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Monica_55905 Apr 15

Winds of Change in Angola

Winds of Change in Angola image
Reforms designed to open the economy to private enterprise are likely to prove popular, including the privatisation of SEOs, improvements to public procurement, and substantial changes at Sonangol, the state oil giant with the power and wealth of a parallel government.
With its terracotta-washed walls, colonial-style balconies and grand dome resembling that of the US Capitol, the Presidential Palace in Luanda is a suitably impressive location for Angolan politicians to welcome international leaders. Yet until 2017, when the near 40-year reign of President José Eduardo dos Santos finally drew to a close, occasional visits from Western partners were largely confined to bland discussions around cooperation in the bloated oil sector. 

With the country in the grip of seemingly perpetual dos Santos family rule and held back by mediocre growth, Western partners largely steered clear of the more ambitious plans undertaken by Chinese development banks and other less discerning partners. 

In February this year, German chancellor Angela Merkel returned to a country she first visited in 2011 but where just 25 German companies are now active. On the chancellor’s agenda were talks around air travel, a potential deal to supply German navy boats and something which would have been unthinkable in the dos Santos years: praise for the country’s fight against corruption. 

“I can only welcome the fact that there is strong commitment to investigating corruption. Should German companies or financial institutions also play a role through such disclosure, then Germany of course promises to help with clarification in a very transparent way,” Merkel said.

The man responsible for this shift in thinking towards Angola is a most unlikely agent of change. Little was expected when 65-year-old President João Lourenço, a veteran member of the ruling MPLA and former defence minister, ascended to power after elections in 2017. Hand-picked by the ageing dos Santos, few expected the new leader to transform a cozy system that had enriched and empowered the MPLA and the dos Santos clan. 

Two years later, the assumptions of the dos Santos family – and many long-term watchers of the country – have been shaken to the core. In November 2017, Lourenço fired Isabel dos Santos, billionaire daughter of the former president and the most powerful woman in the country, from her role as chairwoman of state oil giant Sonangol. In January 2018, her brother José Filomeno dos Santos was fired as chair of the country’s sovereign wealth fund, seemingly breaking the family’s monopoly on economic power and the succession plans of the former president. 

By this February, the attorney general’s office had opened over 600 anti-corruption cases, according to the Agencia Angola Press. Meanwhile, the government has pledged to move away from an oil-dominated economic model, the IMF are again welcome in Luanda, and bilateral engagements are increasing. Just weeks after Merkel’s February visit, US secretary of state Mike Pompeo endorsed the country’s new direction in a Luanda visit.

While the signs point to genuine change, a weak economy could undermine efforts to force through unpopular policies, while attempts to tackle the dos Santos legacy could run up against vested interests or concentrate power and wealth in the hands of a new elite. 

“The political rhetoric points towards reform but the challenge is that even if Lourenço is making enormous strides it’s going to be very difficult to dismantle the system as it’s grown over a number of decades. A lot of focus has been on trying to dismantle the immediate influence of the previous regime and not getting on with the day to day business of transforming an economy,” says Lucy Corkin, business strategist at Rand Merchant Bank.

“At the moment it’s too soon to say whether it actually represents a shift away from the patronage model,” says Dr Justin Pearce, a researcher at the University of Sussex in the UK specialising in Angola. “A few years down the line we might be able to see evidence of systemic change and greater transparency or we may look back and realise all Lourenço has done is to reproduce the same system of patronage but with different people in positions of influence.”

Drowning in Oil

For years, oil has sat virtually unchallenged at the heart of sub-Saharan Africa’s third largest economy, greasing the alliances that helped keep the dos Santos family at the apex of political and economic power.

From 2014, the global fall in oil prices plunged Angola into a period of extended economic malaise that continues to this day. Growth of 8.5% in 2012 slumped until the economy shrank by 2.5% in 2016.  During the final years of the dos Santos government, multilateral lenders were disengaged, and the IMF last lent to the country from 2009-2012.

All of that has changed as the current administration seeks new sources of funding and deeper relations with multilateral lenders. Just months after assuming power, Lourenço launched a National Development Plan and opened talks with the Washington DC-based lender. The IMF plans to disburse some $3.7bn, the second largest programme on the continent. 

Mario de Zamaroczy, the IMF’s Angola mission chief, tells African Business that government reforms are making their mark. 

“The Government has embarked upon a multi-year National Development Programme, which includes an ambitious reform agenda covering multiple development areas. Recent notable milestones in this regard have been implementation of the value-added tax, which is performing better than expected; the liberalisation of the exchange rate regime, which is now market-clearing and which is giving signs now of reaching a broad equilibrium in real terms; substantial fiscal consolidation; and critical legal reform.”

A gradual move away from the oil-dominated model is one of the key goals of the IMF’s engagement. The oil sector accounts for around one-third of GDP and more than 90% of exports, according to the World Bank. De Zamaroczy notes that the non-oil sector grew by 1% in 2018 in real terms and another 0.6% in 2019, early evidence of a modest diversification in the economy. 

