Forward exchange market is born; Activists announce multiple protests across Angola
Welcome to the Angola Economic and Political Risk Briefing for 9 October 2020
Welcome to the Angola Economic and Political Risk Briefing, Issue 37
brought to you by Zitamar News and Moxico Risk Consulting LLP, with Carlos Rosado de Carvalho and Nick Branson
Good morning. A new forward exchange market is set to bring greater predictability and, it is hoped, stability to the exchange rate over the longer term. It is already possible to see what the market expects the kwanza to do over the next month — to continue devaluing. That may be thanks to continued pessimism over the economy’s recovery — and there was more bad news this week about government revenue collection, though more cash in consumers’ pockets will be good for aggregate demand.
A more generalised tax break — rather than an accidental one for the police and military — might have helped temper the discontentment that has led to the planning of multiple protests across Angola over the next two months.
In this issue
Economy:
Forward exchange market is born (Jornal de Angola)
ExxonMobil earmarks $50 million for Namibe basin exploration (Jornal de Angola)
Police and military tax exemption hits government revenues (Expansão)
Government and multilaterals diverge on assessment of Angola's growth prospects (ANGOP; World Bank)
Political Risk & Security:
Activists announce multiple protests across Angola for October and November (VOA)
Attorney General seizes 17 more IURD temples (Lusa)
Forward exchange market is born (Jornal de Angola)
The National Bank of Angola (BNA) held the first auction on the new forward exchange market on Wednesday, selling $25m at 30 days at an average exchange rate of AOA650.387 to the dollar. Eighteen banks participated in the auction with purchase orders of $33.3m. Credit institutions will now be able to negotiate forward with their customers, giving the market greater security with regard to the availability of foreign currency as well as the exchange rate.
The first forward auction is another step in the process in modernizing the foreign exchange market that started in 2018 with the adoption of the floating exchange rate regime (within a band), replacing a fixed exchange rate regime that was in force for over 18 months. In October 2019 the band was eliminated and the kwanza started to float freely. Transactions in the Angolan foreign exchange market take place on a Bloomberg platform that receives orders from commercial banks, oil companies, diamond companies, the Ministry of Finance, and the BNA. The central bank is expected to withdraw from the market at the beginning of 2021, but will continue to intervene in exceptional cases, such as a strong devaluation of the kwanza.
Forecast: The BNA hopes that the forward exchange will provide greater predictability of exchange rate developments, providing more exchange rate stability. Assuming the forward exchange rate is a good forecast of the future spot rate, the market is forecasting a 2.9% devaluation of the kwanza against the dollar next month. The devaluation trend will only be reversed if inflation goes down, and/or the price of oil goes up.
ExxonMobil earmarks $50 million for Namibe basin exploration (Jornal de Angola)
National concessionaire ANPG and US energy company ExxonMobil signed risk service contracts for Blocks 30, 44 and 45, all in Angola’s Namibe basin. Exxon has acquired a 60% stake in each of offshore licences, with Sonangol awarded 40% carried interest. Under the contracts Exxon is committed to acquire and process 3D seismic data covering the three blocks and to drill at least one well per concession within the next six years. This equates to an estimated investment of $50m, according to the energy company.
The deal with Exxon represents a boon for frontier exploration in Angola and compensates for the low level of interest in last year’s Namibe basin licensing round, under which foreign investors picked up only two licences. Exxon is one of the few energy companies boasting both ultra-deepwater exploration credentials and a commitment to replacing its reserves. Moreover, the American major has a sufficiently robust balance sheet both to finance drilling campaigns and to carry Sonangol so that the NOC does not have to make upfront contributions to costs. Finally, the three blocks are contiguous and abut Exxon acreage in Namibia, creating economies of scale and increasing the likelihood of any future discovery being commercialised.
Forecast: Foreign energy companies are now highly likely to drill in Angola’s frontier Namibe basin by the middle of the decade. This will inject much needed foreign capital, helping to mitigate recession risks over the 5-year outlook. Total is likely to be the first mover on Block 29, which it was awarded along with 3D seismic data in January 2020.
Police and military tax exemption hits government revenues (Expansão)
The Personal Income Tax (PIT), whose new rates came into force in September, will only be charged to police and military personnel in a few months’ time, after the ministries complete the records of security forces in the Integrated Financial Management System of the State (SIGFE), which was supposed to happen in July 2019. The security forces have therefore not had tax deducted from their September salaries, which was to have been the first time they paid this tax. The Government says it is just a temporary situation, and there is no privileged situation for these professions.
On the brink of a fifth year of economic recession, Angola has been carrying out tax reforms in order to increase its tax revenues, under the influence of the IMF. Changes to the Personal Income Tax code aimed not only to end the exemptions for the military but also to reschedule the categories. The exemption for police officers came into law last year, but collection never happened — with the expectation that it would start when the new PIT code came into force. Since the ministries of defense and home affairs have the largest payrolls, the delay in charging them tax compromises the tax collection targets for this year. The IMF’s latest report on Angola’s financing program said the government was aiming to raise an additional AOA79 billion ($120m) through changes to the PIT code, with 27% of that coming from the tax being levied on the military, and the remainder from the end of other exemptions and the application of new rates.
Forecast: The delay in collecting this tax from these two professional categories predicts that the budget deficit will be greater than the forecast 3.6%, and will compel the government to seek other revenues at a time when going to international debt markets is very difficult. A greater deficit is likely to bring more inflation unless the BNA further restricts the liquidity to the economy, as it did last meeting (see Angola Briefing 2 October 2020).
