It has been more than a month since the outbreak of the Corona new crown pneumonia epidemic. Despite the health consequences, the epidemic has significantly affected the global economy. China’s large-scale shutdown and the closure of ports have caused an international chain reaction, and the African economy which is closely connected to the world, was also directly impacted.
The African economy is highly dependent on the export of raw materials, especially to China, which makes African countries particularly vulnerable to the impact of the Corona epidemic. For example, tobacco in Zimbabwe, beef in Namibia, oil in Nigeria and Angola, and South Africa and Kenya, which rely on tourism as an important source of income.
China is one of Angola's main trading partners and the main destination of Angola's exports. According to official data, from January to December 2019, the bilateral trade volume between Angola and China reached 25.365 billion US dollars. Angola is also Africa's second largest oil producer after Nigeria, and has close ties with the Chinese market.
According to media reports, due to the impact of the Corona epidemic, the Chinese market has weak demand, and some goods that should have been sent to China were sold elsewhere. Angola’s national oil company (Sonangol) has been forced to resell at least a batch of the goods already in transit at discount prices, the other half of the oil is on the way and is yet seeking a buyer.
The new crown virus weakened the demand of Angola's main trading partner, China, and has already brought a certain impact to Angola, which uses oil as its main economic pillar. Even more unfortunately, on March 6, the OPEC and Russia's production reduction negotiations broke down. On March 9, international oil prices plummeted by 30%, setting the biggest one-day drop since the Gulf War in the early 1990s. Among them, the price of Brent crude oil dropped to US $ 31.02 per barrel, and WTI crude oil (US West Texas Intermediate crude oil) fell below US $ 28 / barrel.
The plunge in oil prices and the decline in Chinese oil demand have made Angola, which is already difficult, no doubt worse. To even worse, once the Angolan economy is severely impacted, there will be challenges such as debt risk, inflation, and rating downgrades, the currency exchange rate will decline accordingly. At the same time, Anmedia reported on the 9th that relevant departments discussed the cancellation of fuel subsidies. The price increase may be gasoline 400Kz and diesel 337.5Kz. This series of effects will make investors and many enterprises worry.
Economist Carlos Rosado de Carvalho acknowledges that the slump in oil prices is very serious for Angola, meaning that national budget (OGE) based on the US $ 11 billion “will not be implemented” and the alternative is “to increasing debt”, thereby increasing the deficit. But he questioned the country's ability to borrow. "In this case, either" default "or debt restructuring, or a plan that includes spending cuts." Carlos Rosado de Carvalho said.
Another economist Horacio Rodrigues noted that as the epidemic progressed, Angola banned the entry of citizens, including those from China, to prevent the spread of the new Corona virus (Covid-19), and most of the country's goods came from China, so these restrictions "Seriously impact" market supply.
Angolan builder Vando Matias said that, affected by the epidemic, it was difficult for some equipment and machinery, like trucks and spare parts, to purchase from China, which caused the price of raw materials to increase two to three times, and business was cold. In addition, banning Chinese citizens from travelling to Angola may delay or even cancel our business activities.
The spread of the new Corona virus has also affected Chinese companies' operations in Angola. After the Spring Festival, Angola is about to usher in a small peak of Chinese returning to Angola. Due to the impact of the epidemic, many compatriots have not returned to Angola. Considering that the epidemic situation is still heating up, many Chinese restaurants in Luanda and the commercial city have reduced passenger flow. Some restaurants choose to temporarily close in order to be more secure.
A person in charge of a Chinese company engaged in the truck and parts industry in Angola said that during the epidemic, Chinese manufacturers had delayed resumption of work, and our inventory was being consumed. Increasing prices would affect sales and the original plans were disrupted. At the same time, the inability of Chinese employees in the company to come to China on schedule also affected the company's operations.
It is conceivable that in the case of severe shocks in key economic fields, plus a large number of unemployed youth. If an imported case occurs in Angola and oil prices continue to plummet, under this double blow, it will cause a lot of instability and the economic impact on Angola will be devastating.
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