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The question of capital in Angola

1- Introduction: IMF, sound economic policies and capital accumulation

Contrary to what some economic studies and forecasts currently carried out by some more or less unknown consultants, the current Angolan economic policy has solid foundations. This is demonstrated by the recent assessment by the International Monetary Fund regarding the agreement between the fund and Angola. The IMF administration is clear in declaring[1]: “The authorities [from Angola government] have supported the [economic] recovery through sound policies that aim to further stabilize the economy, create opportunities for inclusive growth and protect the most vulnerable in Angolan society.”

It would be difficult to have a better endorsement of government economic policy.

However, macroeconomic stabilization and the resumption of economic growth are different realities. There is need of a certain engine to ensure economic growth. It is known that the essential growth model was presented by Robert Solow (Nobel Prize for Economics in 1987), that explains that growth depends essentially on the accumulation of capital, with the increase in GDP resulting from the increase in the capital stock[2].

It is known that the latest Angolan GDP figures for the first quarter of 2021 are negative by 3.4%. So the question that now arises is: how to transform sound economic policies into capital accumulation and promote GDP growth?

2-Capital in the Angolan economy

The essential growth model of the Angolan economy, at least from 2021 onwards, was not a model based primarily on investment, but on consumption derived from imports and on the direct benefit of capital gains from the high price of oil. This meant that the investment that existed was induced by oil and not extended to the economy as a whole[3]. It should also be noted that a good part of the savings gains at that time was not transformed into domestic investment, having been transferred abroad from Angola. In a colloquial way, there was a sharp flight of capital from Angola to overseas countries, namely Portugal or off-shore tax havens[4].

It is public that this model went bankrupt as of 2014, and led to sharp years of recession after 2015. At the same time, it was found that the contribution of gross fixed capital formation (GFCF) to GDP began to decrease from that point on. year (2015). If we look at each year the FCF/GDP was respectively 28.21 %, 26.21 %, 23.24 %, 17.19%. The 2018 number (17.9%) is frightening and makes the discussion about the need to capitalize the Angolan economy more relevant.

Figure 1: Gross Fixed Capital Formation in relation to GDP

“The country has a capital deficit”[5] and this problem has to be resolved so that growth can occur. This aspect has to be one of the guides for future economic policy. A goal must be set to raise the GFCF/GDP rate to higher levels, possibly to the 25/26% that happened in 2007 or 2012, which ensure GDP growth levels (albeit based on oil) of 14% and 8%.  Now a new capitalization not only based on oil has to be carried out.

It’s easy to diagnose. Angola lacks capital and needs strong investment. The answers will be the most costly.

3- Increase capital in Angola

What to do to accumulate and increase capital in Angola?

Our answer is divided into two perspectives, the short-term and the medium-term. Let’s focus on the short term, then make a brief reference to the medium term, although it is clear that there is a continuum, as what is done now has repercussions over time.

The executive has already taken some measures, which we have reported in previous reports[6], such as the Private Investment Law (LIP)-Law no. 10/18, of June 26, which no longer requires partnerships with Angolan citizens or companies from Angolan capital and in its article 14, it guarantees that the State respects and protects the property right of private investors; Article 15 establishes that the Angolan State guarantees all private investors access to the Angolan courts for the defense of their interests, being guaranteed due legal process, protection and security. The range of possibilities for transferring dividends were also expanded. Moreover, in administrative terms, it should be noted that in 2018, all requests for the transfer of dividends above five million dollars (4.3 million euros) were granted to foreign companies operating in the country. And, most importantly, since 2020, the capital import from foreign investors who want to invest in the country in companies or projects in the private sector, as well as the export of income associated with these investments, have been exempted from licensing by the Angolan central bank.

However, this is still not enough, and foreign private investment will take a long time, either because a very turbulent electoral period is starting, or because there is a worldwide distraction with Covid-19. In addition, the executive has not yet communicated with all the worldwide amplification, the opening of Angola for business. Even so, it is essential that the executive maintain the political orientation of openness to foreign direct investment.

More needs to be done in the short term to increase investment in Angola and subsequent economic growth. Below is a list of suggestions.

• The initial suggestion is obvious and is based on strengthening public investment. It is essential that the government becomes an inductor of investment and that the capital gains arising from the rise in oil prices and possible apprehensions in the fight against corruption are applied in reproductive investments with short-term results.

The next two suggestions might be more innovative.

 Let us address the first of the most unorthodox suggestions. As mentioned, a good part of the savings obtained by Angolans in Angola was remitted abroad, decapitalizing the country. Now we have to reverse this.

In this sense, the government should, in the first place, sell the dormant shares and assets or in which there is no very relevant strategic interest, which it has abroad. With the result of this sale, it would constitute an investment fund to be invested within Angola. Thus, the first heterodox proposal to increase the capital available in Angola is to sell what there is abroad that belongs to the State (directly or indirectly) and place it in the Angolan economy. Certainly, Sonangol’s position in Millennium BCP should be sold and transformed into investment capital in Angola, and possibly an indirect stake in Galp, if it is not possible to reach a strategic agreement with the Amorim family to better monetize the Angolan position.

• The second suggestion refers to fighting corruption. It is necessary to get out of a certain delay that entered into and boost the capital recovery.

Thus, the government should directly approach those it calls “hornets” and propose a negotiated solution to their situation. Either they deliver the assets that are abroad for investment in Angola, or they will face long prison terms. In relation to these assets, the method outlined above would be followed: Provided market prices were acceptable, everything would be sold and the capital returned to Angola for investment according to a formula agreed between both parties.

This “negotiation” would not be carried out by common means, but by a special force to be set up in Angola and would have short deadlines, not judicial deadlines.

There will have to be a radicalization in both directions in the fight against corruption. More effective punishment or forgiveness with repatriation. Unlike what happened in the previous repatriation law, there would be no waiting, but there would be a proactive attitude on the part of the executive.

By way of an illustration, the participation of Isabel dos Santos in NOS, that of General Kopelipa in the BIG bank and in several hotel developments, the apartments that the former figures have in Estoril, etc., could be sold. The result of these sales would return to Angola where it would be invested in terms to be agreed between the State and the former owners.

These listed measures could give some boost to the Angolan economy and thus promote economic growth immediately.

At the medium-term level, the essential thing is that there is no rampant corruption,  good communication infrastructures are created, an investor-friendly legal apparatus and fast, non-corrupt courts, an educated workforce (this does not mean having degree courses but the necessary skills) and reasonable taxes. In short, an inviting political and social climate for investment.


