Angola eyes reform despite Covid shock

Angola’s struggling economy was hit hard by the fall in crude oil prices brought about by Covid-19, but the authorities have responded robustly and the country’s reform programme is still moving forward.

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Image : Alexandros Michailidis/Shutterstock.com

At the beginning of last year, there was palpable international optimism around the future of Angola. President João Lourenço, the party insider who replaced ageing strongman José Eduardo dos Santos in 2017, surprised observers by relaxing civil liberties and pursuing anti-corruption cases against regime figures and family members alleged to have illegally benefited from nearly 40 years of dos Santos rule.  

Lourenço pledged to diversify one of the most oil-dependent economies in Africa, and began the process of privatising over 190 state-owned companies and reforming oil giant Sonangol. In February 2020, he welcomed German chancellor Angela Merkel to Luanda, who praised his anti-corruption efforts and discussed commercial deals. 

Just months later, the global impact of Covid-19 hit home. Crude prices fell from $60 a barrel in December 2019 to lows of $19 by April 2020, and have only now recovered. The Angolan economy – heavily dependent on a declining, underfunded oil sector – shrank by a further 4% in 2020 and has not grown since 2015, prompting sporadic anti-government protests.  

“One of the impacts of Covid has been severe damage to the economy,” says Justin Pearce, an Angola expert at the University of Sussex’s School of Global Studies.

“In Angola this is coming on the back of a crisis which really began in 2014 when the oil price collapsed and which Angola hasn’t found its way out of. Moving against corrupt figures from the old regime plus opening up civil liberties could only take Lourenço so far. Many of the demonstrations that took place in the last years of the dos Santos regime were also about unemployment, wages, and standards of living. He really hasn’t had the financial means to address those kind of questions”.  

The World Bank warns that the pandemic puts macroeconomic stability and the transition to a more sustainable and inclusive growth model at risk. Yet while the government faces immediate challenges, some observers say it has not abandoned its long-term reforms, including the privatisation programme. Indeed, there are hopes that the difficulties prompted by Covid-19 will reassert the necessity of change.  

“Once this pandemic is over I think the government will go all in with making this [privatisation] programme a success,” says Nuno Cabeçadas, partner at law firm Miranda & Associados. “People want this to be a success but are very aware of the challenges it will face.” 

A robust policy response 

In January, Lourenço received a valuable boost from the IMF, which praised the government’s Covid-19 policy response as “robust”. The fund confirmed that the government’s strong commitment and “satisfactory implementation” of previous pledges allowed for the immediate disbursement of $487.5m, the latest tranche of a $3.7bn support package agreed in 2018. 

“The authorities’ robust policy response has enabled Angola to weather large external shocks, most notably lower oil revenues, and mitigate their macroeconomic impact while protecting the most vulnerable… The authorities achieved strong fiscal adjustment in 2020. Their 2021 budget consolidates the non-oil revenue gains and expenditure restraint of the 2020 budget, while protecting priority health and social spending,” said Antoinette Sayeh, IMF deputy managing director and acting chair. 

Non-oil growth and diversification from a dwindling crude sector have become the leading priorities. Caroline Miller, partner at law firm White & Case, says that government has made its diversification intentions clear when seeking to access international capital markets.

A crucial part of its diversification agenda is the 2019-22 Privatisation Programme (PROPRIV), which plans to transfer more than 190 state companies and assets in sectors including mineral resources, transportation, telecommunications, health, agriculture and construction to the private sector. 

The government had approved a roadmap and a timeline, which included details about tenders and public offers. Middle Eastern private and sovereign entities have shown an interest, as have European and US investors. But progress has been delayed as the government fights Covid-19 and private companies scale back investment.   

“Things have been developing slowly, with Covid having an impact, says Cabeçadas.

“This type of process takes a long time in Angola, regardless of the pandemic. The programme was put together a few months ago and provides for a general framework. There were some companies in the insurance and financial sectors which had begun the process. Those programmes started and there was general documentation made available, but there has not been much progress since September.” 

Some plans appear dead in the water. Plans to begin the privatisation of Angola Airlines and Sonair, an air transportation services subsidiary of Sonangol, will inevitably be disrupted by the pandemic’s destructive impact on the global aviation sector.

Other deals, especially in the resources sector, may be delayed until the government believes it can maximise the value of its stakes. The programme is predicated on the liquidity of capital markets and the favourable evolution of the macroeconomic environment, factors distinctly lacking today.  

“In those sectors which have been more affected by Covid, I think they would need to scale back and reduce the participation put forward for private shareholders or just reschedule the beginning of the privatisation,” says Cabeçadas. 

While frustrating, the pandemic gives the government the chance to take stock of the situation and communicate its plans to investors, says Bruna Beloso, associate at White & Case.  

“I have the feeling they are taking the time to structure things better for investors, because if you go to the privatisation website you can find all the information there… I was very impressed and my perception is that they are putting in the time to structure it better.”

A view of Luanda, the capital of Angola. Photo: Mauro Pereira / Shutterstock.

Long road forward

But success will depend on more than legislation. The country is ranked 177th in the World Bank’s Doing Business index, and has almost no track record of successful public-private partnerships. 

The economy has long been dominated by monopolistic concerns closely intertwined with the interests of a narrow ruling elite. Further reforms are essential to create a genuinely competitive market economy, as is continued progress in the fight against corruption.  

“The question is whether the programme will be followed by the actual implementation of the reform in the regulatory framework (for example, application and enforcement of the new Competition Law) which will increase competition and force companies dependent on a monopoly to adapt to a more competitive environment. The interest of the private sector will be dependent on the structural reforms that the government will need to implement in parallel with privatisation,” Cabeçadas says.  

Given the delaying effect of Covid-19, observers counsel patience when judging the reform efforts, which involve nothing less than a fundamental reshaping of the Angolan state and its place in the global economy. Whether citizens can also stay patient remains to be seen. 

“When you have a country whose integration into the global economy for many years has been on the basis of exporting crude, and when within Angola you have a business culture which has been about using its connections to the regime in order to cream off whatever one can from petroleum revenues, those are two institutional factors that simply the actions of a new regime can’t resolve in the space of a few years,” says Sussex’s Pearce.  

“If for example Angola is going to move towards secondary industry and manufacturing, where are the markets for that, how do you find Angola’s niche within a global economy? It’s about reorienting its position in the global economy and having people who can think along those lines. It’s going to take several years to work that out, even in the most favourable of circumstances.”

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