China remains guarded on Angola debt stance; Lourenço tightens grip on MPLA
Welcome to the Angola Economic and Political Risk Briefing for 28 August 2020
Welcome to the Angola Economic and Political Risk Briefing, Issue 25
brought to you by Zitamar News and Moxico Risk Consulting LLP
Good morning. Angola is caught in the middle of a power play between China and the Bretton Woods multilaterals — the IMF and World Bank — with both sides wanting the other to assume greater responsibility for debt restructuring. A resolution may only be found at a G20 summit in November, by which time the US election may have significantly changed the global political landscape.
Meanwhile, the government is hoping a revival of oil exploration could be the economy’s salvation, but its ambitious new strategy appears to ignore the realities of the sector which is reining in investment worldwide.
João Lourenço’s grip on the ruling party, the MPLA, is getting tighter — but his ongoing anti-corruption campaign is also winning him powerful enemies and raising some tricky dilemmas for his presidency.
In this issue
Economy:
Chinese foreign ministry spokesman guarded on Angolan debt negotiation (FMPRC)
Angola’s debt service savings could be close to $4bn (Angonoticias)
Executive approves ambitious exploration plan in bid to support oil production (ANGOP / Jornal de Angola / Guardião)
Politics:
MPLA selects Lourenço as only candidate for party presidency… (Novo Jornal)
...but pushes back on President Lourenço’s targeting of predecessor dos Santos (VOA)
Switzerland freezes $900 million from politically-connected Angolan businessman (Mercado)
Chinese foreign ministry spokesman guarded on Angolan debt negotiation (FMPRC)
Responding to questions on progress in restructuring Chinese loans to Angola, Zhao Lijian, spokesperson for China’s Ministry of Foreign Affairs, called on “Chinese financial institutions to respond to the DSSI [the G20's Debt Service Suspension Initiative] and to hold friendly consultations with African countries according to market principles to work out arrangements for commercial loans with sovereign guarantees.” He noted agreement with ten of the twenty African states to thus far request Chinese support under the DSSI, but remained tightlipped on Angola specifically, while seeking to equate concessional borrowing from the IMF and World Bank with commercial loans.
Zhao’s refusal to provide specifics on Angola is unsurprising given the country’s history of opaque borrowing and China’s preference for negotiating on a case by case basis, behind closed doors. However, his efforts to make Chinese commercial debt restructuring conditional on equivalent moves by the Bretton Woods Institutions will only serve to complicate relations between Washington and Beijiing. Moreover, this risks leaving Angola in a position where it must continue to pay Chinese creditors but is still unable to access new IMF credit lines. The Fund has grounds to refuse to lend to a member state in arrears to a dominant creditor such as China (see Angola Briefing 7 August 2020).
Forecast: Angola is highly likely to remain caught in the middle of a disagreement between China and the World Bank until the G20 finance ministers’ summit in November, when a decision will be taken on proposals to extend the DSSI. Bilateral tensions are only likely to increase ahead of the US election in November, leaving Angola’s request for Chinese debt restructuring unresolved for as long as President Trump remains in power. While Angola’s revised budget has staved off a balance of payments crisis, making sovereign default highly unlikely, the business environment is highly likely to deteriorate in the next three months. A growing scarcity of hard currency will likely hasten the depreciation of the kwanza on the parallel market, increasing capital transfer risks and potentially prompting the BNA to introduce new forex restrictions.
Angola’s debt service savings close to $4bn (Angonoticias)
World Bank figures that show Angola would be the biggest beneficiary of the DSSI, saving $2.6 billion, were highlighted again this week by Fitch Ratings. However, Angola's total savings would likely actually exceed that amount.
According to the World Bank, Angola's total debt service in 2020 is expected to take around $4.6bn, of which $2.6b is due to China alone. The Chinese debt service includes the China Development Bank (CDB) and the Industrial and Commercial Bank of China (ICBC), with which Angola has reportedly already reached an agreement for a three-year debt service moratorium. It is unknown how much that would save, but it needs to be added to the $2.6bn that Angola is expected to save under the existing DSSI agreements. A proxy for the total that Angola could save is given by the revised state budget. In the original 2020 budget, the government had planned for public debt service of AOA 9.7 trillion. In the revised budget, the debt service drops to AOA 7.5 trillion, a saving of AOA 2.2 trillion, or $3.7bn.
Executive approves ambitious exploration plan in bid to support oil production (ANGOP / Jornal de Angola / Guardião)
The Council of Ministers adopted a new Hydrocarbons Exploration Strategy for 2020-25 on Thursday. The government is targeting $870 million of investment in seismic data, expects to demarcate new ultradeep blocks across the Kwanza and Benguela basins, and has plans for a new gas hub in the centre of the country. The strategy is regarded as a means to support oil production at one million barrels per day until 2040.
The strategy is timely given the abrupt halt to offshore drilling this year. However, the government’s plans appear unrealistic – including a fanciful target to increase Angola’s proven reserves at least sixfold in five years. Foreign investors are also expected to cough up nearly 80% of the funding for seismic acquisition at a time when energy companies are cutting their exploration budgets. Finally, the government’s focus on auctioning ultradeep blocks ignores IOCs’ low appetite for costly frontier acreage.