[1] IMF, Fifth review under the extended arrangement under the extended fund facility and request for modifications of performance criteria— press release; staff report, and statement by the executive director for Angola, June 2021, available in  https://www.imf.org/en/Publications/CR/Issues/2021/06/30/Angola-Fifth-Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-Facility-and-461318

[2] Cfr. Recent reassessment and description in Philippe Aghion, Céline Antonin e Simon Bunel (2021), The Power of Creative Destruction

[3] Cfr. Rui Verde (2021), Angola at the Crossroads. Between Kleptocracy and Development

[4] Cfr. For example: Isabel Costa Bordalo, Angola com 60 mil milhões USD é terceiro em África na fuga de capitais,  https://www.expansao.co.ao/angola/interior/angola-com-60-mil-milhoes-usd-e-terceiro-em-africa-na-fuga-de-capitais-94979.html

[5] Jonuel Gonçalves (2021), Angola: Não é a Covid que está a provocar a crise económica, https://www.dw.com/pt-002/angola-n%C3%A3o-%C3%A9-a-covid-que-est%C3%A1-a-provocar-a-crise-econ%C3%B3mica/a-58859385

[6] CEDESA, (2020), A nova atractividade para o investimento internacional em Angola https://www.cedesa.pt/2020/03/09/a-nova-atractividade-para-o-investimento-internacional-em-angola/

Indications and Summer Forecasts for the Angolan Economy

Indications

The latest figures available from the National Institute of Statistics on the Angolan economy point to a decrease in GDP in the 1st quarter of 2021 in the order of -3.4%, an unemployment rate in the same quarter of 30.5%, and a annual inflation rate for the month of July 2021 of 25.72%[1]. None of these figures that reflect macroeconomic magnitudes are encouraging in the short term.

However, there are other economic and financial realities to consider in order to have a global view of the movement underway in the Angolan economy, and which allow for a more optimistic perspective.

To begin with, in terms of the budget balance and public debt, essential elements of the support program of the International Monetary Fund (IMF), the expectation is that the 2021 budget balance will be positive, possibly above 2% of GDP (further on we will present our prediction). In relation to public debt, as we had predicted in previous reports, its sustainability is consolidated, as recognized by the IMF representative in Angola very recently (see our forecast below)[2].

In terms of exchange rate with reference to the month of July 2021, the Kwanza has already appreciated 1.8% against the dollar and 6.1% against the euro, since January 2021, breaking a strong period of strong devaluation started in 2018. Furthermore, 3.5 years after exchange rate flexibility, the gap between formal and informal market rates is below the 20% target announced by the central bank at the time of liberalization, between 7% and 8% for the dollar and euro respectively. Note that at the time prior to liberalization, the same gap was 159% and 167%.

Figure 1 – Kwanza Exchange Rate Variation against the Dollar and Euro (July 2021)

Currently, some sectors are already announcing an increase in the profitability of exports due to the favorable exchange rate policy. This is the case of cement, where Pedro Pinto CEO of Nova Cimangola assures that “To boost exports, the devaluation of the currency helped, because all the costs that the company has in national currency, in dollars, were lower and, in this way, the competitiveness of the company to place products on the international market. In other words, all those products that we continue to buy in Kzs and that have not suffered large price variations in dollars were lower and, therefore, allowed the company to have greater profitability with exports.[3]

Also a reference to PRODESI (Program to Support Production, Diversification of Exports and Substitution of Imports), which has generated more than USD 29 million since the beginning of the year. As the main exported products, emphasis is placed on cement, beer, glass packaging, bananas, juices and soft drinks and sugar[4].

These movements are reflected in the trade balance. Angola’s trade balance recorded, in the 1st half of 2021, a surplus of USD 8,381.9 million[5], an increase of 40.2 % compared to the results recorded in the 2nd half of 2020 (USD 5,978.8 million)[6]. Within this framework, there was an increase in exports of 25%, naturally still influenced by the increase in exports from the oil sector of 28.4%.

Figure 2 – Angola’s Trade Balance and Trade Relations with China

But there is also a significant increase in trade with one of Angola’s main trading partners, China. “Trade between Angola and China increased 23.9% in the first half of 2021, to US$10,550 million (€8,985 million), compared to the same period last year”[7]. According to Gong Tao, Chinese ambassador to Angola, despite the adverse effects caused by the covid-19 pandemic, Chinese companies remain interested in investing in Angola, highlighting the recent construction of factories, one dedicated to the production of tiles and another qualified for the production of energy and water meters.

2021 Summer Forecasts

In modeling the perspectives we present here, several factors are taken into account, among which we highlight the main ones. The first element is the calculation of the oil price (always a determining factor in the Angolan economy). We assume that the price of Brent will maintain a slight upward trend, standing at a level between USD 65 to USD 75 per barrel. A relative stabilization or possible appreciation of the Kwanza against the dollar and the euro is also part of our model, which makes it possible to reverse some of the falls in the past that were merely nominal due to the more flexible exchange rate. We anticipate that the post-Covid-19 world recovery will boost the Angolan economy’s exports, as is already happening with China. Finally, we anticipate that the environment for foreign investment will gradually improve as a result of legislative reforms and the commitment of political power. We have as a recent example the several advertisements coming from Turkey. At the end of July 2021, Angola and Turkey signed 10 cooperation agreements, in the fields of economy, trade, mineral resources and transport, having already announced an increase in the trade balance with Angola to a value of around USD 500 million[8].

From the point of view of obstacles, it is worth mentioning the immense lack of capital. This is the main element for any sustained recovery, and also the inexistence of economic diversification[9] and the persistence of administrative bureaucracy.

All things considered, our model predicts that by the year 2021 the Angolan economy will come out of recession, and GDP growth will reach between 1.4% and 1.75%.

Our model points to a budget surplus between 2.3% and 2.75%, depending on the evolution of the oil price until the end of the year. And considering the evolution of the Kwanza exchange rate, our forecast is that in 2022, the public debt/Gross Domestic Product (GDP) ratio will be below 100%, achieving greater consolidation.

Figure 3 – CEDESA Model – Forecasts for the Angolan Economy

Consequently, the initial period of strong adjustment and contraction of the Angolan economy is expected to come to an end this year, with no more shocks and global control of the Covid-19 pandemic.

The special case of Unemployment

We understand that unemployment is a special case that should be treated differently, both statistically and in terms of public policies. In terms of statistics, it should be better ascertained who is occupied with informal productive paid activities and who cannot effectively obtain any paid work they want. We should avoid statistical biases that disturb the proper understanding of reality.

On the other hand, it is clear that it will not be the market or the private economy that will solve the problem of lack of employment in the short term, especially for young people. To that extent, the authorities are urged to develop a Keynesian-type employment promotion program, if necessary using available capital from the fight against corruption, as we have advocated in other reports. The state has to spend money on job creation.


