Angola Infrastructure Report Q1 2013

BMI View: It is not difficult for Angola’s construction industry to post growth due to its extremely lowbaseline. We forecast average annual real growth of 13.75% between 2013 and 2017 –the highest in theregion. Aside from continued interest in the country’s energy sector, there are a number of projects underway in the transport and the housing sectors that provide optimism for sustained growth in the country’sconstruction industry. We expect robust real growth of 14.2% for the construction industry over 2013,with total industry value reaching just under US$10.5bn in 2012.

The key factors driving our forecasts are:

Maersk Oil announced a new discovery in the highly prospective deepwater fields of Angola;the latest find came at Block 16 in the Lower Congo Basin. Maersk, along with partnersOdebrecht and national oil company Sonanagol, reported successful results at the Caprolo-1exploration well, where production tests resulted in a flow rate of 3,000 barrels per day (b/d).

Caprolo-1 was drilled to a water depth of 1,235m as part of a four-well exploration and appraisaldrilling campaign for 2012-2013. Discoveries such as Cobalt International's estimated 1.5bnbarrel Kwanza Basin oil strike in the February 2012 have only served to reinforce the country'spotential and heighten upstream interest.

The Angolan government has invested US$1.2bn in the expansion of the commercial port ofLobito, reports Dredging News Online. The expansion includes the construction of a new importand export terminal for mining products, which is close to completion. It will also see theextension of the port's quay in order to allow 12 vessels to dock simultaneously. The expansionwill increase the port's annual handling capacity to 11mn tonnes.

Zambian construction company Basali Ba Liseli Resources announced that it would constructan oil pipeline between Angola and Zambia. The refinery is initially earmarked to refine 200,000barrels of crude oil a day.

The government of Angola has invested a minimum of AOA4bn (US$41.83mn) in theconstruction of the Santa Clara dry port in Southern Cunene province. This includes customs,migration, fiscal police, commerce, health and banking services. The dry port, covering an areaof 60 hectares (h), will handle tourist support activity, economic operations, and import andexport taxes services. Of the total, 40h are reserved for the landing of goods.

The government of José Eduardo dos Santos, was re-elected in August despite criticismsurrounding the voting process. The post-election cabinet reshuffle carried out by President JoséEduardo dos Santos contains few major surprises, with the underlying theme one of continuityand political stability. Despite simmering popular discontent and tensions within the ruling party;we believe that a relatively comfortable victory in August's general election has provided thePresident with some political breathing space.

Over the longer term, we predict that political risk will rise, as competition increases to succeed70-year-old dos Santos. While concerns over government corruption and cronyism remainpertinent for many investors, equal if not more emphasis is put on a stable political environment,particularly where capital-intensive, multi-year oil contracts are at stake. With this in mind,Manuel Vicente's performance as vice president following his swearing-in on September 26 willbe scrutinised for clues on future policy-making due to his widely perceived status aspresidential heir apparent.

We forecast that Angola's rapid economic growth will continue, with headline GDP growth due to comein at 8.1% in 2013. Strong growth will continue, premised in booming oil exports, which BMI forecaststo rise before peaking in 2017 at 2.7mn b/d. Domestic consumption and government spending will alsoincrease, but we highlight that we believe the country's economy will remain unhealthily dependent onenergy exports over our 10-year forecast period to 2021.

BMI expects oil production to increase from approximately 2.21mn b/d in 2012 to 2.51mn b/d in 2021, asambitious new projects that have recently come onstream, such as Pazflor (220,000b/d), or that arescheduled to come onstream in the coming years, such as PSVM (150,000b/d), boost the country'supstream oil outlook.

Consumption of crude is likely to rise at an average rate of 9.90% from 2011 to 2021. This very highgrowth is boosted by the country's double-digit GDP growth, as the economy enjoys a catching upphenomenon following nearly three decades of civil war. We therefore anticipate that consumption willrise from an estimated 88,000b/d in 2011 to hit 226,000b/d by 2021.