble for Angola’s struggling economy as the coronavirus outbreak negatively affects the demand for oil from China. Angola’s President Joao Lourenco, left, and Chinese President Xi Jinping prepare for their bilateral meeting at the Great Hall of the People in Beijing, Sunday, Sept. 2, 2018. Image: AP Photo/Andy Wong, Pool

Angola is Africa’s second-largest oil exporter but falling demand and an oil-price war threaten to derail the country’s oil-dependent economy.

Oil is responsible for two-thirds of Angola’s tax revenue and 95 percent of its exports, according to the International Monetary Fund

John Ashbourne, a senior emerging markets economist at Capital Economics, said that Angola’s “biggest economic hit will come from lower oil prices”.

“Indeed, Angola may suffer a bigger fall in GDP than anywhere outside the worst-affected Asian countries,” Ashbourne predicted.

A combination of a coronavirus-related decrease in demand for oil and a price war between Saudi Arabia and Russia has resulted in the largest drop in crude oil prices since the Gulf War in 1991, CNBCAfrica reports.

On March 9, oil prices fell by more than a quarter to $30 per barrel when the world’s second-largest crude oil producer Saudi Arabia cut export prices when Russian negotiations to cut output failed.

The coronavirus has affected the demand for oil globally. China is the world’s largest oil importer and Angola’s biggest export market.

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The COVID-19 coronavirus, which originated in Wuhan, China, has killed more than 5,000 people and continues to spread globally. 

The need to contain the virus in China led to travel restrictions and factories being shut in January and February, reducing demand for oil, GulfNews reports.

In 2017, Angola sold 67 percent of its oil — worth $18 billion — to China. 

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Heavily-indebted Angola has signed resource-backed loans worth around $22.8 billion with Chinese lenders. This means that the repayment of the loans comes from income from the country’s crude oil. 

With lower oil prices, Angola will be forced to pump more oil to repay the loans owed to China.