Angola renegotiating debts with ‘large creditors’; Lourenço said to shake up top security jobs
Welcome to the Angola Economic and Political Risk Briefing for Tuesday, 28 July 2020
Welcome to the Angola Economic and Political Risk Briefing, Issue 16
by Zitamar News, Moxico Risk Consulting LLP, and Mark Bohlund
The IMF is likely to disburse $1bn to Angola following the approval of its latest program review later this week, with details emerging about the ongoing negotiations for a three-year debt moratorium with China. The economic situation remains perilous, with 27,000 university workers at risk of unemployment and Angola’s long-term growth hampered by the impacts of covid-19 and massive debts to China.
President Lourenço continues to earn his nickname of ‘The Terminator’ as he allegedly threatens to fire one of his closest allies for poor performance in the security sphere, and his Attorney General hints at an international arrest warrant for Isabel dos Santos. And the accounts of state-owned electricity provider ENDE were rejected following a recent audit, indicative of the new government’s efforts to improve transparency.
In this issue
Economy:
Angola renegotiating debts with ‘large creditors’ (Jornal de Angola)
Central bank to refrain from supporting the kwanza (Expansão)
Fiscal council refuse to sign off electricity distributor’s accounts (Expansão)
Politics:
Lourenço said to shake up top security jobs (Confidence News)
27,000 university employees face job losses (Expansão)
Angolan Attorney General considers Isabel dos Santos arrest warrant in Portugal (Notícias de Angola)
Angola renegotiating debts with ‘large creditors’ (Jornal de Angola)
Angola’s Ministry of Finance is expecting the third review of its Extended Fund Facility to be approved by the IMF’s executive board on 30 July. Jornal de Angola’s report draws on Expansão last week, who claimed to have had advance access to the IMF report. The report allegedly states that “the risks to the IMF will be mitigated by renegotiating the debt with other creditors,” and refers to a three-year moratorium on interest and amortization payments obtained from China (see Angola Economic Briefing – 24 July). Furthermore, the IMF report reportedly points out that Angola "has already completed the restructuring of its debt with two international 'big creditors'" and "is negotiating debt relief with a third." The articles outline a generally favourable review by the IMF staff, who agreed to extend deadlines for six structural benchmarks, and changes to other targets.
The JdA report adds to our expectations that IMF review will be approved, despite Angola still not complying with a number of the structural benchmarks and demands from the World Bank and some IMF members that Angola’s loans from China Development Bank are included in the G20’s Debt Servicing Suspension Initiative (DSSI). Expansão presented a new disbursement schedule with the pending disbursement lifted to $1bn, almost double the $561m in the original schedule. This is in line with our expectations following the lifting of the annual and cumulative disbursements from IMF accounts (see Angola Economic Briefing – 24 July). The increase in the total size of the EFF from $3.7bn to $4.4bn, or 6.2% of Angola’s GDP, would make it the highest IMF debt:GDP ratio among programme countries. However, as a share of IMF resources it is considerably smaller than its programmes with Argentina and Greece. As we have outlined in previous editions of the AEB, IMF support is likely to hinge on the efforts being made to to improve the sustainability of Angola’s debt through a restructuring or reprofiling of its loans from China. The report indicates that this process is ongoing, but a sign-off of the review and the $1bn EFF disbursement may still be opposed by some IMF Executive Board members without more clarity on this point. Our core view is that the IMF disbursement will be made despite continued uncertainty about the details of Angola’s debt moratorium with China. We view it as likely that China will demand concessions from other G20 members, such as an increase in the IMF’s special drawing rights, in order to agree to an extension of the DSSI to end-2021 at the G20 summit in Riyadh in November.
Central bank to refrain from supporting the kwanza (Expansão)
Angola’s central bank should stop supporting the kwanza through interventions in the foreign-exchange market, the IMF has said, according to Expansão’s relay of the content of the review up for Executive Board approval this week. The IMF wants the Banco Nacional de Angola to stick with the exchange-rate liberalisation program of October last year, having previously eroded its foreign-exchange reserves in its effort to reduce the depreciation of the kwanza. However, the IMF admitted that the kwanza exchange-rate had at this point probably overshot its fair value and was ‘moderately undervalued’ at this point.
It comes as no surprise that the IMF reiterates its support for a market-determined exchange rate, as this is normally viewed as a prerequisite to achieve a sustainable balance of payments and reduce external financing requirements. With Angola posting a current account surplus in Q1, the need for a further weakening of the kwanza is limited, in our view, especially as higher oil exports and bilateral-debt service relief will give it additional support in H2 2020. The BNA has postponed its monetary policy committee meeting from 24 July to 28 July, and we expect it to keep the policy rate on hold at 15.5%. However, rate cuts in H2 are possible as the recent appreciation in the kwanza should temper inflationary pressures.
