While lower oil prices will combine with other negatives to reduce FDI in Angola in 2015, the oil-dominated west African economy has other sector-related concerns. Not only is the oil revenue squeeze hitting the entire economy hard, but there are also mounting worries over future oil production.

Infrastructure projects are being cut back and ministers have been ordered not to travel, as the government tightens its belt. Oil accounts for 95% of Angolan exports and three-quarters of government revenues, making the economy dangerously exposed to an oil price that has nearly halved since mid-2014.


Tightening the purse strings

One likely consequence will be that the current account moves from surplus to a large deficit this year, according to economist John Ashbourne of London-based research company Capital Economics. "Though the government plans to finance the current account through $10bn of external borrowing, including a Eurobond and loans from China, we doubt that this will be enough to avoid a substantial reduction in foreign exchange reserves," he says.

There is also the risk of a currency devaluation, which he thinks is increasingly likely and which will further deter FDI. "I expect FDI to slow substantially," Mr Ashbourne predicts. "Investors are facing a slowing economy, a government fiscal crisis and significant currency risk."

The government will need to tighten fiscal policy substantially, he adds, and GDP growth will be "meagre", falling from 4% in 2014 to 1.5% this year.

There is a non-oil economy, but it relies heavily on the redistribution of rents from the oil and gas sector, and is likely to suffer accordingly. There has been little diversification since the last recession of 2008/09, so oil remains almost the only game in town. That makes any anxieties about its future all the more disturbing. Lower oil prices have prompted delays in various planned developments that should already have been awarding contracts. Operators, including Maersk and Chevron, are reportedly reworking projects in search of cost savings.

Deep trouble

Production from Angola's older deep-water oil fields has peaked, and is now declining at rates of 5% a year or more. It was hoped that this would be offset by new capacity coming onstream, notably from the ultra-deep-water pre-salt Kwanza basin.

The pre-salt geology in Angola is similar to offshore Brazil, where vast hydrocarbon reserves have been found beneath a thick layer of salt, and oil companies were bullish about its prospects. Recent drilling disappointments for explorers, such as Statoil, which has had dry wells in two pre-salt areas, have diminished that enthusiasm, however.

"Setbacks in offshore ultra-deep-water exploration have dampened appetites," says Dr Alex Vines, head of the Africa programme at the UK's Royal Institute of International Affairs (Chatham House) and an expert on Africa's extractive industries. "The worry is that existing oil fields are reaching maturity, and if there is no new investment the trajectory will be down."

This lack of appetite has prompted delays in the latest deep-water licensing round, originally scheduled for 2014. "Licensing may be delayed again," says Mr Vines. "The market is feeling too conservative to want to spend money on signature bonus payments."

Mr Vines also points out that exploration in this area is technically challenging, very expensive and, with oil prices where they are, oil companies may choose to focus their efforts elsewhere in the world.