Unemployment ‘immune’ to covid-19; Attorney General orders closure of seven IURD churches
Welcome to the Angola Economic and Political Risk Briefing for 18 August 2020
Welcome to the Angola Economic and Political Risk Briefing, Issue 22
brought to you by Zitamar News and Moxico Risk Consulting LLP.
Good morning. What effect is the covid-19 pandemic having on the Angolan economy? Not a lot, if you go by official unemployment statistics released last week, which show unemployment increasing by a mere 0.7% overall, and youth unemployment falling by seven percentage points. The statistics institute has tried to explain the apparent anomaly, but it remains hard if not impossible to draw any firm conclusions from the numbers.
A continued drop in the value of the Kwanza makes more sense, in the context of declining global oil demand — but help should be on the way with new disbursals from the IMF, and a hoped-for debt service agreement with China.
Angola’s dispute with the Brazilian Universal Church is getting worse, after the Attorney General ordered the closure of seven of its temples in Luanda. And after last week’s jailing of Zenú, there is a possibility of the exposure of further corruption around the Dos Santos family after the Portuguese hacker who blew the whistle on Isabel’s dodgy dealings has hinted he may have information about former President Jose Eduardo’s holdings in Portugal.
In this issue
Economy:
New law strengthens supervision of financial institutions (Angop)
Kwanza hits record lows in the ‘black market’ (Expansão)
Unemployment ‘immune’ to covid-19, official figures show (Jornal de Angola)
Politics:
Covid-19 rules confusion leads TAP to refuse passengers for Angola (Novo Jornal)
Attorney General orders closure of seven IURD churches in Luanda (Novo Jornal)
Portuguese hacker hints at former President dos Santos property holdings in Portugal (Expresso)
New law strengthens supervision of financial institutions (Angop)
Bank shareholders, directors and managers will be subject to tighter rules under the new Financial Institutions Law (LIF) which was discussed by the Council of Ministers last week and will be submitted to the National Assembly by September. The bill aims to introduce structural changes in the legal framework of the country's financial institutions and to align it with international practices, with a view to defending the rights and interests of clients, according to a press release issued at the end of the session.
The LIF regulates the creation, performance, supervision and resolution of financial institutions, both banking and non-banking. The revision of the current law, in force since September 2015, also aims to cement the legal regime for the dissolution and liquidation of banking institutions in a transparent manner. The document “is in line with good practices and advice from the IMF and World Bank to ensure that we have effective corrective action (i.e., escalated supervisory intervention as a bank deteriorates), and recovery planning and resolution frameworks for weak banks”, said the government. The proposed law also includes changes to the National Financial Stability Council (CNEF), created in 2015 to facilitate coordination between the different supervisory bodies, namely the central bank (BNA), insurance and pension sector regulator ARSEG, and capital markets regulator CMC, with a view to defining and implementing mechanisms to promote financial stability and prevent systemic crises in the Angolan financial system. Such crises include Angola’s loss of US dollar correspondent banking services between December 2015 and April 2016 due to compliance concerns relating to US anti-money laundering regulations (see Angola Briefing, 30 June 2020).
The new law expressly indicates the BNA as the authority responsible for implementing macro-prudential policy. For this purpose, the BNA will be responsible for identifying, monitoring and assessing the risks to the credibility of the financial system, as well as executing the policies, through the application of preventive measures and mitigation of the corresponding risks. The amendment to the LIF is one of the requirements made by the IMF under its financing programme for Angola and must be submitted to the National Assembly by September. The same should happen with the review of the central bank law that will give the BNA greater independence.
Forecast: These changes, aimed at reinforcing the transparency and the soundness of Angola’s financial system, are highly likely to help restore relations with correspondent banks, in particular in the US, which will likely reduce capital transfer risks in the twelve month outlook.
Kwanza hits record lows in the “black market” (Expansão)
The kwanza has lost 30.1% against the dollar and 26.9% against the euro since the start of the year in the informal market, worsening the differential vis-à-vis the official market where the Angolan currency lost ’only’ 17.3% and 24.8% in the same period, respectively.
