Angola: President João Lourenço’s balancing act reaches tipping point

February 2021

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As President João Lourenço aptly put it in his end-of-year address, 2020 “was not a good one” for Angola. Low oil prices coupled with the sudden onslaught of the coronavirus pandemic almost brought Africa’s second largest oil exporter to its knees. As lockdown restrictions were imposed, and demand for black gold on the global market plunged, several of the country’s petroleum operators had no option but to suspend drilling activities, leaving their rigs idle.

Managing the knock-on effects hasn’t been an easy task for Lourenço, who already has enough on his plate trying to overhaul a struggling economy saddled with USD 40 billion debt, and win over an increasingly frustrated and underemployed youth, both of which he inherited from his kleptocratic predecessor Eduardo dos Santos some three and a half years ago. While he has made some progress since then – his anti-corruption drive has seen him target investigations and recover assets from family members and close associates of the dos Santos regime – trying to appease the more traditional elements of his ruling Movimento Popular de Liberace de Angola (MPLA) party has come at a great social cost, prompting onlookers to rightly question his legitimacy as leader of the once staunchly Marxist state.

Selective anti-corruption drive undermines president’s legitimacy

Quashing predictions that he would become a puppet to the Eduardo dos Santos regime, shortly after his appointment, Lourenço began targeting his predecessor’s family and close associates, while seeking to dismantle their influence over key strategic sectors. Most prominently, Angolan authorities have frozen assets of the former head of Sonangol and daughter of the ex-president, Isabel dos Santos, while son José Filomeno ‘Zenu’, who was the former head of the country’s Sovereign Wealth Fund, has been charged for illegally transferring USD 500 million from Angola’s central bank.

Both are a result of the president’s ambition to recover lost assets and funds stolen from public coffers during his predecessor’s reign, which has also seen oil, port and banking assets of former right-hand men to dos Santos, General Leopoldino Fragoso do Nascimento (Dino) and General Manuel Hélder Vieira Dias (Kopelipa), reportedly seized or taken over. Angolan prosecutors are currently investigating the two men’s links to the China International Fund (CIF) – a controversial Hong Kong based syndicate of companies known for signing billions of dollars’ worth of opaque oil, minerals and diamonds deals with African presidents – and have subsequently banned them from leaving the country.

Despite these encouraging pursuits, Lourenço has been accused of being politically selective in tackling graft, with some tainted by corruption remaining close to power. For example, divisive figure Manuel Vicente, who was the former vice president of Angola and chairman of Sonangol, continues to play a key unofficial role as strategy advisor to the board of the Angolan state-owned company, and as the personal financial advisor to the president. And though widely understood to have been a crucial partner to CIF alongside Generals Kopelipa and Dino – together they made up a trio disparagingly nicknamed “Irmãos Metralha” for their alleged involvement in the former president’s corrupt dealings – the authorities are yet to target him. Meanwhile, Vicente ally and Chief of Staff Edeltrudes Costa, who is subject to ongoing investigations by the attorney general’s office for alleged embezzlement of government funds, maintains his public position despite calls for the president to fire him.

While keeping these individuals within his inner circle is likely a means to avoid exacerbating divisions within the ruling MPLA, where dos Santos’ allies continue to retain political clout and appear averse to change, it severely undermines the president’s anti-corruption drive, a key promise upon which he was elected. Failing to make good on his pledges continues to fuel public mistrust in him and his ruling party (see below) and is likely to see the MPLA go into the 2022 elections in a fragile state, further weakened by an emboldened UNITA led by newly elected head Adalberto da Costa Junior. We expect the outspoken and energetic leader to capitalise on rising dissatisfaction with the ruling party, making inroads with young voters, who make up approximately two thirds of the population.

Economic progress fails to trickle down, sparking anti-government protests

Angola’s economy – which relies on oil for almost all of its exports and two thirds of government revenues – has been adversely impacted by low oil prices and the economic fallout from the COVID-19 pandemic, severely constraining government revenues. The resultant collapse in GDP, which is almost a quarter lower than in 2014, coupled with a debt burden of approximately USD 40 billion – half of which is owed to China – is likely to see the country enter its sixth year of economic contraction, marking the longest period of recession in the country and the worst in Angola’s history.

Nevertheless, Angola has made significant efforts under its IMF programme, which it began in December 2018 to implement reforms aimed at reducing its dependence on oil and lowering its debt burden. The Fund, noting the government’s commitment to curbing wasteful spending and progress in negotiations with major creditors, approved a disbursement of USD 488 million in January, four months after increasing the size of its loan to USD 4.5 billion, from USD 3.7 billion. Of note is its admission to the G-20 DSSI (Debt Service Suspension Initiative), granting a temporary suspension of repayments to bilateral creditors in the wake of the pandemic, and the restructuring of a sizable amount of its USD 20 billon debt to China. This has allowed Angola to avoid a sovereign default similar to that of its southern Africa neighbour Zambia, which has been grappling with much of the same economic stresses. These admirable improvements can be credited to widely respected Finance Minister Vera Daves de Sousa, who at 35 years old, is one of the youngest ministers in Lourenço’s cabinet. Since her appointment in October 2019, Daves had made great strides in strengthening the country’s fiscal position and remains determined to diversify the economy to reduce its dependence on oil exports.

