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Angolan industrial sector counts the cost of cheap oil

At the beginning of the year, Fibrex, a Luanda-based manufacturer, took delivery of a new $1m Chinese machine to boost its production of the large polyethylene pipes critical to sewerage and water networks.

With an eye on the Angolan government's planned infrastructure spend for 2015, the company was expecting a bumper year and the kit was seen as a significant addition to its armoury of equipment.

Yet today it lies idle - one of the many casualties of a dramatic slowdown in the oil-dependent country's economy as it battles with the collapse in crude prices.

The government has reacted by slashing its planned budget by $15bn, prioritising the allocation of dollars and delaying or postponing the infrastructure projects that are critical to the fortunes of companies such as Fibrex and key drivers of growth.

The result has been job losses and financial stress for local and international businesses operating in one of Africa's star economic performers - and starkly illustrates the impact of the commodity prices drop on the continent's resource-dependent nations.

Angola, Africa's second largest oil producer after Nigeria, has been one of the world's fastest expanding economies in recent years, enjoying periods of double-digit GDP growth.

"From January the entire economy slowed down and government projects came to a standstill," says Pete Gildenhuys, Fibrex's managing director. "The orders haven't been there because the construction companies doing these projects are not able to place [them] until the cash starts flowing again."

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>The impact has been severe. Fibrex's orders are down between 60 and 70 per cent compared with last year and the company has been forced to temporarily lay off a third of its 100 staff. Each morning, Mr Gildenhuys checks the oil price hoping things will pick up. He is optimistic the situation will improve once the government approves some frozen infrastructure projects and eases the flow of foreign currency.

Since the beginning of the year, the central bank has prioritised the allocation of dollars to the oil sector - which accounts for about 98 per cent of Angola's export earnings and three-quarters of government revenues - and food as it looks to maintain its foreign reserves. Some companies have subsequently faced twin pressures, with business falling away just as they are forced to wait for up to two months to be able to transfer kwanza into dollars to pay overseas suppliers and, in some cases, wages. The ramifications have been felt as far afield as China and Portugal.

Chris Zhu, who works for Jain Peng, a private Chinese company that makes building blocks, says he has not been paid for two months. His colleague, Liu Qiang, faces the same predicament, while adding that brick sales have been down 30-40 per cent this year. "Our company is still analysing the conditions, and in the next two months if conditions do not get better we might have to retrench people," Mr Qiang says.

Portugal, the largest investor in Angola's non-oil sector, recently announced a €500m initiative to support Portuguese companies struggling to convert kwanza into foreign currency. Angola, a former Portuguese colony, is the country's fourth biggest export destination, with some 10,000 companies shipping goods worth €4.7bn there last year. But exports fell by 26 per cent in January and 30 per cent in February, says Luis Moura, commercial counsellor at the Portuguese embassy in Luanda.

Companies "are trying to hold their ground, resisting, being resilient", Mr Moura says. "They have a large infrastructure here so they can cope with a period of harshness."

Until 2014, when Angola's oil production dipped, the government was spending about $15bn annually on infrastructure as it sought to rebuild after the 1975-2002 civil war. Luanda, which hopes to raise about $25bn in domestic and foreign debt to plug its financing gap, insists it will push ahead with priority projects.

But the construction industry is feeling the pain. The chief executive of one Angolan builder says the company has slashed its workforce from 1,500 to 150 and is owed $2m-$3m by the government.

"The government depends on the oil and the economy depends on the government, that's the problem," the executive says. "People used to hear about the crisis but could not feel it. Now they can feel it, and if the big companies feel it, it will get worse."

Individuals are also struggling. Poorer Angolans face problems finding work, while others complain about the difficulties of getting dollars to pay for children's schooling abroad or to send to relatives overseas.

< > At the country's only Porsche showroom, Aldair Carvalho, head of sales and marketing, says the super-wealthy continue to splurge on luxury cars. The company sold 37 vehicles last year, up from 19 in 2012. This year it has sold six; with the challenge of accessing dollars, it is struggling to bring in new stock. Normally, it would have 20-25 cars on site but the company doesn't expect to have new vehicles until the end of this month.

Jose Severino, president of the Industrial Association of Angola, is optimistic the country can weather the storm. But how effectively the government deploys its reduced resources will be critical, he says.

"[Activity] will be at a slower speed," he adds. "We have been moving at 100km per hour, now it will be 80km per hour. It's time for adjustment."

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