China and Angola: understanding a complex relationship in times of world polarisation

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Rui Verde ( African Studies Centre, University of Oxford) – Palestra proferida da Fundação Rui Cunha em Macau, 22 de Maio de 2023.

This is a summary of some of the findings of a work in progress about the relations between Angola and China since the beginning of the 2000s that I am developing at the University of Oxford. It will deal with three themes: the beginning of the strong economic relations between the two countries, the perceptible consequences and the present-day situation.

The beginning

It would not be correct to begin an analysis of the relations between China and Angola at the beginning of the 21st century without briefly considering the countries’ previous interactions.

Referring just to the People’s Republic of China, and not Imperial China and the endeavours of Admiral Zheng He in the fifteenth century, it should be noted that at least from the 1960s, China had some interest and influence in Angola, and vice versa. The famous trip that Chou En-Lai made to Africa in 1963–1964, which WAC Adie referred to as ‘Chou En-Lai’s Safari, resulted in the first intense contemporary Chinese approach to the African continent and gave rise to two types of movement regarding Angola, then a Portuguese colony under a liberation war.

Portugal, the authoritarian colonial power at war in Angola, entertained the notion of ​​establishing diplomatic relations with communist China. The Portuguese leaders tried to advance into a kind of Nixon–Kissinger avant la lettre, but in the end, they were held back by opposition from the US.

The Angolan liberation movements, meanwhile, started to count on the support of China in terms of arms and training. In the initial phase, China had no strong preference and helped all of the movements, including the MPLA, FNLA and UNITA.

From a certain point onwards, given that the Soviet Union had ‘put all its eggs in the MPLA basket’, China mainly opted to support UNITA as a form of counterbalance to the Soviets. Nevertheless, China’s diplomatic actions were mostly pragmatic, and its attempts to create relations with the FNLA and MPLA continued over the years.

With Angola’s independence in 1975, and the country’s transformation into a Cold War camp, Chinese diplomacy found itself in a dilemma. China did not want to support the United States, but it certainly considered the Soviets to be its primary enemy. It therefore adopted a public discourse of peace and fraternity and turned against the MPLA, since it considered the organisation too pro-Soviet.

Relations with the new government in Luanda were uninspiring; in fact, Beijing ignored it for a time.

The resumption of relations was gradual and without special intensity. The final step in the process of the normalisation of Sino–Angolan relations was the visit of President Jose Eduardo dos Santos to Beijing in October 1988. Although the visit was cordial, it was not received with warmth. During the 1990s, China was undergoing a significant domestic reformist process, and interactions with Angola were not a priority.

Accordingly, there is no historical basis on which to predict that China would become Angola’s most important economic partner and to define a possible model for intervention in Africa.

From initially being very poor, China’s relationship with the MPLA government went on to became lukewarm, although there was no indication of closeness.

However, quite surprisingly, with the end of the civil war in Angola in 2002, the country turned to China for economic support, which China delivered in what became an ongoing relationship.

The official explanation for this sudden seemingly close relationship is usually framed within the paradigm of a rational state that makes institutional decisions. It has been explained by some academics that the Angolan regime turned to the IMF to finance the country’s post-war reconstruction; however, dissatisfied with the IMF’s demands of accountability and transparency and the unwillingness of the fund to compromise and accommodate Angolan wishes, Angola opted to obtain financing from China in a state-to-state agreement.

The reality seems more complex, however. When it ended the civil war, Angola did not have a functional and institutional state, and a good part of the state functions were ‘privatised’ and handed over to external entities, thereby enabling what is now called ‘state capture’. For example, diamond security was ensured by Arkady Gaydamak (Russian-born French Israeli businessman, and perhaps spy from several agencies), the supply of weapons by Pierre Falcone (French businessman) and various real estate and financial aspects by the Espírito Santo Financial Group, in which the company ESCOM and its strongman Hélder Bataglia stood out.

Alongside this ‘privatisation’ of state functions, José Eduardo dos Santos, as with other members of the Angolan elite, distrusted the West and its institutions.

This is the context of the understanding with China.

The relationship was a kind of private venture that met the wishes of Dos Santos, who did not want to be dependent on the IMF or the West. For him, the approach to China was a matter of national security.

Therefore, two points should be made. The first is that Dos Santos chose not to resort to the IMF due to considerations of national security; that is, the Angolan President did not want to be too dependent on the West.

The second and most crucial point is that Angola managed some of the advantages brought by China largely as a private fiefdom. Apparently, the initial contacts for this purpose had been promoted by the then-president of ESCOM, Bataglia, and the international arms trafficker, Pierre Falcone, of the famous Angolagate case.

However, Angola presented an official façade to China. Initially, a financing agreement was established between EximBank and the Angolan Ministry of Finance for the amount of US$2 billion, which was approved by the Angolan Council of Ministers in March 2004. At the same time, the Angolan Ministry of Public Works signed a contract with a Chinese company, Jinagsu International, for the construction of the Palace of Justice in Luanda. These two moves are the first to have been referenced by the government’s official gazette, Diário da República, within the scope of this new Sino–Angolan relationship.

On the Chinese side, its interest in Angola was not specific, according to the Chinese sources we have interviewed, but it was based on the following three essential aspects:

  • Its international economic policy, which was designed by Mao Zedong in ‘On the Ten Major Relationships’, in which he declared: ‘We must learn to do economic work from all who know how, no matter who they are.’ Obviously, it was also a result of the Four Modernisations that ended in Jiang Zemin’s policy of Go Out and China’s accession to the WTO in 2001.
  • Its need for oil and raw materials (which Angola had in abundance) to sustain Chinese growth.
  • Its surplus of people and capital that was ready to be invested.

For Angola’s part, the criminal case that was launched in the summer of 2022 against Generals Kopelipa and Dino, the former strongmen of Dos Santos, made clear the private mechanisms that gave rise to the intense relations between Angola and China. It was explained that on the Angolan side, Bataglia of ESCOM, with Manuel Vicente (the CEO of Sonangol and the future vice-president of the country) and Eugénio Neto, another man from ESCOM, conducted a famous first visit to China. It was during this visit that the whole strategy of collaboration between the two countries was outlined.

A multitude of companies were established with the Angolan leaders Vicente, Kopelipa and Dino at their head (the latter is said to have been a figurehead for Dos Santos). For instance, the China International Fund (CIF) and China Sonangol are private entities created at that time by Vicente, Kopelipa and Dino, albeit with supposedly official designations.

The point is that aside from the official agreements, there was a parallel relationship that became substantively relevant because the actions were not conducted between states but by private entities between them.

The perceptible consequences

Naturally, the consequences of the China’s engagement in Angola have been extremely positive for the reconstruction of the country after the civil war (1975–2002). Chinese companies have built 2800 kilometres of railways, 20,000 kilometres of roads, more than 100,000 social housing projects, more than 100 schools and more than 50 hospitals in Angola. The Kaculo Kabaça Hydroelectric Power Plant, Agostinho Neto International Airport, cities of Kilamba Kiaxi and Zango 5, Benguela railway, port of Caio, Soyo power plant and many other cooperation projects have been successfully implemented. Many Chinese companies have invested in Angola and made important contributions to the country’s economic diversification and industrialisation[1].

Nevertheless, some iconic works and activities that have resulted from this Sino–Angolan collaboration have become symbols of rampant corruption, since some of Angola’s high public officials took advantage of and siphoned off various funds into corrupt activities.

Two examples illustrate this. The first naturally concerns the purchase and sale of oil. According to the findings of the current Angolan authorities, between 2004 and 2007, when Manuel Vicente led the Angolan oil company Sonangol, he authorised the sale of oil to China amounting to at least €1.5 billion, which was paid by China but diverted. During this period, Sonangol sold huge numbers of   barrels of crude oil to China Sonangol International Holding Limited as a consignment sale for the constitution of a national reconstruction fund. Sonangol delivered the oil to the company but did not receive payment following its delivery. The intermediary company sold the oil and kept the money from the sale, which was then credited to its accounts at the Bank of China. The intermediary company belonged to Vicente and Kopelipa and some other partners.

Documents still under study, to which I had access, indicate that from 2005 to 2010, the sale of Angolan oil to China generated more than US$85 billion. Of this amount, probably at least US$25.7 billion was reported to have been split between Angolan leaders through a web of schemes woven by various intermediaries.

In another situation, the company CIF Limited, which was apparently mostly owned by Angolan ministers, appropriated 24 state buildings built by the company Guangxi in the centrality of Zango. The state paid for the construction, but it was Delta Imobiliária (a company owned by Vicente, Dino and Kopelipa) that sold the buildings to Sonangol EP through Sonip Lda under Vicente’s guidance for a total amount of US$475,347,200[2].

What is certain is that from the U$2 billion dollars of credit in 2005, Angola held US$23 billion of public debt stock in China in 2017[3].

After Xi Jinping assumed the Chinese leadership, steps were taken to root out corruption, and Chinese authorities neutralised the corrupt elements, such as Sam Pa (a business magnate who is believed to be the head of the 88 Queensway Group) that would have aided Angolans in these schemes. Chinese authorities also send auditing teams to Angola to survey the oil purchases.

Present-day situation

The advent of João Lourenço’s presidency encompassed an attempt to reopen Angola to the West. Nevertheless, this did not imply a downgrading of relations with China, as some recent studies have suggested, expounding a certain uneasiness from the Angolan perspective towards China. Carvalho et al. spoke of a ‘marriage of convenience’; Silva stated that ‘Angola’s honeymoon with China [had come] to an end’; and Fabri said ‘The China–Angola Honeymoon is over; is Africa listening?[4]”

Again, the reality is not so straightforward. There has surely been a rebalancing of the relations, but this has come from both parties and has not signalled an end to their relationship.

