Angola Infrastructure Report Q3 2009

Angola reportedly plans to spend US$1bn in preparation for hosting the 2010 African Nations Cup football tournament, driving capital investment growth in a contracting economy. Angola's economy minister, Manuel Nunes, announced in mid-February that the country is expected to register growth of over 3% in 2009. We have a more bearish attitude, noting that reduced oil exports and declining government spending will result in a forecast 0.8% contraction of the economy in 2009. This will have an impact in all areas of the economy, including the construction and infrastructure industry value.

In the Q309 Angola Infrastructure Report, we forecast that industry value real annual growth in 2009 will be 2.3%. Growth will remain on the positive side, and it is believed that there are opportunities in the transport and downstream oil and gas sector. However, the growth rate for 2009 is a marked decline from the double digit numbers estimated the previous years. It should, however, be noted that forecasts are exceptionally difficult, as official data only goes up to 2003, making our historical data from 2004 onwards an estimate. Real growth in fixed capital formation/capital investment colours our forecasts.

Fuelled by rising oil windfalls, capital investment growth reached its peak in 2006. It continued registering double digit growth in 2007 and 2008. However, the decline in oil prices and the global financial crisis simultaneously reduced oil revenues and investor risk appetite. This resulted in (expected) declines in the rate of growth of the total capital investment from an estimated 20% in 2008 to 2% in 2009. The value of government capital investments, meanwhile, is expected to decline from an estimated AOA401bn (US$5.4bn) in 2008 to AOA322bn (US$3.9bn) in 2009.

Preparations for the Africa Cup of Nations football tournament in 2010 could prove to be a key thrust for the infrastructure sector. Angola reportedly plans to spend US$1bn in preparation for hosting the 2010 African Nations Cup football tournament. Among the top investments will be four new stadiums built by China's Shanghai Urban Construction Group [SUCG]. Meanwhile, the national airport administrator, Empresa de Navegaçao Aerea (Enana), is investing US$400mn in the rehabilitation of all airports in the country. We are skeptical to what extent the full US$1bn can be absorbed by the sector in a period of about 10 months, given institutional deficiencies and the acute shortage of building materials.

Nevertheless, though, it represents an upside to our forecasts.

Linguistic ties and common heritage have attracted the largest Portugese and Brazilian infrastructure players to Angola. Portugal’s Mota Engil has been one of the oldest firms operating in Angola’s infrastructure sector. In Q109, the company announced that was looking to expand its operations in the country. Brazil’s Odebrecht also has a very active presence in the country, and was responsible for the construction of the largest hydropower plant in the country, the 520MW Capanda hydropower plant.

Portugal’s Edifer also established a presence in Angola three years ago, and is planning to expand its operations in the country.

China’s presence in Angola will also play a pivotal role in the development of infrastructure as the Asian giant pursues its strategy of oil-for-infrastructure in the continent. Some of China’s largest companies, including SUCG, Sinohydro and China Railways are actively involved in building Angola’s infrastructure.