Kwanza hits record lows in informal market; President Lourenço ‘weakened’ by daughter’s job at securities exchange
Welcome to the Angola Economic and Political Risk Briefing for 25 August 2020
Welcome to the Angola Economic and Political Risk Briefing, Issue 24
brought to you by Zitamar Newsand Moxico Risk Consulting LLP
Good morning. Uncertainty in the domestic and world economy is increasing demand for hard currency in Angola, and restrictions on who can buy it are increasing the use of the black market. The dollar and the euro have hit new record highs in the informal market this week — and the gap to the official rate is getting wider.
The IMF continues to make Angola wait for the next disbursal of hard currency, with the status of its debts to China still apparently a sticking point. Nevertheless, relations between Angola and the Fund are good, and a positive resolution remains likely.
The hard-hit tourism sector is disappointed at the news it will not get a government bail out to help it cover pandemic-related losses — despite the government apparently recognising the sector’s importance to diversifying the economy.
And the scrap over the Brazilian Universal Church got ugly over the last week, with serious violence breaking out at a church taken over by breakaway clergy in the city of Lubango.
In this issue
Economy:
Dollar and euro break records in the informal market (Angola Forex)
Angola IMF review depends on China, says Eurasia (Novo Jornal)
President Lourenço ‘weakened’ by daughter’s job at securities exchange (Jornal de Negócios, DW)
Politics:
No bailout for Angolan tourism sector (Expansão)
Serious violence in IURD temple clash in Lubango (Jornal de Angola)
Further delays for ProPriv as companies fail to submit accounts (Valor Econômico)
Dollar and euro break records in the informal market (Angola Forex)
The dollar and the euro reached new record levels in the informal market on Monday, with the dollar trading at Kz 810 and the euro at Kz 910 according to the specialized website Angola Forex. At the National Bank of Angola, the dollar and euro were worth Kz 583.55 and Kz 691.39, respectively.
With these quotations, the gap between the informal and the official market rates increased to almost 39%, the widest since September 2019. When the foreign exchange market was first liberalised, the BNA set a target of 20% for the differential between the informal and official exchange rate. The gap narrowed to 11% in March 2020, but since then has continued to rise, driven by increasing demand from people who want to seek safety in hard currencies from the falling kwanza, but who are unable to buy hard currency from commercial banks.
Forecast: As long as limits on the purchase of foreign currency remain in place, those who do not fulfill the conditions required by the BNA will always have to go to the informal market. The use of the informal market tends to increase in times of inflation and uncertainty, which is currently being aggravated by covid-19. Therefore the exchange rate of the kwanza is set to remain volatile for the foreseeable future.
Angola IMF review depends on China, says Eurasia (Novo Jornal)
The board of directors of International Monetary Fund (IMF) has postponed the $547 million disbursement to Angola scheduled for end of July in order to evaluate the country's debt restructuring with China, said consultancy firm Eurasia — but the request to expand the programme by $740 million should ultimately be approved as it is still “within the allocation of Angola's special drawing rights in the Fund,” and because Angola under President João Lourenço has good relations with the Fund.
According to a leaked version of the third review, seen by Angolan newspaper Expansão, IMF staff support Angola’s requests to increase access to funds and to rephrase some requirements because in the staff’s judgement, Luanda has undertaken credible steps towards debt restructuring with two large creditors, and is seeking specific and credible assurance on debt relief from a third official creditor. The staff review didn’t name the creditors, but we understand that two are the China Development Bank and the Industrial and Commercial Bank of China, and the third one is the Chinese state itself, including Eximbank. For more analysis of how the China debt talks affect Angola’s relationship with the IMF, see the Angola Briefing for 7 August 2020.
Forecast: We expect the IMF to approve the third review, and Angola’s request for a larger disbursal, in September.
President Lourenço ‘weakened’ by daughter’s job at securities exchange (Jornal de Negócios, DW)
The appointment of the daughter of the President, Cristina Lourenço, to the board of Angola’s securities exchange, BODIVA, is causing controversy after the apparent nepotism was pointed out in Portuguese newspaper Jornal de Negocios last week — despite the appointment having been made in March. Activist and journalist Rafael Marques told DW the controversy was an “avoidable and correctable distraction”. The appointment was not made by the President, and Cristina Lourenço is a qualified economist and civil servant, but nevertheless “from the point of view of public opinion,” the best thing would be for her to “resign from the post to save the image of her father,” Marques said.
The controversy is bringing back bad memories of the dos Santos clan, when the President’s daughter Isabel was made head of Sonangol, and his son, José Filomeno, made head of the sovereign wealth fund. This case is qualitatively different but, as Marques points out, it’s an unnecessary reputational risk for President João Lourenço.
