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16 Jan 2019 05:41
Despite promises to diversify the economy and fight corruption, President João Lourenço's actions so far appear contradictory to his publicly voiced intentions.
Miguel Sanz in Maputo — João Lourenço has been president of Angola since September 26 2017. About a year later, he cemented his hold on power by taking over the chairmanship of the ruling Movimento Popular de Libertação de Angola (MPLA).
Although he reshuffled the government, for instance, by replacing the transport minister and the vice-president, Manuel Vicente, most other ministerial posts had not changed from the previous administration.
Despite promises to diversify the economy and fight corruption, his actions so far appear contradictory to his publicly voiced intentions.
Lourenço inherited a dire economic situation, characterised by serious shortages of foreign currency, particularly of the dollar, and the continual devaluation of the kwanza. The currency depreciated 40% against the dollar in 2018. In addition, inflation has hovered around 30% and is set to rise.
Angola’s economic troubles began in 2014 when global crude oil prices dipped and severely hampered the government’s ability to generate revenue. The country depends on oil for 75% of its government revenue and 90% of its exports, an over-dependency that has left the country vulnerable to economic shocks.
Diversification has long been the answer, but execution of a strategy and plan never materialised in the previous administration. Lourenço’s election campaign centred on reducing dependency on the hydrocarbons sector and creating new revenue streams from existing resources or developing new ones.
Diversification was also a key condition for the International Monetary Fund (IMF) to agree to a three-year extended fund facility for Angola worth $3.7-billion, which the creditor announced in December last year; $990-million would be immediately disbursed. Ending corruption, including bribery and money-laundering, was another condition.
Angola is in desperate need of cash, and therefore Lourenço is pursuing an ambitious investment programme to develop the country’s agricultural, tourism and mining assets. For instance, the government is planning to invest $230-million across the country over the next six years to support its Proyecto de Desarrollo de Agricultura Comercial, a development initiative that aims to commercialise the agricultural sector. More than $77-million had already been invested in such projects countrywide by the end of 2018.
Oil majors such as BP, Total and ExxonMobil have also signed memorandums of understanding with the state-owned oil company Sonangol to develop new ultra-deep offshore oil operations, but the amount of the investments has not yet been made public.
A lot of the money for the new investments appears guaranteed by the government. Against the backdrop of a poor economic outlook, coupled with crude oil prices below the levels the government had counted on — although Brent crude prices rebounded early this year — Angola will have to resort to more borrowing.
The reprofiling of its debt with the issuing of $5-billion worth of euro- and dollar-denominated bonds probably explains the reduced fiscal deficit, as maturities have been extended in the medium term. But debt-to-gross domestic product remained at a risky 90% at the end of last year, meaning that more commercial loans will be needed to finance the ambitious investment programme and will continue to damage economic growth prospects, not least because China is Angola’s largest purchaser of oil.
Angola already owes Beijing about $23-billion, but this number could be much higher. Furthermore, because a lot of that debt with China has been guaranteed with oil-swap deals, increased volatility in crude oil prices is again likely to create more financial headaches for the government. Foreign investors are also likely to be concerned, because a growing debt burden will hinder the government’s ability to honour its debt repayments and to unlock financial resources.
International observers were positively surprised when Lourenço sacked the children of former president José Eduardo dos Santos from key positions at Sonangol and Angola’s sovereign-wealth fund, Fundo Soberano de Angola (FSDEA).
José Filomeno dos Santos, a son of the former president and former head of FSDEA, and his business ally Swiss-Angolan Jean-Claude Bastos de Morais, were arrested in Angola in September last year on charges that they had conspired to defraud the state in multiple jurisdictions, including in Switzerland and the United Kingdom. Both have denied wrongdoing.
Based on a recognition that corruption was conducted with impunity under the previous administration, Lourenço’s government in May last year adopted an amnesty Bill for the voluntary repatriation of stolen state funds that had been moved offshore.
Authorities in Angola and the United States have indicated that close to $30-billion in illicitly obtained money from the state is being held in offshore accounts. But the amnesty Bill, which expired in December, appears to have attracted little interest according to legal practitioners on the ground, and few actually repatriated any money. The government has now promised to go after those who have stolen public funds and hidden it abroad.
Angola’s ability to do this remains in doubt. Repatriation of financial assets will also depend on the willingness of banks abroad to transfer the money. Tightening anti-money-laundering legislation across the world has made commercial banks more averse to high-risk jurisdictions such as Angola, diminishing the effectiveness of the law.
Since the “de-risking” of Angola’s banking sector took place after the collapse of Portugal’s Banco Espirito Santo — in part caused by toxic credit at its Angolan subsidiary — few Western banks have resumed correspondent banking relationships for transacting in US dollars, which explains a lot of Angola’s current problems. But, because oil-dependent Angola’s financial sector is highly dollarised, such correspondent banking is also key to repatriating the stolen funds, placing doubt on the likely success of Lourenço’s policies.
