Previous Quarterly Editions
Expropriation Risk: 61 65 66 66 ► Political Violence Risk: 51 57 57 57 ► Terrorism Risk: 28 26 25 25 ► Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 66 66 66 66 ►
TREND ►
Angola’s oil-dependent economy, which last year suffered its worst economic setback since 1975 due to COVID-19’s effects, witnessed modest steps towards recovery in the first half of 2021, largely given to the steady rise in oil prices. An economic contraction of 5.1% of Gross Domestic Product (GDP) in 2020 marked the country’s fifth consecutive year of recession, and the third consecutive year of contraction under the leadership of President João Lourenço, who was elected in 2017 with a pledge to revive Angola’s economic fortunes.
With elections due in 2022, Lourenço has little time to make good on his promise, rendering him increasingly vulnerable to criticism from the opposition and even from disgruntled members of the ruling People’s Movement for the Liberation of Angola (MPLA). With oil prices currently above USD70/barrel (significantly higher than Angola’s 2021 USD39/barrel budget benchmark price), Angola is on target to record a budget surplus of around 3% of GDP this year.
This will come as a considerable relief for a country whose credit rating was downgraded to CCC by Fitch in September 2020, indicating a high if not imminent risk of debt default. Angola’s debt-to-GDP ratio peaked at around 130% at the end of 2020, but the country managed to avert disaster as a result of the debt payment moratorium granted separately by the G20 group of countries and China. The G20’s debt repayment pause expired in June, and China’s moratorium is due to expire at the end of 2022, giving the debt-heavy country a much-needed breathing space.
Additionally, the International Monetary Fund (IMF) went out on a limb to aid Lourenço, increasing its financial support to USD4.5bn, despite Luanda’s failure to reach six of the eight structural reform targets. The IMF insisted that Angola had made progress towards attaining the targets, which in the circumstances of COVID-19 was deemed sufficient.
These modest improvements in Angola’s macroeconomic outlook have not, however, fed into any significant improvement in public living conditions. Unemployment remains high at 30% (which is likely an under-estimate) while many remain on or below the breadline. While Lourenço may well have succeeded in forestalling an economic catastrophe, he has fallen short of the economic miracle he promised when first elected.
President Lourenço appears to have lost interest in clawing back state assets illegally or improperly acquired by supporters of former President Jose Eduardo dos Santos. But there remains a risk that foreign investors who have invested in former state-owned companies could find themselves caught up in efforts to expropriate such assets by the MPLA seeking to court popular support in the run-up to the 2022 elections.
Growing friction with the oil majors over a new local employment law, requiring in some cases 100% use of local contractors, will likely inhibit the additional foreign investment in the sector needed to maintain production at 1.2 million barrels a day. Moreover, Lourenço’s initial pledge to put all contracts out to tender, in a bid to reduce corruption, has largely fallen by the wayside given his tendency to award contracts to favoured bidders.
Inflation rose for the fourth month in succession in August to 25.7% -- the highest rate recorded since October 2017 -- as the kwanza failed to sustain the appreciation of recent months. This further raises the spectre of food price riots in a country over-dependent on food imports.
There is now a clear and growing popular discontent with the Lourenço government’s economic policy, as evidenced by the rising number of strikes and street demonstrations. The private sector is also increasingly critical of the lack of access to credit and government red tape, although there is little or no prospect of these rising discontents resulting in any threat to the MPLA’s strangle-hold on political power.
Angola continues to face little or no threat of Islamic extremism as there are few Muslims in the country. Some 90% of the population is 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.
Angola caught observers off-guard in July with a surprise hike in the benchmark interest rate from 15.5% to a record 20%, in an effort to control inflation. This was the first time that the benchmark rate has been increased since 2017. The bank’s Monetary Policy Committee said that inflation was on a steady upward trajectory and was threatening to spiral out of control unless the bank acted swiftly to exert downward pressure on prices. Monetary officials fear a return to the eye-watering inflation rate of 40% plus which last occurred in 2016.
The debt payment moratorium granted in 2020 by Angola’s main creditors undoubtedly enabled the country to avert disaster, although the government’s debt-to-GDP ratio -- which peaked 130% in late 2020 -- remains unsustainably high. Luanda’s hopes that China might write-off the country’s debt, which would have transformed the country’s debt profile, was never realistic. Finance Minister Vera Daves is now expected to focus her efforts on manging debt, revenues and expenditure in order to return Angola to a more sustained financial position over the medium-term.
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