IMF unlikely to lend to Angola if in arrears to China; BNA changes rules on expatriate salaries
Welcome to the Angola Economic and Political Risk Briefing for Friday, 7 August
Welcome to the Angola Economic and Political Risk Briefing, Issue 19
by Zitamar Consulting LLP, Moxico Risk Consulting LLP, and Mark Bohlund
Good morning. Angola has requested renewed technical assistance from the IMF to help it reduce its heavy load, but the disbursal of further financial support is likely to hinge on how much debt-relief the Chinese authorities will agree to, according to a new policy paper by the Fund’s former chief legal officer.
The Angolan central bank has required firms with expat employees to pay salaries into Angolan bank accounts instead of into offshore accounts, presenting serious logistical problems for employers and expatriate employees alike.
Finally, the increase in Covid-19 cases in Lunda Norte province is casting doubt on the effectiveness of the authorities’ contagion measures.
In this issue
Economy:
Angola complies with IMF agreement (Angop)
IMF unlikely to lend to Angola if in arrears to China, new analysis suggests (Sean Hagan, PIIE)
BP to focus on Angola and Egypt (Argus Media)
Politics:
BNA changes rules for expatriate salary transfers (Novo Jornal)
Tensions rise between Angola and Spain as another extradition request is rejected (VOA)
More evidence of ineffectiveness of Luanda sanitary cordon as 8 infected in Lunda Norte (VOA)
Angola complies with IMF agreement (Angop)
The disbursement of $700m that was due to be approved by the IMF on 30 July has been delayed until the second half of August to help with macroeconomic stabilisation and structural adjustments, according to official news agency Angop. On 1 August, Angola also requested that the IMF resume discussions to implement further technical assistance, according to the report.
The article cites the Memorandum of Understanding (MoU) that the Angolan government submitted to the IMF to outline the economic policy measures it aims to pursue, that aim to reduce public debt to 65% of GDP by 2023. At present, Angola’s public debt amounts to around $72bn, more than 100% of GDP and raising doubts about its sustainability. The Government expects public debt to fall to $66bn by the end of 2020 thanks to continued tax reform, including the introduction of Value Added Tax (VAT) in October 2019 and changes in the Labour Income Tax Code, now taxing higher income workers. It is an ambitious economic program that will challenge the credulity of the Fund, and could put further financial support in doubt (see following article).
IMF unlikely to lend to Angola if in arrears to China, new analysis suggests (Sean Hagan, PIIE)
The IMF’s role in sovereign debt restructurings will come under considerable stress if the covid-19 pandemic leads to a significant wave of debt distress, according to a new paper by Sean Hagan, the former general counsel at the IMF. Hagan identifies a number of issues including the assessment of sustainability in a macroeconomic environment of considerable uncertainty, the treatment of official bilateral creditors, and the potential benefit and challenges of introducing additional incentives designed to maximize creditor participation in any debt restructuring operation, as having increased relevance in current global economic circumstances.
The paper is highly relevant for assessing how the IMF will treat distressed sovereigns like Angola which are likely to need some form of debt restructuring over the next few years. For Angola the section on the treatment of lending into arrears to official bilateral creditors (LIOA) is particularly relevant in relation to its heavy borrowing from China. Hagan says that while the IMF’s new policy allows it to lend into official arrears when they arise from the unwillingness of an official creditor to provide relief consistent with the program assumptions, it may not do so if it judges that doing so “would have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases”. Hagan identifies two factors to provide guidance for applying this rather general exception: size and track record. With respect to size, the IMF would normally not be able to lend into arrears when the creditor accounts for a majority of the total financing contributions needed from official creditors during the period of the program (as would be for China in the case of Angola). Second, the IMF would “take into consideration” the creditor’s track record of providing contributions in past debt restructurings under Fund-supported programs — a good track record would make the IMF less willing to lend into the arrears of that creditor. This paragraph gives some guidance on the potential reasons for the delay in the IMF’s review of its EFF program with Angola and the associated loan disbursement (although Angola has not been declared to be in arrears to China yet). The paper also argues for a standstill on a sovereign’s private sector debt to be made a condition for the use of IMF resources as it would change incentives for both creditor and debtor and improve the chances of implementation. While implementation of the standstill in these circumstances may still adversely affect the country’s credit rating, the stigma may not be as great, because it is a condition for accessing IMF resources. The suggestion has merits but it is uncertain to what extent this kind of thinking will be supported by the IMF’s main shareholders, with the US in particular having historically opposed measures that impose losses on private sector creditors.
BP to focus on Angola and Egypt (Argus Media)
BP will focus more on its traditional heartlands in Africa like Egypt and Angola over the next decade according to a new energy-transition plan instead of investing heavily in new projects and associated infrastructure. The covid-19 pandemic has hit BP through travel restrictions and through the dramatic drops in demand and price, according to the company's Africa New Ventures Vice President Jonathan Evans. Nonetheless, BP has kept its African production mostly stable, particularly in Angola and Egypt, though lockdown restriction affected seismic surveys, exploration and project construction, meaning that some of BP's exploration projects in Africa had been delayed by 6-12 months, affecting dates for first oil and gas.
