Emerging

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EcoEmerging// 4 quarter 2018  
economic-research.bnpparibas.com  
Angola  
Some encouraging signs  
A review of Joao Lourenço’s first year in office reveals a rather positive shift in government policies, given the determination to  
clean up politics and the scope of the economic reforms engaged. After a two-year freeze, Angola is cooperating with the IMF again  
and a new financing agreement is being prepared in the short term. Yet despite the new government’s positive drive and the upturn  
in oil prices, the country faces several challenges: a deteriorated oil sector, a foreign currency liquidity squeeze, the erosion of  
household purchasing power and a severely troubled banking system. Mired in a severe economic crisis, the recovery is bound to  
be very gradual at best.  
Still in recession  
1- Forecasts  
Despite the progress that has been made since the arrival of Joao  
Lourenço’s new government and the upturn in crude oil prices, the  
Angolan economy is expected to report its third consecutive year of  
recession in 2018. According to the National Statistics Institute, the  
economy contracted 2.2% year-on-year in Q1 2018. This  
contraction was attributed to the 7.3% decline in extracting and  
refining activities, which account for 33% of GDP, and an 8.8%  
decline in trade, which accounts for 15% of GDP.  
2
016  
2017 2018e 2019e  
Real GDP growth (%)  
-2.6  
-2.5  
-1.2  
3.1  
Inflation (CPI, year average, %)  
Gen. Gov. balance / GDP (%)  
Gen. Gov. debt / GDP (%)  
30.7  
-4.5  
31.7  
-6.1  
20.5  
-0.3  
15.8  
2.6  
75.3  
-4.9  
67.3  
-4.4  
70.8  
-1.6  
68.1  
0.5  
Current account balance / GDP (%)  
External debt / GDP (%)  
35.0  
20.8  
8.1  
33.2  
14.0  
5.1  
42.6  
15.0  
5.2  
53.0  
18.0  
6.1  
Forex reserves (USD bn)  
The oil sector continues to face the consequences of the freeze on  
most oil exploration projects and massive layoffs to reduce  
operating costs. Oil production has declined continuously, from  
Forex reserves, in months of imports  
Exchange rate USDAOA (year end)  
166  
166  
310  
400  
e: BNP Paribas Group Economic Research estimates and forecasts  
1
.8 m barrels per day (b/d) in 2015 to 1.45 m b/d in July 2018, due  
to maintenance work on some oil fields while others have reached  
maturity. Yet production should improve as of 2019 with the start-up  
of the new Kaombo oil field (Total) this year. The expected  
2
- Battered oil sector weakens economic growth  
Real growth, year-on-year in %:  
Non-oil GDP  Oil GDP  Total GDP  
1
increase in oil GDP should fuel growth of 3.1% in 2019.  
1
2
0
8
6
4
2
0
2
4
6
8
Excluding the oil sector, economic growth prospects are also limited  
by import restrictions, notably on non-priority products, persistently  
high inflation and the expiration of certain subsidies that had lifted  
household purchasing power. The banking system’s deteriorated  
financial situation will continue to strain private sector development.  
Corporates continue to battle with commodity shortages, insufficient  
equipment and financial problems arising from heavy fiscal  
pressures.  
1
-
-
-
-
Efforts to attract investors  
Joao Lourenço’s arrival at the helm a little over a year ago has given  
the economy a rather positive boost. Since September, the  
president has headed the MPLA, the last vestige of Dos Santos  
hegemony, thereby gaining uncontested authority with Angola’s  
political elite and businessmen.  
2012  
2013  
2014  
2015  
2016  
2017  
2018e  
Source: IMF, Jodi, BNPParibas  
2
non-resident investment, competition and combatting monopolies .  
Moreover, a project to privatise about 74 state-owned companies  
should attract fresh capital in the medium term.  
3
After changing several key positions, the government is trying to  
improve international investors’ perception of the business climate.  
After simplifying administrative red tape to attract FDI (issuing visas  
and residency permits), progress has also been made on supplying  
electricity and issuing building permits. A new law was approved on  
2
To facilitate non-resident investment, the government eliminated the minimum  
commitment of USD 230,000 and the obligation to associate with a local partner  
holding at least a 35% equity stake.  
