Previous Quarterly Editions
Expropriation Risk: 66 65 66 66 ►Political Violence Risk:57 51 51 51 ►Terrorism Risk:25 25 24 23 ►Exchange Transfer and Trade Sanction Risk: 55 64 64 64 ►Sovereign Default Risk:66 66 66 74 ▲
TREND ▲
Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Angola’s ruling People’s Movement for the Liberation of Angola (MPLA) has maintained strong ties with Russia, and in more recent decades, China, since the country became independent from Portugal in 1975.
President Joao Lourenco, who won a second five-year mandate in August in the most closely fought election campaign since independence, was educated in Moscow, rose to prominence as a general in the MPLA before being selected as a presidential candidate, and has maintained close ties with Russia’s President Vladimir Putin.
Russia and Angola signed trade and defence agreements in 2019, while Angola’s ambassador to Moscow indicated in September Luanda will remain open to investment from Russia despite Western sanctions, and might even join Russia’s Mir international payments system. Russia remains Angola’s main arms supplier.
Despite such close historical and ideological ties – Angola is still officially a Marxist-Leninist state, with President Lourenco feeling able to declare in September that international law must take precedence over military action and urged an end to the conflict in Ukraine, which will not have been appreciated in Moscow.
Although Russia remains Angola’s main supplier of arms, China’s influence has grown in leaps and bounds since the end of the country’s civil war in 2002. China has played a leading role in the reconstruction of Angola, which saw much of its civilian infrastructure destroyed in the 30-year conflict.
An estimated 40% of Angola’s USD73 billion external debt is owed to China, while some 70% of fiscal receipts from oil exports have, until quite recently, been consumed by servicing that debt. China has invested in extensive infrastructure projects across the country, and Angola is an eager participant in China’s Belt and Road initiative, attracting significant investments in the agricultural and energy sectors.
Close ties with Russia and China have done little, however, to replace Angola’s dependence on Western technological superiority to find and exploit oil and gas reserves in the country’s deep and ultra-deep offshore hydrocarbon deposits, which account for some 95% of exports and one-third of GDP.
TREND ►
In a surprise and still unexplained move, Angola seized China's LLI International's minority 19% stake in Angola's Catoca diamond mine in June, the world’s fourth largest, giving state-owned miner Endiama a controlling 59% stake. LLI International had previously been regarded as a well-connected investor in the country.
The expropriation did not, however, deter De Beers, which remains the world’s largest diamond miner, from re-entering the Angola extractive sector in April after a decade-long absence, taking a 90% stake in two mining licence areas for 35 years, following what it called “substantive reforms” in the country’s diamond mining sector.
Those reforms, as LLI International has discovered to its cost, have not eliminated the risk of sudden expropriation. Extractive sector risks in the country are likely to remain elevated because of the participation of Alrosa, Russia’s state-owned miner, in the country’s extractive sector. Alrosa, which has a minor stake in the Catoca mine, is subject to US sanctions because of Russia’s invasion of Ukraine.
Endiama has already warned it could face shortages of machinery and parts due to Western sanctions.
Although the MPLA won 51.17% of the August legislative poll, compared to the opposition National Union for the Total Independence of Angola (UNITA)’s 43.95%, an outcome upheld by Angola’s Constitutional Court, and recognised by Spain and the U.S. There is a widespread perception in the country the ballot was rigged, not least because the National Election Commission initially gave the MPLA a 30% lead, later revised down to 10%, while UNITA’s own polling gave it a consistent 10% lead throughout the campaign.
Adelberto Costa, the leader of UNTIA, has called for non-violent street demonstrations against the outcome of the legislative ballot, which, given that 70% of the population is under 30 years of age, and youth unemployment is currently estimated to be as high as 60%, could easily result in widespread civil unrest.
President Lourenco was sworn in on September 15, with the knowledge he is the most unpopular president in the country’s history, in which at least half the population see him as illegitimate.
Angola has largely experienced peace and stability since the end of the civil war in 2002, with only the separatist Front for the Liberation of the Enclave of Cabinda (FLEC) mounting minor attacks against the government. The last attack mounted by FLEC took place in 2010, since which it has been completely inactive.
Angola is forecast to reach an economic growth rate estimated between 3-4% in 2022, following a growth rate of 0.2% recorded in the final quarter of 2021, which signalled the end of a six year-long recessionary cycle in which the economy contracted by a significant 10%. Consistently higher oil prices have helped to boost GDP growth and reduce a crippling debt burden. Even the non-oil sector has witnessed a 41% increase in growth, albeit from a very low base.
The kwanza exchange rate appreciated 23% year-on-year in February, while inflation fell to 19.8% in August, the seventh consecutively monthly contraction. The medium-term outlook is now positive given higher oil prices and a temporary increase in output, assisting the government’s attempt to transition from a state-led, heavily oil-dependent economy to a private sector-led growth model, a transition likely to take decades.
Angola has witnessed a marked turnaround in its fortunes over the past two years, as the country’s debt-to-GDP ratio fell from 130% in 2020, to 79% in 2021 and 56% in 2022, due to rising oil prices and continued fiscal prudence, as called for by the International Monetary Fund.
Angola undoubtedly averted the looming threat of sovereign default due to Western and Chinese debt suspension. China alone postponed USD6 billion of debt repayments until 2023. Lourenco has made continued debt repayments a priority, which will be welcome news to investors.
With a fiscal surplus estimated to be in excess of 5% of GDP in 2022, the government should now have the fiscal headroom needed to focus on social welfare policies identified by President Lourenco in his inaugural address.
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