Government and multilaterals diverge on assessment of Angola's growth prospects (ANGOP; World Bank)
The Ministry of Economy and Planning is anticipating a 2.8% contraction this year, having recorded negative growth of 1.8% in Q1 and 4.6% in Q2. However, the government is projecting a quick rebound, with Angola exiting recession and posting 1% growth in 2021.
The state’s numbers are more measured than the IMF’s forecast of a 4% contraction this year followed by 3.2% growth in 2021 - figures that were repeated in the World Bank’s Africa Pulse report this week. These numbers are more optimistic than Standard Bank, however, which is expecting the recession to extend into 2021 (see Angola Briefing 6 October). Much of the divergence can be explained by new data showing a less severe than anticipated contraction in Q2, improving the government’s outlook from its earlier forecast of 3.2% negative growth in 2020. But with the Angolan authorities lacking the means to deliver either a monetary or fiscal stimulus, the country remains highly vulnerable to headwinds.
Forecast: Angola is certain to end the year in recession, but it has an even chance of returning to growth in 2021 if new foreign investment can be secured and covid-19 restrictions further relaxed, both of which appear likely.
Chart of the Day
Activists announce multiple protests across Angola for October and November (VOA)
Activist Benedito Jeremias (also known as Dito Dali), has announced a protest on 11 November organised by the Movimento Revolucionário de Angola. He told VOA that there would be “a hail of protests across the country”, calling for the removal of the President of the National Electoral Commission (CNE) and a revision of Angola’s constitution. For 21 November the group has also organised a protest against corruption and impunity in Angola, taking place in Luanda’s Largo da Independência (ex-1º. de Maio).
Due to the ongoing impacts of covid-19, the list of economic and political grievances fuelling street protests in Angola is growing. Dito Dali was part of the Angola 15+2 case, which made international headlines after a group of human rights activists was arrested in Luanda during a book club meeting. On 28 March 2016, the Tribunal Provincial de Luanda sentenced thirteen of the group members to jail terms of up to eight years and six months for the crimes of criminal association and preparatory acts of rebellion, drawing widespread criticism from international human rights groups. Dito’s references to corruption and impunity are likely linked to the ongoing Edeltrudes Costa scandal (see Angola Briefing 6 October 2020).
In terms of the CNE appointment, Manuel Silva Pereira "Manico" was a highly controversial choice to head up Angola’s CNE, with his inauguration on 19 February drawing criticism from opposition parties and prompting street protests outside the National Assembly building in Luanda. UNITA leader Adalberto Costa Júnior noted at the time that Manico’s appointment was intended to “keep the regime in power for eternity”. Manico is accused of being highly partisan in favour of the MPLA, having allegedly sent death threats to a UNITA politician in June 2017 while President of the Provincial Electoral Commission of Luanda. He has also been accused of corruption relating to his previous role in Luanda. Street protests are intensifying in terms of frequency and attendance, especially in Luanda. The next demo is scheduled for 10 October on Largo da Independência (ex-1º. de Maio), organised by the opposition group PRA - JA Servir Angola in protest at their ongoing ban from registering as a political party (see Angola Briefing 1 September 2020).
Forecast: The Luanda Sanitary Cordon and associated covid-19 restrictions (and economic hardships) are highly likely to run until at least 8 November. Manico is unlikely to be removed from his position by the ruling MPLA. As a result, the risk of further street protests is highly likely to increase in the 3-month outlook. As protests grow, risks of police violence and disruption of traffic circulation (especially around Largo da Independência (ex-1º. de Maio)) will also likely increase. We are also likely to see further reports of human rights abuses by Angolan security forces enforcing the covid-19 restrictions in the capital in the 3-month outlook.
Attorney General seizes 17 more IURD temples (Lusa)
Between 1 October and 6 October Angola’s Attorney General seized and closed 17 more temples of the Igreja Universal do Reino de Deus (IURD) in the provinces of Huambo, Cabinda, Moxico, Cuanza-Norte, Lunda-Sul and Lunda-Norte.
In June this year, an Angolan breakaway organisation, called the Comissão Instaladora da Igreja Universal do Reino de Deus Reformada em Angola, seized control of 30 IURD temples across six provinces (Benguela, Cuanza-Sul, Huambo, Huíla, Malanje and Namibe), denouncing alleged corrupt and racist practices by the Brazilian church leadership. The Angolan Attorney General has since launched an investigation into money laundering allegations, and is now seizing IURD church property, having ordered the closure of all temples throughout the country (see Angola Briefing 21 July 2020). These seizures have led to growing political tensions between Brazil and Angola, following direct intervention by Brazil’s President Bolsonaro (see Angola Briefing 18 August 2020). The situation is further complicated by Angolan regional courts issuing rulings on ownership disputes of individual temples, such as a Luanda court ruling on 1 October that returned ownership of two temples (one in Lunda-Norte and one in Benguela Province) to IURD, after they had previously been seized by the Comissão Instaladora da Igreja Universal do Reino de Deus Reformada em Angola.
Forecast: We are likely to see further violent clashes between supporters of IURD and the Comissão Instaladora da Igreja Universal do Reino de Deus Reformada em Angola outside disputed temples in the 3-month outlook. This is most likely at the temples in Luanda’s districts of Alvalade, Maculuso, Morro Bento, Patriota, Benfica, Cazenga and Viana, as well as the aforementioned temples in Lunda-Norte and Benguela Province. As a result, we are also highly likely to see increased diplomatic tensions between Angola and Brazil in the 3-month outlook.