Angola - The Economic Environment & Background.

When one visits Luanda's upmarket beach-front restaurants, where diners still pay hundreds of dollars for their meal without blinking, it is hard to imagine the world is in economic melt-down. Outside, giant 4x4s and Hummers are kept air-conditioned by snoozing drivers waiting on their bosses, while they toast their financial success with $20 cocktails. Down the road large billboards show brightly coloured digital images of new football stadiums being built across the country, in preparation for the Africa Cup of Nations tournament in 2010.

World Bank country manager for Angola Alberto Chueca on Feb. 17, 2009, was quoted as noting: "Angola is not directly affected by the [global] crisis. But it is affected indirectly because it is an oil economy, and the fall in the price of oil has had a big impact".

The wealth of Angola, emerging from almost three decades of civil war which ended in 2002, is looking at ways to diversify its economy and avoid the global financial crisis. Chueca said: "The government is revising the budget, which is clever to do, but I hope that given the huge social challenges and the need for reconstructing the country, they do not cut too much on capital budget. This is a country with some of the worst social indicators in the world. I hope they cut the fat but not the muscle and they don't reduce their social investment".

Since the end of the 27-year war, Angola has emerged as one of the world's fastest-growing economies with an average annual GDP growth of 15%. President Jose Eduardo dos Santos has recently said: "the fall in the price of oil and diamonds will seriously reduce our revenues and this means the state will have less money to use for public spending. The crisis comes to reveal once more that the enormous dependence of our economy on oil and diamonds is not convenient and that there is need for diversifying...implementing and promoting investments in other sectors of production".

Dos Santos is hoping to extend his 29 years in office at a presidential poll expected later this year. Addressing an audience of government ministers and top banking heads, Aguinaldo Jaime, president of ANIP (National Agency for Private Investment), stressed the importance of diversification and developing an effective private sector.

Jaime said: "We need growth that offers jobs for all citizens, changing the capital-intensive industries and looking outside of the mineral economy, beyond oil and diamonds".

In 1996 when the reserves of Girassol were discovered by Total of France in deep-water Block 17, Angola went from being an average oil producing country to a hot-spot in the global search for major oil reserves. When Girassol came on stream in late 2001, the line on Angola's oil production graph moved upwards exponentially. It is a trend set to continue as more offshore fields are brought into production.

Total oil production in Angola in 2001 was below 1m b/d. By end-2005 production surpassed 1.3m b/d and reached over 1.4m b/d in 2006. It reached 2m b/d in 2008.

With the fast-paced advance of drilling technology and the success of Block 15 operated by ExxonMobil and Block 17 operated by Total, there are great expectations for results of ultra-deep water (i.e. drilling at depths greater than 2,000 metres) exploration off Angola's coast. The ultra-deep water blocks are numbered 31 to 34.

The petroleum industry in Angola began in 1955 when oil was discovered in the onshore Kwanza Valley by Petrofina of Belgium which, together with the Angolan government, established a jointly-owned Fina Petroleos de Angola (Petrangol) and built a refinery at Luanda to process the crude oil. The plant's capacity now is 39,000 b/d. Petrofina has been taken over by Total.

The main expansion of the country's upstream oil industry came in the late 1960s when the Cabinda Gulf Oil Co. (CABGOC - now part of Chevron) found oil offshore the coastal enclave of Cabinda. In 1973 oil became Angola's main export and numerous subsequent discoveries made in Cabinda and in other parts of the Angolan offshore have ensured Angola will play a major role in Africa's oil industry.

Onshore production is centred in Kwanza near Luanda and in the Congo Basin near Soyo. Onshore facilities have been severely hit by the 27-year civil war, especially those in the region of Soyo. Billions of dollars of post-war rehabilitation programmes have been instituted. In the late 1970s, the government launched a programme to attract foreign oil companies.

The Angolan coast, excluding Cabinda, was divided into 13 exploration blocks, which were leased to foreign companies under production sharing agreements (PSAs).

In 1978, the government authorised Sonangol to acquire 51% in all oil companies operating in Angola, although the management of operations remained under the control of foreign companies. By the beginning of 2000, there were 29 offshore and onshore blocks under licence. Thirty companies held licences in Angola and of these 14 were operators. Since 1990 over 210 exploration and appraisal wells have been drilled.