Previous Quarterly Editions
Expropriation Risk: 55 56 56 52 Political Violence Risk: 45 46 48 50 Terrorism Risk: 28 28 28 26 Exchange Transfer and Trade Sanction Risk: 63 63 65 64 Sovereign Default Risk: 56 58 62 60
TREND ▼ OUTLOOK ►
Angola entered the pandemic period with a weakened economy that has yet to recover from the 2014 oil price collapse. Following a hesitant start, President João Lourenço’s government adopted a series of stringent measures in late March 2020 to help contain the COVID-19 outbreak when official numbers for cases and deaths were low. The strategy, which focused on isolating Luanda (the country's international gateway) from the rest of the country, received strong public support and backing from the main opposition party, UNITA. By June 2020, some of the restrictions were being eased and schools prepared to open, although a sanitary cordon around Luanda remained. But by July 2020 it was clear how much the pandemic has upended Lourenço’s plans for a return to economic growth and heightened the political challenges that the government now faces. Although there have been several personnel changes in the cabinet, both the former Vice-President Manuel Vicente and First Lady Ana Dias Lourenço (a former World Bank economist) will remain powerful if unofficial players in the oil and finance sectors. With global demand falling as COVID-19 took hold, Angola has been left producing more oil than it can sell. The government does not expect demand to recover until 2021 and realises that sharply lower prices mean that the country will find it difficult, if not impossible, to attract the investment it needs to replace aging offshore fields. During the first quarter of 2020, the outlook seemed bright as a result of Lourenço’s attempts to; reform Angola’s unwieldly bureaucracy, boost falling output with the restructuring of state-owned oil producer Sonangol and cut corporate taxes- in a bid to attract more interest in Angola’s costly deep and ultra-deep water offshore fields. But a fall of more than 60% in oil prices between January and April 2020 led producing countries in the OPEC+ group to announce further production cuts in mid-April the same year. As part of this, Luanda agreed to cut output to 1.18 million barrels per day (bpd) for May and June 2020. This is expected to rise to 1.25 million bpd during the second half of 2020 and then to 1.32 million bpd from January 2021, but this would still represent a cut of 10-15% on output at the start of 2020. Oil production in Angola has been in secular decline in recent years, with most new discoveries over the past decade being relatively small. The Lourenço government is keen to develop the country’s sizable unexplored offshore acreage but, without significant new external investment, oil production is projected to fall to around 800,000 bpd by the end of the decade. However, most major international oil companies, including those operating in Angola, have reduced operations and re-examined capital expenditure because of the pandemic. Because of the efficiencies they made in the wake of the 2014 oil price collapse, there is little left to cut, and the only option left is to postpone big investment projects. Even with oil prices moving back to hovering around 40 USD per barrel, prospects for new offshore licensing later this year is not looking good. The oil price collapse has also pushed up fiscal and external deficits, while government debt is forecast to soar to 127% of GDP by the end of 2020, up from 45% in 2015.
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.
TREND ▲ OUTLOOK ▲
Angola began a partial reopening of the economy in May 2020. This followed the virus-related restrictions imposed in March 2020 at a point when official figures showed only 200 cases and ten deaths in the country. The state of emergency was lifted in early June 2020 as the government announced a financial injection totalling 340 million USD intended to kickstart the economic revival, even as it began a programme of budgetary reform measures to reduce expenditure. Although the government will seek to reassure the IMF and other international donors that Luanda’s reform agenda will continue as before, Lourenço is aware that further cuts to public spending after the recent period of austerity does risk triggering street protests against the ruling MPLA, especially given to the rise of food inflation. The security services are on high alert to respond forcibly to anti-government protests. This situation is also giving the military a greater role in the political landscape by having a General leading the country’s COVID-19 taskforce.
Angola faces little or no threat from the Islamist activity evident in a number of West African states. The much-reduced separatist movement in the Cabinda Enclave to the north of the country 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.
High inflation continues to prevent the central bank from making a significant cut in interest rates to stimulate the economy. Although oil prices have bounced back somewhat from around 30 USD per barrel early in the pandemic, the uncertainty about pricing has put further pressure on the depreciating kwanza, which in turn has pushed up food inflation in a country which imports most of the food it consumes.
TREND ▼ OUTLOOK ▲
Now owing creditors some 50 billion USD, Angola successfully applied to sovereign lenders for a debt service standstill under the provisions of the G20 Debt Service Suspension Initiative (DSSI) in the hope that this facility will help to free up funds to help tackle the COVID-19 outbreak. Even so, it is not yet clear whether Angola will be able to meet an estimated 750 million USD in Eurobond payments which fall later this year. An inability to pay for necessary imports could quickly lead to a chronic famine in the southern regions, with a humanitarian crisis putting the Lourenço government under further pressure.
Return to contents Next Chapter