The opening act of Lourenço’s presidency towards China in 2017–2018 was apparently to ask for more money. There had initially been an alleged new loan from China worth US$11 billion, which later turned out to be US$2 billion, but this only served to pay Angola’s debts to Chinese companies.

However, China’s containment was not new to Angola and had nothing to do with João Lourenço, as some now claim. In 2016, the China Development Bank had suspended funds from credit lines to Angola, namely to Sonangol, accusing the company and the Angolan Ministry of Finance of non-compliance with the contracts. Previously, in 2015, as mentioned earlier, Chinese auditors were said to have been in Angola to ascertain the extent of the Sinopec’s spending there. They suspected several items of wrongdoing, for instance that the Chinese oil company had paid an additional almost US$1 billion to finance a quota that Sam Pa, through China Sonangol International, had acquired in certain Angolan oil blocks that did not bear profits.

These attitudes seem to indicate that there was some prudence or restraint on the part of China vis-a-vis Angola businesses.

Nevertheless, afterwards, China was generous in suspending the payment of the Angolan external debt due to the pandemic. Also, Chinese banks agreed to some form of debt renegotiation.

Trade between China and Angola grew by 42% in 2021 and continued at a good pace in the first six months of 2022, with a homologous increase of 33%. In this way, China continued to be Angola’s main economic partner.

Moreover, figures from Angola’s central bank show that since 2020, the country has paid as much as US$2 billion of capital to China. Presently, according to the most recent numbers put forward by the Angolan Minister of Finance, Angola is taking advantage of higher oil prices to accelerate its debt-reduction plans and smooth out repayments to China, its largest creditor. 

Angola now owes China $18 billion, or about 40% of its total external debt, after it settled loans totalling $1.32 billion in 2022[5].

All these data show that Angola’s relations with China are now entering a new phase—one that is mature but not ending.

 It turns out that this new phase does not depend only on Lourenço’s willingness to open up to the West or on Angola’s uneasiness with China, as some have argued; it also depends on Chinese engagements and worldwide strategy.

It is important to address first the question of the so-called ‘debt trap’ and then the most recent developments in the Sino–Angolan relationship.

The truth is that, like the Western creditors of the past in relation to Africa and Latin America, China is on a learning curve, and given the pragmatism that seems to guide its relations, it will be necessary for China to avoid dramatic scenarios and instead consider the usual remedies of debt renegotiation and forgiveness.

There is no room to mention a ‘debt trap’. It is known that in the 19th century, Great Britain was faced with debt problems from third countries, namely in Latin America and Egypt. The solution was often to send gunboats or to control the governance of the indebted countries.

By the end of the 20th century, the United States had large debt problems with countries of the so-called Third World. In this case, the solution was more rational, with its emphasis on the Brady Plan (Brady Bonds).

Obviously, it is now China’s turn to face the same issue, but there is no talk of gunboats or the creation of any protectorate.

Also, some parallel could be draw with the relations of the Soviet Union with President Nasser of Egypt. It is known that under Khrushchev, the Soviet Union largely financed Nasser and the Aswan Dam; however, afterwards, with Brezhnev, a new attitude prevailed that called for austerity and denied the postponement of debts payments. This, in the end, led to Sadat and the waning of Soviet influence in Egypt.

With such historical examples in mind, China is surely balancing its options, not opting for a disengagement. It is carefully assessing the situation and searching for the right economic and financial mechanisms to solve the problem, as the United States did in the 1980s.

In relation to Angola, it should be noted that one of the first trips of China’s new foreign minister, Qin Gang, was to Angola, last January, and at the same time, the respective governments signed an agreement whereby China would spend US$249 million to finance a national broadband project in Angola.

In short, it is apparent that the relations between China and Angola are evolving, not ending or reaching a dead-end, as some have argued. This is the time for careful calibration and renewal of the friendship.

If I can use a metaphor based on my favourite Portuguese wine, Palácio da Brejoeira, it can be said that Sino–Angolan relations enjoyed an initial phase of pure joy, then there was the hangover and now it is the time for some moderate drinking and sophistication among true connoisseurs.

[1] Shang, João (2023), A parceria estratégica entre China e Angola tem perspectivas amplas, coexistindo oportunidades e riscos. Communication to the III Congressso Internacional de Angolanística (not yet published)

[2] Summary of the legal case in Verde, Rui (2022), Delfins de JES acusados na hora da sua morte, https://www.makaangola.org/2022/07/delfins-de-jes-acusados-na-hora-da-sua-morte/

[3] Data from the National Bank of Angola, https://www.bna.ao/

[4] de Carvalho, P., Kopiński, D., & Taylor, I. (2022). A Marriage of Convenience on the Rocks? Revisiting the Sino–Angolan Relationship. Africa Spectrum, 57(1), 5–29.

Silva, Cláudio (2022), How Angola’s honeymoon with China came to an end, The Africa Report, https://www.theafricareport.com/202465/how-angolas-honeymoon-with-china-came-to-an-end/.

Fabri, Valerio, (2022), The China-Angola Honeymoon is over, is Africa listening?, Geopolitica.info,https://www.geopolitica.info/china-angola-honeymoon-over/

[5][5] Idem, see note 3.

João Lourenço’s macroeconomic achievements and the problem of youth unemployment: a financing proposal

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The recent macroeconomic achievements of the João Lourenço government

After years of crisis, recession and almost economic despair, which, of course, translate into the electoral results of the past August and the constant unrest of social networks, the Angolan government has a very encouraging macroeconomic framework.

Gross Domestic Product (GDP) growth designed by the International Monetary Fund (IMF) to 2023 is 3,5%, a robust number[1], mainly, bearing in mind that the country has been in recession since 2016, with a peak negative in 2020 of -5.6%.

The recent predictions of the IMF foreign debt point to a 63.3% ratio of GDP. Once again, it should be noted that by 2020, this ratio corresponded to 138.9% of GDP. There are several factors that explain this fall, some nominal, but it is impressive.

In turn, the state’s general budget for 2023 has a global surplus tax balance of 0.9% of GDP, and proposes to create a positive primary balance in the order of 4.9% of GDP.

In inflation, the homologous variation of March 2023 is 10.81%[2], demonstrating a fast and consistent drop.

Fig. No. 1-decreasing inflation (source: BNA)

Consequently, there is no doubt that the Angolan economy has changed since 2016, and from an uncontrolled country and on the brink of bankruptcy, we have a healthy macroeconomic situation.

Youth unemployment: a serious and persistent problem

Despite the good news in the macroeconomic front, the population still looks alien to success and popular feeling is not corresponding to the numbers.

An explanation for such a phenomenon is the persistence of high unemployment, especially youth unemployment. According to the Instituto Nacional de Estatísticas(INEA) in the IV quarter of 2022, the total unemployment rate was 29.6%, which represented a slight drop from previous quarters, but meaningless.

In relation to the young population (between 15-24 years) the unemployment rate is 52.9%[3].

This number is not acceptable and there is no economy that can be considered healthy as long as such a phenomenon persists.

The consequences of a high unemployment rate are known and are numbered here. It is a waste of resources, showing that the economy is not working at its potential level, but in an inefficient way. Of course, it is a situation that has the potential to generate an increase in poverty and also social unrest.

Certainly, a good part of the social unrest that exists in Angola, whether on the streets or on social networks, directly and inappropriately results from youth unemployment. Therefore, the consequences are extremely and inappropriately negative.

Fig. No. 2- Consequences of the high youth unemployment rate in Angola

Youth unemployment: social resilience rate and dangerous systemic instability

From the constitutional order and stability of the state point of view, there is a systemic point for youth unemployment that must take into account and be underlined.

There will be a threshold where the unemployment rate becomes unbearable and leads people to political action to modify the situation, it will be a kind of trigger that gives rise to revolutions, subversions, regime changes, etc. We will call this a social rate of resilience to unemployment, as constituting the unemployment threshold that a society supports without revolt.

Therefore, the point is that a youth unemployment rate above 50%, in an essentially young country and with an expansive demographic growth rate, is an explosive rate and may be very close to the social resilience rate. This means that the present rate of youth unemployment is perhaps the largest factor of political destabilization of Angola and has the potential of overthrowing constitutional orders and crying out by elements of extra-legal action.

It is at this time “that fighting unemployment becomes the priority of priorities. … When the threshold of tolerance to unemployment is reached, it is necessary to act quickly and in strength. Temporization serves nothing, nor does it serve to develop an apology speech based on economic difficulties.[4]”

It is never too much to note that Hitler’s rise to power and his subsequent popularity in the 1930s with the German people was due to unemployment and the solution he gave to the problem. German unemployment dictated the fall of the Weimar Republic in Germany and the establishment of the Nazi dictatorship. Unemployment is the provocative of extremism and agitations, superior to any other.

Therefore, it is considered that in the present Angolan economic state, the fight against youth unemployment has become the priority of priorities.

Fighting Youth Unemployment and Financing: The Autonomous Financial Instrument (AFI)

It is evident that the Angolan private economy does not have the ability at this time to create the jobs needed to make the unemployment rate of its crisis threshold. It is obvious that mass intervention of the state is necessary to create employment to an acceptable social level.

