Angola is about to provide a test case of whether diversification can help boost an economy that relies heavily on oil production
The brutal global bear market in crude has forced a number of commodity-linked emerging markets to retrench economically, particularly in oil-rich Persian Gulf countries. Saudi Arabia and the United Arab Emirates for example, are weighing the imposition of new taxes to help plug exploding budget deficits —a solution backed by the International Monetary Fund just last week.
Against that backdrop, Angola — a member of OPEC where oil production contributes to half its economic growth and more than 70 percent of government revenues, according to the CIA World Factbook — has moved to broaden its economy to something other than oil.
Taking the advice of the International Monetary Fund, the Sub-Saharan African country has turned to steel as its saving grace. Angola's firstmass-producing steel mill opened for business in December, part of a $300 million investment that officials hope will lead to a revival.
Yet oil still pinned near $30 per barrel, calling into question Angola's ability to practice economic alchemy by turning steel into financial gold. Analysts say the country is battling against years of pent-up imbalances.
"Angola is struggling," said Rachel Ziemba, managing director of emerging markets at Roubini Global Advisors.
"It struggled to balance its budget when oil prices were high and now faces a greater challenge in the current environment as it is unable to increase its oil exports and will also have to draw down its limited savings," Ziemba added. Given the current weak business environment, it has few buffers.
Source: CNBC