Fiscal council refuse to sign off electricity distributor’s accounts (Expansão)
The fiscal council and the external auditors both refused to sign off the accounts of the national electricity distributor ENDE (Empresa Nacional de Distribuição de Electricidade), making it the first large state-owned enterprise to fail an audit. The supervisory board highlighted the absence of data to assess the value of ENDE’s stake in EFACEC, the Portuguese power firm bought by Isabel dos Santos and later nationalised by the Portuguese state. The report also highlights the need to regularize ENDE’s accounts for the assets and liabilities carried over from the merger of Empresa Nacional de Electricidade (ENE) and Empresa de Distribuição de Electricidade (EDEL) to create ENDE in 2014. This may need to be followed by an injection of funds to boost ENDE’s equity.
We view the failure to sign off ENDE’s accounts as part of ongoing efforts to improve transparency and accountability of public accounts as well as rooting out the leakages that have eroded the financial health of state-owned enterprises. ENDE recorded a loss of AOA 55bn in 2019 ($100m according to the official exchange rate) and is likely to struggle to improve its profitability due to the ongoing economic recession.
Chart of the Day
Source: Expansão
Lourenço said to shake up top security jobs (Confidence News)
President Lourenço has reportedly decided to demote Pedro Sebastião, the current Head of Presidential Security (Casa da Segurança), and replace him with General Fernando Garcia Miala, the current head of the Angolan domestic intelligence service (Servico de Inteligencia e Seguranca de Estado: SINSE). According to the report in new online outlet Confidence News — which is based on unnamed sources — Lourenço is unhappy with Sebastião’s handling of the country’s security dossier, in particular the rising tensions in Cabinda and the border problems with neighbouring DRC, and feels that he is focused more on his business interests than on his official duties. The promotion of Miala is opposed by the President's brother, General Sequeira João Lourenço, his wife Ana Dia Lourenço and by Carolina Cerqueira, who is Minister for Social Affairs and also an MPLA Politburo member, Confidence News says.
The report has been dismissed as unfounded rumour in some quarters but is being quoted by a number of respectable Angolan news outlets, as well as being shared widely on social media. Sacking Sebastião, one of Lourenço’s closest allies and a business partner of multiple Lourenço family members, would demonstrate how seriously the president is taking the ongoing security crises in Cabinda and the neighbouring DRC. It could also indicate a hardening of the president’s approach in his anti-corruption drive, as Miala has been instrumental in a number of investigations into Dos Santos-era corruption, whereas Sebastião is closely linked via his business interests to a number of Dos Santos allies. A Miala promotion would likely improve the political tensions between Angola and the DRC. Miala is also more likely to find a political solution to the worsening Cabinda crisis (see Angola Briefing, Friday 10 July 2020); Miala is respected by the senior FLEC leadership, who even invited him for peace talks at their base in May 2019. Nevertheless, the story should be viewed with caution until further confirmation can be found.
27,000 university employees face job losses (Expansão)
On 9 July President Lourenço issued Joint Executive Decree 201/20, which suspended classes and the payment of tuition fees indefinitely. As a result, private universities are now preparing to suspend the employment contracts of 27,000 employees, including 10,000 lecturers and 17,000 administrative staff, according to the Associação das Instituições do Ensino Superior Privadas de Angola (AIESPA). Some institutions, such as the Universidade Católica de Angola, are maintaining around 50% of their administrative staff for continuity.
President Lourenço’s decree was originally welcomed as a pragmatic response to Angolan educational institutions’ lack of readiness to return to teaching, and was widely supported by citizens (see Angola Briefing, Tuesday 14 July 2020). However, by cutting off sources of funding without providing any state support, it has left Angola’s private education sector in disarray. The bankruptcy of private tertiary institutions will likely encourage more students to head abroad (especially to Portugal, Namibia and South Africa), contributing further to Angola’s human capital flight. Angola’s Instituto Nacional de Segurança Social is also proving unable to provide any support to the unemployed, further increasing the risk of street protests over the economic situation in major urban centres over the coming three months.
Angolan Attorney General considers Isabel dos Santos arrest warrant in Portugal (Notícias de Angola)
The Angolan Attorney General hinted to Angolan journalists on 25 July that an arrest warrant for Isabel dos Santos, issued in collaboration with the Portuguese authorities, was a possibility.
The latest comments from Angola’s Attorney General come following the publication of a 13-page report into Isabel’s offshore empire from weekly Portuguese news magazine Sábado on 23 July. The report noted that Portuguese authorities are investigating Isabel’s alleged transfer of funds from Unitel in Angola to Vidatel Ltd’s accounts in Portugal, and then onwards to Unitel International Holding BV, Athol Limited, Sílaba Real Estate Limited, as well as her own private personal accounts with Banco BPI and Eurobic. In total, $654mof transfers are under investigation, including $100m that was removed from Sonangol’s accounts. Sábado also claimed to have evidence that Isabel holds dual citizenship, with her second passport being Russian (the nationality of her mother). An arrest of Isabel in Portugal would immediately raise contract non-payment risks for those contracting to Isabel-linked entities in Angola. It would also likely lead to increased diplomatic tensions with Russia. Angolan investigative journalist Rafael Marques and Russian independent news site Meduza have alluded to Isabel potentially using her Russian citizenship to shield herself from accountability in Angola.