State programs must be traditional, based on the massive construction of infrastructure, roads, ports, and strategic industry, as well as in specialized technical training and sending young people to several provinces for social support tasks in the area of basic sanitation, housing, primary health and agriculture.

They do not serve the palliatives that market economies adopt in these situations: unemployment allowance, internships, vocational training for conversion, tax benefits. These policies only work in the face of short oscillations of supply and job search curves, they do not operate in structural and permanent unemployment situations.

The fight against youth unemployment has to be the object of a massive national program with rapid effects that leads into employment offer to several million young people.

Classic economists will counteract that the state has no funds for such comprehensive and massive programs. It is at this time of reasoning that the fight against corruption comes in. According to figures now presented, “Angola recovered six billion dollars and seized another 21 billion in the context of the asset confiscation, half of which abroad[5]. It is not known exactly how much of these values are merely provisional seizures and how many are already available to the state. The truth is that they are appreciable amounts.

The concept that proposes to finance mass programs against youth unemployment is simple: all youth employment financing programs will be funded by a mechanism outside classic credit, creating an exceptional vehicle based on seized assets.

Some of the assets seized, for example, up to an amount of $ 5 billion will serve as a capital or guarantee of an autonomous financial instrument (AFI) that will launch employment promotion programs. The financing of this program will be based on the seized assets and will be paid through securities issued by AFI.

AFI either will pay the programs directly with securities that issue based on seized assets or issues debt securities to raise funds for this payment. What is certain is that it would create money outside the classic system and thus allow to create hope for the unemployed, making the fundamental connection between the fight against corruption and the fight against unemployment, which we consider primordial.

Fig. n. º3- Simplified scheme of the financing of unemployment programs

Conclusions

Youth unemployment is the greatest threat to Angolan political stability. The theme must be seen and create massive state intervention mechanisms funded by an autonomous financial instrument supported by the assets seized in the fight against corruption.

AFI would pay employment programs with securities based on these actives.

[1] https://www.imf.org/en/Countries/AGO (accessed at 19th April 2023)

[2] https://www.bna.ao/#/pt (accessed at 19th April 2023)

[3] Folha de Informação Rápida _ Inquérito ao Emprego em Angola _ IV Trimestre 2022, (INEA 2023), p.9

[4] Jean-François Bouchard, O Banqueiro de Hitler, 2023, p. 2022.

[5] https://observador.pt/2023/04/18/angola-recuperou-6-mil-milhoes-em-dinheiro-e-apreendeu-mais-21-mil-milhoes-em-ativos/ (accessed at 19th April 2023)

Conditions and solutions for the removal of fuel subsidy in Angola

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Summary of the proposed policy

In this document there are necessary conditions and possible solutions for the removal of the subsidy to fuel in Angola.

1-The necessary conditions are:

a) Creation of transparency mechanism of budgetary financial flows. The fate of savings made with the withdrawal of subsidies, emphasizing social aspects;

b) Modification of the oligopolistic market structure. Promotion of competition in the fuel distribution market. One hypothesis is the split of Sonangol distribuição in three entities and privatization of two of them.

2-The possible solutions are:

a) Focus on the subject

AA) direct subsidy to the most disadvantaged and social pass

AB) direct allowance to companies

AC) Tax Benefit /Negative Tax to AA) and AB)

b) Focus on the object

BA) Subsidized fuel prices continues for lower displacement vehicles

BB) subsidized fuel prices continue for transportation companies and similar

c) Composite systems

***

Elimination Fuel Subsidies: IMF and Vera Daves

It is an integral part of any intervention of the International Monetary Fund (IMF) to have fuel subsidies withdrawn, where they exist. Of course, the same booklet was followed in Angola creating this burden on the Angolan government.

In terms of fiscal policy, in the recent Staff Report according to article IV the fund makes this the main measure to take at the level of fiscal policy, prescribing that: “Authorities need to take political action to increase non-oil tax revenues and gradually eliminate fuel subsidies while increasing support for vulnerable. These measures should help reduce vulnerabilities debt, create tax space and achieve their fiscal and medium-term debt goals. ”[1] (emphasis added).

Minister Vera Daves tunes for the same tuning fork, and in a recent interview said that the removal of fuel subsidies is “the elephant in the middle of the room, and with ballerina shoes”, stating that the political decision was made and was not implemented only because it is lacking to find the mechanism that reduces the impact on the most disadvantaged. And she explained that: “It is a blind subsidy, which everyone accesses, and with this revenue we could have a more directed policy instead of subsidizing those who do not need.” Adding arguments for the elimination of this measure as “fuel leakage to neighboring countries, lack of market share and the consequent loss of tax revenue, beyond the issue of inequality of treatment. There are several distortions to the market, but we are aware that the impact, especially through transport, is considerable. “It also recognized the negative impact on municipalities, industries and farms and the price of freight to transport food. And concluded by saying:” We have everything mapped, now the challenge is to take the dancer’s shoe thinking of measures that can mitigate the removal “from this allowance that costs between $ 3 and 4 billion, about $ 2.8 to 3.7 billion euros, per year. “It is a considerable value, given that the Integration and Intervention Program in the municipalities (PIIM) has 2 billion, so it would be two PIIM. ”[2]

It seems, therefore, that the IMF and Vera Daves are determined to eliminate fuel subsidies, apparently they do not know yet is how.

The political issue and the mechanism of transparency

It is evident that these eliminations, even making sense economically, and we will already address doubts in this context, have a large political impact and cannot be viewed as a “lightweight”. From Egypt to Iran to Sudan, France, changes in fuel prices have impacts on political stability, so the first assessment to do is political.

The great argument advanced by Vera Daves is the one that technically is called Crowding Out. By spending 2.8 to 3.7 billion euros, a year on fuel subsidies, the government does not spend them in the social sector, in education and health, for example. In fact, she argues, what is put in the lowering of the price of gasoline is taken from the well-being of the people. Accepting the argument, it must be sustained and convince the population. Accordingly, the first task would be to create a transparency mechanism (perhaps in the form of a digital site) that explained to the population how the background of subsidies would be channeled to other sectors, clarifying government plans. 1000 million for schools, 500 million for teachers, etc. Making a simple scheme and spreading it, everyone would realize the fate of money, and then over the early years there should be a public presentation of this flow. It would be explained by a scheme where the savings had gone with the removal of fuel subsidies. Consequently, the population would see that it had not been invented by the Minister of Finance, but that it was effectively happening.

A first preparatory measure of political nature is the creation of a transparency mechanism for all consultable to explain the path of money, how much it comes out of fuel subsidies and where it will end up in the various sectors of the budget. Thus, the population sees the benefits.

Fig. No. 1- Example of the transparency mechanism of the flow of funds taken from the subsidy to fuels, to be presented annually to the population

The problem of market structure

Entering the economic area there is a question that is raised and should be confronted. It is evident that the termination of fuel allowance will increase their prices.

In 2021, there were 951 gas stations in Angola, of which 432, would be controlled by small operators without brand. Sonangol Distribuidora is the largest in the distribution segment with a market share (sales) of 64%, Pumangol is the second largest player with 24% and the remaining 16% are distributed by Sonangalp and Tomsa (Total Marketing and Services Angola)[3].

The question is the definition of the structure of this market. A first analysis could appear to be facing a competitive market, but the weight of Sonangol and Pumangol, representing a total of 78% of sales market quota indicates that we are facing an oligopolistic type market, where few companies dominate the sector. It is known to price theory that oligopolistic markets have higher prices than perfect competition markets, where no one dominates the market. The oligopoly price is fixed by companies above the price level that would prevail in competition and below the monopoly profit maximizing price level. It is a market structure that constitutes a intermediate case, where there are few companies that compete with each other.[4] Consequently, removing the subsidy of fuel prices in an oligopoly situation would be equivalent at a higher price than the market equilibrium price and to put the population to finance higher profits from fuel distribution companies.

It is fundamental while the gradual withdrawal of prices begins to increase the number of relevant operators in the market and put them to compete with each other, without anyone mastering the market.

The most advisable was to split Sonangol Distribuidora in three different companies and immediately privatize two of them. Thus, we would have at least 5 relevant operators in competition.

Fig. No. 2- Sonangol Distribuição Scheme to ensure competition in the market

Forms of compensation/mitigation of the removal of subsidies

Described was the need to create a fund flow transparency mechanism for political consensus purposes, as well as the need to reform the market structure of the Downstream segment as a way to prevent oligopoly price formation, that is, higher than normal, it is time to make suggestions for compensation for the removal of subsidies.

The starting point is that there will be no savings of all values pointed out as a cost, 2.8 to 3.7 billion euros per year, and that there are sectors and populations that must be protected. We speak, of course, the populations with less income and the areas of transport and food and agricultural distribution.

Measures can start from various focuses:

a) Focus on the subject

AA) direct subsidy to the most disadvantaged and social pass

AB) direct allowance to companies

AC) Tax Benefit /Negative Tax to AA) and AB)

b) Focus on the object

BA) Subsidized fuel prices continues for lower displacement vehicles

BB) subsidized fuel prices continue for transportation companies and similar

c) Composite systems

Explaining each of the items and possibilities. We would have the following:

a) Focus on the subject

AA) direct subsidy to the most disadvantaged and social pass

A first hypothesis would be the granting of a fuel subsidy to all those who had a vehicle and/or used fuel in a given activity and showed an income below a given level. This wanted to say that the citizen who used fuel and had low income would receive a direct subsidy of the state in order to alleviating the negative effects of the price of fuel climbing.

