Angola Infrastructure Report 2012

A severe infrastructure deficit and the number of projects currently underway in Angola - particularly in the transportation and the housing sectors - give us optimism about sustained increase in the country's construction industry.

Key factors driving our optimistic outlook are:

• Continued investment into reconstruction following the extensive civil war (1975-2002). The Angolan National Roads Institute (INEA) has revealed that the Angolan road network increased from only 322 kilometres (kms) in 2006 to 6,404 kms of reconstructed roads by 2010 alone.

Meanwhile, plans are underway to have a total of 13,800 kms of asphalted roads.

• Angola's oil sector is benefiting from heightened prices, following the Arab Spring. This will drive request for continued investment in the sector, including support infrastructure, and will as well allow the government additional fiscal freedom. With infrastructure of the government's key priorities, we expect inflated oil revenues to be funnelled into crucial infrastructure projects.
• Housing investment is taking centre stage and is a focus of government spending. A number of projects - for the construction of tens of thousands of homes across the country - have been announced. In August 2011, the Angolan government was reported to have partnered with China International Fund Limited (CIF) for a project involving the construction of 5,000 new houses in a new neighbourhood of Kilamba over the next years.
• The government is keen to use public-private partnerships (PPPs) to open up private sector investment into the infrastructure sector, and to transfer risk to the private sector. These are expected to be procured in 2012. With a number of technically-proficient construction companies already present in the country, we expect significant interest; however, raising financing will be the major concern.

We have implemented a change to our sources and, as such, our historical data for Angola. Due to a BMI error in FX calculations in previous quarters, we have had to revise our entire data series for Angola. The picture that emerges is of a strong industry - the strongest in the region, according to data collated by the national statistics agency. Industry price will increase in 2012 by 14% in 2012 in real terms, following estimated flat increase in 2011.

Despite this optimism, there are downside risks. While the high inflation experienced over previous years has moderated, shortages in building materials and qualified labour are still present, and this could drive construction industry prices up once again, eroding real increase potential. In addition, the lack of payment of construction industry bills could deter companies from bidding for projects; however, news that the government is keeping to a repayment schedule will boost confidence in the industry.