[1] Cfr. https://www.ine.gov.ao/

[2] Cfr. https://www.sapo.pt/noticias/atualidade/representante-do-fmi-em-angola-afirma-que_611bf099d1bccf29fd83b48c

[3] https://mercado.co.ao/grandes-entrevistas/a-desvalorizacao-da-moeda-permitiu-que-a-empresa-tivesse-maior-rentabilidade-com-as-exportacoes-XJ1038347

[4] https://www.angonoticias.com/Artigos/item/68811/prodesi-rende-mais-de-usd-29-milhoes-em-exportacoe

[5] https://www.bna.ao/Conteudos/Artigos/lista_artigos_medias.aspx?idc=15419&idsc=15428&idl=1

[6] https://www.angonoticias.com/Artigos/item/68824/balanca-comercial-regista-superavit-de-usd-83819-milhoes

[7] https://www.rtp.pt/noticias/economia/comercio-entre-china-e-angola-recupera-24-no-1o-semestre-apos-forte-quebra-em-2020_n1343994

[8] https://www.angop.ao/noticias/economia/angola-e-turquia-reforcam-balanca-comercial/

[9] Cfr, the most recent elements on the sectoral participation in the GDP that demonstrate the immense and reinforced weight of the oil sector. https://www.bna.ao/Conteudos/Artigos/lista_artigos_medias.aspx?idc=15907&idsc=15909&idl=1

The realignments of Angola foreign policy

1-Introduction. Angola’s geopolitical repositioning

At the moment, when we finish this report, the President of the Republic of Angola is in Paris with the President of the French Republic. This meeting represents one of the points in the ongoing realignment of Angola’s foreign policy. One has only to remember that in the last days of José Eduardo dos Santos, the French were “punished” due to their role in Angolagate.

Angola is not an indifferent country. It has played a geopolitically relevant role throughout its short but intense history after independence. First, it was one of the violent stages of the Cold War, where Americans and Soviets clashed with the virulence that they could not adopt in other geographic locations. Angola ended up being a Soviet bastion of great nomination, where they in reality won when in confrontation with the United States. After the Soviet phase, Angola was once again innovative and became the first African country to receive the new China that opened up to the world and sought in Africa a continent for its expansion and testing of its ideas. Angola has become a partner par excellence of China.

Obviously, this being a simplification, from the point of view of the major trends, the geopolitical position of Angola started to be aligned with the Soviet Union and after its fall, with China. Not being a country that is enraged anti-Western, very far from that, because Angola has a profound influence of European culture, the country has anchored itself in other places over time.

For several reasons, at this moment, Angola is rehearsing a different geopolitical approach that tends to devalue the role of both Russia and China, and to find new references and political dialogues. This text will focus on this devaluation, the new vectors that influence the Angolan repositioning, the countries that will now play a more relevant role in Angola’s external concerns, in addition to a short note on Portugal. Angola’s influence in southern Africa and its stabilizing role in Congos will not be addressed.

2-The decline of the Angolan relationship with Russia and China

The decline in the Soviet (now Russian) relationship with Angola is easy to describe. The Soviet Union’s commitment to Angola was part of a long-term strategy for the involvement of the North Atlantic through the countries of the South. The incursion into Africa that was accelerated by the “loss” of influence in the Middle East in the 1970s due to the cut promoted by Sadat from Egypt and by the Kissinger’s full exploitation. Suddenly, the Soviet Union found itself without one of the main supports it had in the Middle East and from where it hoped to condition the Americans. What is certain is that this situation led to a deepening of several alternatives, among which Angola later stood out. Naturally, the fall of the Berlin Wall in 1989 and the end of the Cold War, with the consequent disintegration of the Soviet Union, meant that Russian interest in Africa waned considerably. The Russia that emerged after Gorbachev’s collapse was no longer interested in any global competition with the United States, but in its survival and transformation. He quickly lost interest in Angola.

It is true that at the present time, Putin has recovered some of the imperial dynamics and is looking for some influence in Africa, but it is still of short reach and has resulted in the sending of mercenaries from the Wagner group, which have had little efficiency, namely in Mozambique. In Angola, there is no significant behaviour by Russia, especially as an essential and determining partner. There are obviously contacts and relationships. There is a lot of talk about the Russian influence on Isabel dos Santos, who might be a citizen of that country, but the fact is that there are no visible Russian investments or ties with Luanda with obvious relevance. In 2019, Russian investments in Angola of 9 billion euros were announced, but there is no known sequence of that. In addition, Angola’s external public debt to Russia is zero according to data from the National Bank of Angola (BNA), having been fully settled by 2019.

It is more difficult to wind up the declining relationship with China. In fact, Chinese investment in Angola has been growing, at least until 2020, and the Angolan external public debt vis-à-vis China in 2020 represented US $ 22 billion, equivalent to more than 40% of the total. The Chinese implantation in Angola is profound, suffice to mention in sociological terms the relevance of the City of China.

However, there is evidence that the Chinese preference is decreasing, or at least, being mitigated. The first indication refers to the negotiations for a new loan that took João Lourenço to China at the beginning of his term. The first information for the press reported large amounts to be made available by China, of around 11 billion dollars. The reality is that there were several procrastinations on that loan, which apparently ended up involving a reduced amount of US $ 2 billion that might have suited to make payments of Angolan debt to Chinese companies.

What is certain is that if we observe the evolution of the Angolan public external debt to China, we will see that there was a remarkable leap between 2015 and 2016, from about US $ 11.7 billion to US $ 21.6 billion, which the debt reached the peak in 2017, 23 billion dollars and that since then has been decreasing with a significant cadence. It seems that China does not want to be involved with Angola any more, preferring to go on managing the current involvement.

If on the part of China it is possible to glimpse some recalcitrance in the relationship with Angola, on the Angolan side there are also obstacles. The first of them is the nature of the Angolan debt to China. Many claim that a good part of this debt is what is called “odious debt”, that is, it served to benefit corrupt private interests and not the country’s development. There is the impression that the opacity with which doing business with China has allowed the creation of situations of corruption that are too evident and harmful to the country. Thus, China’s debt is partly seen as a debt of corruption. In addition, quality problems have arisen in some Chinese buildings in Angola financed by Chinese debt. It is not clear whether this lack of quality is due to any Chinese negligence or objectionable behaviour on the part of Angolan officials, but it is certain that the image persists.

This means that since China is still a key partner for Angola, it is currently in a kind of reassessment phase. It is necessary to resolve the problem of the debt of the past linked to corruption, of the way of contracting too opaque on the part of China and also issues related to quality. It is a demanding task, but required to reactivate the Chinese and Angolan common interest.

If the relationship with Russia does not have the relevance of the past and with China is in a phase of reevaluation and reconditioning, it is clear that Angola, above all, given the changes as it passes, will have to actively seek new partners.

3-The new vectors of Angolan action: goals and countries

The Angolan relationship with Russia and China concurred with the need to assert its own sovereignty, independent of external interference, and also to obtain funds for war and post-war reconstruction. João Lourenço’s current foreign policy is placed at a slightly different level, in which it is important to gather external support for the two major reforms that are being carried out internally: economic reform and the fight against corruption. Both reforms need external collaboration, without which they may not survive.