In addition, a reduced social pass could be created, allowing any citizen to use transport without repercussion of the amount of fuel climb.

AB) direct allowance to companies

Another hypothesis would be that of direct allowance to transport and distribution companies. So that they did not reverberate the price of fuel in prices charged to the public, there would be compensation paid by the state that would cover the differential. Companies would receive funds so as not to increase prices.

AC) Tax Benefit /Negative Tax to AA) and AB)

In this situation, the instrument used for compensation would be the fiscal system, not the direct transfers of subsidies. It would be allowed to natural persons to a certain level of income and the companies of the affected sectors presented as tax deduction the value of the differential paid with the rise of prices. For example, if they previously paid 5 and then they would pay 10, they would have the opportunity to present an amount of 5 as a fiscal deduction, paying a lower tax.

In a superficial situation, such a deductive possibility would only apply to entities who paid tax, leaving out those who do not pay or are exempt. In these cases, a negative tax should be made, that is, a system through which low-income people would receive supplementary government payments rather than pay taxes. These supplementary payments would be equal to the additional amounts spent on fuel by these people.

b) Focus on the object

BA) Prices of subsidized fuel continues for lower displacement vehicles

In this hypothesis, what would happen would be the establishment of different levels of price for fuel according to the displacement of vehicles. Low-displacement vehicles would pay a lower price and vice versa. It would be a kind of progressive price.

BB) subsidized fuel prices continue for transportation companies and similar

In this case, the system would be the same as indicated above, with the difference that the beneficial price would be applied to the vehicles of transport companies and similar.

c) composite system

It is evident that the above systems can be mixed or complemented by each other, and it is up to the political decision-making to find the best technical combination.

Fig. No. 3- Possible compensatory solutions for the removal of subsidies to fuels

Need for financial calculations

There are no financial calculations in this work because the numbers are not known. The Minister of Finance presents an order of magnitude of current spending quantity with fuel subsidy, which is between 2.8 and 3.7 billion euros per year. Easily it is found that the differential is too large (900 million euros) to do a finer arithmetic of the situation.

[1] IMF, STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, February 7, 2023, p. 7.

[2] https://angola24horas.com/component/k2/item/26418-governo-angolano-prepara-fundo-de-investimento-imobiliario-para-gerir-ativos-recuperados

[3] Data from Expansão: https://expansao.co.ao/expansao-mercados/interior/sao-951-postos-de-combustivel-e-454-de-bandeira-branca-101135.html

[4] See for example, George J. Stigler, https://cooperative-individualism.org/stigler-george_a-theory-of-oligopoly-1964-feb.pdf

Angolan Economy trends, necessary reforms and national employment plan

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Social life in Angola is very alive and, at this moment, political and judicial matters dominate the country’s agenda. However, it is in the domain of the economy that there is an extremely significant evolution on which it is important to reflect and proceed to a careful analysis.

The recent (February 2023)[1] International Monetary Fund (IMF) report on the country underlines the favorable advances of the Angolan economy and also the necessary reforms. It is based on this report that we will enunciate Angola’s main trends in the economic field and the neuralgic points to avoid relapses such as the last long recession that began in the presidency of José Eduardo dos Santos.

Positive Trends

Angola’s economy is in full recovery after the five-year recession (2016-2020). By 2022, supported by higher oil prices and resilient non-oil activity, it has already reached growth of more than 3%, estimating the IMF that by 2023 the country continues to see the GDP increase in the order of 3.5%.

Therefore, we see growths of over 3% per year, which by our calculations, maintaining the price of oil and accelerating the liberalization of Angolan markets and foreign investment, could accelerate to numbers of 4% or 5%, adopted that are the right policies.

The optimism we share here results from the fact that non-oil growth has been widespread, despite a difficult external environment, as it means that the non-oil sector is reviving, as well as the attention that several developed countries with market economies are providing Angola, as is the case of US, Spain, France and Germany. Mentions should be made to recent visits to Angola of the King of Spain and the President of the French Republic, Emmanuel Macron (February and March 2023).

It should be noted that the debt that the public debt/GDP ratio has dropped about 17.5 percentage points of GDP, for an estimated 66.1% of GDP, aided by a stronger exchange rate. It is estimated that the checking account remained with a large surplus in 2022, while coverage of foreign currency reserves remained adequate (IMF data).

The fact is that the Angolan government has, according to the IMF, to adopt and maintain solid macroeconomic policies and maintained a commitment to structural reforms that are vital to Angola’s economy.

Necessary reforms

We understand that it is in the verification of fundamental structural reforms that resides the future of the Angolan economy. We highlight some reforms that are necessary to take and/or continue.

1-First renovation, with impact on the medium and long term, is to foster training for the economy of young people. Training not only means, and perhaps not in most, university education, but solid training in basic education and in professional aspects. We argue, therefore, that there must be an effective bet on vocational and technical education in Angola, before any other. A real bet on professional and technical schools and institutes, which are seen as valuable alternatives to academism and not mere university imitations (tragic error of Portuguese polytechnics).

2-Second renovation entails the creation of more conditions for investment, no longer at the legal level, where there is a modern framing and updated twice during the presidency of João Lourenço, but at the judicial, administrative and good practices level. The investor must feel safe to arrive in Angola and apply his money. One should not be afraid of being without the money due to any interference from an oligarch, or see any process dragging on in court. The speed and impartiality of justice is linked to good investment.

3-Third reform is dedicated to the financial sector, there is a special emphasis on increase credit to private persons and and the resolution of banking weaknesses. Quickly we must merge and capitalize banks, creating a banking sector not dependent on the state, clientelism or mere public debt management.

Finally, among other reforms, we highlight the true imperative of making more progress in strengthening governance and transparency, to improve the business environment and promote private investment.

Of course, continuing and accelerating anti-corruption strategy is also important.

National Employment Plan

All these news should be framed with the well-being of the population and the serious problems still pending. The one we highlight is unemployment, which although noting a slight descent, is still very high, about 30% [2]. This is an area in which we advocate direct state intervention. It is evident that the increase in GDP corresponds to an unemployment decrease, however, we believe that in the face of such high unemployment, in the short term the immediate action of the government is fundamental.

In this sense, the recent announcement of the World Bank of US $ 300 million for a project to accelerate economic diversification and job creation[3] is to greet. Not knowing in detail the design of this acceleration program, its existence should be underlined, as well as the previous announcement of the Angolan Labor Minister of the creation of a National Employment Program, with the aim of creating more opportunities for insertion of young people in job market[4]. Also, in this case, the data are scarce about the design of the plan, and it is certain that the President of the Republic had declared in the discourse of the State of the Nation of 2022, the creation of the referred plan.

So far, these initiatives related to unemployment, although positive, seem uncoordinated and poorly implemented. Therefore, the truth is that Angola would win to see a comprehensive national employment plan, specific and directly coordinated by the President of the Republic, without the risk of not properly implemented a plan, which in the short term is fundamental to the economy and Angolan population.

Fig.N. º1- Key Numbers of the Angolan Economy

[1] https://www.imf.org/en/News/Articles/2023/02/23/pr2352-angola-imf-executive-board-concludes-2022-article-iv-consultation-with-angola

[2] https://www.ine.gov.ao/

[3] https://correiokianda.info/banco-mundial-financia-usd-300-milhoes-para-fomento-do-emprego-em-angola/

[4] https://www.jornaldeangola.ao/ao/noticias/programa-nacional-de-emprego-e-implementado-este-ano/

The Angolan economy and the need for a new constitution

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Constitutions do not solve problems, but give powerful signs. It is of these powerful signs that Angola’s economy needs at this time.

If we look at the great macroeconomic data, we come across an encouraging picture. Inflation since March 2022 slowed from 27.66% to 13.86% in December 2022, an impressive data, Kwanza, the national currency, oscillates freely in the international market, the State General Budget has a surplus, public debt came down markedly, for a value close to 60% of GDP. The economy grew again in the orbit of 3% by 2022, predicting an increase of 2.7% in 2023. However, oil continues to rise, 86.27 the barrel/brent (25-01-2023).

Therefore, those who can be considered the “fundamental” of the Angolan economy are healthy after a long shortage which began in 2015/2016.

However, the international investment that should flow to Angola is not reality yet, and the threat of instability is latent, as the interview of opposition leader Adalberto da Costa Júnior demonstrates to a Portuguese newspaper [1] last week, not recognizing Electoral results, courts and, therefore, and from what one apprehends any institution of the State; in practice, assuming as possible a power outlet by force.

Consequently, we have a work of meritorious economic stabilization that for political reasons, as well as those that Keynes called “Animal Spirits” (emotions that determine human behaviour), does not produce the desired effects and usually described on economics manuals.

Now, it is precisely this need to unleash the “animal spirit” that does not move in the Angolan economy and the threats of political instability that gives rise to the urgency of discussing a new Constitution to Angola.

It is well known that the Angolan Constitution approved in 2010 is not consensual and was designed in a legal tailoring taking into account the figure of José Eduardo dos Santos, introducing, what Jorge Miranda, the famous Portuguese constitutionalist, dubbed “simple representative government system, to which, diverse configurations were reappointed  the French Cesarian Monarchy of Bonaparte, the Corporate Republic of Salazar according to the 1933 Constitution, the Brazilian Military Government according to the 1967-1969 Constitution, several African authoritarian regimes.”[2]

Although having suffered a review in a more democratizing and open sense in 2021, in which the autonomization of the Central Bank stands out and the creation of a constitutional system of supervision of the executive branch by the legislature, it is certain that the constitutional genesis prevents always whenever this is a symbol of an open society and a free economy and on the other hand, it contains no mechanisms of constitutional protection as proposed by Karl Loewenstein and adopted in the German Basic Postwar Law. These mechanisms protect the constitution of internal threats to the constitution itself and are a fundamental element for political stability.