Restoring trust depends on the government’s ability to reform the financial sector, which remains concentrated around a few politically exposed persons among Angolan banks’ shareholders; of the 27 commercial banks registered with Banco Nacional de Angola — the central bank and sector regulator — five control over 80% of total banking assets, deposits and loans.
The banking sector is highly centralised, and the majority of Angolans and small- and medium-sized enterprises are unable to access formal credit. Given that diversification is a priority of the Lourenço presidency, his ability to restructure the financial sector will be critical.
Lourenço’s own behaviour during his first year in office began with lavish spending during a state visit to Europe, where the Angolan delegation signed several agricultural development projects with French financiers, among others. According to reports on the Maka Angola news website, the Angolan delegation went on a spending spree, chartering at least three aircraft, including a Boeing 787 VIP private airliner, a Boeing 737 and a Gulfstream business jet. According to the leasing company, the Boeing 787 cost $74 000 an hour to charter. This sort of spending does not marry well with Lourenço’s promises and his narrative of being a modest person.
Others have pointed to the Lourenço family’s real-estate property in Bethesda, Maryland, in the US. A report by The Washington Post citing public records said the property was purchased in 2013 for $1.7-million by the Lourenço family.
More questions emerge over Lourenço’s positioning vis-à-vis Vicente, whom Portuguese prosecutors in 2017 charged with bribing that country’s attorney general in 2011. Lourenço refused to recognise the Portuguese authorities’ competency to try the former vice-president and lambasted the charges as “interference” by the former colonial power. It was agreed that Vicente would be tried in Angola instead, but this never occurred. Although Vicente has been sidelined from the MPLA leadership, he remains an influential businessman in Angola and abroad.
Another worrying trend is potential nepotism and conflicts of interest, including in the military. In April last year, the president promoted his brother General Sequeira João Lourenço to deputy head of the President’s Intelligence Bureau, which oversees the military, the police and the intelligence services. Two months earlier he allegedly sold a state-owned aircraft to his brother’s aviation company without a public tender and at an undisclosed price.
His plans to expand the military budget should sound alarm bells. Although Angola already has one of the largest military budgets on the continent, Lourenço is intent on expanding it further, ostensibly to fight piracy. Angola wants to expand its offshore oil production operations, and modernising its naval capabilities would ensure security of such operations against such threats. But the country has suffered few such attacks in recent years.
Although official figures indicate that Angola’s military budget halved between 2014 and 2017, Sweden-based think-tank Sipri has noted that estimates of real military spending are hard to come by in sub-Saharan Africa. Despite the decline, in September 2016 Middle East-based Privinvest Group announced on its website that it would provide naval vessels to the Angolan navy and construct a ship-building facility together with a London-based partner.
At about the same time it was revealed that Privinvest had signed contracts to supply ships to Mozambique, which were never delivered. This deal and two others left Mozambique with a bill of $2.1-billion, more than its total national debt at the time.
The company has faced resistance in other jurisdictions, such as Nigeria; The Africa Report revealed in June last year that the Nigerian finance minister in 2014 had refused to accept a $2-billion investment proposal from Privinvest after it appeared clear that Nigeria would have to provide most of the guarantees for the loans that would finance the joint venture; Privinvest had reportedly proposed to take control of a derelict shipyard from the Nigerian navy and refurbish it.
If Lourenço is serious about eradicating corruption, he should be careful about who he deals with and how this may look to the outside world. So far, his defence scorecard, his lavish spending, support for Vicente and family appointments have undermined his credibility. That the highest ranks of the MPLA and the broader governing elite in Angola remain intact, bar a few cosmetic changes to the Political Bureau — the apex governing body of the MPLA — is also worrying.
Adopting policies that are likely conditions imposed by international financiers such as the IMF but that in reality are unlikely to produce any change in behaviour not only puts his own track record at risk but also mars the reputation of Angola.
The lack of criminal convictions of former senior officials — not only of the former president’s family, but also of other high-ranking MPLA cadres — suggests that their behaviour will not change. Either the authorities are deliberately delaying the processes to get some initial goodwill from foreign investors or the system is so slow that no conviction will serve to deter future corrupt behaviour. The end result is that foreign investors and financiers in Angola are setting themselves up for considerable compliance and legal risks.
Lourenço’s lack of progress should prompt investors to adopt a more cautious approach. Just as Napoleon in George Orwell’s Animal Farm promised a whole new way of governing, once in power he quickly adopted the same habits as his former stewards. — Distributed by the APO Group on behalf of Verdade
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