Copying and distributing are prohibited without permission of the publisher.


ANGOLA: After the storm

By Louise Redvers
25 May 2010

Months after swallowing its pride and turning to the IMF for help, Angola – one of Africa’s biggest oil producers – is rebounding fast, not least thanks to energy prices and cheap Chinese credit

Eight years since the end of Angola’s long civil war, the oil-rich country is breaking out of its post-conflict reconstruction chrysalis and spreading its wings into a new phase of economic development and growth.

It has a new constitution and anti-corruption agenda, and a new relationship with the IMF, which comes with significant fiscal reform. Authorities are also starting to diversify the economy away from oil while making the right noises about poverty reduction. The Portuguese-speaking country is also strengthening its political and trade ties with the US, seeking out investment in Russia and India and building on already strong economic partnerships with China and Brazil.

And on May 19, Angola received long awaited credit ratings from Standard & Poor’s, Fitch and Moody’s , placing the country on a level with Nigeria and opening the door to international bond issues.

Angola’s new dawn comes after a tough 2009 post-conflict, when double-digit growth stalled and GDP shrank by 0.4% while foreign reserves fell by 30%. The drop in oil prices coupled with the reduction in Angola’s production levels, enforced by Opec (Organization of the Petroleum Exporting Countries), ravaged the country’s income and exposed its over-dependence on oil.

The pressure on foreign reserves created liquidity problems, and late last year when the central bank, Banco Nacional de Angola, started to limit currency auctions to commercial banks, there was a surge in dollar demand, meaning bills and salaries went unpaid, public spending was slashed, and the national currency, the Kwanza, unofficially devalued by up to 25%.

It was at this point that Angola swallowed its pride and turned to the IMF for help.

Angola’s last engagement with the fund had been in 2007, but talks about an economic support programme stalled; Angola was at that time enjoying rapid economic growth on the back of high oil prices and plenty of no-strings- attached Chinese credit.

Two years and a global economic crisis later, things were suddenly very different. Chinese funding for Angola has not dried up. On the contrary $10 billion of new loans are to be signed off shortly, but the Chinese model of credit keeps the hard cash in Beijing, sending instead labour forces and materials to Angola. This arrangement may help to rebuild Angola’s war-damaged infrastructure like roads, schools and hospitals, but it isn’t solving the country’s current liquidity crisis.

So last November a $1.4 billion standby arrangement was agreed between Angola and the IMF, setting up a new economic framework for the country.

For a country so resistant to outside interference, this will not have gone down well in all sections of the government. “There is a deep-seated mistrust of the IMF among some parts of the Angolan government and a huge resentment as well, because the IMF wouldn’t help them in 2002 at the end of the war, and that is how the relationship with China began,” says Edward George, Africa editor at the Economist Intelligence Unit (EIU).

“The ruling MPLA (the Popular Movement for the Liberation of Angola) has a core of strong technocrats who are well educated and informed, and it is these people who pushed for the IMF deal and who are driving other economic changes and policy. But there are also traditionalists within government who will be suspicious of these new policies, and things like the IMF and more private-sector involvement in the economy.”

At the time of securing the standby arrangement, the Angolan government trumpeted the fact that there were “no strings attached”– economy minister Manuel Nunes Jr said Angola had agreed to the loan because the IMF had agreed not to put conditions on it.

But in the small print, Angola had made concessions to the IMF, although they will argue reforms had already been adopted and so were not new. These include increasing non-oil income through economic diversification strategies, spending at least 30% of the national budget on social areas such as health and education, improving tax systems and the private sector and strengthening debt management.


In a memorandum to the IMF, the government also said: “For the broader public sector, we will initiate a coherent privatization strategy to address loss-making and non-viable state-owned enterprises, which will also help to limit fiscal risks.”

The key concession, however, is in the area of fiscal transparency, especially in relation to state-owned enterprises such as Sonangol, notorious for its opaque accounting system and dogged by corruption allegations.

Things are improving: more financial information is being made available, with monthly oil revenues being published on the finance ministry website, albeit inconsistently; some Sonangol accounts are now online; and there is a new probity law in support of president Jose Eduardo dos Santos’ call for “zero tolerance” on corruption, as well as new legislation to combat money laundering and bank fraud.

But despite these steps, Angola’s ranking in Transparency International’s Corruption Perceptions Index worsened last year, with the country slipping to 158th out of 180, sitting among the 18 most graft-ridden countries in the world.

Concerns over governance aside, it was the country’s mounting debt to various construction and service companies (believed to be around $2 billion) which is said to have prompted the IMF to delay its March payment until May following an extended “review” period.

