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Angola: Some steps forward

3/7/2019

The first year in office of Joao Lourenço reveals a rather positive shift in government policies. Nevertheless, despite the new government’s positive drive and the upturn in oil prices, the country faces several challenges.

TRANSCRIPT // Angola: Some steps forward : March 2019

3 QUESTIONS

François Doux: Three Questions on Angola, one year after President João Lourenço took office.

Sara Confalonieri, hello.

Sara Confalonieri: Hello François.

François Doux: A year ago, when the new president was sworn into office, we spoke about the challenges he faced in terms of reforms. At a time of falling oil prices, it is worth pointing out that Angola is Africa’s second largest oil producing country. My first question: how do you assess the president’s first year in office?

Sara Confalonieri: His record is rather positive based on the reforms that have been launched to improve foreign investors’ perceptions of the business climate. In addition to a new foreign exchange policy and improvements in electricity supply, the new government approved a foreign investment law, to combat monopolies and encourage competition. The government also launched an ambitious privatisation plan. The hydrocarbon sector, which is vital for Angola, was restructured with the creation of a new National Oil and Gas Agency, which will be in charge of attributing oil concessions and managing production-sharing agreements, which were previously managed by Sonangol, an entity now being restructured.

François Doux: My second question: last December, the IMF attributed a USD 3.7 billion credit facility to Angola. Will this improve foreign currency liquidity?

Sara Confalonieri: In theory, yes. This 3-year agreement aims to diversify the economy by developing the private sector. It should help ease the pressure on foreign currency liquidity, which is still very strong today. Despite the sharp devaluation of the kwanza after the adoption of a more flexible currency regime, there is still a huge spread between the official and parallel exchange rates.

Foreign reserves have continued to dwindle despite the gradual recovery of oil prices in 2018.

The credit agreement will also help diversify the sources of financing, other than China and the international capital markets, where financing conditions are extremely costly for Angola.

François Doux: My third and last question: in the light of these advances, what is your outlook for Angola in 2019?

Sara Confalonieri: For the past three years, the country has been mired in a very severe recession.

We expect to see a rally this year following the partial rebound in oil production. At the same time, reduced pressure on foreign currency liquidity and slowing inflation should help support the non-oil sector. Yet the persistently deteriorated situation in the banking system will continue to hinder the development of the private sector. Moreover, the recent drop-off in crude oil prices raises fears of a decline in fiscal revenues in 2019, which is somewhat alarming at a time when the public debt–to–GDP ratio is rising rapidly.

To summarise, the economy is expected to swing back into growth, albeit very gradually.

François Doux: We will remain vigilant when it comes to all these ratios.

Thanks Sara Confalonieri.

Tune in next month for a new edition of EcoTV.

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On the Same Theme

Angola: Under the IMF supervision 10/18/2019
In a context of real economic change, Angola has restored relations with the IMF in late 2018. Nevertheless, the support program starts within a weakened near-term outlook.
Taking steps forward 2/28/2019
The first year in office of the new president Joao Lourenço’s reveals a rather positive shift in economic policies, given his determination to clean up politics and the scope of the economic reforms engaged so far. The abandon of the currency peg has eased some pressures on the fx market though they still remain important. The financing package recently signed with the IMF will help to implement structural reforms aimed at diversifying the economy by fostering the development of the private sector. Nevertheless, the overall near-term economic outlook remains embedded in international oil price developments due to the lack of economic diversification. Additionally, the still ailing banking system keeps on straining the private sector. Therefore, the recovery is bound to be very gradual at best due to the persistence of major macroeconomic imbalances.
Angola: External imbalances persist despite higher oil prices 10/24/2018
Since Angola abandoned its currency peg to the US dollar at the beginning of the year, the kwanza has lost more than 40% against the US dollar. The spread between the official and parallel exchange rates has narrowed gradually, although it is still high at more than 20%. The central bank’s foreign reserves have barely increased despite the rebound in crude oil prices since late 2017 and borrowing in the international capital markets (at a relatively high cost).   Angola is expected to report another current account deficit in 2018 because the trade surplus is still too small to offset the deficits in the balance of services and income. Foreign investment (both direct and portfolio investment) is also too weak. Consequently, Angola’s external position remains fragile. The currency will remain under pressure and forex controls will persist in the short term.
Angola: A struggling economy 3/12/2018
The new president is sorely tested as Angolan economy is heavily suffering from investments’ lack and above all from the foreign currency shortage. Despite devaluations and exchange controls in place, liquidity pressures will remain important in 2018. The worrying level of debt forces the government to restructuring.

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