Zenú gets five years in jail; New central bank law to ensure independence
Welcome to the Angola Economic and Political Risk Briefing for 14 August 2020
Welcome to the Angola Economic and Political Risk Briefing, Issue 21
brought to you by Zitamar News and Moxico Risk Consulting LLP
Good afternoon. As this edition was going to (virtual) press, news broke that Jose Filomeno dos Santos, the son of former President Jose Eduardo dos Santos, was sentenced to five years in prison after being found guilty of embezzlement and fraud in his role as chairman of Angola’s sovereign wealth fund. The guilty verdict and custodial sentence were predicted in our analysis of the implications of the case, below.
Elsewhere, investor confidence should be improved by a new law giving greater independence to the Angolan central bank, and by new powers for parliament to monitor public spending — but might take a knock with the approval of a law to give the state ‘golden shares’ in majority-privatised companies.
Another major legislative development this week is a move to allow Angola to deploy troops abroad — which could mean Angola can provide support to Mozambique in its fight against an insurgency in its northern province of Cabo Delgado. The regional body, SADC, has called for support for Mozambique — but we still see a deployment as unlikely in the immediate term.
In this issue
Economy:
Public Accounts Committee to help parliament monitor state spending (Angop)
New central bank law to ensure independence (Mercado)
Golden Shares approved by National Assembly (Angop)
Politics:
BNA corruption trial verdict expected today (Jornal de Angola)
Parliament passes draft law on military personnel deployment in external missions(Angop)
Exit of Isabel dos Santos from Unitel creates concerns for employees(VOA)
MPLA admits municipal elections can’t happen in 2020 (VOA)
Public Accounts Committee to help parliament monitor state spending (Angop)
Angola’s parliament can create a Public Accounts Committee to monitor public finances, opposition deputy Manuel Fernandes of coalition CASA-CE said, following approval of the Public Finance Sustainability Law on Tuesday, 11 August. The new law — known as the LSFP by its Portuguese initials — establishes that fiscal policy must aim to consistently and systematically reduce the ratio of public debt to GDP to below 60%, versus 113% in 2019, and compels the government to reduce the primary non-oil deficit to a maximum of 5% of GDP by 2025, compared to the current 8.5%.
In order to achieve these objectives, the Government will have to submit various documents and reports to the National Assembly, namely: Fiscal Strategy Document, Medium Term Debt Strategy, Medium Term Fiscal Framework, Medium Term Expenditure Framework, Quarterly Report of Budget Execution and Annual Report of Budget Execution. The discussion of these documents and reports will require members of parliament to have expertise in the field of economics in general and public finances in particular, which they don't have, as we see in the successive annual debates on general state budgets. A Public Accounts Committee could bridge this gap by providing members of parliament with the technical knowledge to analyse the reports and documents that will be submitted to them by the government. However, there is always a risk that the committee becomes instrumentalized by the MPLA, as happens with many institutions that are supposed to be independent, but that end up following the guidelines of the Party-State that has governed Angola since independence. Although positive in the context of strengthening budgetary management and control, the approval of the LSFP and the creation of the Public Accounts Committee may not be sufficient to actually bring government spending in line. Angola actually already has legislation that could have prevented the collapse of public finances, such as the Law on the Issuance of Public Debt, which requires a limit on indebtedness to be written in the Budget Law, but which has never been used.
New central bank law to ensure independence (Mercado)
Angola’s central bank will win greater independence under the new Law of the National Bank of Angola (BNA), which will be presented for appreciation by the council of ministers before being submitted to the National Assembly by September, in a move agreed with the IMF, according to a draft revealed today by weekly newspaper Mercado. The proposed law would mean members of the Board of Directors can only be fired “in exceptional situations, based on a justified reason”. The current law allows the President to fire the governor, his vice-presidents and directors just for lack of confidence.
The amendment to the BNA Law is one of the requirements made by the IMF under its financing programme for Angola. The IMF’s view is that it is necessary to provide the central bank with greater independence from the executive branch. The proposed law also creates requirements for the appointment of the governor, who will have to be a suitable person, with management capacity, and with 10 years of experience and a postgraduate degree in economics, finance, banking, law, accounting or management. The proposal also expands the central bank's board to up to 15 members, including executive and non-executive directors. The term of the board in office increases from five to six years, and can only be renewed once, contrary to the current law that allows successive renewals of terms of five years. The governor's term of office is extended to 6 years, so it’s no longer in sync with the five-year term of the President of the Republic.