Economic reform is based on the so-called Washington consensus proposed by the International Monetary Fund (IMF), although international intellectuals and bureaucrats have already abandoned this designation and refuse it. Even so, it implies the adoption of policies to raise taxes and restrict expenditure with the respective fiscal consolidation. Naturally, this type of policy is recessive, in the short term, it increases the economic crisis in Angola. The great way to overcome this effect is to obtain foreign investment and a lot. In fact, says the theory followed, that with these disciplinary reforms of the IMF, foreign investors start to trust the governments that follow them and feel safe to invest. In short, foreign investment is the necessary counterweight to the IMF reforms and the key to their success. Consequently, it is not surprising that one of the main vectors of Angolan foreign policy is the approach to countries with a remarkable reproductive investment capacity and with proven evidence.

In what concerns the fight against corruption, the panorama that is presented is that, in general, it is the countries with the potential to invest in Angola, those in which judicial collaboration is required to recover assets or trace illegal financial movements. The Angolan oligarchies that diverted public funds sent them to the most advanced countries or those with the greatest financial potential.

Therefore, there is a group of countries that currently are of great interest to Angola: they are those with an efficient investment capacity and with a financial system through which many of the illicit movements of Angolan funds have passed, as well as where assets bought, possibly with these funds. At the moment, neither China nor Russia are countries where more investment is expected, nor were the places chosen, apparently, to park illicit goods or assets. Or if they were, there is no knowledge of what is going on there and it is sheltered.

It is in this context that a number of countries have assumed relevance. A first group is the Western Europe countries that have stood out in visits and announcements of investments in Angola. At the beginning of April 2021, the Prime Minister of Spain, Pedro Sanchez, paid a visit to Angola. This visit was accompanied by a great Spanish commitment, affirming Angola as one of Spain’s preferred partners in Africa, and this as a great Spanish bet. It was announced that Angola was the “prow” of a project in Madrid that he called “Focus Africa 2023.” Last year, it was the turn of German Chancellor Angela Merkel to visit Angola within the framework of an Angola-Germany Economic Forum and more broadly of a German Marshall Plan for Africa. Also, President Macron announced a visit to Angola, which has been postponed due to Covid-19. In turn, the Italian President had already visited Angola in 2019. In relation to the United Kingdom, there have been no visits of such high level, but some interest in Angola is beginning to be noticed due to the impositions of Brexit, which they demand new markets for the UK, although there is a huge lack of knowledge.

Visits have followed several promises of investment from Western Europe. The Italian oil company (ENI) plans to invest seven billion dollars (5.9 billion euros) over the next four years in research, production, refining and solar energy, it announced in early April 2021. Before, British businessmen said they intend to invest around US $ 20 billion in Angola. Germany and France also have several projects underway.

This axis of Western Europe has become vital in Angolan foreign policy, as these countries need new markets and investments, to get out of excessive dependence on China, and in the British case, also to look for post-Brexit alternatives, and being mature markets, they have to find out where the youth and the future is, and that is in Africa.

With João Lourenço able to convey the image that governs a competent government and with stable macroeconomic rules and turned to the free market, Spanish, French, British, Italian or German investors will feel safe to invest. At the same time, many of the fortunes out of Angola lay there, so there will be an opportunity to create mechanisms for their recovery or redirection.

It should be noted that, contrary to what one might think, this Westernization of Lourenço’s foreign policy does not pass through Portugal, but indicates a direct approach between European countries and Angola and vice versa.

To this Western European axis it is necessary to add another one, the Gulf axis. The Gulf countries, in which the United Arab Emirates and Saudi Arabia stand out. These countries, previously dependent on oil, have entered into a diversification policy. Dubai for some years now and with tremendous success. Saudi Arabia is still taking its first steps, with the so-called Vision 2030, but what is certain is that they want to invest outside their traditional scope and find new markets. In fact, Dubai already has several investments in Luanda and one of its companies has now taken over the Port of Luanda and in Saudi Arabia, Luanda has now opened an Embassy, ​​which reveals its interest in the kingdom. On the other hand, we know, Dubai is a quite important international financial center and where several Angolan financial movements have gone through, as well as being used in tax evasion schemes in the diamond trade. Allegedly, contrary to what has been its practice, Dubai will be collaborating with requests for Angolan legal aid, representing a typical example of the new geopolitical axis that we are describing, countries with potential for investment and judicial collaboration in the fight against corruption.

In summary, we conclude that a new Angolan geopolitical approach focuses on the countries of Western Europe and the Persian Gulf. But it doesn’t stop there.

4-India’s potential

The amount of trade between Sub-Saharan Africa and India has grown steadily, and today India is a key trading partner for Africa. With regard to Angola, the country is today the third most important exporter in sub-Saharan Africa to India, when in 2005 it was irrelevant. In 2017, the Ambassador of India issued a statement in which he highlighted: “Trade between Angola and India increased 100% to US $ 4.5 billion in 2017, (…) At the end of July, outside the 10th BRICS summit , in Johannesburg, the President of Angola, João Lourenço, met with the Indian Prime Minister, Narendra Modi, and the two reaffirmed the need to increase trade and cooperation in areas such as energy, agriculture, food and pharmaceutical processing. ” As India grows and becomes a very important player worldwide, it is normal for Angola to look at this country with a new vision. It is a millionaire market to which an immensity of Angolan exports can reach.

5- The United States of America. The ultimate prize

The relationship between Angola and the United States has been ambiguous. In fact, even in the days when the US administration supported Jonas Savimbi and UNITA, there was a relationship with Luanda linked to oil and the protection of American multinationals operating in territory dominated by the MPLA government.

Currently, the United States represents everything Angola wants, the country of the dollar with an enviable investment capacity and financial innovation, with a universalizing legal structure that allows it to use multiple legal instruments around the world to pursue the fortunes of corruption. It is also from the United States that Angola needs to raise the various “red flags” that were erected during the time of José Eduardo dos Santos and made Angolan financial life much more difficult. The United States is the key country for this new Angolan phase of foreign investment and fight against corruption, because from here the definitive stimulus for progress can come.

In a way, João Lourenço was unlucky to come across Trump when he needed the USA. It is known that Trump had no interest in Africa, that he only served for his wife to take a trip in colonial style attire. Worse would have been impossible. But American indifference does not have to be an obstacle to a greater Angolan commitment to relations with the superpower. In the early 1970s, Anwar Sadat from Egypt also decided that he wanted to get closer to the United States. These occupied with a thousand and one crises, among which Vietnam stood out, paid no attention to Sadat, who continued to follow his line, expelling Soviet advisers and starting a rapprochement with the Americans.