Evans’ comments are encouraging for Angola but will not entirely dispel rumours that BP may exit Angola as part of a revamp of its global strategy under new CEO Bernard Looney to focus on cleaner energy sources. The company has already announced the cancellation of some Angolan projects as part of a wider cost-saving exercise. BP’s oil output from Angola is likely to fall below 100,000bpd this year from 192,000bdd in 2017, but should rise again next year due to the start of output from the Platina and Zinia 2 fields although these are likely to be subject to delays.
BNA changes rules for expatriate salary transfers (Novo Jornal)
Beginning on 3 September, in order to pay expatriate workers to a foreign bank account, employers in Angola will need to open a bank account in the employee’s name at an Angolan bank, pay them into that account, then have the money transferred from the Angolan account to a foreign account. Employers are no longer allowed to pay expatriates working in Angola directly to their offshore accounts. BNA noted that this change would allow better monitoring to ensure those working in Angola were doing so while in possession of the correct visa.
This suggested change will present serious logistical problems for employers and expatriate employees alike. Encouraging greater use of the Angolan banking system is a key part of the Angolan government’s wider banking sector reforms and is supported by the IMF. It is also intended to prevent illegal profit remittances by companies disguised as salary payments. A similar initiative was launched in Angola’s oil industry in January 2012 with Law No. 2/12, which forced Sonangol and its foreign and national associates to process all payments through Angolan bank accounts. The current slow speed of obtaining work permits, combined with the ongoing informal restrictions on foreign exchange deposit withdrawals and the devaluation of the Kwanza, mean that many expatriate employees will face seriously increased capital transfer risks and contract non-payment risks. It is already difficult and bureaucratic to withdraw USD or EUR from Angolan banks, or to organize USD (and to a lesser extent EUR) wire transfers from Angolan banks to banks abroad. Expatriate employers in Luanda have responded with a number of informal measures, such as paying USD denominated contracts in EUR or incurring arrears that are then paid by non-Angolan domiciled entities. With only one month’s notice, it is highly unlikely that the Angolan banking system will be ready to deal with the increase in foreign exchange deposit withdrawal requests this rule will generate. Employees are therefore likely to experience lengthy salary payment delays unless their employers implement alternative (and sometimes illegal) payment arrangements.
Tensions rise between Angola and Spain as another extradition request is rejected (VOA)
Angola’s Attorney General has refused an extradition request from Spanish authorities for Portuguese-Angolan citizen Guilherme de Oliveira Taveira Pinto. Spain accuses Pinto of involvement in corruption around a €152.9 million sale of material to Angolan police via Spanish company Defexm and also around the construction of a $533 million supply market in Luanda by Spanish company Mercasa. The Attorney General refused the request as Pinto is an Angolan citizen, and also because they believe his crimes were covered by an amnesty declared by former President José Eduardo dos Santos in 2015.
The Attorney General is correct that the Angolan constitution does not permit the extradition of an Angolan citizen, but Pinto could be tried for his alleged crimes in Angola if Spanish prosecutors were willing to cooperate with their Angolan counterparts. Unfortunately, tensions between the Spanish and Angolan authorities have been rising in recent weeks. This latest incident follows a 29 July decision by Spain not to extradite Angolan citizen Carlos Panzo to Angola on charges of money laundering. These charges are linked to Brazilian construction firm Odebrecht’s activities in Angola while Panzo was Secretary of Economic Affairs to President dos Santos. These ongoing extradition disputes could prove a thorn in bilateral ties between Spain and Angola, which if escalated would likely impact on the regulatory burden and policy instability faced by Spanish businesses and NGOs operating in Angola.
More evidence of ineffectiveness of Luanda sanitary cordon as 8 infected in Lunda Norte (VOA)
At least eight people have been infected with covid-19 in Lunda Norte Province after a Cape Verdean citizen escaped the Luanda Province sanitary cordon and travelled to his home in Cuango. Another forty people who had contact with the man are awaiting their covid-19 test results from Luanda.
Covid-19 has already spread to 11 of Angola’s 18 provinces (see Angola Economic and Political Risk Briefing for 4 August 2020) and there are growing concerns about the ineffective nature of the Luanda sanitary cordon. Contacts note that it is possible to purchase a negative covid-19 test in Luanda from corrupt health officials, and that these certificates are being used by citizens (especially commercial truck drivers) to pass through the sanitary cordon. The movement of these trucks and other potentially infected citizens around the country will likely contribute to the pandemic spreading to the remaining seven provinces of Bengo, Benguela, Cuando Cubango, Huambo, Lunda Sul, Malanje and Namibe in the three month outlook.