GRASP­ING THE NET­TLE

An­gola’s new pres­i­dent is rid­ding state in­sti­tu­tions of cronies linked to the Dos San­tos fam­ily, but his sec­ond chal­lenge — to res­cue the coun­try’s oil-de­pen­dent econ­omy — will be a tougher task

Financial Mail - - FEATURE - Stafford Thomas

Since be­ing sworn in as An­gola’s pres­i­dent just seven months ago João Lourenço has be­come known among An­golans as “The Ter­mi­na­tor” for his fight against ram­pant cor­rup­tion. The 64-year-old for­mer army gen­eral faces a daunt­ing task. Cor­rup­tion be­came in­sti­tu­tion­alised un­der his pre­de­ces­sor, José Ed­uardo dos San­tos, who ruled Africa’s sec­ond-largest oil pro­ducer with an iron fist for 38 years.

The mag­ni­tude of the chal­lenge fac­ing Lourenço is clear: Ber­lin-based Amnesty In­ter­na­tional ranks An­gola as the world’s 14th-most cor­rupt coun­try out of 180 in its 2017 cor­rup­tion per­cep­tions in­dex. On a scale where 0 is to­tally cor­rupt and 100 is to­tally in­cor­rupt, An­gola scored 19.

To the sur­prise of scep­tics, who thought Lourenço would be a pup­pet of the Dos San­tos fam­ily, he set to work swiftly to clean up cor­rup­tion. His first big tar­get was the for­mer pres­i­dent’s daugh­ter, Is­abel dos San­tos, whom he sum­mar­ily dis­missed as head of state oil com­pany So­nan­gol in Novem­ber, to­gether with all board mem­bers. She had been ap­pointed by her fa­ther in June 2016 and now finds her­self be­ing in­ves­ti­gated by the An­golan public prose­cu­tor fol­low­ing al­le­ga­tions made by her suc­ces­sor, Car­los Saturnino, that she was cen­tral to a US$38M shady trans­ac­tion.

She has a net worth of $2.6bn, which makes her Africa’s wealth­i­est woman, and has hit back, claim­ing in a

What it means: The col­lapse of the oil price in 2015 dealt a blow to An­gola’s econ­omy and gov­ern­ment fi­nances

13-page doc­u­ment that she is the vic­tim of “slan­der­ous” and “defam­a­tory” “cam­paigns”.

But her prob­lems are mi­nor com­pared with those of her brother. José Filomeno dos San­tos, who was ap­pointed head of An­gola’s $5bn sov­er­eign wealth fund by his fa­ther in 2013, finds him­self ac­cused by the fi­nance min­istry of an at­tempt to de­fraud the fund of $1.5bn. He was fired by Lourenço in Jan­uary.

Among the oth­ers ac­cused of in­volve­ment is for­mer An­golan cen­tral bank gover­nor Val­ter Filipe da Silva, who al­legedly or­ches­trated the trans­fer of $500m just be­fore Lourenço’s elec­tion. UK au­thor­i­ties flagged the trans­ac­tion as sus­pi­cious and have re­cently trans­ferred the funds, which had been frozen, to An­gola’s cen­tral bank.

The Dos San­tos sib­lings have been the most prom­i­nent tar­gets of Lourenço’s cleanup, but the heads of other cronies have also rolled. They in­clude the chief of the for­eign in­tel­li­gence agency, An­dré Sango; the head of the armed forces, Gen Ger­aldo Nunda; the chief of po­lice; the head of state di­a­mond com­pany En­diama; the boards of the three state-owned me­dia com­pa­nies and most state gov­er­nors.

An­other daunt­ing pri­or­ity con­fronting Lourenço is re­pair­ing the badly dam­aged econ­omy. The col­lapse of the oil price in 2015 dealt a se­vere blow to it and brought 14 years of strong GDP growth to a shud­der­ing halt. GDP grew by 0.9% in 2015, by 0.1% in 2016 and by 0.9% in 2017.

The lower oil price has also played havoc with gov­ern­ment fi­nances. Ac­cord­ing to the African De­vel­op­ment Bank, gov­ern­ment rev­enues de­clined by 51% be­tween 2014 and 2017 to $22.3bn. Oil-re­lated rev­enues ac­counted for 46% of to­tal re­ceipts in 2017, down from 67% in 2014.

This forced gov­ern­ment to slash its to­tal ex­pen­di­ture, which fell 44.8% be­tween 2014 and 2017, to $29.3bn.

The col­lapse of the oil price has left the coun­try fac­ing a se­vere US dol­lar short­age, largely due to au­thor­i­ties’ de­ter­mi­na­tion to keep the An­golan cur­rency pegged at 166 kwanza to the US dol­lar. It also helped send in­fla­tion roar­ing to a crip­pling 32.2% in 2017.

The peg ham­mered An­gola’s for­eign ex­change re­serves, which in 2017 alone fell from $20bn at the start of the year to $12bn at the end. Mone­tary au­thor­i­ties fi­nally ca­pit­u­lated in Jan­uary, an­nounc­ing that the cur­rency would be al­lowed to float in a trad­ing band to the dol­lar.

The kwanza in­evitably weak­ened af­ter that, drop­ping by a third to about KZ22/US$. But this does ap­pear to have had a pos­i­tive in­flu­ence on An­gola’s for­eign ex­change re­serves, which ended Fe­bru­ary at $12.6bn.

Uk-based re­search firm Cap­i­tal Eco­nom­ics says in its sec­ond-quar­ter 2018 review of African economies: “An­gola has fi­nally be­gun the pol­icy re­forms needed to help the econ­omy ad­just to lower oil rev­enues. This will im­prove long-term growth prospects, but it will be painful in the short run.”

Cap­i­tal Eco­nom­ics pre­dicts mar­ginal GDP growth of 1% in 2018, with a mod­est rise to 1.5% in 2019 and 2% in 2020. The good news is that in­fla­tion is ex­pected to abate grad­u­ally to 21% in 2018 and 14% in 2020.

But to re­ally pros­per again An­gola ap­pears to have no choice other than to di­ver­sify its econ­omy. Omi­nously, the fi­nance min­istry warns that with­out a re­sump­tion of largescale ex­plo­ration and de­vel­op­ment, oil pro­duc­tion will fall 36% by 2023.

In­fla­tion is ex­pected to abate grad­u­ally to 21% in 2018 and 14% in 2020

João Lourenço

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