Forecast: While the details of the strategy will warrant close examination, Angola is highly unlikely to meet its headline targets. A prolonged recession appears highly likely, given that oil output is projected to decline by 400 million barrels per day in the next five years, according to data from national oil and gas agency ANPG. Nevertheless, the government’s interest in helping operators to market gas discoveries will be welcomed by the industry. This is especially true for Total’s newly-acquired Kwanza basin blocks 20 and 21, where gas fields were set to remain stranded without new infrastructure investment.
Chart of the Day
MPLA selects Lourenço as only candidate for party presidency (Novo Jornal)
On 25 August the MPLA’s Political Bureau met in order to prepare for the party’s eighth ordinary congress, due to take place in December 2021. Party spokesperson Albino Carlos confirmed that João Lourenço — who took over as party president from Jose Eduardo dos Santos in 2018 — would run unopposed for reelection to the post.
It is unsurprising that Lourenço was chosen as the sole candidate for the position of MPLA president, given how voting works within the MPLA party political structure. Candidates for the MPLA presidency are selected by the MPLA’s Political Bureau, which Lourenço expanded in 2019 from 54 members to 72 — of whom 49 are in the role for the first time, and owe their loyalty to Lourenço. The much larger Central Committee must approve any additions to the Political Bureau, but Lourenço also loaded this group with loyalists at the party’s Extraordinary Congress in June 2019, adding 134 new members to the existing roster of 366.
Forecast: Lourenço is certain to win the presidency of the MPLA at the the MPLA eighth ordinary congress in December 2021, and lead the party into the upcoming municipal elections (2021 or 2022) and legislative elections (August 2022). This development is positive for political stability in Angola in the twelve month outlook.
...but MPLA also pushes back on President Lourenço’s targeting of former president dos Santos (VOA)
At the same meeting as discussed above, the MPLA’s Political Bureau expressed their concern that former President dos Santos’s image was not being displayed around the country as part of the celebrations of 45 years of national independence. “José Eduardo dos Santos, president emeritus of the MPLA, occupies a privileged place in the history of Angola, and the history of the MPLA,” the Bureau said in a statement, adding that the body “strongly condemns all initiatives that tend to divide the party's activists, supporters and friends”. VOA analysts noted that this was a clear sign that the MPLA will not be pursuing José Eduardo dos Santos as part of the ongoing anti-corruption drive.
In our view, Dos Santos should not consider himself safe simply because the Political Bureau has expressed support for him. Our contacts note that one of the reasons Bornito de Sousa may not be re-nominated as Vice President for the 2022 elections (see Angola Briefing 7 July 2020) is due to his attempts to temper the president's anti-corruption drive, especially with regards to former president dos Santos. Likewise, objectors at the Political Bureau level can easily be replaced by Lourenço from December 2021 onwards, after the MPLA’s Central Committee is reconstituted.
Forecast: Lourenço’s tightening grip on power is positive for political stability in Angola in the twelve month outlook, although it will lead to increased reputational and contract non-payment risks for entities in business with those MPLA figures targeted in the ongoing anti-corruption drive — and could be negative for deepening democratisation over the longer term.
Switzerland freezes $900 million from politically-connected Angolan businessman (Mercado)
Angolan businessman Carlos São Vicente — son in law of Angola’s first President, the late Agostinho Neto — has had a Swiss bank account containing around $900 million frozen by decision of the Public Prosecutor's Office of the Canton of Geneva, which is accusing the businessman of money laundering, according to newspaper Mercado this morning.
The freeze was brought to light by Gotham City, a Swiss blog specializing in white-collar crimes, based on a ruling by the Canton of Geneva Court of Justice that rejected an appeal from São Vicente for the release of the $900m on 9 July. Suspicions were first raised in September 2018 when $213 million left an account belonging to insurance company AAA Seguros, 90% owned by São Vicente and 10% by Sonangol. The transfer was authorised by a single signature from São Vicente, and the money ended up in his personal account, after having passed through an account of AAA Activos, a company wholly owned by him. All three accounts were held at the same bank in Geneva. AAA Seguros had been dissolved in May 2015, and São Vicente claimed the $213 million transfer was to repay two loans made from AAA Seguros. However, the Swiss bank considered the movements suspicious and reported the incident to the Swiss Money Laundering Information Unit. In December 2018, following a money laundering investigation, the Geneva Public Prosecutor's office froze the accounts of the two companies, and of Carlos São Vicente and his wife Irene Neto, daughter of Agostinho Neto. In March 2019, the office notified the businessman for money laundering. Meanwhile, all the accounts were unfrozen except São Vicente's personal account, containing $855 million and €38 million. Around $900 million was transferred from the AAA Seguros account to São Vicente's account, between 2012 and 2018.
The freeze of São Vicente's $900m constitutes a challenge for the President's crusade against corruption. How does the Angolan judicial system react to accusations of money laundering by Swiss Prosecutors to Carlos Vicente? The businessman is not just a businessman because of his connections to Agostinho Neto, the “father of the nation”. Investigations by the Swiss judicial authorities in another case have already led to the dismissal of Carlos Panzo, secretary of President João Lourenço for Economic Affairs.
Forecast: President Lourenço will be highly sensitive to the MPLA’s internal reaction to this freeze, given the status of São Vicente’s family within the party. This is all the more true given the MPLA Political Bureau’s recent negative statements regarding Lourenço’s treatment of José Eduardo dos Santos (see story above). Lourenço is likely to intervene with Swiss prosecutors to seek compromise in the run up to the MPLA’s eighth ordinary congress in December 2021, rather than initiating a domestic money laundering investigation.