Essential Business

Angola 2022 – Continuity and Change

 In In Focus, News

Since the transition of power from José Eduardo dos Santos to João Lourenço in 2017, Angola’s economic policy has shifted towards Neo-Thatcherism in a bid to diversify the economy away from petroleum products, while cleaning up corruption and paying off debts. Problems, however, persist. Essential Business talks to Angola expert Jon Schubert at the II International Congress on Angola – 2022, in Lisbon.

Text & Photos: Chris Graeme

Angola’s reforms to reduce dependency on petroleum products and diversify its economy may be more wishful thinking to satisfy an international audience of investors and lenders rather than anything concrete, warned an expert on the Angolan economy and political affairs this month.

Keynote speaker Jon Schubert (University of Basel) admitted at the II International Conference on Angola (held in Lisbon on June 17) that he is “sceptical” about how far Angola will diversify its economy away from fossil fuels and clean up corruption, despite the government’s good start and intentions when it won the elections in 2017.

“My conviction over the past five years of João Lourenço’s first mandate, and the reforms with which he started off, were largely for external consumption,” he said on the sidelines of the conference that brought together Portuguese and international Angola experts.

Schubert says the anti-corruption fight won Lourenço a lot of support at the start, not just from an overseas audience, but more crucially from Angolans, and even the Angolan opposition parties, which took analysts by surprise.

“People applauded when he targetted very influential people, including the dos Santos family. Now, five years on, that initial euphoria has worn off. Some of the great successes of Lourenço’s first term, such as the deal with the IMF [the International Monetary Fund’s Executive Board completed its sixth review of the Extended Fund Facility for Angola for a disbursement of US$748 million from a US$4.5Bn bailout package in December 2021], have in fact not succeeded in improving the lives of ordinary Angolans,” says Schubert.

He believes there is a “paradoxical picture”, where overseas he is viewed as a great reformer, taking the necessary tough steps to open up the country’s economy and break up corrupt oligarchies, while internally the story is quite different, because Angola, with IMF agreements, is going through orthodox austerity methods that he doesn’t think work for the Angolan economy.

“The IMF has been pressuring Angola to phase out fuel subsidies for over a decade, but the policies have only resulted in hurting the poorer classes of the population, while driving up the costs of living,” says Schubert.

However, in terms of budget expenditure, it’s a “drop on a hot stone” when 50% of government expenses goes on servicing debt repayment”, explains Schubert. (External Debt in Angola increased to US$501,32.50 million in 2021 from US$501,14.50 million in 2020 – Source: National Bank of Angola)

REDUCING OIL DEPENDENCY

Schubert says that, on a structural level, years of mismanagement and oil dependency will take years to resolve. “Even if there were someone extremely willing, which Lourenço appeared to be as he tried to clean up the regime in the first two years of his first term, it will be very difficult to overturn entrenched interests. “What we are seeing, I fear, is the replacement of old networks with new networks of interest, and also the perpetration of oil dependency,” adds Jon Schubert.

Schubert points to the Angolan government’s recent announcement that it would reopen a tender for an oil refinery in Lobito (Angola is calling interested companies and individuals to invest in the refinery).
The refinery, in the Benguela province, is projected to process up to 200,000 barrels per day when completed. According to the proposed corporate governance structure, private investors will own 70% of the company, with state oil firm Sonangol controlling a 30% stake.

“This is a project that perpetuates dependency rather than diversifying the economy. The government has been talking about diversifying the economy for 20 years and has not managed to do so,” he explains.

However, he did point out that Angola was not the only country whose energy providers are “scrambling to position themselves as environmentally conscious green energy providers”: “I don’t think in the case of BP or Total [two big oil exploration companies in Angola] it goes beyond anything but ‘green washing’.”

The Angola expert and author of the book Working the System – a Political Ethnography of the New Angola added: “I think governments and international companies will squeeze out oil and milk it for as long as they can, and Angola is no different, especially now that oil prices have gone back up again. It is too easy to think about that, rather than structural transformation.”

The broader question of Angola’s ability to transition to renewable and green energy was also a key issue for debate in May at the book launch of Angola’s Advancements 2017-2022, which was presented in Lisbon in the presence of the Angolan ambassador to Portugal, Carlos Alberto Fonseca.

In his keynote speech, Ambassador Fonseca, outlining Angola’s history regarding energy exploration and production, said: “The other energy source we do have, and which is very important, is solar energy,” and added, “We are also looking at wind energy as another source of power”, 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 wind farms.