In addition, it is important to reinforce the mechanisms of defense of private and foreign investment. If we notice, private investment is only mentioned once in the Constitution in Article 38, and the history of opportunism and true “theft” of foreign investors in Angola was a reality that requires special normative attention. Also the provisions on the land (article 15) must be updated and rationalized, as well as the guarantee of justice with rapid and impartial judgments.

Justice is admittedly one of the essential aspects of a proper functioning of the economy, expecting predictable and timely decisions. There is no doubt that the Angolan judicial system needs a large “aggiornamento” that would be introduced by a new constitution.

In a mere economic perspective, it is clear that a new constitution would be a sign, a symbol of a new time that would attract investors and give hopes of political and legal stability.

As mentioned at the beginning, a new constitution does not solve all problems, its role is to announce a new time open to investment, market economy and progress and development of the country. It would be the culmination of economic reforms recently enclosed.

[1] Adalberto da Costa Júnior, 2023, Nascer do Sol, https://sol.sapo.pt/artigo/790625/houve-muita-pressao-para-tomar-as-instituicoes

[2] Jorge Miranda, A Constituição de Angola de 2010, CJP-CIDP, p. 42

Angola: new Constitution, new Republic?

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REFLECTION PAPER

Current situation and anocratic regimes

In a usual situation, the agitation and tension that was felt in the months preceding the general elections of August 2022 in Angola, it would have given rise to the normality and quiet functioning of the institutions until the following electoral act occurred in 2027. However, the strong divisions that were felt and that kind of almost global strife that existed until August does not seem to decrease, creating a situation of constant aggression, without an end to the sight in the present system. Symptom of this is the recent interview given by the opposition leader to a Portuguese newspaper, which declares “neither I nor the party recognize MPLA’s victory, because we know that Unita had more votes. We heard people across the country. Society wanted us to take over the institutions, but we didn’t want chaos.[1] ”

Consequently, on the one hand, the main opposition party has assumed a policy that we will call the “double road.” Such a policy disputes government within the institutions, although not recognizing its legitimacy, also challenging the institutions themselves. The “double road” accepts that the opposition is made within institutions and outside them; In a way, institutions are seen as another instrument of a broader project of confrontation with the government. It is evident that this posture leads to a difficult manichaeism to manage and undermines any openness and respectability that is intended with the investment. The lack of respect for institutions makes everything too dependent on the will of the political decision makers and the conjuncture.

On the other hand, the government party is embarrassed to lead its announced reforms, it is as if the party were not one but two parties. A party mass is dissatisfied with the proposed changes, it wanted that João Lourenço to be just a more skilled manager than José Eduardo dos Santos, but not to introduce background reforms, another sector wants to be taken effective reforms and is bothered by the eventual slowness of these reforms. They have the notion that without a deep reformist process, Angola can become a state with no future.

There is thus a strong instability, for various reasons, in parties that form the sustainment of the political system.

The National Assembly does not seem to be a deliberative chamber of the nation’s feeling, but a mere stage of a broader dispute, becoming in a means and not an end, removing it the sovereign weight that would be inherent.

With a more frightening record the justice arises. The one who is the basic pillar of a democratic rule of law offers more doubts than certainties. In combating corruption, with honorable exceptions, the judicial system has been based on inefficiency and slowness, not already realizing where this structuring program of the state is walking. As we have already written: “It is true that the supreme court’s design contained in the 2010 Constitution helps to its dysfunctionality. In fact, the Angolan constitutional legislator wanted to make a court following the model of the US Supreme Court grafted in a judicial system of Roman-Germanic type, that is, Portuguese. Now a top court in the Portuguese, German or French judicial system has nothing to do with a top court in an Anglo-American system. They are different concepts and structures. What is asked for an American supreme court is not what one asks for a Portuguese Supreme Court. In the first case, only large and innovative law issues arrive there. It is already a kind of court of reflection, while in the second Roman-German case-the Supreme acts as a last instance of appeal for almost all cases. However, in Angola, a court was thought in the American way to operate in a Portuguese manner. Therefore, a light structure that was only dedicated to a small number of cases had to face the task of being a usual court of appeal for a myriad of cases. That could only give bad result, as it gave. In addition to the dysfunctionality of constitutional design, it has been understood that the judges of the Supreme Court do not have adequate preparation to deal with the complexities of economic and financial crime, not having throughout their career came across with these issues at the sophisticated level to which they have been appearing, which has led to some much criticized decisions and to a large procedural default.

“Beginning the country simultaneously a phase of great appeal to foreign investment, as well as betting on the fight against corruption, is well to see that a poorly designed and thought court has to be reformed and remodeled. [2]”

Overall, justice has not offered guarantees of speed and technical impartiality, and its actors have had a surprising tendency to get involved in consecutive scandals.

On the part of the population there is a timid idea, but discussed in many outside, that current institutions and political parties were designed for a war and confrontation environment, and these characteristics are in their core, and therefore are not able in dealing with a new Angola, where the central objectives are the development and well-being of the population. This means that it is considered that the “old” parties no longer correspond to the wishes and interests of the population, not offering consistent and appealing solutions. The abstention rate of the last general elections (54%) is a mirror of this situation.

A National Assembly that has become a mere-instrument-power and counterpower instrument, an inept justice and an anacronic party system, define this Angolan institutional system.

This whole situation, a little diffuse, but whose signs abound, can make the country in an ancracy. What is an ancracy? The ancracy has been defined as an unstable regime that combines elements of authoritarianism and democracy. The ancracy has an incomplete development of mechanisms of dissension and consensualization and is associated with permanent agitation or ingenability, which make the political process difficult[3]. The existence of an annocratic situation increases the likelihood[4] of a civil war. Putting the theme in another way, what it seeks to question is whether the Angolan situation is inherently unstable and can it resort to a civil war?

The answer is simple, although having two parts. No, Angola has not yet experienced an anocracy situation. However, structuring measures are required to exceed present blockages and dissatisfaction.

New Constitution and New Republic

It is necessary to create an agile state, with respected institutions, a functional public administration and a market economy with free and competitive actors, all contributing to the progress and well-being of the population.

The structures inherited from colonialism and wars must be transformed and exchanged for structures of modernity and development, taking into account the culture and history of Angola.

A new historical cycle with a new structure is critical.

The first measure is to establish a new constitution. The current 2010 Constitution is not consensual and, to some extent, is a legal misconception designed to please the personal desires of José Eduardo dos Santos. Fundamental will be to propose a new constitution, more Angolan and more protective of institutions, which marks a fresh start.

It is understood that this new constitution should address aspects as different as the possibility of separate (direct or indirect) election of the President of the Republic, giving him his own legitimacy and ensuring that the president presents himself as a national leader and not a party leader , the creation of a Second Legislative Chamber composed by the traditional authorities (allowing the introduction of different and plural voices in the legislative process, recovering African culture), the introduction of militant democracy mechanisms as the German fundamental law has (such as Karl Loewenstein[5] wrote Democracy should be able to resist those political agents who use democratic instruments to ensure the triumph of totalitarian or authoritarian projects of power, meaning that the Constitution must contain mechanisms of defense and repression of attempts to overthrow the constitutional regime, which now does not exist with sufficient strength in the Angolan Constitution). Obviously, that the reformulation of judicial power, the change in the symbology of the republic, would be other aspects of this new constitution.

A constitutional change is not enough without the organization and administration of the state. Also here the transformation project has to be comprehensive and seeking the release of colonial and Marxist models, introducing a public administration suitable for the new times. Examples may come from Asia, such as China and Singapore[6], or neighboring countries like Botswana or South Africa. The paradigm must be a merit -based administration based on effectiveness and service to the population. Of course, this implies the end of the clientelist influence on administration, deconcentration with autonomy and decision-making capacity, a completely new way of seeing the administrative procedure, not as a set of rules, but a set of good practices and goals dedicated for the common good and effectiveness.

It is evident that only a few topics are left here about advisable structural changes, according to our perspective, to transform Angola into a modern and prosperous state.

[1] Adalberto da Costa Júnior, interview to Nascer do Sol, 20-01-23

[2] CEDESA (2022). A necessária reforma do Tribunal Supremo em Angola, https://www.cedesa.pt/2022/11/24/a-necessaria-reforma-do-tribunal-supremo-em-angola/

[3] Jennifer Gandhi e James Vreeland (2008). “Political Institutions and Civil War: Unpacking Anocracy”. Journal of Conflict Solutions. 52 (3): 401–425; Patrick Regan and Sam Bell, Sam (2010). “Changing Lanes or Stuck in the Middle: Why Are Anocracies More Prone to Civil Wars?”. Political Science Quarterly. 63 (4): 747–759.

[4] Patrick Regan and Sam Bell, Sam (2010). “Changing Lanes or Stuck in the Middle: Why Are Anocracies More Prone to Civil Wars?”. Political Science Quarterly. 63 (4): 747–759.

[5] Karl Loewenstein (1937) Militant Democracy and Fundamental Rights, in: American Political Science Review 31.

[6] M. Shamsul Haque (2009), Public Administration and Public Governance in Singapore in Pan Suk Kim, ed., Public Administration and Public Governance in ASEAN Member Countries and Korea. Seoul: Daeyoung Moonhwasa Publishing Company, 2009. pp.246-271.

