Previous Quarterly Editions
Expropriation Risk: 51 54 55 56 Political Violence Risk: 42 44 45 46 Terrorism Risk: 28 28 28 28 Exchange Transfer and Trade Sanction Risk: 62 63 63 63 Sovereign Default Risk: 54 54 56 58
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Angola’s medium-term economic outlook received a strong boost in the latter half of 2019. President João Lourenço unveiled his administration’s long-awaited PROPRIV privatisation programme in August, and then followed that with the launch in November of the first licensing round for offshore hydrocarbons exploration for almost a decade. The IMF-backed privatisation programme is extremely ambitious. Almost 200 companies and other assets are due to be fully or partially sold off over the next four years, with the government hoping that new investment and, perhaps more importantly, new management approaches will be able to breathe new life into the country’s moribund economy. It is likely to be disappointed, at least initially, given that many of the assets to be sold off are in very bad financial shape. However, prospective investors will be watching closely to see whether the disposals amount to a genuine reform effort or merely represent a transfer of assets from groups and individuals associated with former President José Eduardo dos Santos to those linked to the current president. Lourenço was widely praised for pursuing reform when he took office in 2017, but there is some concern that this enthusiasm may be slipping as the country continues to experience the impact of lower oil prices. Among the minority stakes in state assets to be sold off under the PROPRIV programme are the national airline TAAG, in which Qatar Airways may be interested, and Angola Telecom, the country’s third largest telecoms provider. Less financially viable businesses on offer include the Cuca brewery, the cable network TV Cabo Angola, and some components of state-owned oil company Sonangol that include the country’s main fuel distributor, Sonangalp. The PROPRIV programme presents an opportunity for Lourenço to demonstrate to a sceptical investment community that his government is serious about drawing a line under corruption. At the same time, the government is seeking to bring new players into the stagnating hydrocarbons sector with the launch of a new offshore licensing round for ten blocks in the Namibe and Benguela fields. This is being overseen by the newly created National Agency of Oils, Gas and Biofuels (ANPG), which has taken over responsibility for awarding hydrocarbon licences after Sonangol was stripped of this role in early 2019. The government hopes that the sale of these ten concessions, the first of 55 blocs to be offered by 2025, will provide a medium-term boost to Angola’s shrinking foreign exchange reserves, although any new discoveries are unlikely to come on stream much before 2026. Despite these positive developments, the Angolan economy contracted in 2019 and is expected to do so again in 2020. Positive growth will only return in 2021, when growth could be around 2.5% and would be the first increase for five years.
Angola finally implemented the long-awaited flat-rate regime of VAT at 14% for all goods and services in October, following earlier postponements in January and July. The new VAT regime replaces the previous 10% Consumption Tax, although for the first two years of the new tax, the fiscal burden will only fall on the country’s largest companies. The new VAT regime will then be rolled out to smaller companies, giving them adequate time to adjust to the new arrangements. Following earlier concerns that the new VAT rate would have a negative impact on low income groups, basic foodstuffs such as rice, beans, sugar, cooking oil and school materials have been zero rated. This will reduce the risk that the impact of VAT will trigger new anti-government protests, but there are bound to be teething problems as the new system is rolled out.
As President Lourenço approaches the half-way point of his first administration, the goodwill created by his early moves against the hold that ‘friends and family’ of the former president enjoyed over the economy is running out. Instead, he faces a growing sense, particular in urban areas, that the reforms he has managed to undertake so far have failed to reverse the country’s economic stagnation. The latest centrepiece of reform, the PROPRIV privatisation programme, will take time to deliver economic impetus, and is likely to increase the country’s chronic unemployment levels before it does so. The government has already survived a significant outburst of public anger over the nation-wide fuel shortages in mid-2019, which were quickly made worse by government mishandling, and both Lourenço and the ruling MPLA are aware that they remain vulnerable to a further outbreak of discontent.
TREND ► OUTLOOK ►
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. Vestiges of a separate movement remain in the Cabinda enclave to the north of the country, although they have not been active for many years.
TREND ► OUTLOOK ▲
The central bank again held its main benchmark rate at 15.5% following its quarterly meeting in October, while raising the reserve ratio in an attempt to exert downward pressure on inflation and bolster the flagging kwanza. The currency dipped sharply in October before recovering slightly towards the end of the year and the gap between the official rate and parallel rates has closed somewhat, although it remains at about 35%. Importers continue to report a shortage of dollars.
Angola’s foreign exchange reserves fell below the psychologically significant level of 10 million dollars in October, reaching a new low. Revised estimates suggest that Angola’s debt-to-GDP ratio is significantly higher than previously estimated and could in fact be as high as 100%. This indebtedness is due largely to the oil-for-infrastructure swaps with China. As a result of its December 2018 agreement with the IMF, which provided a loan facility of 3.7 billion dollars, Luanda has agreed not to negotiate any more oil swaps. The country also has significant exposure to international capital markets through its outstanding Eurobonds. While the IMF arrangement reduces the risk of outright default, it puts pressure on the Lourenço government to restore confidence in the currency.
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