The changes should strengthen the BNA’s ability to fulfill its mandate of price stability to preserve the value of the national currency and the stability of the national financial system. Since the start of the IMF program in Angola, the central bank has been reforming exchange and monetary policies to adapt the Angolan financial system to international standards and practices — including adopting a floating exchange rate, that aims to stabilize Net International Reserves and improve relations with international financial systems. With the amendment to the BNA Law and also to the Law of the Financial System, which is underway, the country is taking another important step to bring its financial system into line with international standards.
Golden Shares approved by National Assembly (Angop)
The National Assembly approved the introduction of 'golden shares' (See Angola Briefing, 4 August 2020) into the State Owned Companies Law, allowing the State shareholder to veto decisions (regardless of the share capital held) in companies majority held by private entities.
The entry of this mechanism into law comes at a time when the government intends to privatize a substantial part of its public companies, under the so-called ProPriv program. The 'golden shares' will be created in an exceptional way in companies in which the State holds a minority stake, and only in sectors of strategic public interest or where the public interest otherwise justifies the creation of these shares. By ensuring that the State has the power to make decisions over these companies, the measure may discourage foreign investment, which could in turn jeopardize budgetary targets in terms of revenue collection.
BNA corruption trial verdict expected today (Jornal de Angola)
The final verdict in the “$500 million case” will be delivered in Luanda today after a nine-month trial centred on who was responsible for an alleged irregular transfer of $500 million from the Angolan central bank to the account of a foreign private company based in London, with the aim of setting up a strategic investment fund for projects in Angola. The accused include Valter Filipe da Silva, former governor of the Banco Nacional de Angola (BNA), and António Manuel, former director of the BNA's Reserve Management Department. They face charges of fraud, embezzlement and money laundering. José Filomeno “Zenú” dos Santos, son of former President dos Santos, and Jorge Gaudens Pontes Sebastião are charged with fraud, influence peddling and money laundering.
NOTE: As this edition was going to press, the news broke that Zenú had been sentenced to five years in prison
Zenú was appointed chairman of Angola’s $5bn sovereign wealth fund in June 2013, a move that many critics claimed was a clear example of nepotism. This trial relates to Zenú’s alleged mismanagement of the funds under his control up until he was removed in January 2018. The developments in this trial have made front-page news in Angola since Zenu was first detained on 24 September 2018. The former president’s son represents one of the most high-profile potential victims of President Lourenço’s anti-corruption drive, and the trial has provided multiple noteworthy pieces of testimony. On 11 December 2019 former finance minister Archer Mangueira testified that he had personally warned President dos Santos of the risk of fraud around the transaction, but that his warnings were ignored. On 19 December 2019 Valter Filipe da Silva accused both Mangueira and current BNA Governor José de Lima Massano of making false statements to the Angolan Attorney-General relating to the $500m loan. This testimony gave former President Dos Santos the unenviable choice of either claiming responsibility for ordering the transfer, thus exonerating his son but implicating himself, or claiming he was unaware of the likely fraudulent transfer, which would likely condemn his son to prison. In the end Dos Santos refused to testify in the case, choosing to remain in Barcelona, and instead delivered a letter to the court in early February 2020. In this letter he claimed responsibility for ordering the transfers, but denied any wrongdoing. However, the authenticity of this letter has been questioned by the prosecution, who recently claimed it should not be admissible as evidence.
Zenú has found himself in a very weak position throughout this process in terms of negotiating a deal. In March 2019, a settlement was reached between Jean-Claude Bastos, the Swiss-Angolan founder of Quantum Global, and the Angolan Sovereign Wealth Fund, meaning that the Angolan state has now recovered most of the money they believe was embezzled under Zenú’s tenure, leaving Zenú with no leverage. The main aim of this trial is to send a strong message to international investors on how Angola is changing in terms of corruption, in the hope of encouraging interest in the ongoing ProPriv privatisation program. President Lourenço also wishes to implicate his predecessor, thereby threatening Dos Santos with prosecution after his immunity expires in 2024. This gives Lourenço leverage over Dos Santos and his remaining supporters within the MPLA in the run-up to the next legislative elections. We are thus likely to see Zenú receive a significant custodial sentence at the end of this trial.