Analysis of the General Budget Proposal of the State of Angola for 2023

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1-Official presentation of the SGB

The proposal of the State General Budget (SGB) from Angola to 2023 has already been delivered to the National Assembly, including its essential elements of an affordable and pedagogical digital page of the Ministry of Finance[1].

The Ministry of Finance in its official note highlighted the following main aspects about SGB[2].

Objectives

The two main objectives of budget policy are the “continuation of national economic growth and the continuation of prudent budgetary management.”

Budget balance and public debt

The budget balance will be surplus in the value of 0.9% of GDP, consolidating the evolution of 2021 and 2022. The public debt ratio in relation to Gross Domestic Product (GDP) is decreasing, and projections for 2022 point a ratio of 56.1% of GDP, manifestly less than 128.7% already registered. The government expects the conjugated tendency to decrease public debt and inflation (which estimates 11% at the end of 2023), finally, to decrease interest rates, promoting economic growth.

Some tax aligners will be maintained such as reducing the VAT rate of basic basket products, which fell from 14 to 5%, and in hotel and tourism (14 to 7%).

Oil price

SGB’s proposal has as reference the oil barrel to USD 75.00.

Sectors expense

In terms of expenditure affectation, 23.9 % for the social sector are budgeted, 10 % for the economic sector, 8.6 % for defense, security and public order while general public services have 12.5 %.

According to the government, social expense represents the largest share of expense in SGB absorbing 43.5% of primary tax expense and 23.9% of total budget expense, with an increase of 33.4% compared to SGB 2022.

Growth

In terms of predictions that substantiate the proposal, the SGB assumes that by 2022, the real GDP should have a positive real growth rate of 2.7%, above the 2.4% initially provided for in SGB 2022, and for the year of 2023, a real growth of 3.3% is expected[3].

Inflation

The government expects to 2022 an inflation of 14.4%, well below the 18%goal. For 2023, it anticipates an inflation rate of 11.1%, as mentioned above.

2-The Question of Oil

It is evident that the price of oil still occupies a wide space in the Angolan economy. According to the Ministry of Finance data, in the SGB of 2022, the oil sector represented approximately 25% of the nominal SGB, and it is expected to be 22%[4].

Set the determining role of oil in the economy and in Angolan public accounts, it is repeated that the indicative price calculated for SGB 2023 was 75.00 USD/BBL as an average for the year, with an average production of 1 180.0 MIL BBL/DAY.

At this moment (December 13 2022) the price of the barrel is in USD 79, 03[5] and the trend in markets in recent times has been falling. Last month came from a level higher than USD 90.00 to a limit less than USD 80.00. Obviously, the volatility of oil price is large and no one can make predictions about the predictable evolution of the price. The current fall is attributed to the slowdown of the Chinese economy and the effect of rising US interest rates on commodoties. It may be like this or not, the price may climb or go down. If there is perhaps an expectation of climbing, as it is anticipated that China begins to recover and US interest rates no longer increase, besides OPEC production cuts, the truth is that the budget margin is not too big in Terms of oil price. Quickly, price oscillations can call into question SGB calculations.

In addition, the accuracy of daily production is 1180 thousand barrels, when the average of 2022 was 1 147 in 2022 and 1 124 in what refers to 2021. Given a recognized obsolescence in some sectors of oil production in Angola It may happen that this barrel value is not achieved.

This means that, in our opinion, there will be some optimism in the oil projections in SGB 2023 both at the price level and at the production level. It cannot be said that projections will not be verified, only that some emergency reserve is required for projections not to be consummated.

  There is still a very thin line between success and budgetary failure, so a renewed reform of the economy is critical.

3-The Social Expenditure

The government announces as a great success of its proposal the increase in social expense by 33.4% compared to 2022, occupying the largest slice by sector. Realizing, the reasoning report states that social expenditure will correspond to 43.5% of primary tax expense (without debt service), which is 23.9% of total expenditure and an increase of 33.4% compared to SGB 2022, as already mentioned. “In this sector, we highlight education, health, housing and community services and social protection, with weights of 14.1%, 12.1%, 10.1% and 6.2% in primary tax expense, respectively[6].” The truth is that comparing education, health, and housing with 2022, in all these rubrics there is an increase in expense higher than inflation.

Notably is the exponential climb of health and housing over the next year, with increases of 45.1% and 57.6% respectively.

If we notice the 2022 SGB, the social sector represented 38.8% of primary tax expense, corresponding to 19.02% of total expense and an increase of 27.1% compared to SGB 2021[7]. This means that it is manifest that the government is paying special attention and promotion to the social sector that increases year after year. The numbers prove this social attention of budget policy.

However, as is well known it is in the social sector that the complaints of the population often appear. There is a problem that is not budgetary, but related to management and rationality. It has to effectively execute the SGB and make the money reach people. The issue is increasingly good management and good governance, competence and deliverance, not the lack of resources.

4- The financial expense related to debt

The debt financial expense is 45.1% of SGB expense, decreasing by 2.6% compared to 2022[8]. In practice, we have a little less than half of the SGB designed to pay debts. We will not wave with the “ghost” of debt failure, which we have referred to over the long analyzes we have made, it does not exist. What worries us is the content of the debt and the fact that the state is supporting and paying a debt that is not his.

As an Angolan press agency specialized in economics and confirms official data, “China remains the country that Angola should most, holding about 40% of the total. Most of the debt to China has as its main creditor the China Development Bank (CDB), as a result of a USD 15 billion financing, as part of an agreement signed in December 2015.”[9]

This 2015/2016 Chinese loan is one of the most issues one must pay attention to and has a specific approach.

Our argument is that part of Angolan public debt is what is doctrinally called “odious debt.” The legal doctrine of “hateful debt” argues that sovereign debt contracted without the consent of the people and that it does not benefit it is “hateful” and should not be transferable to a successor government, especially if creditors are aware of these facts in advance[10]. We do not fight for non-full payment of this debt or others to China or another country (also offers us many doubts the debt enrolled in favor of the UK, but we will leave this theme for another occasion) or entity, but a bi-volunteer renegotiation with the respective Haircut of capital and interest that manifestly relieves the weight of the debt.

Consequently, there should be a profound forensic audit to this 2015/2016 Chinese loan whose destination has never been very clear, except in vacancies that would be applied at Sonangol, at a time coincident with the assumption of the company’s management mandate by Isabel dos Santos. After this forensic audit and according to the results obtained there should be a very serious renegotiation of debt with China. In 2015, China already had more than enough elements to know that part of its borrowed money was being poorly applied. In fact, this is the year when its supposed representative, Sam Pa, was apparently detained. The country, as a great power it is, cannot be hidden behind legal formalism and has to face together with Angola the problem of its debt that was diverted by corruption.

5-Conclusions

It is evident that there is an economic policy effort to exist financial rigor and budgetary control according to the injunctions of the International Monetary Fund, externally credible the country in economic terms. Alongside this financial rigor that cost João Lourenço quite electorally in August 2022, there is attention to the social sector, trying to mitigate the financier.

This budgetary policy is correctly formulated, the question to be aware is within the scope of the realization and execution. It is essential that social expense comes to those who need it and in the frontline structures: doctors, nurses, hospitals, schools, teachers, etc., and do not stay in intermediate consumption and corruption shortcuts that act as funds siphon. In other words, it is imperative that budget public money is not diverted. And then it becomes imperative to control the affectation and application of the funds. The task of good management and governance is the most important in the SGB of 2023.

At the level of resources it is relevant to emphasize that the oil activity (price and quantity produced) optimistic is relevant to us, to this extent, it is important to have a contingency reserve for low price and production.

And in relation to public debt in the face of China (and other entities) we argue that certain forensic audits are required and if something similar to a “hateful debt” is glimpsed, mechanisms of profound renegotiation are activated. Ultimately, it would have to bring the matter (“debt hatred”) to the United Nations pursuant to articles 1 (3) and 14, among others from the United Nations Charter to create a consensus on international law on the subject.

[1] Ministério das Finanças de Angola: https://www.minfin.gov.ao/PortalMinfin/#!/materias-de-realce/orcamento-geral-do-estado/oge2023

[2] Ministério das Finanças de Angola: https://www.minfin.gov.ao/PortalMinfin/#!/sala-de-imprensa/noticias/11811/proposta-de-oge-2023-entregue-a-assembleia-nacional

[3] Relatório Fundamentação OGE 2023 https://www.ucm.minfin.gov.ao/cs/groups/public/documents/document/aw4z/mzg4/~edisp/minfin3388777.pdf

[4] Relatório Fundamentação OGE 2023, p.17

[5] Cotações Brent Crude, 10:33 H, 13-12-22 https://oilprice.com/

[6] See note above, p. 52.

[7] Relatório Fundamentação OGE 2022, https://www.ucm.minfin.gov.ao/cs/groups/public/documents/document/aw4z/mjk2/~edisp/minfin3296952.pdf ,p.5.

[8] Relatório Fundamentação OGE 2023, cit., p. 53.

