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Angola’s Sovereign Wealth Fund reduces economy’s exposure to oil and drives sustainability

The creation of a sovereign wealth fund in Angola will help to reduce the Angolan economy’s exposure to variations in oil prices and establish conditions for sustainable growth, said credit rating agency Fitch.

The long-awaited Angolan Sovereign Wealth Fund, which was presented this month in Luanda, was set up with initial funding of US$5 billion to be channelled in to projects with potential for growth in Angola and abroad, particularly in sub-Saharan Africa.

The Fund, which will mainly be made up of mining and oil revenues, will be managed by a board of directors with three members headed up by Armando Manuel, economic affairs advisor to the Angolan President.

It’s priority will be infrastructure projects, including energy, water and transport, financial assets, industry, agriculture and tourism, with a view to creating wealth “for future generations,” of Angolans.

In a report published last week, Fitch said that creation of the fund could help to cement recent improvements in Angola’s credit profile, which in May included an improvement in the outlook for the rating on Angola’s debt, from “stable” to “positive”, at a rating of “BB-“.

“Building up a history of transparency and operations based on rules will be important to ensure the benefits,” of the Fund, said Fitch, whilst also noting the importance of costs being included in the budget.

According to the statement published in Luanda, the board of directors will be responsible “exclusively to its only shareholder, the Angolan Government,” through “performance analysis,” including publication of its annual report and accounts in the Angolan press and nomination of internationally-recognised independent auditors.

Fitch forecasts growth of 8.2 percent for the Angolan economy this year, and 8 percent in 2013 and 2014.

The focus of investment is initially expected to be Angolan infrastructure, and then construction of a portfolio of assets outside the country, in emerging economies in Africa and Asia.

The capital was raised by setting aside revenues equivalent to the sale of 100,000 barrels of oil per day over the last few years, which is a level expected to be maintained to feed the fund.

The Angolan economy has been “highly dependent” on oil prices, as have its public and foreign accounts, but containment of expenditure and accumulation of reserves have made it possible for the authorities to improve the state’s finances.

At the moment the “stock” of debt is the equivalent of 20 percent to 25 percent of gross domestic product (GDP) and, according to Fitch’s analysts, the balance of the central bank, “insulates the economy from drops in oil prices,” said the Fitch analysts.

Other “encouraging signs,” they said were the efforts made to do away with the “almost budgetary operation,” of state oil company Sonangol, as well as ensuring that the company transfers oil revenues to the State on time. (macauhub)

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