Previous Quarterly Editions
Expropriation Risk: 50 54 51 54 Political Violence Risk: 48 45 42 44 Terrorism Risk: 30 28 28 28 Exchange Transfer and Trade Sanction Risk: 66 64 62 63 Sovereign Default Risk: 55 54 54 54
TREND ▲ OUTLOOK ▲
Angola’s economy is expected to continue contracting this year, and possibly into 2020, despite earlier hopes of returning to positive growth in the second part of 2019. The modest recovery in oil prices will only have a limited impact on overall economic performance, as it will be offset by falling output from many of the country’s maturing offshore deepwater and ultra-deepwater oil fields. Economic recovery may not now materialise until 2021, when economic activity is expected to rebound to 5-7%. A poor growth performance in the final quarter of 2018, which followed hard on the heels of four consecutive quarters of contraction, saw the economy contract by 1.7% according to figures from Angola’s National Statistics Institute (INE). The weak domestic economy, together with accumulated pressure on the kwanza from the appreciation of the US dollar and weak investor appetite for frontier and emerging market economies, is likely to mean that the currency depreciates further. Despite government efforts to diversify the economy and reduce the country’s over-reliance on exports of oil and gas, growth will continue to be dependent on developments in the oil sector for at least the medium term. According to the latest OPEC data, Angola’s production fell to an average of 1.45 million barrels per day (bpd) in February, just below its OPEC production ceiling of 1.48 million bpd and well below the 1.8 million bpd recorded prior to the 2014-15 oil price crash. Despite being a major oil exporter, the main problem for President Joao Lourenco has been the fuel shortage that has paralysed much of the country. Sonangol, the state oil company, has had problems paying its suppliers because of delayed payments from its own customers and the country’s shortage of foreign exchange. In early May, petrol stations ran out of fuel, with reports of large lines of cars at stations in most cities and hospitals and industries lacked fuel for their generators. The president responded by sacking the chairman of Sonangol despite his efforts to put the company on a securer footing, and those reforms are now at risk. The impact of the fuel crisis will make it difficult for Lourenco to shore up support for his austerity programme at an extraordinary meeting of the ruling MPLA in June and it has been noted that he appears to be ending his hard line against the family of his predecessor and MPLA colleague, Jose Eduardo dos Santos. A visit from US Deputy Secretary of State John Sullivan in March, as well as the forthcoming trip for President Macron as he broadens French involvement in Africa beyond the Francophone sphere, underline the support that Lourenco has maintained in the West since taking over the presidency in 2017.
Initial hopes that President Lourenco’s anti-corruption drive would help to steer Angola towards a new era of transparency in dealings between the state and the business sector received a setback in April from the deeply flawed auctioning of Angola’s fourth mobile telecoms licence. This was inexplicably awarded to Telstar Telecomunicacoes, a little-known company that was chosen over 26 other local and international bidders. Apparently established only after the auction was underway, Telstar is reported to be 90% owned by Army General Manuel Joao Carneiro. Investors had seen this auction as an opportunity for Lourenco to demonstrate how far Angola has moved from the environment inherited from his predecessor, who awarded large contracts to senior military figures as well as members of his family. However, there is now speculation that the former president’s son and daughter may be rehabilitated as Lourenco shores up his support within the MPLA. All this could impact efforts to sell off parts of Sonangol and speed up the auctioning of new oil exploration blocks.
TREND ▲ OUTLOOK ▼
The political capital that President Lourenco had accrued among Angolans by moving quickly to roll back the economic influence of the dos Santos may now be at risk from the government’s failure to ensure sufficient petrol supplies. The severe petrol shortage in Luanda resulted in lengthy queues at filling stations and has caused severe hardship for those who earn their living by driving. The security services are more than capable of neutralising any public disturbances arising from the fuel shortages. However, Lourenco and the ruling MPLA realise that nothing is likely to erode popular support for the post-Santos government faster than a sense that it is unable to deliver a stronger economy or avoid disruptive shortages of staple goods.
TREND ► OUTLOOK ▲
Although there is no recent history of external terrorist activity in Angola, most Western countries continue to warn that this cannot be ruled out in the wider region as jihadi activity moves from the Middle East to Africa. Cabinda separatists continue to exist, although they have not been active for many years.
TREND ▲ OUTLOOK ►
Inflation is expected to reach 24% this year and remain high in 2020 due to the continuing weakness of the kwanza. Most consumer goods are imported and have to be paid for in hard currency, which remains extremely scarce. The government is trying to boost revenues, most notably through the introduction of VAT at 14% on July 1, six months later than originally scheduled and now to be phased in over two years. It is also curbing public spending on subsidies as required by the conditions of the 3.7 billion-dollar loan facility agreed with the IMF in December. The general state budget is likely to run a deficit equivalent of 2-3% of GDP in 2019 and 2020, before turning positive in 2021.
TREND ► OUTLOOK ►
Angola’s debt-to-GDP ratio is close to 70%. However, while this figure is high and needs to be addressed, there is little sign of an imminent default. Lourenco continues to foster close ties with Portugal, a major creditor, while at the same time courting new investment from China and Russia. Foreign exchange reserves remain low at around 10 billion dollars, but a rise in oil prices should help them to accumulate.
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