[9] Mercado, https://www.angonoticias.com/Artigos/item/72530/angola-deve-quase-52-mil-milhoes-usd-ao-exterior-jornal-mercado

[10] Michael Kremer & Seema Jayachandran, Odious Debt, Finance & Development, IMF, June 2002
Volume 39, Number 2

The necessary reform of the Supreme Court in Angola

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1-Reasons that justify the reform of the Supreme Court in Angola

Angolan justice became, suddenly, one of the daily themes of discussion in public arena. This essentially happened due to the fact that the so-called “fight against corruption” was carried out through the common courts. It seems obvious that it is so, but in reality it is not that usual. Each country has chosen the methods it considers most suitable for this task. In China, where under the presidency of Xi Jinping it is developed a powerful effort against corruption, such commitment has been made through internal mechanisms of the Communist Party, only intervening the courts in a final phase[1]. In South Africa, it was chosen to create a commission that explored everything and analyzed, and only then, having a huge dossier ready, sent the results to the judicial power[2]. This means that it is not mandatory for the fight against corruption to focus or begin with the courts. However, that was the Angolan option.

This option has made some weaknesses of the Supreme Court appear far too much. The disagreement between several judges has become patent, the delays and lack of decision as well, and the debatable reasoning of many judgments has been noted by many commentators[3].

It is true that the supreme court’s design contained in the 2010 Constitution helps to its dysfunctionality. In fact, the Angolan constitutional legislator wanted to make a court following the model of the US Supreme Court grafted in a judicial system of Roman-Germanic type, that is, Portuguese. Now a top court in the Portuguese, German or French judicial system has nothing to do with a top court in an Anglo-American system. They are different concepts and structures. What is asked for an American supreme court is not what one asks for a Portuguese Supreme Court. In the first case, only large and innovative law issues arrive there. It is already a kind of court of reflection, while in the second Roman-German case-the Supreme acts as a last instance of appeal for almost all cases.

In Angola, a court was thought the “American way”, but to operate like the Portuguese. Therefore, a light structure that was only dedicated to a small number of cases had to face the task of being a regular court of appeal for a myriad of cases. That could only produce bad results

In addition to the dysfunctionality of constitutional design, it has been understood that the judges of the Supreme Court do not have adequate preparation to deal with the complexities of economic and financial crime, not having throughout their career came across these issues at the sophisticated level at which they have been appearing, which has led to some much criticized decisions and great procedural delay.

Beginning the country simultaneously a stage of great appeal to foreign investment, as well as betting on the fight against corruption, is good to see that a poorly designed and thought court has to be reformed and remodeled.

It does not seem possible to think, at this moment, in a constitutional revision, any reform must be made within the framework of the constitution in force.

2- Proposals for reform of the Supreme Court (SC)

a) Increased number of judges: 50

The first measure is quantitative but necessary, given the delays and imperative of technical and generational renewal of the Supreme Court. At this time, the SC has a board of 21 judges, which is being extended to 31 judges pursuant to this Organic Law of the Supreme Court (Law No. 2/22 of 17 March).

It seems insufficient. Portugal with a population of a third against Angolan has 50 counselors judges in his Supreme Court. Spain, with a population more similar to Angola, has 71 magistrates in his supreme court. For these numbers and in view of the similarity of extended jurisdiction that these courts have in Angola, Portugal or Spain, it is easily seen that more judges are needed in the court in Angola of those who are now foreseen.

It is believed that 50 (fifty) will be an adequate number of judges in the Supreme Court of Angola, which will allow a strong, so imperative renewal of this Court.

b) Chamber rationalization: the Economic Affairs Chamber and the economic and financial crimes section

The objectives of the judicial policy impose a review of the number of chambers in SC and a higher specialization. At this time, the law provides for five chambers: the Criminal Chamber, the Civil Chamber, the Chamber of Administrative, Tax and Customs Litigation and the Labor Chamber and the Youth Family and Justice Chamber (Article 17 of the Organic Law). However, just the criminal, civil and administrative and work chambers seem to be in operation.

It seemed better to rationalize the cameras according to the effective needs of society. Thus, there would be a Criminal Chamber, a Civil Chamber (which would encompass family and minors), a social chamber (work, social security and the like), an administrative and tax chamber, and a new chamber entitled Chamber of Economic Affairs, this Chamber would have Two sections, one of commercial litigation to deal with major contracts with relevance to investment and another of economic and financial crimes, specializing only in the trial of crimes such as corruption, bleaching, embezzlement, etc.

In the background, this new Chamber of Economic Affairs would be responsible for responding to new investment policy challenges against corruption.

c) Transparent model of appointment of the President: Hearing in the National Assembly

The two most recent presidents of the Supreme Court (Rui Ferreira and Joel Leonardo), for different reasons, have been the target of much contestation. In fact, Rui Ferreira fired due to this contestation while Joel Leonardo has difficulty managing his peers.

The Constitution in its article 180, paragraphs 3 and 4 states that the President of the Supreme Court is appointed by the President of the Republic, between 3 candidates selected by 2/3 of the counselors in effective functions, being his term of seven years, not renewable.

Joel Leonardo was appointed by the President of the Republic in 2019, so his mandate only ends in 2026. Leonardo was born in 1962, so it will only be 70 years old in 2032. This means that, unlike many rumors that flow in the legal world in Luanda, in formal terms, there is a long way to finish his mandate.

However, an additional appointment mechanism should be introduced, similar to that adopted in the recent constitutional revision in relation to the governor of the National Bank of Angola.

Accordingly, the President of the Supreme Court should be appointed by the President of the Republic after hearing in the National Assembly, observing, for that purpose, the following procedure:

a) the candidate’s hearing is triggered by the request of the President of the Republic;

b) the hearing of the proposed candidate ends with the vote of the reporting opinion;

c) It is up to the President of the Republic the final decision regarding the appointment of the proposed candidate.

Consequently, the President of the Supreme Court would only be designated after publicly heard in the National Assembly.

d) Impartiality and independence in SC: the Botswana model, visiting judges

One of the criticism that is most heard about the judicial power in Angola is about its lack of independence or little impartiality, either before the executive or the strongest/powerful. We do not enter the substance of these allegations, but we note that even if being false, the perception of justice plays a significant role. It’s not enough to be it, you have to look it. The saying of the English judge always come to mind “not only justice must be done; also, it must be seen to be done”, delivered by Lord Hewart CJ in R V Sussex Justices, ex part McCarthy ([1924] 1 Kb 256, [1923] All er Rep 233). Therefore, it is not just about arguing that Angolan justice is not dependent or partial, but of using symbols that attest to this same practice.

An uncomplicated example can be one that has been used for many years in Botswana, which has in no way diminished national pride or sovereignty, and, on the contrary, increased the prestige of its system of government. In fact, until 1992, in the High Court – the second most important in the court hierarchy – judges were expatriate foreigners appointed with short contracts from 2 to 3 years[4]. In the Court of Appeal, still a third of the judges are visiting justices (visiting judges)[5].

This means that something similar could be thought to Angola, that is, to save some seats in the Supreme Court (perhaps a quarter) for judges or merit jurists hired abroad with long enough contracts to guarantee their independence, but not renewable. Perhaps contracts from five to seven years.

These visiting judges would have exactly the same powers and jurisdiction as other judges , they could not be presidents or vice-presidents of the Court, however, could occupy the function of mayor or any other. They would be recruited in SADC[6] and CPLP countries.

Thus, widening the Supreme Court to visiting judges could open a window of doctrinal renewal and guarantee of impartiality with judges from other nearby but properly remoted countries. Eventually it could be a provisional measure for 10 or 15 years.

What this measure would allow was to create a wide body of judicial debate with several visions, some tendentially independent, which would allow a more fruitful dialogue in the creation of a just Law.

***

Here are several suggestions for reforming Angola’s Supreme Court in order to make it faster and effective in fulfilling the tasks, as well as increasing its guarantees of independence.

[1] Rahul Karan Reddy, The Diplomat, 2022, China’s Anti-Corruption Campaign: Tigers, Flies, and Everything in Between, https://thediplomat.com/2022/05/chinas-anti-corruption-campaign-tigers-flies-and-everything-in-between/

[2] Zondo Comission, https://www.statecapture.org.za/

[3] See for example, Manuel Luamba, DW, Justiça angolana está em descrédito fora do país?, https://www.dw.com/pt-002/justi%C3%A7a-angolana-est%C3%A1-em-descr%C3%A9dito-fora-do-pa%C3%ADs/a-63253282

[4] Cfr. https://www.justice.gov.bw/services/about-high-court

[5] Cfr. https://www.gov.bw/legal/hierarchy-courts

[6] SADC-South Africa, Angola, Botswana, Lesoto, Malavi, Mauritius, Mozambique, Namibia, Congo Democratic Republic, Seicheles, Swaziland, Tanzania, Zambia and Zimbabwe. CPLP-Angola, Brazil, Cape Verde, Guinea-Bissau, Equatorial Guinea, Mozambique, Portugal, Sao Tome and Principe and Timor-Leste.

Isabel dos Santos, economic crimes and a high authority against corruption

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It is public that the Angolan authorities issued an international warrant for Isabel dos Santos.

The merits of the warrant is not discussed, because without knowing the concrete accusations it will be all speculation, but it is important to pay attention to the opportunity. And what catches the eye, in terms of opportunity, is the time that took place between the departure of Isabel dos Santos de Angola (August 2018) or the publication of the so-called Luanda Leaks (January 2020) that would compromise it in unshakable and the issuance of the warrant (November 2022). That is, between two and four years to issue a warrant.

Obviously, it is too much time without listening directly and personally Isabel dos Santos in criminal proceedings with the public and notorious scope of them.

This temporal gap makes it question what failed in the Angolan judiciary. The answer seems to be in the model followed in Angola in the so-called “fight against corruption”, or, generalizing, in the big economic crime.

