Previous Quarterly Editions
Expropriation Risk: 54 55 56 56 Political Violence Risk: 44 45 46 48 Terrorism Risk: 28 28 28 28 Exchange Transfer and Trade Sanction Risk: 63 63 63 65 Sovereign Default Risk: 54 56 58 62
TREND ▲ OUTLOOK ▲
Along with other African crude oil producers, Angola became an early victim of the failure of OPEC and non-OPEC producers to agree on output levels that would sustain prices, with the resulting fall in prices hitting the value of its main export. With the global drop in demand resulting from the COVID-19 pandemic factored in, the impact is extremely serious for an economy that was beginning to see positive change. Angola was already unable to reach the output levels permitted under its OPEC-compliance quota in early 2020 as a consequence of the long-term decline in investment, and so was already struggling when the dispute over output levels between Saudi Arabia and Russia plunged global prices below 30 USD a barrel. It was also among the first to suffer from the slowdown in global demand because most of its oil sales are now to China, where energy demand dropped off precipitously in February 2020 as Beijing worked to contain the impact of COVID-19. The global oil glut at the end of the first quarter, which has already filled most of the world’s storage capacity, was reflected in the fact that, by March 2020, some 70% of April 2020-loading cargoes from Angola remained unsold. The country needs to produce 1.6 million barrels a day at a price close to 60 USD a barrel to balance its budget, promote economic growth and maintain its debt servicing obligations. The current situation means that it has no hope of coming out of a four-year recession this year, despite the positive measures that President João Lourenço’s government has been pursuing. At the start of 2020, it had been forecasting growth of 1.8% as a result of an economic reform programme designed to meet the conditions attached to a three-year, 3.7-billion-USD loan from the IMF, and progress in reducing public debt from an unsustainable level close to 100% of GDP. All of this is now in jeopardy, but the government appears determined to adhere as closely as possible to the path of fiscal discipline on which it has embarked. A further round of austerity, including the abolition of fuel subsidies, is now unavoidable and much will depend on President Lourenço’s ability to carry the country with him during this period. His recent attempts to move the economy forward have created a reservoir of support that will be important in the months ahead. The government is also hoping to recover some of the 100 billion USD that it believes has left the country in illicit outflows over the past two decades. It continues to target the family of former President José Eduardo dos Santos, who controlled much of the economy during this period, but the prospects of retrieving money for the exchequer remain limited. In terms of the future, even before the latest challenges, Luanda was aware of the vital need to attract more investment in the oil and gas sector, not simply to boost current output levels but more importantly, to explore and develop new fields to replace those that are rapidly ageing. It still plans a major international roadshow later this year or in early 2021 that will highlight the government’s reform programme and its incentives for the hydrocarbons sector.
TREND ► OUTLOOK ▲
After an apparent slackening last year, President Lourenço’s government stepped up its campaign against the dos Santos family, particularly the former president’s daughter Isabel and his son, José Filomeno. It has also widened its anti-corruption efforts to include middle-ranking government officials from that era, and there has been a recent wave of corruption-related convictions. The so-called ‘Luanda Leaks’ to journalists earlier this year of some 700,000 emails and documents shed light on how Isabel amassed a personal fortune of more than 2 billion USD from business interests across Africa and Europe. There are now indications that Angolan and Portuguese prosecutors are working together to bring corruption charges against her, although it is not clear how much can be recovered. José Filomeno has already been charged with attempting to defraud Angola’s sovereign wealth fund.
The related impacts of the virus and lower oil prices make another round of budget cuts inevitable, but these will have to be handled carefully to preserve as much of the remaining goodwill toward the post-Santos government as possible. Even the IMF has urged the government to proceed with caution so as not to provoke public protests. After taking office in 2017 with considerable support, President Lourenço has reached the point where his economic reform programme is impacting daily life now that subsidies for water and electricity have been phased out. At the end of March 2020, the government postponed the next step, which would have seen the ending of fuel subsidies. There are signs of public impatience, whether reasonable or not, with the time that the reform programme is taking to produce tangible benefits, and this will require the government to walk a fine line between cushioning the impact of the latest downturn and keeping its reform programme on track.
TREND ► OUTLOOK ►
There remains a much-reduced separatist movement in the Cabinda enclave to the north of the country but this has not been significant for many years. There is no recent history of external terrorist activity in Angola, and it is unlikely to be a major target for jihadi fighters moving into Africa from the Middle East.
Inflation is already above 18% and the collapse in oil prices will exert further downward pressure on the kwanza while pushing up food inflation, as Angola imports most of the food it consumes. The finance ministry accepted in March 2020 that the country is facing a contraction of 1-2% this year and has recalibrated the current budget using an oil price of 25 USD rather than 55 USD a barrel. In a first step, the government is accessing 1.5 billion USD from the country’s oil-fuelled sovereign wealth fund, but more may well be needed.
Angola is shouldering a massive debt burden of some 60 billion USD, most of which is owed to China as part of an arrangement under which future crude oil shipments are leveraged in return for soft loans. It works reasonably well when the price of oil is high but can be catastrophic when prices collapse. The country also has high-yield Eurobonds to service, and foreign reserves are reported to have fallen below 9 billion USD. While rating agencies have credited the government for its recent progress, its rating is bound to slip again in the face of the challenges associated with COVID-19.
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