A source close to the government said: “With IMF agreements, you have regular reviews of performance indicators, and if the country is not meeting these targets, the IMF refers it back to the board, which can agree or disagree that the agreement continues.

“In Angola’s case there were problems with debt arrears, and the IMF team decided to refer it back to the board, and the money was withheld.”

Questioned at the time, economy minister Nunes Jr denied any delay in payments from the IMF. He told Emerging Markets: “There are no problems; we are concluding the first review and are on course. After the conclusion of the revision, the payments will be made.”

Another area Nunes Jr and his counterpart at the finance ministry, Carlos Alberto Lopes, must tackle is the continuing fall of the Kwanza, which stands at Kw92/$ in contrast to its Kw75/$ level where it was pegged for several years. “The most important thing is to reduce the difference between the official rate and the parallel rate – and you can see that we have done that – so that we are within the parameters set by the IMF for this,” Lopes said recently.

Angola has cited investment in agriculture as a key plank of its diversification strategy to reduce the nation’s dependence on oil, which accounts for close to 90% of its current income.

Last year Marcos Nhunga, director-general of Angola’s Institute of Agriculture, said the government has been investing $1 billion into developing the sector and hoped it would grow at around 13% every year, leading to food self-sufficiency within five or six years.

This investment could be starting to pay off. According to a media statement by Nunes Jr, the sector grew by 29%; leading non-oil growth and the 2009 maize harvest of 1.20 million tonnes set a new record, up 87% on 2008, thereby eliminating the need for costly imports, a recent study shows.


As well as developing agriculture and other industries outside oil and diamonds, Angola is forging ahead with its engagement with the private sector, whether the economic traditionalists like it or not. The National Agency for Private Investment (ANIP), led by former finance minister and central bank governor Aguinaldo Jaime, is leading the charge, with development zones, tax breaks and support for people interested in investing in Angola.

Jaime and others like Nunes Jr have been clear in explaining the need for more private-sector investment, reducing reliance on bloated and ineffective state institutions and bringing know-how, efficiency and most importantly, more tax revenue.

Economist Salim Abdul, co-director of the Centre for Scientific Studies and Investigation (CEIC) at the Catholic University of Angola, thinks ANIP is doing good work, but more needs to be done in terms of investment incentives. “Angola needs a stronger private sector; there is still far too much emphasis on the state,” he says, explaining the hangover from Angola’s quasi-Communist years post-independence. “Angolans have a lot of investing power, and we are seeing them investing in a big way in Portugal, for example, but this could be money coming into the Angolan private sector as well.”

But getting a foot into the Angolan market isn’t so easy – and there are numerous anecdotes about how deals are won on the basis of who you know rather than what’s on offer – a situation that must change for the private sector to move forward.

Angola has made no secret of its tactic of spreading its funding net far and wide. The fact that Angola is going forward with the IMF while still maintaining its strong relationship with China – Angola is its biggest trading partner in Africa, with exchanges between the two countries up from $1 billion in 2002 to $25.3 billion in 2008 – underlines this strategy of political diversification.

Ana Alves, a research fellow on the China Africa project at the South African Institute of International Affairs (SAIIA), says: “I don’t see the IMF and China in competition. They are two different things, and China has given Angola a lot more money than the IMF has. The main interest for China is the oil.”

She says Angola liked borrowing from China because there was little conditionality attached to the loans – unlike what they find with the IMF.

Historically Chinese credit has been spent on large-scale infrastructure reconstruction projects, such as roads, hospitals and schools, but the new loans that come on-stream this year are directed into agricultural and other development projects.

What is clear is that Angola is moving out of its reconstruction period and into more general economic development; the railways should be complete by the end of 2012 and basic water, sanitation and electricity networks are slowly being rehabilitated. “The country is getting back to where it was in 1975 pre-independence and the civil war,” says George at the EIU: “We are starting to see new projects like hydroelectricity plants, more development than just reconstructing. The big challenge will be how Angola pushes on from that and how it moves forward into the future to reduce its dependence on oil.”

The next immediate challenge for Angola is to proceed with its long-awaited sovereign bond sale, although thanks to the IMF, this is likely to be substantially less than the previously predicted $4 billion.

Angola’s recent credit rating has helped paved the way. The country’s creditworthiness was rated at B+ by S&P and Fitch, four levels below investment grade, and Moody’s ranked the sovereign B1.

Finance ministry spokesman, speaking before the ratings announcement, said that $2 billion would be issued locally before the end of May, but added that “the amount to be sold to the international markets is yet to be determined.”

With oil prices back up over $80 and Angola’s production set to climb by as much as 16% by the end of 2010, the country, which has an IMF growth forecast of 7.1%, is likely not only to spread its wings but to soar.

By Louise Redvers
25 May 2010