Lourenço's anti-corruption drive claims new victims in Angola's armed forces; Government considers PPPs to support infrastructure projects
Welcome to the Angola Economic and Political Risk Briefing, Issue 99
Welcome to the Angola Economic and Political Risk Briefing, Issue 99
brought to you by Zitamar News and Moxico Risk Consulting LLP, with Carlos Rosado de Carvalho and Nick Branson
Hello. The Attorney General’s (AG) office announced on Monday the seizure of 19 suitcases filled with cash and other valuables from members of Angola’s armed forces assigned to Presidential security — the latest aggressive escalation in President Lourenço's anti-corruption drive. But the central bank has had to take a pragmatic approach to problematic individuals among the shareholders of the former Banco Espírito Santo Angola, relying on politically-exposed persons to participate in a bail-in that will keep the bank afloat.
The government is hoping that private investors can be enticed to build infrastructure projects under PPP contracts — but the guarantees the government will have to provide will still put a strain on the public finances without improving Angola’s growth prospects.
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In this issue
Economy:
Government considers PPPs to support infrastructure projects (Ver Angola)
Extended Banco Económico bail-in will have to be concluded by September (Expansão)
EU pursues new investment facilitation agreement with Angola (Guardião)
End of recession nears but impoverishment continues (Lusa)
Political Risk & Security:
Lourenço's anti-corruption drive claims new victims in Angola's armed forces (Expansão)
Potential nurses strike threatens hospital chaos in June (DW)
Government considers PPPs to support infrastructure projects (Ver Angola)
Angola is looking to Public-Private Partnerships (PPPs) to finance infrastructure development, and has been approached by construction companies willing to undertake work with the backing of project bonds, according to finance and treasury minister Otoniel dos Santos. The state has identified 41 projects suitable for PPPs, including 29 in the infrastructure and transport sector, but the government is open to other proposals from investors, economy minister Mário Caetano João told reporters.
While some foreign investors will no doubt welcome the Angolan authorities’ flexibility and willingness to explore innovative financing solutions, not all of the projects selected for PPPs will be bankable, exposing the state to new liabilities. Political considerations are increasingly clouding economic policy-making as the ruling MPLA prepares for elections in August 2022, as was evident when the government included some questionable new roads, bridges and railways in its list of priority projects for PPPs last year (see Angola Briefing 2 October). Indications that the Angolan state is now considering guarantees for project bonds raise our fears that the MPLA is planning to push ahead with boondoggle infrastructure upgrades ahead of the vote, adding to the public balance sheet without boosting economic growth.
FORECAST: State guarantees for white elephant infrastructure projects will add to Angola’s public and publicly-guaranteed debt — a key metric in the IMF’s debt sustainability analysis. This will undermine any hope the government may have of rolling over its staff programme when this expires at the end of the year, constraining access to concessional finance in 2022. This will heighten debt sustainability risks just as rescheduled loans from top creditor China Development Bank fall due (see Angola Briefing 22 January), driving up sovereign default risks in the 18-month outlook.
Extended Banco Económico bail-in will have to be concluded by September (Expansão)
The bail-in of systemic Banco Económico (BE) — which will involve the bank’s biggest clients turning their deposits into shares — will now involve AOA500bn ($770m) worth of deposits from the bank's 20 biggest depositors instead of AOA300bn ($460m) from the ten biggest depositors, according to Expansão which publishes the list of the ten biggest depositors today, including various Politically Exposed Persons (PEPs). The operation will have to be concluded by September, as this is the new deadline agreed between the IMF and the central bank, which this week saw its powers on bank resolutions strengthened with the publication of the new law on financial institutions.