A European consultant who regularly visits the country encourages patience and points to the “sea change” that has prompted re-engagement with the Fund: “It’s slow because it’s a huge change in mentality. I think there’s also a bit of scepticism about taking on a full dose of IMF medicine and I do think that’s healthy to an extent. I believe there are still a lot of efficiency gains that can be made in public spending and investment but the problem is the debt is so high now it costs a fortune to service and that limits the fiscal space.” 

While analysts say that citizens welcome reform given the prior enrichment of a small, well-connected elite, some fear that a dose of the IMF’s “tough medicine” could undermine popular support for Lourenço’s reform agenda. The economy is expected to grow by just 1.2% this year and in October, the currency dropped to a record low after Angola’s central bank stopped using a trading band that kept the kwanza within a fixed range. The IMF counters that there is a floor below which the government may not reduce expenditure under the deal, and says that a $2bn investment programme will help to improve living conditions and boost economic activity in several municipalities. It helps that the majority of the population never saw the benefit of badly targeted spending in the dos Santos years, says Justin Pearce. 

“On [Lourenço’s] side is the fact that a lot of Angolans never saw much out of the oil boom anyway. State spending was badly directly, it went into flashy expensive infrastructure projects of fairly dubious utility, which means that a programme of austerity is probably going to have less of an immediate impact than one might think.” 

Reforms designed to open the economy to private enterprise are likely to prove popular, including the privatisation of SEOs, improvements to public procurement, and substantial changes at Sonangol, the state oil giant with the power and wealth of a parallel government.

“The past few lean years have forced the government to take the [Sonangol] transformation forwards, even under dos Santos – presumably as some kind of legacy with which he wanted to leave official power,” says RMB’s Corkin. 

“There’s an intention to divide the management of various functions into separate companies and entities and manage or spin off some of the investments Sonangol had which were not related to core functions of being the national oil company. When you have a situation where you have a national oil company that was better rated than the sovereign – and because of Angola’s history there were quasi-Treasury operations that were being undertaken by Sonangol – things became a bit tricky.”

The exploitation of smaller marginal fields will be encouraged, and gas production will be ushered in. The firm’s concession activities will pass to a National Agency of Oil and Gas, which could open the market to alternative players and loosen Sonangol’s grip on the sector.

“More than five years after a serious slump in the oil price, alongside Lourenço taking over the presidency, there’s now a possibility that talk of diversification may be matched with action. Lourenço has certainly seemed more keen to embrace that kind of structural reform than dos Santos ever was but it remains to be seen whether it happens,” says Pearce.

Challenging the dos Santos legacy 

While the implementation of long overdue reforms will challenge Lourenço’s government to the full, the president’s biggest gamble remains attempts to prosecute corruption cases and recover state assets, partly, but not exclusively, by taking on the dos Santos family. In January, the saga hit international headlines when an investigation by the International Consortium of Investigative Journalists and 36 media partners – known as the Luanda Leaks – alleged that Isabel dos Santos had benefited from her father’s presidency. The leaks, which dos Santos dismisses as a witch-hunt, revealed a web of more than 400 companies linked to Isabel dos Santos or her husband Sindika Dokolo. Isabel dos Santos denies all wrongdoing (see full story, p16-17). 

The extent to which President Lourenço was aware of or enabled the leaks remains unclear, but it has helped to draw international attention to the issue and could lead to legal action in foreign jurisdictions, removing some of the burden from the Angolan legal system. Yet there is no doubt that his forceful anti-corruption drive risks upsetting vested interests and fundamentally altering the balance of power within the government and the MPLA.

“The challenge is obviously that corruption has been so deeply entrenched and institutionalised that if you have more than 50% in provincial government who are in some way benefiting from corrupt activities it’s very difficult to prosecute everyone and have a functioning administration,” says the European consultant. 
The IMF has lauded the implementation of a new anti-corruption strategy at the attorney general’s office as well as efforts to improve government transparency. 

While such efforts will prove popular with multilateral partners, there is a danger that politically contentious prosecutions could put the country’s weak, underfunded legal system under significant strain while sparking a backlash among figures who benefited from the previous government – including the dos Santos family. Corkin says that broader institutional reform must accompany such investigations if the moves are to gain real legitimacy.
 
“A lot of the changes have been personalised and directed at certain individuals who used to hold positions of power rather than wide-sweeping institutional change, with the possible exception of Sonangol. There needs to be a diversification of the centres of political and economic power in Angola for real change to happen, and I’m not yet convinced that has happened,” says Corkin.

Nevertheless, the formal power vested in the presidency means that Lourenço is in a strong position ahead of elections in 2022, allowing him to control the pace and extent of the popular anti-corruption measures and economic reforms.  

“Lourenço did a huge number of remarkable changes in the first couple of months which took everyone by surprise... that has set expectations for what he will do for the rest of time in power. I suspect there was a flurry of activity in the first few months but the pace of change may slow down,” says Corkin.

While new multilateral partners will be keen for more immediate progress, the current dispensation offers a rare chance for Angola to reshape its political and economic future after years of treading water. 

“There does seem to be international goodwill towards Lourenço in terms of governance reforms and I think investors are prepared to give him the benefit of the doubt,” says Pearce. “There will be a degree of caution but there’s an acknowledgement this is a tremendous improvement on the previous regime.”



With thanks to African Business Magazine who have supplied this article. For more content like this, please visit https://africanbusinessmagazine.com/