reform headache

Angola is collateral damage of coronavirus hit on oil, China

By Marcia Klein

Posted on March 19, 2020 06:14

Angolas deep dependency on oil exports to China will make the reform agenda of João Lourenço more complicated. — Angolas nascent reforms in the oil, banking and retail sectors risk being snuffed out by the coronavirus hit on oil prices and exports to China.

Plans by the Angolan government to diversify the economy and rid the country of corruption were expected to help lift the economy from years of recession.

But in the first few months of 2020, the oil price slump and the effects of coronavirus panic took hold on the global economy, notably China, on which Angola relies for oil exports.

READ MORE Angola: Where did all the money go? Part 1, a family feast

Bloomberg reported in October 2019 that Angola’s GDP was expected to shrink 0.2% in 2019 and return to growth in 2020, but by February 2020, commentators were indicating that oil-reliant countries like Angola could be worst hit by the oil price war between Saudi Arabia and Russia.

  • The Financial Times said Angola’s economy could face a “deep trough” this year.

This is difficult news for president João Lourenço.

His mission to rid the country of corruption has included targeting former president Jose dos Santos’ son Jose Filomeno and daughter Isabel, including trials for fraud and other financial crimes and the freeze of assets accumulated under the 38-year rule of their father.

READ MORE Angola: Isabel dos Santos indicted for embezzlement and more

Isabel has been cited among the world’s richest women for many years.

Lourenco’s hopes to diversify the economy were expected to only come to fruition in years to come.

Economic reforms include:

  • a three-year $3.7bn International Monetary Fund loan,
  • the privatisation of state-owned companies,
  • measures to reduce public debt to less than 60% of GDP in 2022 from about 90% in 2018 and well over 100% in 2019.

Standard & Poor’s recently maintained Angola’s B- credit rating due to Lourenco’s economic reform programme and budget caution, but its negative outlook reflects high government debt, influenced by the depreciation of the kwanza and the decline in oil production.

The ratings agency had expected 1% GDP growth in 2020, increasing to 2.5% by 2023.

The African Development Bank had been expecting real GDP growth of 1.2% in 2019 and 3.2% in 2020, while the Economist Intelligence Unit had only expected a return to growth in 2021.

It is not just the oil sector that is under pressure.

Who Owns Whom’s report on The Wholesale and Retail of Food in Angola said the sector, which contributes over 18% to GDP had grown quickly before the decline in the oil price. There had also been ongoing investment in formal retail capacity from players looking to secure a first-mover advantage in an immature industry.

READ MORE Life after power: the bitter exile of Angola’s ex-president Dos Santos

The Who Owns Whom report on banking in Angola reports that the number of licensed commercial banks increased from nine in 2003 to 26 in July 2019.

Further investment and growth in the oil, banking and retail sectors in 2020 looks increasingly unlikely, as does the economy’s return to growth.

Marcia Klein is the Who Owns Whom reports editor.

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