Most of the 25 commercial banks in the Angolan financial system have PEPs as shareholders directly or indirectly through companies they control, including BE. The BE bail-in is the first time that the central bank, the BNA, has attempted to limit their influence. The shareholders of Banco Espírito Santo Angola (BESA), as BE was formerly known, included former vice president and former Sonangol chairman Manuel Vicente, former president Dos Santos’ head of security General Kopelipa, Leopoldino Fragoso do Nascimento “General Dino”, president Dos Santos’ former communications chief, and António Van-Dúnem, who was secretary of the Council of Ministers at the end of the 1990s. Sonangol will reduce its stake from current 70.4% to 20% after the recapitalization, but will remain the biggest single shareholder, followed by Van-Dúnem. General Dino is the fourth largest depositor and Ana Paula Godinho, one of the 'stars' of the Angolan legal world, is sixth, followed by António Pitra Neto, former vice president of the ruling party and former minister of social security, who is currently being investigated in a case involving the National Institute of Social Security. Álvaro Sobrinho, Executive Chairman of BESA between 2002 and 2013, is the ninth biggest depositor through Alva Ventures, a company he controls. BNA said that the bank observed compliance rules when it accepted the deposits that would turn into shares,otherwise the bail-in would be a way to legitimise money laundering.
FORECAST: While all PEPs should have been forced out during the restructure in order to comply with international banking standards, it would have been impossible to finance the bail-in without them. BNA’s compromise solution is to involve these people, but to reduce their shareholdings and therefore control over the new bank. Although the bail-in should reduce the pressure on public accounts in the 3-year outlook, a continued strong presence of PEPs in the banking sector could also harm the reputation of the Angolan financial system, hampering the return of international correspondent banks in the 12-month outlook.
EU pursues new investment facilitation agreement with Angola (Guardião)
The Council of the European Union resolved to begin negotiating an Investment Facilitation Agreement (IFA) with the Angolan government. The deal will be the first of its kind negotiated by the European Union, responding to the World Trade Organisation’s growing emphasis on Investment Facilitation for Development. The IFA would improve Angola’s investment climate and facilitate foreign direct investment by promoting the adoption of modern and simplified rules, measures and procedures, thereby boosting job creation, economic diversification and growth.
The European Council’s decision to pursue an IFA with Angola represents a shift from the Commission’s earlier calls for Angola to join the EU-SADC Economic Partnership Agreement (EPA) “as soon as possible”. As we predicted at the time, Angola would demand a broader investment pact before signing the EPA (see Angola Briefing 11 September). This was likely the message President Lourenço conveyed to the European Council president Charles Michel during their meeting in Luanda last month, heralding the bloc’s announcement that it will prioritise an IFA, albeit likely in the hope that EPA accession negotiations would follow.
The challenge for Angola is that the EU’s amended negotiating directives for EPAs rest on the principles of non-discrimination, openness, transparency and stability, pointing to politically challenging reforms. The EU is likely to demand improvements in transparency and predictability at public institutions, measures to protect investors from sudden changes to laws and regulations, and commitments to expedite permit approval and award processes. While such steps would undoubtedly improve Angola’s attractiveness to foreign investors, the ruling MPLA is likely to resist reforms that encroach on access to finance — which hinges on preferential treatment and opaque decision-making — ahead of elections in August 2022.
FORECAST: EU-Angola negotiations are likely to stall until Q3 2022, but thereafter the IFA will encourage reforms that strengthen the business landscape, attracting more credible and deep-pocketed foreign investors to Angola. The government will likely seek to complete the IFA process by February 2024, when Angola is scheduled to graduate from the ranks of Least Developed Countries, encouraging it to begin EU-SADC EPA accession talks in order to avoid EU tariffs. In the meantime, the government will be able to protect nascent industries from external competition, strengthening economic diversification and reducing recession risks over the 3-year outlook.
End of recession nears but impoverishment continues (Lusa)
The Angolan economy will grow 1.7% in 2021, according to the eight economists regularly consulted by Bloomberg, who revised their previous forecast upwards by 1.3%. While the respondents are more optimistic for 2021, the opposite is true for 2022, with growth revised down to 2.3% against the previous 2.6%.
After five years it appears that Angola will come out of recession in 2022. The government and the main multilateral organizations all point to positive growth this year. The most optimistic is the African Development Bank with a growth rate of 3.1% and the most pessimistic is the International Monetary Fund with 0.4%. The World Bank projects 0.9%, while the Angolan government predicts 1.1%. The Economist Intelligence Unit is still not convinced, however, forecasting a 0.6% drop in GDP. The revival of the Angolan economy has mainly been driven by an increase in the price of oil, as parts of the world recover from the covid-19 pandemic. However, Angola is not in a position to take full advantage of this as production continues to decline. The increase in spending on the eve of the elections is also contributing to a greater optimism among analysts.
