Angola secured a programme with the International Monetary Fund (IMF) in December 2018, which is expected to support progress with economic reforms. The infrastructure sector is expected to perform well and will benefit from tax breaks, but the economy’s continued dependence on dwindling oil production poses risks to the outlook. While President João Lourenço’s corruption crackdown raises contractual risks, it could improve the business environment over the medium-term.
A separatist group, the Front for the Liberation of the Enclave of Cabinda (FLEC), continues to wage a low-intensity conflict in the oil-rich Cabinda province. FLEC therefore poses a moderate sabotage and kidnap risk to Cabinda’s prominent oil and gas industry. In May 2016, men who claimed to belong to the movement boarded an offshore Chevron gas platform and threatened workers. However, FLEC’s capabilities are limited and its activity is largely restricted to the northeast of the province. FLEC is also highly unlikely to attempt any attacks against infrastructure beyond the confines of Cabinda.
Due to the rising cost of living, there is a moderate risk of protests in Angola. Demonstrations are most likely to occur in the capital, Luanda, and in the cities of Benguela, Huambo, Lubango and Malange. However, major demonstrations are unlikely to occur in the one-year outlook, as President João Lourenço is seen by many Angolans as a reformer. Infrastructure assets are unlikely to be specifically targeted during protests, but security forces may respond with tear gas and live ammunition, which would pose a risk of collateral property damage.
Real GDP is set to contract by 1.1% in 2018, primarily due to production delays at the Kaombo oil block, before rebounding to growth of 2.8% in 2019. Oil accounts for around 95% of the Angola’s exports, but production is set to decline over the medium-term due to a lack of investment. Angola acquired a significant amount of debt during a period of low oil prices between 2014 and 2016, and while general government debt is set to fall from 73% in 2018 to 67% in 2019, the burden will remain elevated.
Lourenço has taken steps to address Angola’s fiscal imbalances. Having introduced a floating exchange rate, he has announced plans to privatise dozens of state-owned enterprises. Angola’s relations with multilateral financial institutions have therefore improved, and the IMF approved a three-year USD 3.7 billion Extended Fund Facility in December 2018. The facility will be accompanied by structural reforms and will support a gradual improvement in Angola’s macroeconomic fundamentals.
Currency risks remain elevated in Angola, although they are likely to moderate in the medium-term. The official kwanza rate remains stronger than the parallel rate, although the gap is expected to narrow in the 12-month outlook. This should facilitate greater access to hard currency in the country. Foreign-exchange reserves stood at USD 17 billion at the end of 2017 and are expected to rise to USD 22 billion in 2019.
The construction industry is forecasted to grow by 6.4% year-on-year between 2018 and 2027, supported by investment in Angola’s transport and energy infrastructure. The government will launch a National Oil and Gas Agency to manage oil concessions, which will reduce the dominance of Sonangol in the sector. In addition, foreign investments of over USD 1 million in non-oil sectors such as infrastructure can apply for 15- year tax breaks. However, the negative medium-term outlook for oil production could undermine the government’s ability to reduce the infrastructure deficit.
The risk of expropriation is relatively low, but there is an elevated risk of contract alteration. Lourenço has steadily undermined the influence of his predecessor, José Eduardo dos Santos, who ruled Angola for almost 40 years and whose family amassed a wide array of business interests. In June 2018, Lourenço revoked a USD 1.5 billion deal with Atlantic Ventures, a firm in which the dos Santos family owns a stake, for the construction of the Barra do Dande port. The government has since issued an international public tender for the project. Domestic and foreign companies with ties to the Dos Santos family may find it harder to access foreign currency and may be targeted by corruption investigations.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for India, Viet Nam, Angola and Ethiopia all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email email@example.com.
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