Enterprises up for total or partial privatisation include the country’s ports, the  
1
3
Located 260 km from the Luanda coast, this is the biggest deep-water oil  
project in Angola, with two production and storage units. Overall production is  
estimated at about 230,000 b/d.  
national airline (TAAG), the Bank of Commerce and Industry (BCI), and the  
Ensa insurance company.  
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EcoEmerging// 4 quarter 2018  
economic-research.bnpparibas.com  
The new foreign exchange policy also reduces the obstacles to  
investment. After abandoning the dollar peg in January 2018, the  
central bank has gradually depreciated the kwanza (AOA) in a  
controlled manner through a series of auctions. Starting in October,  
the volume of foreign currency will be increased and the central  
bank will halt direct sales of foreign currency, which will be handled  
by authorised retail banks. At the same time, the approval of  
legislation to facilitate the repatriation of funds held abroad aims to  
reduce the shortage of hard currency.  
3
- Despite improvements, pressures persist  
 Official AOA/USD exchange rate  Black market (inverted scale)  
Foreign reserves, USD bn (rhs)  
0
35  
1
00  
30  
25  
20  
15  
10  
5
200  
300  
As to the key hydrocarbon sector, after new legislation was passed  
on fiscal rights for natural gas and tax cuts for marginal oil fields,  
President Lourenço created the new National Oil & Gas Agency.  
This agency will take over the attribution of oil concessions and the  
management of production sharing agreements, which were  
previously managed by Sonangol, which will maintain its exploration,  
production, refining and exportation activities.  
4
00  
500  
00  
700  
6
0
2014  
2015  
2016  
2017  
2018  
Large macroeconomic imbalances  
Source: BNA, Kinguila, Bloomberg  
The more flexible foreign exchange regime seems to be gradually  
reviving the economy, but the recovery will be longer than expected  
due to major macroeconomic imbalances. With the switch to a more  
flexible forex regime, the kwanza has lost more than 40% in value  
against the dollar. The spread between the official and parallel  
exchange rates is still high but narrowing gradually (chart 2). This  
indicates that forex pressures will persist in the short term. Despite  
the upturn in crude oil prices since late 2017, the central bank’s  
foreign reserves have barely increased (to USD 13.2 bn in Q2 2018  
from USD 13.3 bn in Q4 2017). Consequently, foreign exchange  
controls are likely to be maintained in the medium term.  
over the past year, there is still a very fragile balance between the  
need for reform and the living conditions of the Angolan people.  
As to the banking system, it is still ailing. Despite the high  
profitability of banks, whose revenues rely mainly on foreign  
currency business and Treasury bonds, the quality of bank assets  
has deteriorated constantly. The non-performing loan ratio rose to  
nearly 30% at the end of 2017, compared to 13% a year earlier.  
This is placing pressure on bank capitalisation. The absence of  
correspondent banking (with the exception of a few foreign banks)  
and the slow pace of bank transfers will continue to strain the  
private sector. Even though transfers have improved since the  
beginning of the year and the government has no known payment  
arrears with local suppliers, roughly EUR 1 bn in arrears for the  
period 2014/2017 are still blocked. This has apparently caused  
certain corporates to go bankrupt and others to experience major  
financial difficulties.  
The current account balance is expected to post another deficit in  
2018 (-1.6% of GDP). In 2018, the trade surplus was still too small  
to offset the deficits in the balances of services and revenue.  
However, it should be possible by 2019, thanks to the ongoing  
upturn in oil prices. Foreign direct investment and portfolio  
investment are both weak, which means the external situation will  
remain extremely fragile, and the country will have to rely on  
external debt financing. Borrowing on the international capital  
markets is relatively expensive. Last May, Angola issued a  
USD 3.5 bn Eurobond with the longest maturity (30 years) at a rate  
of 9.4%. Despite a better oil cycle, the sovereign spread on foreign-  
currency debt is still high at about 600bp.  
In this context, the government officially asked the IMF to add a  
financing component to the technical assistance programme to  
support the Macroeconomic Stabilisation Programme (started in  
January 2018) and the 2018-2022 National Development Plan. It  
has requested a 2-year loan of about USD 4.5 billion that can be  
rolled over for a third year. The signing of such an agreement would  
signal a change in the government’s economic policy. First, it would  
diversify the sources of international financing. Second, its  
macroeconomic reform targets are likely to reassure economic  
agents. Yet the austerity already in place might have to be tightened  
even further, which risks testing the social acceptance of the efforts  
currently demanded of the population. Despite the changes made  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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