Historical comparisons and evolutions aside-Sadat ended up murdered for having signed a peace agreement with Israel on American auspices- what seems more logical for Angola at this stage is to accentuate a closer relationship with the United States, even if they are not attentive. And they won’t be, because between Covid-19, China and Russia, and multiple small internal crises have a lot to deal with. However, effective and real US support for the new Angolan policy is essential for the country to come out of the doldrums and no longer have external financial constraints, so a vigorous approach to the US administration would be advisable on the part of Angola, despite of the mutual distrust that exists.

6-Portugal is different

Regarding the visit of Pedro Sanchez, Spanish Prime Minister, Angola came up with some criticisms of the Portuguese government, accusing him of inaction and of being overtaken by Spain. This is nonsense. Not even Portugal can think of having a monopoly on relations with Angola, nor is there any danger in Portuguese-Angolan relations. Portugal is always a separate case, its influence comes less from the government and more from soft power, from the umbilical connection that remains between the peoples of both countries. Luanda continues to stop when Sporting wins the championship or Benfica have a very important game, the favorite destination of most Angolans is Portugal, easy personal relationships are established between Portuguese and Angolans. Portuguese businessmen always look to Angola as a possibility for expanding their business. The relations between Angola and Portugal have an underlying relationship between the peoples before the intervention of the governments.

At the official level, the Portuguese government is generally welcoming towards Angola. Around 2005, he welcomed the wishes of Angolan investment, currently he accepted the requests for judicial cooperation from Angola in relation to Isabel dos Santos, as it ended up sending Manuel Vicente’s case to Angola after great pressure from Luanda. Let’s say there is a manifest porosity of the Portuguese position, easily adapting to the positions and needs of Luanda. This position, combined with the interest of the Angolan elites in Portugal, has ended up consolidating a good relationship between the two countries, despite a bump or two. It is clear that after April 25, 1974, Portugal lost interest in Africa, making its accession to Europe and becoming a modern western country its number one priority. This project has been a little tangled since 2000, but it has not led Portugal to a revision of its European focus yet, it only forced it to take a longer look at Africa, after decades of disinterest. Perhaps there is a time when Portugal wants to focus its foreign policy on Portuguese-speaking countries, but this is not the time, as it is not for Angola, which wants to embrace other “voices”, such as the English-speaking and French-speaking countries, thus, the best that governments can to do is to make life as easy as possible for its population who wish to work in common and mutually support each other’s requests, but little else.

Conclusion

The summary of the new Angolan geopolitical position is that Angola is betting on vectors linked to foreign investment and fighting corruption, assuming relevance in foreign policy, partnerships with Western Europe, Spain, France, Italy, Germany, United Kingdom, with the Persian Gulf, Emirates and Dubai, and with India. At the same time, a strengthening of relations with the United States is anticipated. Portugal will always have a place apart.

Reference Bibliography:

-Banco Nacional de Angola-Statistics- www.bna.ao

-Douglas Wheeler and René Pélissier, História de Angola, 2011

-Ian Taylor, India’s rise in Africa, International Affairs, 2012

-José Milhazes, Angola – O Princípio do Fim da União Soviética, 2009

-Robert Cooper, The Ambassadors: Thinking about Diplomacy from Machiavelli to Modern Times, 2021

-Rui Verde, Angola at the Crossroads. Between Kleptocracy and Development, 2021

-Saudi Vision 2030- https://www.vision2030.gov.sa/en

-Tom Burgis, The Looting Machine. Warlords, Tycoons, Smugglers and the Systematic Theft of Africa’s Wealth, 2015.

-Public and informational facts taken from Lusa, DW, Jornal de Negócios, Jornal de Angola, Angonotícia and Novo Jornal.

Flashes of optimism in the Angolan economy at the beginning of 2021

0-Introduction. A different focus for Angolan economic analysis

The consulting companies that are dedicated to the study of the Angolan economy follow a conjunctural methodology in which the predominant narrative is based on the negative numbers about the macroeconomic aggregates and their possible perspectives.

However, a more detailed analysis of the evolution of the Angolan economy suggests that behind the numbers of inflation, unemployment, GDP growth and public debt, which are not very encouraging[1], a series of public political reforms are taking place together with the reinforcement of certain economic trends that will indicate the construction of a new, more positive economic reality for Angola.

This study deals with the positive elements that point to the correction of the direction of the Angolan economy in a sense more consistent with the necessary prosperity.

A-Positive trends in the Angolan economy

1-The International Monetary Fund (IMF) and public policy reform

A first element that allows to shed a different light on the perspectives of the Angolan economy lies in the recent assessment carried out by the IMF. In fact, on January 11, the IMF Executive Board concluded the fourth review of the Extended Fund Mechanism Agreement for Angola and approved the disbursement of an additional USD 487.5 million[2].

The important thing in this decision is the IMF’s positive assessment of the reform of Angolan public policies. The IMF states that: “The [Angolan] authorities achieved a prudent budgetary adjustment in 2020, which included gains in non-oil revenues and containment of non-essential expenses, while preserving essential spending on health and social security networks. The approval of the 2021 budget in December consolidates these gains. The authorities have also allowed the exchange rate to act as a shock absorber and have begun to implement a gradual shift towards monetary restraint to face increasing price pressures [3]”.

According to what the IMF explains, the economic policy followed by the Angolan government is developed in the following vectors:

-The stabilization of public finances, which is the cornerstone of the authorities’ strategy. In this regard, the government achieved a strong fiscal adjustment in 2020. In addition, its budget for 2021 consolidates non-oil revenue gains and the containment of budget expenditures for 2020, while protecting priority social and health expenditures.

These advances help to reduce the budget’s dependence on oil revenues.

– Reformulation and management of public debt. The government has implemented debt profile reform agreements, in addition to benefiting from the extension of the Debt Service Suspension Initiative until the end of June 2021, which will provide significant debt service relief and help reduce risks related to debt sustainability. We will elaborate below on the reformulation and management of public debt.

-Restrictive monetary policy and exchange rate easing. After easing the monetary constraint to mitigate the shock of COVID-19, the National Bank of Angola (BNA) began, once again, to face the increase in inflationary pressures through the tightening of monetary policy. A more gradual tightening of monetary policy is needed to reduce inflation. Exchange rate flexibility served as a valuable buffer during the crisis. Efforts are underway to develop a liberalized foreign exchange market.

-Reform of the financial sector. Continued progress in financial sector reforms was critical, especially the completion of the restructuring of the two struggling public banks. The timely adoption of the revision of the BNA Law and the revision of the Financial Institutions Law is the key to continuing this progress.

Finally, the IMF highlights the fundamental aspect that underlies all political reform, which is the maintenance of the fight against corruption.

What can be seen clearly from this IMF assessment is that the government is pursuing a reformist policy based on the assumptions made by this international organization, and is implementing difficult reforms.

It is known that many of these IMF policies have an initial recessive effect, especially fiscal consolidation when it involves raising taxes and cutting wages and subsidies, as well as restrictive monetary policy to fight inflation. It is therefore no wonder that the first result of adopting IMF policies is recession and not growth.