Earlier this week the dollar was trading on the streets of Luanda at 800 Kz, against 571.4 Kz at the BNA, a 40% differential — 14 percentage points (pp) more than at the beginning of the year. The euro was worth 850 Kz in the informal market, against 674.3 Kz in the official market, a differential of 26.1%, 2.1 pp up on the start of the year. The fall can be put down to a reduction in the availability of foreign currency, caused by the drop in revenue from oil exports, the country's main source of foreign currency revenue — meaning demand for forex is outstripping supply. The availability of foreign currency is also being affected by the fact that Angola has not yet reached an agreement for debt restructuring its bilateral debt with China. The central bank has been reforming exchange and monetary policies to adapt the Angolan financial system to international standards and practices, in what is an important part of the IMF programme in the country. However, after two years, it has been very difficult to eliminate the gap between the unofficial and official markets. According to the IMF report on the third assessment of the programme, which will be belatedly reviewed by the IMF board later this month, the Angolan central bank should avoid trying to contain the currency's depreciation, even if it is undervalued. If Angola concludes the agreement with China and the IMF approves the third assessment, pressure on the Kz may decrease.
Forecast: Currency depreciation risks are high in the three month outlook, as the official value of the kwanza is likely to fall further as the BNA tries to comply with the IMF’s requirement for a floating rate regime — but its value would be supported by IMF approval for the next disbursal, which is highly likely this month. Value would also be supported by any agreement with China over a debt service suspension, which is likely within the next month.
Unemployment ‘immune’ to covid-19, official figures show (Jornal de Angola)
The unemployment rate in Angola rose just 0.7 percentage points to 32.7% in the second quarter of 2020, surprising analysts who expected a higher rise. Even more surprising was the decline in the unemployment rate for young people aged 15 to 24, which dropped by 7 percentage points to 50.8%.
The National Statistics Institute (INE) explains the ‘good’ performance of the Angolan labour market when compared to that of other countries by the fact that more people are being classified as ‘inactive’ rather than ‘unemployed’. According to the methodology of the International Labour Organization, individuals who have not actively sought paid or unpaid work during the 7 days prior to the interview are not considered unemployed. With the covid-19 pandemic, individuals who in the previous quarters were classified as unemployed, as well as individuals who lost their jobs due to the pandemic, can be classified as inactive in this quarter, says INE. In other words, due to covid-19, many unemployed individuals stayed at home and did not look for a job and were therefore classified as inactive. This phenomenon occurred mainly among young people between 15 and 24 years old, where the inactive population increased by 46.9% to 476,059 people. Overall, the inactive population grew 14.3% to 257,350 people — meaning that among the population over 24 years of age, inactive individuals actually decreased. This fact led analysts to question, once again, the consistency of INE statistics. The unemployment data was expected to be an indicator of how the Angolan economy is being affected by covid-19, but the figures released do not allow any conclusions to be drawn. Analysts will now wait for the Q2 national accounts to be released on 15 October.
Forecast: The INE’s flawed methodology will make it more difficult for policymakers to deal with the growing youth unemployment problem that Angola was already facing before the covid-19 pandemic — and increases uncertainty over protest risks in the six month outlook.
Covid-19 rules confusion leads TAP to refuse passengers for Angola (Novo Jornal)
On 14 August Angola’s Instituto Nacional da Aviação Civil (INAVIC) accused Portuguese carrier TAP of refusing to board passengers that were authorised to enter Angola on a number of flights. TAP issued an apology, claiming there was a misunderstanding as to the exact regulations on who can enter Angola during the ongoing State of Calamity. The current rules are that Angolan citizens and foreign residents may enter Angola, if they provide a negative covid-19 RT PCR test that is less than 72 hours old. They are also required to self-quarantine at home. However, non-residents may also enter Angola under certain conditions, although they then face institutional quarantine (or can pay for quarantine in a government-approved hotel). Non-residents can enter if assisting with humanitarian aid, to deal with a medical emergency, if on a technical stopover, as part of a diplomatic mission, as an authorised foreign specialist or for business travel, provided the trip is deemed necessary by the Angolan authorities. INAVIC threatened to sanction TAP if the airline continued to deny boarding to those permitted to fly to Angola.
The list of exceptions to Angola’s closed airspace is quite long, and the exact process for obtaining permits to enter as a non-resident is complicated, so TAP’s confusion is unsurprising. For those hoping to fly into Angola at this time, TAP remains one of the few airlines still connecting to Luanda, along with South African Airways and national carrier TAAG. The website of the Angolan Consulate in London is an excellent resource for those seeking more details on any of the different visa types that will get a non-resident into Angola during the covid-19 pandemic. Potential visitors should also note that travel from Luanda Province to Angola’s other seventeen provinces remains heavily restricted due to the sanitary cordon, and a travel permit is required to cross the provincial boundaries.
