Can Angola survive energy transition?

According to the African Development Bank’s economic outlook report, Angola’s oil driven economy has been in recession since 2016, leading to an increase in its debt-to.GDP ratio from 57.1% in 2015 to an estimated 120.3% in 2020.

And here is one of the main problems. Reduced oil exports. Angola’s main revenue source that accounts for 95% of the country’s exports has suffered as a consequence, widening its fiscal deficit to an estimated 4.5% of GDP.
Lower oil export earnings increased the current account deficit to an estimated 2.1% of GDP from a surplus of 6% in 2019. Inflation, estimated at 24.6% in 2020, was driven by a cumulated 36% devaluation of the currency by the end of that year.
Now the Angolan government realises that it must diversify its economy if it is to avoid bankruptcy, the matter being even more urgent as the developed countries are looking to move their economies away from a petroleum and gas-fulled models by 2050 at the latest.
That said, at least one person thinks that Angola can be part of the solution in aiding Europe to reduce its carbon footprint and successfully transition to sustainable energy sources.
The Vice-President of the Business Council for Afro-European Development (ACNAE), Manuel Gil Antunes said: “Angola has a vital role in the issue given that it has an abundance of natural resources other than fossil fuels including water, sun and wind”.
Manuel Gil Antunes was speaking at the presentation of the book ‘Angola’s Advancements 2017-2022’ which was presented in Lisbon last week in the presence of the Angolan ambassador to Portugal, Carlos Alberto Fonseca.
In his keynote speech, Mr Fonseca outlined the Angola’s history regarding energy exploration and production.
“We have an energy source which is very important and that’s solar energy, and we are also looking at wind energy as another source of power”, he said referring to a case study in the province of Namibe in the south of the country which already has a number of pilot projects up and running to develop eolic energy.
According to Africa Outlook Magazine, the International Renewable Energy Agency notes in its Africa 2030 report that renewable energy on the continent has the potential to quadruple to 22 percent. Abundant solar energy potential — as much as 10 terawatts — and substantial wind resources in Africa’s eastern, northern and southern regions, have the potential for rapid development and scalability. Renewable energy may provide up to one quarter of electricity in Africa by 2040.
It may seem ironic that Angola, Africa’s second largest oil producer, is committed to pursuing renewable energy. However, the reasons go beyond the drop in oil prices or the need for diversification of the country’s economy. It’s a question of meeting basic human needs. More than 13 million Angolans, or about 26 percent of the population, have no access to electricity, according to the International Energy Agency (IEA). Rural areas, especially those in the rural south of the country, have no access to a grid. Cities and other areas which do have electricity can experience blackouts.
Angola’s Ministry of Energy and Water (MINEA) has announced a national strategy for renewable energy, with solar energy an essential component in the short, medium and long-term. MINEA is targeting the installation of 142 solar photovoltaic systems providing 534.6 kilowatts, Solar Solutions West Africa says. These installations will be distributed among medical centres, schools, administrative buildings and streetlights. The long-term goal is to integrate renewable energy, including wind, biomass and solar, into the national grid.
Hydroelectric power is another possibility with the government currently involved in the construction of dams in Cuene which will not only provide power but also fight drought. One such project that is already up and running is the Láuca Hydroelectric Project in the province of Malanje which was awarded the ‘Global Best Projects 2021’ by the US magazine Engineering News in the Energy/Industrial Category.
The Laúca-Cuanza Hydroelectric Project is in the middle section of the Kwanza River which has a total power of 2004 MW and a hydraulic circuit that turbines the ecological flow with a power plant with 66MW of power.
And since wars provide opportunities for some, Angola could have the chance to be a player within the context of the world energy and food production crisis and the Angolan ambassador said the country was ready for the challenge.
“We are prepared. We have the spirit and the will to do it”, he said at the book launch organised by ACNAE.

Angola’s Thatcher moment

Rui Santos Verde, Director of independent Angola research ‘think-tank’ CEDESA and an expert on corruption in Angola, and Eliseu Gonçalves (researcher at CEDESA), outlined the outlook for Angola given its current government’s programme of economic reforms, its advances and the obstacles and economic challenges that the country faces — these are: drumming up private investment, privatisation, balancing Angola’s public accounts, and the liberalisation of the exchange rate, as we’ll as opening the country up to tourism.
Rui Santos made a comparison between the choices that the current Angolan administration is pursuing and the difficult policies pursued by the Conservative government of Margaret Thatcher in the early 1980s. Then, the United Kingdom was all but bankrupt and needed to modernise and liberalise the economy away from public and union controls towards a more market-orientated economy. It was a painful and divisive process involving austerity and cuts in public spending which divided the nation and has left a controversial legacy.
“There are some parallels that can be drawn from the Thatcher experience with what the Angolan economy is going through today. The government hit a problem — an empty treasury and an economy in recession”.
“Thatcher decided to tighten public spending and tackle the public and budgetary deficit although in Angola, instead of putting interest rates, the government has decided to un-peg controls on the Kwanza”, said Santos adding that austerity measures have bene undertaken from 2017 and 2018 in Angola.
“In Angola what we needed was a Thatcher moment whereby through tough measures the conditions could be created for the economy to grow. Initially, this made things worse (as it did in the UK between 1979-1982), the Angolan wealthier classes felt the pinch and didn’t come so often to shop in Lisbon’s Avenida da Liberdade, and felt a strong tightening of the belt with these measures”, said the Angola expert.
The government waited to see if the ‘invisible hand’ on the economy would react positively and inward investment would come or not. The outcome of these policies will come to fruition over the next five years.
Eliseu Gonçalves sad that reforms “necessitated sacrifices that no one likes”, particularly those who feel the force of reforms the most. The other necessity was attracting overseas investment with changes to legislation enabling investors to invest and open up a company without having to have a mandatory Angolan business partner.
At the level of public finances, he admitted the country went through “very difficult moments”. We cannot pursue policies that call into question the health of our public finances and we have made great advances in terms of our pubic debt reduction policies”.
“The need for austerity was felt keenly and had profound economic and social costs and was not without risks for the government. Fiscal containment has continued to generate an overall substantial budget surplus (in the first half of 20219 since much of the extraordinary oil revenues and gains from lower interest rates were saved,” he said.
The Angolan authorities saved practically all of their extraordinary fiscal revenues in 2021, while the 2022 State Budget is on course to generate a general surplus of 2.4% of GDP while higher oil prices should bring in an expected US$500.
As a consequence, Angola’s disciplined fiscal policy has helped to drastically reduce debt-to-GDP ratio from 135.1% of GDP in 2020 to 95.9% in 2021 and is on track for a reduction to 78.9% in 2022 according to the IMF.