What is expected is that this “housekeeping” creates the conditions for a sustained and virtuous growth of the Angolan economy.

Fig. Nº. 1 – Economic policies of the Angolan government celebrated by the IMF

2-Management and careful reformulation of public debt

The executive followed an appropriate strategy when initially negotiating with China the issue of public debt. As we described in previous reports, the Chinese debt is key to Angola, as it represents about 50% of external commitments[4]. Consequently, it was important, first of all to ensure the appropriate terms with China, although they are not public knowledge, apparently imply a three-year suspension of payments agreement. The adherence already mentioned to the IMF’s debt suspension program allowed the government room for maneuver. It should be noted that the Eurobonds on which a lot has been written and pointed out various dangers, has a smaller weight in the total Angolan debt, around USD 8 billion, thus not having, on the contrary, what one could think of exaggerated pressure on Angolan finances in this area.

So, for now, the issue of public debt pressure seems to be eased and within the government’s management capacities.

3-Meridian oil price recovery

As we had also anticipated, after an abrupt drop in the price of oil at the beginning of the pandemic (March 2020) there would be a rise[5], which is gradually happening.

The reality is that following a trend that was already very clear at the end of the year, the barrel of brent finally reached a price above $ 55, a value that had not been reached since the end of February 2020, the month before the start of the pandemic.  Still being the most relevant indicator for the Angolan economy, and considering that the budget for 2021 was calculated based on USD 33 per barrel, we have a financial margin of more than USD 20. This is an additional “cushion” in the management of Angolan public finances.

It is clear that it is not known for how long this rise in the price of oil will continue. The commitment of the new Biden administration to the Paris Agreement, the evolution of the Chinese economy, the decision to cut or increase production by Saudi Arabia and the maintenance of the restrictions resulting from the Covid-19 pandemic are factors that may imply a further decline in the oil price.

Therefore, movements in the oil price are always unknown and these moments of increase must be used by the government to reinforce its reserves for future reproductive and social investments.

Fig. No. 2- Evolution of the Brent price since February 2020

4-Decrease in imports of food basket and agricultural production with continental relevance

The diversification policy combined with the promotion of the national industry through the substitution of exports has been another “motto” of this government. This policy allows in one fel swoop to reduce external dependency and create a thriving national industry.

While it is still untimely to draw any definitive conclusions about the results of this policy, some figures emerge that can be encouraging, at least in relation to the dependence on imports and foreign exchange spending on foreign trade.

According to data provided by the Ministry of Industry and Trade, Angola managed to record a reduction of almost US $ 100 million in the import of products from the basic basket and other essential goods in the last month of 2020, compared to the same period in December 2019. In December 2019, the Government disbursed US $ 250 million for imports, while in the same period of 2020, it only spent US $ 152 million[6].

In particular, it is worth noting the reduction in sugar imports, which went from 2.1 million tons in 2019, at the cost of 17.6 million dollars, to 1,472 tons, at the cost of 831,121 dollars. Regarding the importation of current rice, in 2019 Angola imported 136,985 tons in the amount of US $ 37.2 million and in 2020, only 59,505 tons, in the amount of US $ 10.5 million. In what concerns chicken (the most consumed meat in Angola), it is also worth mentioning a considerable reduction, compared to 2019. In that year, 46,385 tons were imported, for US $ 51.5 million, whereas last year, only 32,447 tonnes were acquired, for a value of just over US $ 25 million.

Fig. Nº. 3- Comparison of annual imports of basic basket products (Dec.2019 / 2020 in USD million)

These are just some of the products highlighted in the considerable reduction in imports, however this trend has proved to be general in the remaining products that make up the basic basket.

For these numbers to be considered a success, it is necessary to compare them with the internal consumption of the same goods, and understand if the decrease in imports was due to a substitution by domestic products or only reflects a decline in demand as a result of the economic crisis.

In the latter case, although they represent savings in foreign exchange, they do not mean a success in politics, but a decrease in the quality of life of the population. However, even in this situation, national investors should be alert to proceed with investments in these areas in order to correspond to future demand growth.

Statistics published by the Angolan Ministry of Industry and Trade and released by the Portuguese news agency Lusa show the enhanced sustainability of some Angolan agricultural production.

Angola asserts itself as a continental-level agricultural producer. Angola is the largest African banana producer and the seventh in the world with an offer of 4.4 million tons, according to the latest table of the United Nations Food and Agriculture Fund (FAO). It should be noted that the banana continues to be the most produced and consumed fruit in the world. Angola, in particular, has declared itself self-sufficient in banana production for more than six years, with emphasis on the provinces of Bengo and Benguela. In these provinces, private companies already export the fruit to countries such as Portugal, Zambia, Democratic Congo and plan to bring the fruit to the United States, the world’s largest consumer[7].

In relation to cassava, Angola has an annual production estimated at more than 11 million tons of cassava, being today the third largest producer in Africa, after Nigeria and Ghana, and wants to bet on its transformation into starch[8].

5-New investments and exports. Two examples: Rio Tinto and Gold

The finance minister recently told Reuters: “We are building a future (through our reform program) that prioritizes direct investment (not just with China, but with other partners). We want to add value for our economy to create jobs. We want the money to stay. Borrowing is an option, but we are trying to change the way we relate to our partners [9]”.

Thus, it appears that the government is betting on direct investment to revive the economy and also to increase exports.

There are two recent examples that are important to underline in this context. The first is the entry of the powerful multinational Rio Tinto into the Angolan market. Apparently, such a perspective will materialize this year[10].

Also important is the first export of gold mined in Huíla in 2020, in the amount of sixteen hundred and ninety-six ounces sent to Portugal and the United Arab Emirates, which corresponds, at the current price, to more than three million dollars. Obviously, what is relevant is not the amount of gold exported, but the beginning of a trend. As with the entry of Rio Tinto, it is important to mark a trend that brings other big investors like Anglo-American or DeBeers.

None of these investments is very firm yet. Their reference is important because they can represent future axes for the development of the Angolan economy, now in the beginning.

Fig. nº 4 – Signs of optimism in the Angolan economy

B-Necessary policy adjustments

The foregoing demonstrates that the Angolan government pursues an economic reform policy based essentially on the IMF’s revenues: i) budgetary balance and debt control, considering financial solvency as a sine qua non for economic growth; ii) restrictive monetary policy to control inflation; iii) flexible exchange rate policy, allowing for a devaluation of the currency that encourages exports and hinders imports; iv) investing in investment and the private sector as engines of the economy.

Basically, the policy followed corresponds to what was once called the Washington consensus[11]. This is the standard reform package adopted by the IMF, World Bank and the US Treasury Department since the late 1980s and which corresponds to a liberal model of the economy, based on fiscal prudence and the free market.