FORECAST: While the headlines look positive, the reality is less so. First, high oil prices and pre-election spending are not sustainable. Second, most forecasts point to growth rates below or equal to the estimated rate of 3.1%, which is around a million extra people, which means impoverishment will continue in 2021 for the majority of Angolans, aggravating the risks of social instability in the 12-month outlook.
Chart of the Day
Lourenço's anti-corruption drive claims new victims in Angola's armed forces (Expansão)
On 24 May the Attorney General’s (AG) office announced the seizure of 19 suitcases filled with cash and other valuables from members of the Forças Armadas Angolanas (FAA) assigned to the Casa de Segurança (Presidential Security), stored in Imbondeiro condominium in Luanda Sul. The suitcases contained $10m, €700,000, AOA800m Kz. The AG also seized 40 high-end vehicles and 45 properties. The seizures came on the same day that President Lourenço announced the dismissal of a number of high-level members of the Casa de Segurança, including five Lieutenant-Generals and one Brigadier.
The valuables were retrieved from a home belonging to Major Pedro Lussaty, a mid-ranking member of the FAA. Lussaty was brought to the attention of the Angolan authorities following a tip-off from Spanish investigators over a suspicious property transaction in Spain involving General Bento dos Santos “Kangamba”. Kangamba was a very senior member of the former dos Santos government, even marrying dos Santos’s niece, however, his fortunes have changed rapidly under President Lourenço. He was arrested on 27 February while trying to enter Namibia from Angola, and is currently subject to a travel ban from the AG and under investigation for fraud. Major Pedro Lussaty was also arrested earlier in the week while attempting to leave Luanda with two suitcases full of $10 m.
These dismissals mark the latest aggressive escalation in President Lourenço's anti-corruption drive. The most senior dismissal was Lieutenant-General Ernesto Guerra Pires, the actual head of the Casa de Segurança. Under former president dos Santos the Casa de Segurança, headed by General Manuel Hélder Vieira Dias “Kopelipa”, was seen as one of the epicenters of grand corruption in Angola. However, Lourenço promoted one of his key allies, Pedro Sebastião, to head up the Casa de Segurança on 30 September 2017, and since then one of Sebastião’s key mandates has been to reduce the influence of dos Santos and Kopelipa-aligned members of the FAA. However, rumours are circulating in Angolan media that this investigation by the AG might even force Sebastião to resign, given the magnitude of the ongoing fraud discovered within the Casa de Segurança.
FORECAST: This latest investigation raises corruption, expropriation and contract cancellation risks for entities involved with those members of the FAA under investigation in the 6-month outlook. Given the junior status of Lussaty, it is also likely that other, more senior members of the FAA will be found by the AG to have been involved in the fraud, raising government instability risks across the same timeframe as President Lourenço seeks to clear out his opponents from the MPLA before the party’s 8th Ordinary Congress in December 2020. This ongoing investigation is also highly likely to have a negative impact on Angola’s FATF assessment in November, given the role of the BNA in failing to block these large illicit transfers of cash (see Angola Briefing 14 May).
Potential nurses strike threatens hospital chaos in June (DW)
The Sindicato dos Enfermeiros de Angola is threatening to go on strike during night shifts from 14 June onwards due to a lack of security at work, as well as poor salaries and working conditions. Their last round of negotiations with the Ministry of Health ended on 25 May with little progress. Their next meeting is scheduled for June 14, and the Secretary General of the Union, Afonso Kileba, noted that they will abandon the dialogue if the government representatives do not provide concrete proposals for improving the situation.
These complaints are not new. According to the WHO, Angola’s healthcare system is under-resourced, with more than 50% of the population not having access to health services. Health spending as a percentage of GDP declined in the first year that President Lourenço was in power (2017-18), and an economic crisis combined with the ongoing covid-19 pandemic has pushed the system to breaking point. At the beginning of the covid-19 crisis in Angola in May 2020, there were only 110 Intensive Care Units beds and 220 ventilators for the whole country.
FORECAST: The Ministry of Health is unlikely to be able to meet the demands of the Sindicato dos Enfermeiros de Angola by 14 June, raising labour strike risks in the 1-month outlook. This in turn will raise Death & Injury risks for those relying on public healthcare facilities for emergency medical treatment throughout the period of the strike.