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%. 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.

INVESTMENT

On the positive side, Angola has scrapped a law that meant any investor who set up a business in the country had to be 50% Angolan capital share-controlled. Jon Schubert admits that Angola has been successful since the end of the Angolan Civil War in positioning itself as a friendly FDI (Foreign Direct Investment), and on paper, “they do make all the right noises”.

For example, they created a single-window electronic registry to open up a business. However, says Schubert, Angola remains a very “challenging country in which to do business” because of the cost of paperwork, energy, labour, bureaucracy and, more tellingly, political pressure.

“As soon as a business venture gets remotely successful, there are political interests that want to cash in,” says Jon Schubert.

Rui Santos Verde, director of independent Angola research think-tank CEDESA and an expert on corruption in Angola, and Eliseu Gonçalves, researcher at CEDESA, have both admitted that the prospects for the current government’s programme of economic reforms is uncertain and that, despite some of the advances the country has made, the obstacles and economic challenges that it faces – drumming up private investment, privatisation, balancing Angola’s public accounts, and the liberalisation of the exchange rate, as well as opening up the country to tourism and diversifying the economy away from oil – are massive.

Rui Santos has 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 in the United Kingdom. Then, the UK 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,” he says.

“Thatcher decided to tighten public spending and tackle the public and budgetary deficit, although in Angola, instead of putting up interest rates, the government has decided to unpeg controls on the Kwanzaa,” he continued, adding that austerity measures have been ongoing since 2017.

“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 haven’t been coming so often to shop in Lisbon’s Avenida da Liberdade because of these belt-tightening measures,” says the Angola expert.

CORRUPTION AND TRANSPARENCY

Corruption is another problem facing Angola and, much as in other African Sub-Saharan countries like South Africa, is widespread, at every level, not just in politics but also at the voting booths, as a General Election looms for August 24.

Part of the problem lies in the fact that there have been no strong and effective opposition parties with any experience in defeating the MPLA party (People’s Movement for the Liberation of Angola), which has been in power since the country’s independence from Portugal in 1975. The new United Patriotic Front could be the best hope for opposition and civil society activists to prevent yet another victory for the MPLA and João Lourenço, because it brings together key opposition leaders under one umbrella and offers a credible alternative for those disaffected with Lourenço and his party.

Paula Roque (University of Oxford) believes that, despite the importance of continued reforms and change in Angola, the forthcoming elections will be “less than transparent”.

“We’ve been seeing various manoeuvres, both politically and legally, behind the scenes to discredit the elections. This is not overt, because the Government, the MPLA party and President Lourenço need to convince the electorate, and the international community, that the elections are legitimate and credible. Unfortunately, I’m seeing signs that these elections could be rather opaque and disputed.”

TAXATION

Jon Schubert says there has been a trend across Africa, including Angola, to offer a system of tax breaks to attract overseas investment.
As far back as 2012, Angola implemented a tax reform whose main objective was to increase non-oil tax revenues by broadening the tax base, rationalising incentives, increasing control with voluntary tax payments, and fighting tax evasion. This includes a number of tax incentives aimed at overseas investors, such as a two-year reduction by 20% on the CIT, or corporate investor tax rate.
“I don’t think in the long run this is very good for public finances, but even with a generous tax regime, the complications of doing business in Angola persist and a liberal tax regime is unlikely to offset these problems.”

TOURISM

The potential for Angola to be an important tourist destination driven by its impressive natural wildlife and landscapes exists. “There are a lot of things that need to be done to improve services, and there has been a mini-boom in domestic tourism over the past two years,” says Jon Schubert, pointing to players such as Angola Nightlife, which has been educating Angolans about the opportunities for tourism in their own country.

However, “to attract an international clientele that is used to going to Namibia, Tanzania or South Africa, the quality and reliability of services, as well as ease of access, needs to be improved by quite a margin,” he says, adding that there are people “thinking in the right direction”, including at the Ministry of Tourism, but structural dependencies such as imports and the high cost of living make it a “rocky path ahead”, concludes Jon Schubert.

The II International Congress on Angola brought together Angola experts such as Filipe Santos (ARN/CEDESA), Paula Roque (University of Oxford), Vasco Martins (University of Coimbra), Rui Verde (University of Oxford), Sandra Ribeiro and Amélia Pita-Gróz (Universidade Autónoma de Lisboa), José Carochinho (Universidade Lusófona) and Patrício Batsikama (ISPT-Angola), amongst other speakers.

 


Read More