Naturally, this model has potential for Angola, but it is not enough. There are not  strong enough institutions in Angola yet to guarantee the functioning of a free market in which some do not end up dominating others and creating oligopolistic and inefficient situations, as there is not a private sector strong enough to become the engine of the economy.

Making Angola’s economic reform dependent on reforms inspired by the Washington Consensus is not enough, a broader view is needed.

This broader view should imply structural institutional reform. This means that property rights must be clarified by abandoning the confusion that the collectivization of property has generated and still generates, courts must be put in place, bureaucracy is no longer an obstacle, and obviously great corruption must be eradicated. In addition to structural institutional reform, it should be realized that the State has a role to play in this new phase. There is no robust private sector in Angola, nor can everything be delivered to foreign investors with short-term perspectives. A mix should be found between the state and the private sector. In fact, this is how the most advanced Western countries work, despite rhetoric. It is important to adopt the concept advanced by Mariana Mazzucato of Entrepreneurial State[12].

The point to consider in economic reform in Angola is that the role of the government, in the most successful economies, went far beyond creating the right infrastructure and setting the rules. The State is a fundamental agent to achieve the type of innovation that allows companies and economies to grow, not only by creating the “conditions” that allow innovation. Instead, the state can proactively create a strategy around new areas of high growth before the potential is understood by the business community by financing the most uncertain phase of research in which the private sector is risk-averse, seeking new developments, and often even supervising the marketing process.

In addition, the IMF’s recessionary policies, while necessary, must be offset by other types of policies that alleviate the socially depredating burden of those. In short, there must be a mix of reformist policies that is more comprehensive and adequate to Angola, so that in the end the first flashes of success have sustained results.

C-Conclusions

It is necessary to look beyond the negative conjuncture numbers of the Angolan economy and understand that there is a reformist economy policy that is beginning to bear fruit and to mark some new trends. This policy has been applauded (and possibly advised) by the IMF, and here lies its strength and weakness. Strength because it contains some indispensable measures to clean up the Angolan economy and launch it on the path of growth. It also strengthens because its adoption and implementation brings the praise and support of the IMF and sister organizations. However, this policy also has weaknesses, including the lack of attention to institutional reform, the weakness of the private sector in Angola, the recessive effects of contractionary policies, among others.

Consequently, with signs of optimism in the medium-term perspectives of the Angolan economy, it is necessary to improve the economic policy that is being followed, including the intensification of institutional reforms that ensure that the judiciary works, bureaucracy does not hinder, corruption does not divert resources. In addition, the role of the State as an entrepreneurial partner in the private sector should be reviewed.


[1] See the most recent figures: Unemployment 34% (III quarter 2020), Annual inflation 25.19% (December 2020 / December 2019), GDP growth -5.8% (III quarter 2020) at https: // www. ine.gov.ao/

[2]  https://www.imf.org/en/News/Articles/2021/01/12/pr216-angola-imf-executive-board-completes-4th-review-of-the-eff-arrangement-approves-disbursement

[3] idem

[4] https://www.cedesa.pt/2020/05/05/porque-a-china-deve-reduzir-a-divida-de-angola/

[5] https://www.cedesa.pt/2020/06/03/angola-petroleo-e-divida-oportunidades-renovadas-2/

[6] https://www.noticiasaominuto.com/mundo/1663059/angola-importou-menos-100-milhoes-de-dolares-de-produtos-da-cesta-basica

[7] https://www.plataformamedia.com/2020/12/15/angola-e-o-maior-produtor-de-banana-em-africa-ha-seis-anos/

[8] https://www.noticiasaominuto.com/economia/1663123/angola-e-terceiro-maior-produtor-africano-de-mandioca

[9] https://www.minfin.gov.ao/PortalMinfin/#!/sala-de-imprensa/noticias/8787/angola-prioriza-investimento-directo-nao-apenas-com-a-china

[10] https://mercado.co.ao/negocios/diamantifera-endiama-quer-concretizar-entrada-da-rio-tinto-em-angola-HC1004823

[11] https://piie.com/commentary/speeches-papers/what-washington-means-policy-reform and https://web.archive.org/web/20170715151421/http://www.cid.harvard.edu/cidtrade/issues/washington.html

[12] See  https://www.wook.pt/livro/the-entrepreneurial-state-mariana-mazzucato/19312561

Proposal for a pilot job guarantee design in Angola

Introduction: the magnitude of the unemployment problem and the need for a systematic government response

In Angola, in the third quarter of 2020, the unemployment rate stood at 34%[1]. This number corresponds to a chain increase (i.e., compared to the previous quarter) of 9.9% and homologous (referring to the same period in 2019) in the order of 22%[2]. In view of these data, whatever the perspective adopted, it is easy to see that unemployment is a fundamental and serious problem facing the Angolan economy and societies.

Fig. Nº 1- Recent evolution of the unemployment rate in Angola (2017-2020). Source: INE-Angola

So far, the government recognizes this problem, but is betting on the recovery of the economy at the private sector level, to resolve the issue, believing that the State can do little to face the situation. The solution lies in economic growth and business dynamism, says the executive. The President of the Republic, João Lourenço, was clear in the last speech of the State of the Nation when he stated: “priority of our agenda [is): to work for the resuscitation and diversification of the economy, to increase the national production of goods and basic services, to increase the range of exportable products and increase the supply of jobs. ” João Lourenço makes an indelible link between the diversification of the economy and the increase in national production and the decrease in unemployment.

Basically, the government relies on the traditional postulate stated by the American economist Arthur Okun, according to which there would be a linear relationship between changes in the unemployment rate and the growth of the gross national product: with each real GDP growth in two percent would correspond to a one percent decrease in unemployment[3]. The truth is that several empirical studies do not confirm this empirical relationship at all, and in recent years in several countries around the world, an increase in GDP has not led to a sharp decrease in unemployment, while in other cases it has, therefore, it is difficult establish a permanent relationship between unemployment and GDP. In addition, the magnitude of unemployment in Angola would imply that in order to decrease the rate for the still frightening 24%, GDP would have to grow 15% …

The fundamental issue is that the problem of unemployment in Angola is not cyclical, but structural, this means that it is closely connected to the permanent deficiencies of the Angolan economy and does not have a mere dependence on the economic cycle.

The fact that the problem of unemployment is structural and of an economic recovery for the years 2021 and onwards is only between 2% and 4% of GDP[4], according to the current IMF projections, imply that such economic animation will have little impact on employment.

In this sense, it is essential to understand that the solution to the problem of unemployment does not depend only on the market and the economic recovery, it requires, at least in the short term, the muscular intervention of the State. It is in this context that this proposal for a pilot experience arises.

Fig. No. 2- GDP growth projections Angola (2021-2024). Source: IMF

A pilot job guarantee experiment in Angola

Starting from the first experience of universal employment guarantee in the world, designed by researchers at the University of Oxford and administered by the Austrian Public Employment Service, which takes place in the Austrian city of Marienthal[5], the same methodology would apply to a specific location in Angola, possibly, to a specific municipality in Luanda.

