Previous Quarterly Editions
Expropriation Risk: 61 61 65 66 Political Violence Risk: 51 51 57 57 Terrorism Risk: 28 28 26 25 Exchange Transfer and Trade Sanction Risk: 64 64 64 64 Sovereign Default Risk: 66 66 66 66
TREND ►
Angolan oil production has fallen to levels last witnessed in 2008, following the fallout from the global financial crisis, due to the combined impact of the country’s long-term failure to attract investment in its ageing offshore oil fields, and now the immediate impact of the COVID-19 pandemic. Angola currently expects to export 1.05 million barrels a day (bpd) in May 2021, the lowest since early 2008, with warnings of a further 20% fall in output by the end of the decade unless the downward trend can be reversed.
The dramatic decline in oil output from its peak in 2015, when Angola briefly overtook Nigeria to become Sub-Saharan Africa’s leading oil producer, highlights the devastating effects of reduced investment in the sector due to these long-term and immediate factors. There is little prospect of any relief over the medium-term. Oil production has fallen by a third since 2015, when the international oil majors began reducing investment in the sector in response to the 2014 collapse in commodity prices and has been on a downward trend ever since.
Despite government efforts to attract increased investment by breaking up the state-owned oil producer Sonangol into its regulatory and operational functions, only a handful of new wells have been sunk in the country’s ultra-deep Atlantic waters. Angola’s economy remains overdependent on oil exports, which continue to account for one-third of gross domestic product (GDP), and 90% of exports. Years of appeals by the International Monetary Fund (IMF) and World Bank to accelerate economic diversification notwithstanding, the ruling elite remains largely focused on attracting investment into an industry suffering long-term decline.
In September 2020, Moody’s downgraded Angola for the second time in a year, pushing the country even deeper into junk status. GDP was estimated to have contracted by some 4% for the year, although the partial oil price recovery is expected to see growth increase by around 3% of GDP in 2021 on the back of a projected average oil price of USD50 a barrel. The IMF approved a USD1bn loan towards the end of 2020, while the World Bank approved an additional USD700mn in budget support in March 2021, which should help lift a budget deficit of 2.8% of GDP in 2020 into positive territory by 2021.
This should help the Luanda government oversee a marginal improvement in public finances, pay off some debt and top-up its declining international reserves. But while President Joao Lourenco, who took over from former President Jose Eduardo dos Santos in 2017 (after 38 years in power), has continued to be applauded by the World Bank for his efforts in tackling corruption and diversify the economy and open it up to foreign investors, the results to date have been underwhelming.
TREND ▲
A surprise ruling by the Swiss Federal Court in March, widely hailed as a setback for international efforts to clamp down on elite corruption, partially overturned a freeze on assets in excess of USD900mn held by an Angolan businessman, who is currently in jail in Angola facing corruption charges on grounds of insufficient evidence of money laundering, alleged by Swiss prosecutors.
AAA International, which had specialised in selling insurance to Sonangol, earning super-profits in the process, had had its assets seized earlier by a lower court. But the higher court ruled that the lower court had failed to unbundle the assets owned by the company from assets owned by the company’s head, thereby jeopardising his conviction in its entirety. The ruling has been seen as a setback for wider anti-corruption efforts as the bar for a successful prosecution has effectively been raised.
Angola’s inflation rate continued to accelerate between 2020 and 2021, rising to 24.85% in February 2021, up from 24.41% the previous month (mainly due to the increased cost of food and non-alcoholic beverages), raising the spectre of food price-based riots in a country which still imports most its food requirements. As the scale of the COVID-19 crisis became fully apparent by the end of 2020, panic appeared to grip the Angolan ruling elite over whether it could withstand the subsequent economic fallout.
But while IMF and World Bank assistance has sought to mitigate COVID-19’s worst impacts on low-income groups, there has been little indication of any pending uprising against MPLA (People’s Movement for the Liberation of Angola) party rule. Providing that the kwanza exchange rate continues to strengthen, and receipts from oil exports continue to rise, the moment of greatest peril of widespread street protests may now have already passed.
Angola continues to face little or no threat of Islamic extremism as there are few Muslims in the country. Around 90% of the population are Christian and the government does not officially recognise Islam. There have been no reports of Islamic-inspired extremism in the country. Meanwhile, the Front for the Liberation of the Enclave of Cabinda, Angola’s homegrown terrorist group, has been dormant for years.
The Bank of Angola, one of the few African central banks not to have loosened monetary policy following COVID-19’s onset, left its benchmark rate at 15.5% in March 2021, unchanged since May 2019. Bank officials said that the monetary authorities expect the country’s relatively high level of inflation to reach the target of single-digit inflation by 2022, up from double-digit inflation recorded in 2021. After falling by more than 26% in 2020, the kwanza exchange rate firmed slightly in the early part of 2021 and was trading at a rate of 626 to the US dollar- up by around 4.5% over 2020.
The combined impact of COVID-19 and its economic fallout helped trigger a rise in Angola’s debt-to-GDP ratio of nearly 120% in 2020, one of the worst in Africa, although this is expected to fall to around 100% in 2021 if oil prices hold steady at USD60 a barrel, and 90% in 2022 if the recovery is sustained.
Angola’s debts of over USD50bn remain a major headache for policymakers and is a permanent monument to the dangers of embarking on a policy of oil-backed borrowing, given the volatility of oil prices. Sovereign debts peaked at nearly USD71bn in 2012 and fell to USD32.6bn in 2019, before the oil price drought caused by the pandemic in 2020.
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