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Is Angola really open for business?

Is Angola really open for business?

President Lourenço has opened up Angola for business in line with an IMF restructuring plan, but implementing reform is not proving easy.

Ihas been one year since José dos Santos, one of Africa’s longest serving presidents, stepped down as Angolan head of state. João Lourenço, a former comrade from the ruling MPLA, has succeeded him. The Lusophone country possesses formidable natural resource reserves, ranging from petroleum to diamonds and fertile land, yet problems persist. Corruption, failing education and almost non-existent infrastructure have prevented Angolans from reaping real economic benefits.

Lourenço has opened the country up to further foreign investment in accordance with an IMF restructuring plan and has promised to fight corruption. Initially, these policies seemed positive. Depreciation of the kwanza and the loosening of foreign investment did much to give the impression that the country was on the road to recovery and that the effects of the oil crash had been contained. However, outward signs of progress proved illusory. By the end of August, Angola had opened new bailout talks with the IMF. News24 reported the potential loan sum to be $4.5bn with the kwanza trading at €0.0031. So is the country really open for business?

The bright start

In the wake of the 2014 oil shock, Lourenço publicly acknowledged that the country’s reliance on the petroleum industry was a source of concern. Subsequently, stabilising the oil industry was made a key policy with some success. International oil firms including Exxon and Chevron recently reaffirmed their commitment to Angola, while Total and Sonagol both agreed to strengthen cooperation during Lourenço’s visit to France in March this year.

Such decisions were not taken purely based on the political rhetoric of the MPLA. The IMF completed its annual health check of the Angolan economy in June and found that the country under a new administration “has made strides in setting a reform agenda geared towards macroeconomic stability and growth that benefits all its people”.

The IMF attributed the change in Angola’s fortunes to policies implemented by Lourenço that have reduced deficits being run by the state and parastatals and encouraged inward investment. Aside from convincing international oil giants to recommit to Africa’s second largest producer, which will create a multiplier effect on other sectors of the economy, Lourenço has attempted to directly attract foreign investment into agriculture, industry and infrastructure.

In January, the kwanza was unpegged from the dollar because of a foreign currency shortage. The resulting 10% depreciation was less than the markets were originally expecting. However, the government has backed a policy of steady further depreciation so as to not aggravate inflation. This was followed by a law passed in April which scrapped the minimum investment level of $230,000 and removed the clause stating that 35% of this figure needed to come from Angolan stakeholders, a situation that was received well by the markets.

So what went wrong?

While oil prices have picked up, they remain lower than pre-slump 2014 levels. In addition, production in Angola has gradually decreased. According to Reuters, 1.9m barrels of oil was produced daily in 2008. By 2017, this figure had declined to 1.6m and now stands at 1.5m. The resulting decline in oil revenues has led the IMF to estimate economic growth at 2.2% this year, down from the government’s target of 4.9%. Petroleum-based activity accounts for 70% of Angola’s total economy and as such, the need to diversify is pressing. Manuel José Nunes Júnior, the Angolan minister for development, proclaimed to the state-owned media outlet Jornal de Angola in August that Angola’s non-petroleum-based economy was due to grow 5.1% in the next year and that the government was focusing on diversification. But action on this pledge is likely to unfold over many years.

There is little doubt that corruption has hindered service delivery in Angola. Alex Vines, head of the Africa programme at Chatham House, says that that the correlation between inequality, corruption and economic stagnation has never been starker. The infrastructure boom that occurred in the early 2000s was riddled with fraud. There are multiple examples of roads half-completed and dark money being siphoned off to foreign bank accounts.

There has been an attempt by Lourenço to tackle corruption within the MPLA. Notably, this involved the removal of dos Santos’ children from key positions, including the chair of Sonagol and leadership of the country’s sovereign wealth fund. However, an attack on the patrimonial networks at play within the party could have an adverse effect on his own power base. Control over oil contracts and the easy money it brings has resulted in corruption in both parastatals and the government. An outstanding case is that of Manuel Vicente. The former vice president and chief executive of Sonangol was accused of corruption in Portugal. In May, a Portuguese court ruled that the case can be transferred to Angola.

Claudia Gastrow of the University of Johannesburg claims that removing contracts from vested interests and dos Santos appointees simply isn’t enough. Gastrow argues that the test of Lourenço’s resolve in tackling corruption will be seen when members of his own faction are caught up in anti-graft investigations. It is easy to see how corruption poses a challenge to state-led development. The constant diversion of public funds and creaming off of oil contracts has been instrumental in the 45% of Angolan children unable to access secondary education. The lack of education has created a skills shortage, according to Gastrow. Perhaps the only other sector in a worse state than education is infrastructure development. Angolan farmers struggle to meet transport costs while importing much-needed machinery and exporting their goods.

“The steps that seem to be taken are mainly for foreign investment. That is a good thing, but we need to see what concrete steps there are for Angolans are. For example, can peasant farmers rely on roads to the coast? One of the big problems with the interior is getting the food to the coast just to sell it,” says Gastrow. Unfortunately, foreign direct investment, which would bring some benefits, remains limited in scope and is barely enough to change Angola’s economic landscape. Yet, there might be hope for Angola with an IMF restructuring. The fund’s advice, discipline and funding could have a positive impact on the economy.

Giorgio Berti

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Written by African Business Magazine

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