According to this regime to be implemented on an experimental basis in a municipality in Luanda, a universal guarantee of a properly paid job would be offered to all residents who have been unemployed for more than 12 months.

In addition to receiving training and assistance to find work, the participants would have guaranteed paid work, with the State subsidizing 100% of the salary in a private company or employing participants in the public sector or even supporting the creation of a microenterprise. All participants would receive at least one minimum wage set in accordance with the Presidential Decree that regulates the matter appropriate to a life with dignity.

The pilot Design would work as follows:

i) All residents of the chosen Luanda municipality, who have been unemployed for a year or more, will be unconditionally invited to participate in the pilot design.

ii) Participants begin with a two-month preparatory course, which includes individual training and counseling.

iii) Subsequently, participants will be helped to find suitable and subsidized employment in the private sector or supported to create a job based on their skills and knowledge of the needs of their community or will still be employed by the State.

iv) The job guarantee ensures three years of work for all long-term unemployed, although participants may choose to work part-time.

Fig. No. 3- Brief description of the pilot employment design

In addition to eliminating long-term unemployment in the region, the program aims to offer all participants useful work, be it in paving streets, in small community repairs, in a day care center, in the creation of a community cafe, in access to water and energy , basic sanitation, in the reconstruction of a house, or in some other field.

The pilot project is designed to test the policy’s results and effectiveness and then be extended to more areas of the country.

Financing

“As part of the asset recovery process, the State has already recovered real estate and money in the amount of USD 4,904,007,841.82, of which USD 2,709,007,842.82 in cash and USD 2,194,999,999.00 in real estate, factories, port terminals, office buildings, residential buildings, radio and television stations, graphic units, commercial establishments and others. ”

Thus, the President of the Republic spoke in the most recent speech by the State of the Nation mentioned above.

Now, nothing better than to allocate part of these recovered funds to the promotion of employment. Consequently, an amount withdrawn from there would be used to create an Employment Development Fund which we would simply call, because of the origin of the amounts, “Marimbondos Fund”. This Fund would receive part of the recovered assets and would use them to finance initiatives to promote employment such as the one presented here. Money withdrawn in the past from the economy would return to this one to foster work for the new generations.

With this self-financing model, any constraints imposed by the International Monetary Fund or the need for budgetary restraint would be removed. The promotion of employment would have its own funds resulting from the fight against corruption. There doesn’t seem to be a better destination for money than that.

Fig. No. 4- Financing the pilot Design


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

[2] https://www.ine.gov.ao/images/Idndicador_IEA_III_Trimestre_2020.PNG

[3] Arthur M. Okun, The Political Economy of Prosperity (Washington, D.C.: Brookings Institution, 1970)

[4] https://www.imf.org/en/Countries/AGO#countrydata

[5] https://www.ox.ac.uk/news/2020-11-02-world-s-first-universal-jobs-guarantee-experiment-starts-austria

Sonangol and the reinvention of the Angolan economy

This is a time of reinvention for Angola. Sonangol is no longer the engine of the Angolan economy and it is necessary to find a new driver. There are two reasons for the need to overcome the economic model based on a single product – oil.

The first reason is Sonangol itself. The results for 2019, presented by the Angolan oil company, are structurally discouraging. Although they show a profit, this profit derives from unrepeatable extraordinary results and the essential elements of the oil operation are stagnant: production does not increase, sales do not exceed the level of previous years. The company’s net income was USD 125 million. However, revenues remained stable compared to the previous year. Sonangol produced around 232 thousand barrels of crude oil per day, a number similar to the past and made sales of USD 10,231 million, which represents a 4% reduction compared to the 2018 financial year.

In short, oil exploration no longer adequately supports Sonangol. Not supporting Sonangol means not supporting the country.

In addition to this stagnation at Sonangol, there is the fact that oil is being increasingly viewed with skepticism, seeking to invest in alternative energies and moving away from the use of black gold. This is obviously not a short-term process, but it will have been accelerated with the Covid-19 pandemic. Oil will still have price rises, possibly peaks in higher demand, but everything indicates that the gluttonous years will be over, as other energy sources will emerge that will more or less gradually replace oil. Just note that in the last few months the price of the Brent barrel has fluctuated between USD 53 in October 2019, USD 60 in January 2020, USD 12.78 in April or USD 40.7 recently. However, he never returned to the 2014 figures where he was often above USD 100.

These two reasons mean that the Angolan economy has to reinvent itself, and more quickly than it thinks. It is not just a matter of restructuring Sonangol and focusing it on the oil business. It is not enough, because this business is stagnant. It is the economy itself that needs restructuring, which in the official jargon of the Angolan government is called diversification.

The problem is that diversification implies the creation of a new offer in the Angolan economy, of the production of goods and services that did not exist in the recent past. And for production to exist, investment is necessary. Investment requires, obviously, the contribution of capital.

And here we face another issue that affects the Angolan economy, which is the lack of capital and the recessive policies that intensify this scarcity. Following the parameters chosen by the International Monetary Fund (IMF) and the neoclassical orthodoxy of the economy, a program to contain / reduce public debt and reduce the deficit is being imposed on Angola.

We have many doubts as to whether such a program is justified in the case of the Angolan economy, especially considering the doctrinal contributions in Modern Monetary Theory, but the fact is that such a program to cut spending and increase taxes is being followed. However, the pursuit of such a policy ends up limiting the availability of capital for investment, whether public or private. Therefore, it prevents the so-called diversification that is so necessary to overcome Sonangol’s stagnation.

Thus, the outlook facing the Angolan economy at the moment is difficult. On the one hand, its engine – Sonangol – is stalled, on the other, the creation of capital to mobilize productive investment to diversify the economy is being strangled due to the recessionary policies adopted. This has obvious repercussions on the economy’s figures. GDP growth is negative – 3.6%. Unemployment assumes a staggering number of 32.7% and inflation of 22.8% (similar in August 2020). None of these numbers are encouraging.

The Angolan economy needs political courage to reverse this state of affairs.

Sonangol has to be restructured, but as an energy company and not merely an oil company. In reality, it is not enough to focus on oil, you will have to present yourself with a modern renewable energy company, taking advantage, for example, of the sun. If the United Kingdom recently announced that it wants to become Saudi Arabia by the wind, Angola may be Saudi Arabia by the sun. Therefore, an imaginative restructuring of Sonangol is necessary.

At the same time, recessionary economic policy must be abandoned. Although there should be budgetary discipline and not paying works twice or paying wages to phantom employees, as well as not contracting public debt to feed private pockets, the fact is that the policy of financial rigor must be complemented by a policy of fiscal stimulus that allows building a sufficient capital base to carry out the necessary reproductive investment. A public and private pro-investment tax policy is fundamental in reinventing the Angolan economy.