Previous Quarterly Editions
Expropriation Risk: 66 66 66 65 ▼ Political Violence Risk: 57 57 57 51 ▼ Terrorism Risk: 26 25 25 24 ► Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 66 66 66 66 ►
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
President Joao Lourenco made a pledge to the UN Climate Change Conference (COP26) in Glasgow in November 2021 that Angola would increase its production of renewable energy to 70% of the southern African country’s total energy mix by 2025. As hydro power currently accounts for 62% of Angola’s power generation, Lourenco’s undertaking is less dramatic than it initially might seem, although the new target does include additional hydro projects and new photovoltaic plants, particularly in the country’s southwest.
Angola ratified the 2015 Paris Climate Agreement in November 2020, calling on countries to limit global warming to 2 and preferably to 1.5 degrees Celsius compared to pre-industrial levels, and published its Nationally Determined Contributions’ objectives in May 2021, pledging to reduce its greenhouse gas emissions by up to 14% by 2030.
Since the Glasgow conference, Lourenco’s government has pressed ahead with ambitions to establish a National Development Plan, setting a five-year goal of reducing carbon intensity in electricity production with hydro and photovoltaic parks, along with financial incentives to attract foreign investors in the renewables sector, and new initiatives to encourage reforestation and the protection of endangered coastal mangroves.
Angola’s commitment to adopt a low-carbon development model – as spelt out in both the Paris climate agreement and the African Union’s Agenda 2063 initiative – has not inhibited the Lourenco government’s ambitions to press ahead with plans to attract additional foreign investment into the upstream (exploration and development) oil and natural gas sectors, in an effort to boost fiscal receipts from hydrocarbons exports. The government also wants to expand the country’s midstream (refining) and downstream (distribution) sectors, which offer greater economic growth and job opportunities, despite the severe drought affecting the south of the country, attributed to climate change.
With presidential elections looming in August, Lourenco has sought to burnish his anti-corruption credentials by highlighting his government’s campaign against graft and nepotism in his party’s election manifesto. The Justice Ministry announced it has launched 715 criminal prosecutions for fraud and corruption under the current government and recovered more than USD11 billion in cash and property from the United Kingdom, Switzerland, Singapore and Bermuda, among other jurisdictions.
Any attempt by Lourenco’s government to reinvigorate its anti-corruption drive – which has been dismissed by some critics as little more than ‘window dressing’ in the run-up to the August ballot – presents enhanced risks to foreign investors, who could be caught up in individual prosecutions against Angolan nationals suspected of financial wrongdoing.
Public support for anti-corruption initiatives remains strong and going after high-profile Angolans and their foreign partners is an attractive and relatively cost-free means of courting public opinion.
Despite initial fears, there was no upsurge in street protests or political violence over galloping food-price inflation in September 2021 when Lourenco finally lifted most of the COVID-related lockdown restrictions that were first imposed in March 2020. But the National Bank of Angola, the country’s central bank, has struggled to keep inflation within its 19.5% target, despite increasing interest rates from 15.5% to a record of 20%, suggesting the threat of spontaneous street protests has not gone away.
The International Monetary Fund (IMF) expects the central bank to maintain its tight monetary policy stance for the foreseeable future, despite the risks to political stability such a policy may entail. These risks have not declined with the recent rise in oil prices. Prices at USD110 a barrel or more mean increased fiscal receipts for the treasury, but they also mean higher prices for imported fuel products and food, on which Angola remains alarmingly over-dependent.
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There has been no material alteration in Angola’s overall terrorism risk profile, which remains low as far as either domestic or foreign actors are concerned. There is little or no threat from Islamic extremism in the overwhelmingly Christian country, while any lingering threat from the home-grown Front for the Liberation of the Enclave of Cabinda (FLEC) terrorism group appears to have been almost completely marginalised.
Angola’s oil exports rose more than 3% in the final quarter of 2021 as prices reached USD79 a barrel by the end of the year, leading to an additional USD8 billion in fiscal receipts than had been expected at the end of the third quarter.
Oil output and fiscal receipts are likely to have continued to increase in the first quarter of 2022, following the Russia and Ukraine crisis, which saw oil prices rise to in excess of USD110 a barrel by March. In the absence of revitalised foreign investment in Angola’s long-neglected hydrocarbons sector, however, there remains a ceiling on the country’s potential exports of around 1.3 million barrels a day.
Strict adherence to IMF-backed structural reforms, and continued government fiscal consolidation, have seen Angola’s economic outlook improve markedly over the past six months. The country’s once eye-watering debt-to-gross domestic product (GDP) ratio of some 130% is now beginning to fall steadily, and the IMF expects economic growth to rebound to around 4% of GDP over the medium-term.
Finance Minister Vera Daves de Sousa, one of the ruling People’s Movement for the Liberation of Angola (MPLA)’s rising new generation of technocrats, foresees an end to Angola’s six-year long recession, which saw the Angolan economy shrink by some 10%, and a growing number of domestic and foreign economics now agree with her.
Angola appears now to be exiting its threatened sovereign default crisis, due partly to the debt suspension initiatives of its Western and Chinese creditors, and the unanticipated recovery in oil prices which accounts for more than 90% of the country’s foreign exchange earnings.
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