Forecast: TAP remains a vital economic link to the outside world, so INAVIC are unlikely to take any serious action against the airline, beyond potentially issuing a fine for repeat offences. Given the current fluid situation, entry requirements during the State of Calamity are highly likely to change in the three month outlook, leading to further boarding confusion with carriers such as TAP.
Attorney General orders closure of seven IURD churches in Luanda (Novo Jornal)
On 14 August the Attorney General ordered the closure of seven Brazilian-founded pentecostal churches of the Igreja Universal do Reino de Deus (IURD), namely in the Luanda neighbourhoods of Alvalade, Maculuso, Morro Bento, Patriota, Benfica, Cazenga and Viana. They have been seized pending an investigation into tax fraud and the illegal export of capital. One of these temples, in Morro Bento, was the scene of violent clashes on 24 June, when ousted Brazilian pastors tried to retake control of the property by force from the newly installed Angolan leadership. Since June, 300 Angolan IURD pastors have set up a breakaway organisation, called the Comissão Instaladora da Igreja Universal do Reino de Deus Reformada em Angola, and seized control of 30 temples in six provinces (Luanda, Benguela, Cuanza-Sul, Huambo, Malanje and Namibe).
This schism in IURD has been ongoing since November 2019, and has caused significant political tensions between Angola and Brazil. IURD makes up to $80 million per year in Angola and wields significant political influence in Brazil — with over 8,000 churches there and 2 million members — and played a significant role in the election of President Bolsonaro in October 2018. On 11 July President Bolsonaro wrote directly to President Lourenço to request that he intervene in the situation. As we noted in the Angola Briefing on 21 July 2020, it is very unlikely that President Lourenço’s intervention will lead to an outcome that IURD founder Edir Macedo (and by extension, President Bolsonaro) will be happy with.
Forecast: With the Attorney General now looking to freeze financial assets,we are highly likely to see increased diplomatic tensions between Angola and Brazil in the three month outlook, which could negatively impact Brazilian companies bidding for Angolan state contracts. We are also likely to see further violent clashes at the seven IURD properties in Luanda as the former Brazilian leadership dispute the control of the new Comissão Instaladora da Igreja Universal do Reino de Deus Reformada em Angola.
Portuguese hacker hints at former President dos Santos property holdings in Portugal (Expresso)
On 15 August Portuguese hacker Rui Pinto tweeted that he believed that former President José Eduardo dos Santos might be the owner of one of the largest walled properties in Europe — Torre Bela in Ribatejo — as well as around a dozen properties in the area. Pinto did not provide documentary evidence to support these claims. Isabel dos Santos responded quickly and angrily via her own Twitter account. Rui Pinto was responsible for the Football Leaks in September 2015 and the Luanda Leaks in January 2020, which implicated Isabel dos Santos in illicit financial conduct. Pinto has been under house arrest since 8 April and is in Portugal’s witness protection program, awaiting trial for his hacking which begins on 4 September.
Pinto’s leak of 715,000 charts, emails, contracts, bank statements, accounts and audit results led the International Consortium of Investigative Journalists to conclude that “Two decades of unscrupulous deals made Isabel dos Santos Africa’s wealthiest woman and left oil- and diamond-rich Angola one of the poorest countries on Earth...A web of more than 400 companies and subsidiaries in 41 countries are linked to Isabel dos Santos or her husband, Sindika Dokolo, including 94 in secrecy jurisdictions like Malta, Mauritius and Hong Kong.” Since then, Isabel has faced increased scrutiny from prosecutors in both Angola and Portugal, which has resulted in her assets being frozen (see Angola Briefing Friday 17 July). In this context, her angry Twitter response is unsurprising. However, Pinto’s claim is particularly significant because very little is known of former President José Eduardo dos Santos’s wealth, compared to that of his family members and closest allies. Pinto’s lawyer, William Bourdon, is a French human rights lawyer with extensive experience representing both Edward Snowden and Wikileaks’ Julian Assange. Bourdon has described Pinto as “a whistleblower...revealing to the world actions that go against international public interest.”
Forecast: Pinto’s trial this September is likely to lead to further damaging revelations against Isabel dos Santos and her family, which will increase the likelihood of further asset freezes in Q4 2020 and Q1 2021. This poses both reputational risks to those in business with Isabel dos Santos-linked entities, but also increases contract non-payment risks for contractors, as Isabel’s liquidity problems worsen.