While the IMF is visibly pleased with the government’s progress, ordinary Angolans are understandably not. The economic fallout of the pandemic has wreaked havoc on the day to day lives of the country’s citizens, who continue to grapple with mass unemployment, rising inflation, and loss of political freedoms. This mounting frustration came to a head on Angola’s Independence Day on 11 November 2020, when anti-government activists organised a slew of demonstrations in major cities across the country. They were met with a violent and heavy-handed response from the police, eliminating any progress the Lourenço administration has made to increase freedom of expression. Meanwhile growing disillusionment surrounding the president’s selective anti-corruption drive, which has done little to retrieve an estimated USD 200 billion worth of illicit outflows from the country since the beginning of the civil war in 2002, has only deepened public anger, with reports of a growing youth movement calling for social progress and good governance gaining traction.

Regulatory developments in key sectors signal increased transparency and reduced state participation

Since coming to power, President Lourenço has embarked on an ambitious drive to attract foreign direct investment, implementing a raft of multi sector regulatory reforms ranging from enactment of a private investment law, offering several tax exemptions and benefits, to a multi-sector privatisation programme, aimed at promoting development of the private sector. Whilst paving the way for improved transparency and efficiency in the country’s crucial oil and mining sectors, the onset of COVID-19 has slowed their impact.

Oil reforms strengthen relationship between government and international oil companies

Since Lourenço came to power in 2017, the oil industry has undergone wholesale reform in order to attract new investment. The formation of the National Agency for Petroleum, Gas and Biofuels (ANGP), an independent regulator created to manage the country’s oil and gas sector, has finally addressed concerns surrounding state-owned oil company Sonangol’s conflict of interest as both service provider and regulator, which has historically been a key issue for international investors. Complimenting this, Presidential Decree 52/19 – which foresees yearly bid rounds via international tender until 2025 – is expected to increase transparency of tenders for the award of nine new oil concessions this year, with participants provided relevant data about the oil fields, along with instructions of the tender process.

The creation of ANGP has brought about greater coordination among government and companies in both the upstream and downstream sectors, with reduced information asymmetry between the two parties resulting in a more collaborative approach to contract negotiations. Meanwhile, improved governance surrounding oil tenders is expected to attract interest beyond the traditional players in Angola’s oil and gas sector, who may have previously been deterred by uncertain and bureaucratic processes.

Privatisation process key to economic recovery plagued with delays

Furthermore, Lourenço has initiated the privatisation process for Sonangol, an ambitious plan which includes an initial public offering of stakes in Sonangol in 2022. It forms part of Angola’s multi-sector privatisation programme (PROPRIV) in which the government – led by Finance Minister Daves de Sousa – plans to sell 195 companies or subsidiaries owned by the state by 2022. Primarily focused on diversifying away from oil, which the country has spoken about for years, but has hardly taken seriously, PROPRIV also aims to reduce the influence of state-owned companies in the economy, and raise funds to support the country’s economic recovery.

However, these privatisation plans, despite being overseen by the IMF, have prompted business commentators to question the government’s ability to attract reputable buyers, given the poor management standards and bloated workforces that characterise many of these entities. Just 34 sales have taken place since the programme began in 2019, with COVID-19 induced delays further lagging progress.

Improved mining governance increases sector attractiveness

The Lourenço administration has prioritised reorganisation of the mining sector in a bid to attract investment to exploit its vast untapped potential. Historically fraught with mismanagement and corruption – under the Dos Santos administration, Isabel dos Santos was given preferential access to Angola’s diamond via state-owned diamond trading firm Sodiam, which was selling to her at below market price – the mining sector has since liberalised.

The newly created National Agency of Mineral Resources (ANRM) has been handed concessionaire rights from state-owned diamond company Endiama – which is expected to be partially privatised by 2022 through an initial public offering – with Sodiam now selling to a wider range of buyers thanks to the introduction of a new trading policy which has made the diamond buying/selling process more transparent. Also reflective of the government’s ambitions to clean up the sector is the sale of Odebrecht’s 8.2 percent stake in Sociedade Mineira do Catoca (SMC) to Endiama earlier this year, allowing the state-owned diamond company to officially cut ties with the Brazilian entity, whose reputation has been tarnished by multiple corruption scandals. These developments have not only sought to attract diamond investors, but have paved the way for non-diamond investments with Australian rare earth metals firm Pensana Metals benefiting from successful finds in central Angola last year.

Waning popularity puts Lourenço at risk in 2022 election

Lourenço began his first year in office with a flurry of quick wins – breaking up sectoral monopolies formerly controlled by dos Santos’ allies; conducting criminal investigations into key dos Santos family members; and for the first time in a long time, one could openly criticise the president without fear of being jailed (note prominent anti-corruption activist Rafael Marques de Morais who faced jail time for exposing the former president’s corrupt dealings). Meanwhile, a raft of reforms across key sectors have encouraged once sceptical investors – previously turned off by the bureaucracy and corruption associated with doing business in the country – to pay more attention.

While this continues to be the case, any benefits that the government has derived from this has done little to impress ordinary Angolans, who are grappling with a rising cost of living and rampant unemployment in a country home to one of the most expensive capital cities in the world. Lourenço has to balance complex intra-party politics with his constitutional mandate in order to ensure his re-election. However, the decisions that he has to make as party leader and head of state can sometimes be at odds. His selective anti-corruption drive and heavy-handed response to anti-government demonstrations late last year illustrate the pressure he faces on multiple fronts, and there is no immediate sign of it easing.

Waning public support for the president will undoubtedly weaken his prospects for re-election. Knowing this all too well, he has deliberately delayed long awaited constitutionally mandated municipal elections, in fear that incumbent opposition UNITA, with its new and dynamic leader in toe, will be able to gain ground more locally, using their victories to mount an even stronger challenge come the 2022 general election. With just a year left to divert public opinion, the president has a lot of work to do.

AML February 2021 insight
AML February 2021 insight