Forecast: President Lourenço’s reputation has been affected by this affair, but if his daughter does resign, of which there is now an even chance, it will be saved and perhaps even enhanced.
Chart of the Day
No bailout for Angolan tourism sector (Expansão)
Angola’s tax authority has confirmed that there will be no tax forgiveness for tourism operators in the country, despite the negative impacts of covid-19 on the sector. Those companies facing financial difficulty have been advised to contact the Administração Geral Tributária (AGT) for a deferment of tax payments, but cancellation of tax bills has been ruled out. Tourism operators are facing difficulties due to the closure of Angola’s international airspace, combined with the Luanda Sanitary Cordon which is preventing much domestic tourism.
The justification from the AGT for this lack of support appears to be twofold: that Angola’s tourism sector made up only around 1% of GBP in 2018, so it is not a priority, and that many operators continue to be open, so they cannot be in dire financial straits. Alleged internal political tensions at the newly merged Ministry of Culture, Tourism and Environment also appear to be getting in the way of a coordinated response. The Association of Angolan Hotels and Resorts noted that covid-19 was putting over 150,000 jobs at risk in the wider hospitality industry, and has been arguing for a support package for Angola’s tourism sector since April (see Angola Briefing for 11 August 2020). This lack of support for Angola’s tourism sector is surprising given that it was identified as one of five strategic sectors to drive economic diversification in the government’s Visão 2025 Long Term Development Plan.
Forecast: We are highly likely to see delays in the implementation of ongoing tourism projects in the twelve month outlook, such as the Kavango–Zambezi Transfrontier Conservation Area. We are also highly likely to see increased unemployment (and associated protest risks) as well as increased contract non-payment risks for hospitality industry suppliers in the six month outlook, especially in tourism hubs such as Luanda and Benguela provinces.
Serious violence in IURD temple clash in Lubango (Jornal de Angola)
One person was injured and property was vandalised on 22 August when the IURD temple on Rua Deolinda Rodrigues in the city of Lubango was stormed by protestors in support of the original Brazilian church hierarchy. Personnel from Huíla’s National Police Provincial Command had to intervene to break up the protestors. They were demanding the closure of the temple until the reformers were removed from the church hierarchy.
These protestors were against the Angolan breakaway organisation, called the Comissão Instaladora da Igreja Universal do Reino de Deus Reformada em Angola, which seized control of 30 IURD temples across six provinces back in June, leading to growing political tensions between Brazil and Angola (see Angola Briefing 21 July 2020).
Forecast: We are highly likely to see further violent clashes between IURD and supporters of the Angolan reformist group at IURD temples across the country in the three month outlook. Highest risk properties include the seven IURD properties in Luanda that were recently seized by Angola’s Attorney General (Alvalade, Maculuso, Morro Bento, Patriota, Benfica, Cazenga and Viana - see Angola Briefing August 18) as well as the IURD temples in Benguela, Cuanza-Sul, Huambo, Huíla, Malanje and Namibe that are now under control of the breakaway organization.
Further delays for ProPriv as companies fail to submit accounts (Valor Econômico)
Only 56 of the 80 state-owned companies overseen by the Instituto de Gestão de Activos e Participações do Estado (IGAPE) have submitted accounts on time this year — and of those who did submit accounts, some were were missing key documents such as external auditor’s reports. In a statement published on its website, IGAPE blamed the covid-19 pandemic for the postponement of the deadline for submitting these documents, although they still hope to release an aggregate report on the 80 companies in the first week of September.
While the covid-19 pandemic has certainly caused complications across all of Angola’s business sectors, it will be of concern to potential investors that these companies — some of which are due to be privatised under the ProPriv programme — have been unable to provide externally audited accounts, which makes company valuation difficult. Overall, ProPriv is looking less and less attractive to investors given the current financial climate, the reputational concerns around politically exposed persons (PEPs) involved in many of these companies and the lack of clarity as to how the Angolan government will use their new ‘Golden Share’ initiative in companies they deem strategically important (see Angola Briefing 4 August 2020). A full list of all the state entities being privatized as part of ProPriv can be found here, although many of the starting years are now out of date — for example Sonangol has delayed its 30% IPO from 2022 to 2027, after it was branded ‘hopelessly optimistic’ by Africa analysts earlier this year.
Forecast: We are likely to see a number of companies miss the new September deadline, and for some audited accounts to not be available until Q4 2020. It is also likely that some of the ProPriv companies may be removed from the privatization drive entirely, or have the shares on offer reduced, as they are offered as collateral to Chinese state creditors, in order to incentivise a compromise with regards to their treatment of Angola’s China Development Bank loans (see Angola Briefing 31 July 2020).