Previous Quarterly Editions
Expropriation Risk: 52 50 54 51 Political Violence Risk: 50 48 45 42 Terrorism Risk: 33 30 28 28 Exchange Transfer and Trade Sanction Risk: 64 66 64 62 Sovereign Default Risk: 57 55 54 54
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President Joao Laurenco has consolidated his grip on power more quickly than expected after taking office in 2017. Being president of both the state apparatus and, since September 2018, the ruling People’s Movement for the Liberation of Angola (MPLA), has enabled him to break the political and economic power of former President Jose Edwardo dos Santos. He has also targeted the influence enjoyed by members of the dos Santos family. It is not yet clear, however, whether this anti-corruption drive will be widened to include other areas of concern, particularly the state-owned oil and gas company Sonangol, or whether it will remain narrowly focused on the former ruling family. Economic challenges continue to dominate the government’s thinking, and more than half of this year’s state budget has been allocated to paying off debt. Two-thirds of the total external debt is believed to be owed to China alone, which has extended successive loan packages backed by future oil production. The devaluation of the kwanza by almost 50% early in 2018 helped to shore up the country’s dwindling foreign exchange reserves, although it did so at the cost of boosting inflation, but investors still say that the currency is overvalued. Laurenco acknowledged the economic strains facing the country when he requested talks with the IMF in August, and these led to the approval of a 3.7 billion dollar loan facility that was concluded in December. The first 990 million dollars of the Extended Fund Facility (EFF) was made immediately available, with the rest to follow at intervals, subject to periodic reviews. The IMF intends the EFF to foster macroeconomic stability by boosting fiscal sustainability, reducing inflation, restructuring and privatising state-owned enterprises, improving the business climate and supporting the government’s anti-corruption initiatives. President Laurenco’s trip to Beijing in October to secure a new credit line was in part meant to reassure the IMF that the EFF would not be used simply to pay down Angola’s Chinese debt. In the short term, the EFF should boost investor confidence in the future economic prospects of the country, which is expected to emerge from three successive years of negative growth during 2019. After approving the loan, the largest it has ever given to a sub-Saharan African country, the IMF again urged Angola to make greater efforts to diversify away from hydrocarbons. This will not be easy, even if Laurenco enthusiastically shares this goal. Oil production, which slowed during 2018, still accounts for 50% of Angola’s GDP, 80% of total government revenues, and 95% of all exports. Even the rise in prices since mid-2017 has largely been offset by infrastructure-related capacity constraints and falling output from maturing fields. In this light, the assumption of a benchmark price of 68 dollars a barrel in the 2019 budget seems particularly optimistic.
A crucial element of the government’s efforts to tackle the debt is to start a large-scale divestment programme for Sonangol this year. It will be selling subsidiaries and stakes in more than 50 non-core businesses, and the government is keen to attract foreign buyers. The oil and gas sector ended 2018 strongly, with both ExxonMobil and BP announcing new developments in December. These are crucial given the maturity of Angola’s major fields, and in the new round of licensing this year the government will be encouraging the development of smaller fields which have often been overlooked in favour of larger off-shore fields. After a disappointing response to the deadline at the end of 2018 for Angolans to return illegally repatriated funds, the government is working on new legislation to criminalise the refusal to repatriate assets. However, its capacity to enforce this, especially for international cases, is questionable.
President Laurenco’s efforts to remove the influence of the dos Santos family have proved very popular with the broad membership of the MPLA, which was at risk of being seen as out of touch. His connection with young Angolans, in particular, has thrown the party something of a lifeline, and he has given the party its first female vice president. All eyes are now on the 2020 municipal elections, which the MPLA needs to win by a convincing margin to ensure its continued dominance of the political system. As the possibility of a pushback from the dos Santos camp becomes more remote, the risks associated with the president’s anti-corruption policy have fallen. As part of a crackdown on illegal immigrants and informal diamond miners, in September and October the government forced the return of some 200,000 Congolese who had crossed into the north of Angola.
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Angola has had little reason to be concerned about terrorism in recent years. There has been little activity from the FLEC, a Cabinda separatist group, since a flare-up at the end of 2016 in which several soldiers were killed.
Despite the fall in the value of kwanza against the dollar during 2018, which eased the foreign exchange crisis, inflation fell steadily in the second half of last year and is now well below 20%. The new governor of the central bank has warned that most of the country’s 29 banks are not likely to meet the new capital adequacy requirements being introduced as part of the central bank’s banking consolidation initiative. Five banks together account for 80% of lending, leaving the remainder to fight for just 20% of the market.
TREND ► OUTLOOK ▼
Angola’s estimated external debt is now 33 billion dollars, giving it a debt-to-GDP ratio of close to 70%. This is high and needs to be reduced but there is little sign of an imminent default, especially as Laurenco is working hard to improve relations with Portugal, a major creditor. Although foreign exchange reserves are low at around 10 billion dollars, the IMF credit package should enable Luanda to tap the international capital markets at more favourable lending rates than would otherwise have been the case.
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