Angolan authorities chose to refer cases of large economic crime to the common means, Attorney General’s Office, Ordinary Courts, etc. The problem is that questions of “state capture” or “privatization of sovereignty” such as those that happened in Angola would hardly be resolved by the common means that have their times and bureaucratized practices, often committed to the actors themselves from supposed Crimes.

The fight against economic crime at this level of “state capture” has required several countries in which it happens, the creation of special instruments to overcome the above structural obstacles.

One can start with the United States, where situations of great severity with political impact, such as investigations to Richard Nixon, Bill Clinton or Donald Trump have been based on the appointment of an independent counsel attorney. These independent prosecutors have their own powers and may exceed normal federal structures.

In South Africa, where the expression “capture of the state” emerged, the option was the creation of a powerful commission of Inquiry into Allegations of State Capture, better known as the Zondo Commission, the name of the judge who presided over to the commission. This commission has led to an exhaustive and independent investigation work that originated several reports that now serve as a basis for criminal accusations. It also existed in Ukraine, before the war, the creation of a system supported by several international entities.

The essential point of this very brief international court is that very serious corruption situations that undermine the viability or survival of the state impose combat solutions that leave the sphere of the normal judiciary, which will also be plagued by the same corruption problems and “State capture”. Therefore, the difficulties that the fight against economic crime finds in Angola are normal, and it is important to change the structure and methodology.

The change in the structure and methodology of combating corruption in Angola is based on the institution of a high authority against corruption with its own and independent judicial powers to investigate, accuse and bring to trial the large cases of corruption in a single judicial system. High authority against corruption could investigate, interrogate, seize, search and decree precautionary measures under the law and then have a chamber for trials or directly refer to a new chamber of economic crimes with the Supreme Court. Operating in the constitutional and legal framework, this authority would be a specific organism for repressing corruption. This high authority would have exclusive competence for all the main cases of corruption and would make the necessary international crosses.

Nations need specific, focused and flexible structures to combat the most evolved economic crime as is big corruption. In Angola, it urges such a structure. It is important to take this step in the area of ​​economic crime.

Angola: The Employment Legislature

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Electoral results and unemployment

The recent Angolan elections on August 24, 2022 were the subject of intense scrutiny by Angolan and international public opinion. Interestingly a good part of the attention was devoted to political and/or legal subjects. There was a great deal of courts, electoral processes, law application, voting counting, multitude of initiatives and even constitutional revision.

However, the qualitative inquiries that a partner executed during the election period did not point out these as the main concerns of Angolans, but those linked to the economy, namely employment and unemployment. What Angolans seem to ask above all is a job and good living conditions.

Consequently, the issue of unemployment is one of the most important in the activity of the executive who has now taken office.

At this time, the most current data point to a 30.2% general unemployment rate (data from the National Institute of Statistics for the II Quarter of 2022) and the youth unemployment rate (15-24 years) will be located in the 56.7%[1]. The unemployed population over 15 years old in the entire country is calculated in 4 913 481 of people, while young people from 15-24 unemployed is 3 109 296.

Source: Instituto Nacional de Estatística de Angola

Even if they doubt statistics and considering the very large weight of the informal economy, which makes calculations difficult, the reality is that the unemployment rate is too high. By the way, it is almost certain that the high rate of youth unemployment has manifestly contributed to the MPLA defeat in Luanda.

Unemployment is one of Angola’s most serious and important political, economic and social problems.

Government Employment Policy

Government policy regarding unemployment has been essentially passive, although accompanied by some concrete programs.

Essentially, the government expects the effort of macroeconomic stabilization (budgetary equilibrium, public account control, exchange rate liberalization, etc.) to translate into an incentive to private investment that in turn will increase employment.

The inaugural address of the President reaffirmed this approach when he said that “we will continue to work on policies and good practices to encourage and promote the private sector of the economy, to increase the offer of national production goods and services, increase exports and create more and more jobs for Angolans, especially for younger people”[2] (our emphasis).

The Minister of State for economic coordination, now reappointed, had already pointed out this direction when referring to unemployment and public employment promotion programs, he does not mention them concretely, but focuses on macroeconomic aspects. In early September, Nunes Júnior advanced that he was confident in reducing unemployment based on the private sector, claiming that the government was able to “put the country in economic growth giving currency stability and net international reserves” and placed “the country on the economic balance track, exchange rate stability and international reserves”[3].

The government successes in the area of ​​stabilization of public finances and currency politics are not challenged, what is doubtful is the belief that the Angolan private sector has immediate ability to resolve the issue of unemployment.

On the basis of this non-interventional policy on the correction of excessive unemployment is the neoclassical model that summarizes the essence of all economic activity to the free interaction between supply and demand for price flexibility. The neoclassical model has a valid relevance in many areas of economic analysis, but certainly will not be applicable linearly in the job market[4] and even less in Angola.

The government continues to believe that it is sufficient to create the appropriate framework conditions (financial and currency framing) and employment emerges moved by the private sector.

This would be so if Angola were a free market economy with a strong and capitalized private sector. Angola is nothing like that. It is an economy that began with a process of destruction and Sovietization after independence in 1975 and whose “liberalization” after 1992-2002, it was false, or rather, was post-soviet, imitating Mother-Russian: some oligarchs linked to power took advantage of privatization and alleged free markets to quickly “hand in hand” with political power take dominant positions. In fact, there have never been true entrepreneurs, but essentially political entrepreneurs. And there was never a private sector, but a sector of friends of power. This reality has no strength to promote employment as the minister wants.

Making the recovery of employment in Angola dependent and combating unemployment only in the private sector is impossible.

There are two orders of reasons why the policy against unemployment is only based on the private sector.

Firstly, the operation of the market. As a general rule, the labor market does not function as a free market, by obeying the rules of supply and demand defined by the neoclassical economic model that seems to sustain government philosophy, the behavior of the labor market is tendentially rigid, wages are hardly lowered or people are fired without social turmoil and constraints.

In technical terms it is said that the labor market operates as a market without compensation (non-clearing market)[5]. While according to neoclassical theory, most markets quickly reach a balance without excess supply or demand, this is not true for the job market: there may be a persistent level of unemployment. Comparison of the labor market with other markets also reveals persistent compensatory differentials between similar workers.

Keynes in the context of the 1930s crisis studied the subject and concluded that the economy could go into underemployment balances, this means that it can reach a level where it will never employ all potential workers and not leave without the intervention of a “visible hand” that would be the State[6].

The second reason is the magnitude of unemployment in Angola. It is one thing to expect that the private sector hire people when unemployment is 10% and it is intended to go down to 6%.

It is possible that economic growth automatically increases employment. Okun’s famous law[7], even though it is inaccurate, tells us that a 2% rise of the product (GDP) implies a decrease of 1% of unemployment. Thus, if Angola’s GDP increased 4% by 2023, unemployment would only drop 2%, i.e. to 28%. Manifestly insufficient.

Explanation of the Okun Law

Therefore, there is a problem here for the economic theories in which the government rests on its policy. To go down unemployment to acceptable levels, for example 8%, 11 years would be needed with an average growth of 4% per year. Only in 2033 would unemployment be at a satisfactory level for the well-being of the population.

Exemplification of the necessary to achieve an unemployment rate of 8% without state intervention

Alternative and complementary policies

It is possible that this reality was what led the newly deposed minister of state to the social area, Dalva Ringote, to announce the “redinamization” of several government social programs. Although it has not specifically referred to unemployment, it is assumed that training programs, education programs and fighting poverty are included in the portfolio of the minister’s concerns and begins to have some inflection in the passive orthodoxy of the fight against unemployment[8].

It is evident that there are no miracles, but there has to be a government effort to idealize a more active employment policy than the private sector and expected economic growth supplemented.

Essentially this policy would be based on three pillars:

EMPLOYMENT PLAN

i) The hiring of staff for the State for the coverage of fundamental needs in education, health and social solidarity. Here the focus would be the hiring of licensed staff to occupy positions of human Capital that reproduce social welfare;

ii) The grant to private companies to hire contract workers, giving preference to Angolans;

iii) the launch of vast professional training programs for unlicensed citizens to provide them with practical qualifications in agriculture and in several posts.

In order to finance these massive programs to fight unemployment, one would have to rely, in part, on budget surplus funds and, on the other hand, on the famous recovery of assets in the fight against corruption.

There is no doubt that much of the government’s future is based on what will be done in the employment area. This will really have to be the employment legislature.

[1] INEAngola:https://www.ine.gov.ao/Arquivos/arquivosCarregados//Carregados/Publicacao_637961905091063045.pdf

[2] Presidência da República de Angola. Discurso de Investidura, 15-09-2022, in https://www.facebook.com/PresidedaRepublica

[3] https://correiokianda.info/governo-cria-programas-para-reducao-de-desemprego-no-pais/

[4] See a balanced description in Dagmar Brožová, Modern labour economics: the neoclassical paradigm with institutional content, Procedia Economics and Finance 30 (2015) 50 – 56.

[5] See for example: Willi Semmler & Gang Gong, (2009), Macroeconomics with Non-Clearing Labor Market, https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.587.8716&rep=rep1&type=pdf

[6] The best explanation remains Paul Samuelson & William Nordhaus, Economics, 2019 (20 Ed).

[7] See previous footnote.

[8] https://www.verangola.net/va/pt/092022/Politica/32628/Dalva-Ringote-anuncia-%E2%80%9Credinamiza%C3%A7%C3%A3o%E2%80%9D-dos-programas-de-combate-%C3%A0-pobreza-e-seca.htm