Parliament passes draft law on military personnel deployment in external missions (Angop)
On 13 August Angola’s National Assembly unanimously approved a proposed law on sending Angolan military and paramilitary contingents abroad. This law covers peacekeeping operations and humanitarian aid as well as missions resulting from international commitments undertaken by the Angolan State. The National Assembly would be required to approve any deployment, upon receiving a request from the President.
This is a crucial development in the context of Angola’s potential involvement in the ongoing Cabo Delgado insurgency in Mozambique. The SADC 40th Ordinary Summit of Heads of State is currently underway, with Mozambique taking over the rotating presidency. The summit’s security organs will likely discuss potential SADC contributions to combating the Cabo Delgado insurgency. The Angolan government has been highly wary of committing troops to bilateral military interventions since their negative experiences on their MISSANG-GB mission in Guinea-Bissau in 2011-12, which ended in a humiliating Angolan withdrawal. There were also legal barriers in place making such interventions difficult. This latest law removes one of those legal barriers. Combined with President Lourenço’s extensive military background relative to his predecessor, this increases the likelihood of an Angolan military intervention in Mozambique. President Lourenço will be closely monitoring President Ramaphosa’s contributions during SADC security discussions, as Angola and South Africa are the only two countries in the SADC with the military capacity and capabilities to have a significant impact on Mozambique’s counterinsurgency efforts, although there is no evidence that either has yet put boots on the ground. South Africa is also a regional rival of Angola’s, which may push Lourenço into supporting a broader-based coalition of troops intervening, to avoid South Africa intervening alone and increasing their influence over Angola’s only Lusophone SADC ally. However, considering the covid-19 context, our base case is that Angola will likely not send troops to fight in Cabo Delgado in the three month outlook (see Angola Economic and Political Risk Briefing for 11 August 2020).
Exit of Isabel dos Santos from Unitel creates concerns for employees(VOA)
Isabel dos Santos resigned from Unitel’s Board of Directors on 11 August, noting that “it seems counterproductive and irresponsible to allow a climate of permanent conflict and systematic politicization of the administrators to install itself on the Board of Directors”. Union leader Zacarias Jeremias expressed concern at this development, noting that there was potential for “strong social instability” if Unitel workers were to end up unemployed.
Isabel’s decision to quit the board is good news for the Angolan state, which had allegedly been preparing to implement new golden shares rules specifically to force her out (see above, and Angola Economic and Political Risk Briefing, 4 August 2020). Her choice to step down voluntarily will reassure investors that President Lourenço’s administration intends to implement less interventionist economic policies than their predecessors in future. However, Unitel is still in a very difficult position operationally: Isabel retains 25% of shares, there are still disagreements over allegedly illicit financial transfers from Unitel to Vidatel Ltd., and a fourth mobile operator, Africell, still threatens their market share (see Angola Economic and Political Risk Briefing, 4 August 2020). Entities contracting with Unitel are likely to face heightened contract alteration risks in the six month outlook, and protest risks will increase with any large-scale layoffs of Unitel’s workforce.
MPLA admits municipal elections can’t happen in 2020 (VOA)
The MPLA has finally publicly admitted that there will almost certainly be no local elections this year. The MPLA’s Secretary for Political and Electoral Affairs, Mário Pinto de Andrade, gave an interview on Rádio Nacional in which he noted there were no “objective conditions” to hold elections this year, due to the impacts of covid-19. The statement was immediately condemned by opposition UNITA, CASA-CE and PRS representatives, while it was supported by the FNLA. Andrade gave no indication of whether the municipal elections would take place in 2021 or 2022.
Andrade’s announcement comes as little surprise to the Angola Briefing, which has been predicting this delay since Issue 3 (see Angola Briefing, Friday 12 June 2020). With municipal elections legislation already pushed to the next parliamentary year (see Angola Briefing 4 August 2020), the MPLA was under pressure to make a statement on this before the parliamentary summer recess began on 15 August. The real question remains whether the MPLA is planning on holding the municipal elections at some stage before the rainy season begins in September 2021, or intends to combine the municipal elections with the next legislative elections in August 2022. We still believe that the most likely outcome is an election before September 2021, but there is a growing likelihood that the MPLA will use the covid-19 pandemic as a convenient reason to run both elections in August 2022. This later date would give the MPLA a significant electoral advantage: their ability to run parallel campaigns is much higher than that of any opposition party, and a delay of two years would allow some of the worst economic impacts of the covid-19 and oil price crises to abate.