Previous Quarterly Editions
Expropriation Risk: 54 52 50 54 Political Violence Risk: 54 50 48 45 Terrorism Risk: 35 33 30 28 Exchange Transfer and Trade Sanction Risk: 66 64 66 64 Sovereign Default Risk: 57 57 55 54
TREND ▼ OUTLOOK ►
Angola’s economic growth prospects improved significantly during the first half of 2018 as higher oil prices and more orthodox policies under President Joao Lourenco brought greater stability to Africa’s second largest oil exporter. In August, the IMF confirmed that Luanda had approached it to discuss a new funding programme, with talks due to start in October. An IMF assessment completed in June concluded that the country has made substantial progress with a reform agenda geared towards macroeconomic stability and inclusive growth. This is intended to reduce the fiscal deficit to 3.5% of GDP this year from 6% in 2017, improve exchange rate flexibility so that the kwanza is fully free floating, and bring down the debt-to-GDP ratio to 60% over the medium term.
The Fund report also acknowledged an improvement in governance, including the dismissal of tarnished officials, the launching of investigations into suspected misappropriation of funds at several public bodies, and the creation of a dedicated anti-corruption unit. The new oil and gas agency set up by the government has also been welcomed by investors. Its approval of a new funding package would indicate that the IMF accepts that Lourenco is committed to substantive reforms. In addition, the government is speeding up the settlement of domestic payment arrears and introducing new anti-money laundering legislation. The budget of 2018 is making a concerted attempt to boost the non-oil economy, although its revenue assumptions are based on an oil output of 1.7 million barrels per day, which is likely to prove optimistic. In July, production dropped to 1.4 million barrels per day, the lowest level in a decade.
The combined impact of maturing wells and the lack of investment in new productive capacity since 2014 means that oil production is expected to decline by 2% this year. Angola is currently struggling to produce its OPEC production quota, and in May the government cut taxes in the sector to stimulate investment in marginal fields. Even so, the IMF expects overall economic growth to be above 2% in 2018, up from 1% in 2017, and could reach around 5% by 2020. Since coming to power in September 2017, Lourenco has vowed to tackle the country’s endemic corruption.
Most Angolans appear to applaud Lourenco’s anti-corruption drive, with many surprised that it has gone so far as to target those closely associated with former president Jose Eduardo dos Santos. While the Lourenco administration has succeeded in boosting the economy by abandoning the peg with the dollar, the kwanza lost almost 30% of its value against the dollar during the first half of 2018. This loss of value has been a major contributor to higher inflation, which is expected to reach 25% year-on-year in 2018, compared to 23% in 2017.
TREND ▼ OUTLOOK ▲
President Lourenco took most Angolans by surprise earlier this year when he annulled a number of state contracts awarded by the previous president to companies associated with his daughter, Isabel dos Santos.
These included contracts for work on the Caculo-Cabaca hydroelectric dam, which is being financed by China, and contracts linked to ambitious plans to revamp infrastructure in Luanda, as well as road building and port extension contracts. The company that has lost the port contract, which was granted a week before President dos Santos left office, has suggested that the move may constitute expropriation, but the manner of the original award makes this unlikely.
The government’s next move may involve the 25% of Unitel, the country’s largest mobile telecoms provider, owned by Isobel. However, Lourenco’s anti-corruption drive may also start to focus on smaller targets to show foreign investors that Angola is serious about stamping out corruption more broadly.
Despite fears in some quarters that it would split the MPLA, the country’s ruling party, the extent of President Lourenco’s move against associates of dos Santos has not produced any significant pushback. With the anti-corruption campaign proving broadly popular and going some way to restoring support for the MPLA among younger Angolans, senior party figures are increasingly distancing themselves from the former president. This has reduced the risk of political turbulence arising out of resistance by vested interests to Lourenco’s reforms, and gives the president a stronger political base from which to work with the IMF to strengthen the economy and ultimately improve living standards. The country will hold its first-ever municipal elections in 2020 and the MLPA is keen to rebuild approval ratings that slumped significantly during the later dos Santos 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. It now appears incapable of mounting any kind of serious threat, and the country has few other terrorist concerns.
The government’s necessary decision to abandon the currency peg in January 2018 was widely applauded abroad but the kwanza’s subsequent loss of almost 30% against the dollar has hurt the domestic economy by keeping inflation high.
Despite the devaluation, the black market currency premium is still significant.
Government revenues have benefited from recovering oil prices, but this has also underscored the country’s continuing overdependence on the oil sector.
The June report from the recent IMF mission to Luanda concluded that a financial bailout is on balance unnecessary despite the country’s heavy debt burden, which is expected to be more than 70% of GDP this year after heavy government spending before the 2017 elections. Foreign reserves are also low at below 10 billion dollars, compared to 31 billion in 2013. However, together with the relatively positive IMF assessment, the combination of rising oil prices and buoyant global debt markets that over-scribed the government’s 3-billion-dollar Eurobond offering in May should help stabilise Angola’s public finances and make default unlikely.
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