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NS4301 Summer 2015 Angola


NS4301 Summer 2015 Angola – PowerPoint PPT presentation

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Title: NS4301 Summer 2015 Angola

NS4301 Summer 2015Angola
  • After gaining independence from Portugal in 1975
  • Angola was in a civil war for next three decades
  • Most infrastructure was destroyed
  • Estimated one million people died
  • About one third of population fled to neighboring
    countries or were internally displaced
  • Sustained peace was only attained in 2002
  • Since then
  • Country has been experiencing notable
    improvements in its reconstruction and economic
  • Growth averaged 15.2 2002-08, and 4.3 2009-14
    as opposed to 2.1 from 1980-2001
  • However still plagued with poor social
    development indicators

WEF Angola I
Patterns of Governance I
  • The overriding pattern of governance in Angola is
    one of extremely low levels at the time the World
    Bank Governance Indices were first compiled in
  • Since then the country showed some improvement in
    all dimensions of governance until various years
    in the mid-2000s.
  • From the mid-2000s to the present little gains
    have been made outside of political
    stability/absence of violence
  • In several areas including government
    effectiveness, regulatory quality, and corruption
    there has actually been a deterioration since the
  • Rule of law consistently bad never improving
    since 1996 

Patterns of Governance II
  • The inability of the country to translate its
    economic growth into broader socio-economic gains
    is also apparent in the Legathum Prosperity
  • Over the last several years (2012-2014) despite a
    significant improvement in the countrys ranking
    in economic performance and a slight improvement
    in health, there was a sharp deterioration in
  • Entrepreneurship
  • Governance
  • Education
  • Personal freedom and
  • Social Capital

Voice and Accountability
Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Economic Freedom
WEF Angola II
WEF Angola III
Economic Freedom I
Economic Freedom II
Oil Price Drop 2014-15 I
  • With oil prices remaining well below 2010-14
    levels, government passed and revised a 2015
    austerity budget
  • Based on a benchmark oil price of US40/barrel
    instead of the US81/barrel included in the
    original 2015 document.
  • Outlined are a series of steps to reduce
  • Cuts in subsidies with further reductions planned
  • Freeze on public sector hiring
  • To counter possible public unrest
  • Government pledged that social programs such as
    health and education will be protected
  • Will implement a US5bn social housing program
  • Clear risk that introducing ad hoc austerity
    measures especially in area of capital spending
    could create
  • Longer-term problems for economy and
  • Slow down much needed attempts at diversification

Oil Price Drop 2014-15 II
  • Reacting to its revenue short-fall the government
    is seeking to negotiate loans with a number of
    financial institutions for use in public
    investment projects
  • In July 2015 secured US650 million from World
    bank to implement reforms to
  • Increase revenues
  • Strengthen public investment management systems,
  • Reduce fuel subsidies
  • Government also aims to issue bonds and treasury
  • May be forced to resort to IMF support if oil
    prices remain depressed
  • Politically unpalatable option one authorities
    are likely to seek to avoid.

Debt Strategy I
  • Government has entered into a number of
    lifeline deals concluded with donors and
    creditors in attempt to cushion effects of the
    oil price drop
  • Important for meeting
  • Debt repayments and
  • Development goals
  • In June 2015 government announced it plans to
    borrow 25 billion dollars during 2015 to cover
    budget shortfalls and continue with various high
    profile infrastructure projects
  • Bulk will come from treasury bills and bonds
    (around 15 billion dollars) and the remainder
    from international loans

Debt Strategy II
  • Diversifying Debt
  • Historically, Angola engaged a diverse range of
    economic and political parteers to ensure it does
    not become reliant on a singly one
  • Strengthens its bargaining position as an equal
    partner and power in its own right
  • Attempting to extend this strategy as it
    negotiates new and restructured credit lines from
    sovereign governments, banks and multilateral
  • Chinese connection
  • China remains the single largest creditor
  • It has loaned Angola around 20 billion dollars
    since 2003 (Reuters)

The Angolan Model
  • Historically Angolas connection with China has
    been defined by the Angolan Model.
  • Model has been in effect since around 2004
  • Involves the manner in which credit lines are
    extended to Angola by China
  • Money is used to finance the governments key
    capital projects.
  • Payment is specified in oil with the requirement
    that that 70 of project inputs be sourced in
  • May be other elements favorable to Chinese firms
    on contracts
  • No governance or reform demands placed on Angola

Debt Strategy II
  • Speculation is Santos recent trip to China to
    negotiate new arrangements. These will
  • Support construction projects,
  • Maintain debt stability, and
  • Increase downstream construction suppliers
  • Likely that Angola has
  • negotiated a moratorium on debt repayments until
    its macroeconomic situation improves and
  • For the extension of new credit lines
  • Any new and rescheduled loans are probably backed
    by cash for oil deals, a position supported by
    recent Chinese announcements that will scale-up
    imports of Angolan crude
  • Such commitments reduce the governments scope to
    negotiate potentially more lucrative deals with
    other buyers.

Debt Strategy III
  • Crisis Creditors
  • Government eager not to rely entirely on China
  • Has pursued an array of funding streams from
    Europe, the United States and Russia
  • In addition to sources such as
  • Goldman Sachs,
  • Ecotech, Societe Generale,
  • Russias VTB Capital, and
  • multilateral lenders the World Bank and African
    Development Bank have pledged 450 million dollars
    and 124 million respectably
  • These loans are small and dispersed
  • None of the non-Chinese creditors can exert
    substantial influence over government decision

Assessment I
  • Non Oil Emphasis
  • The Dos Santos administration has emphasized that
    new investments include at least some components
    aimed at sponsoring non-oil activity,
    particularly construction the single largest
    non-oil contributor to GDP growth
  • However construction deals that are announced as
    new are unlikely to be so.
  • Instead deals are likely to represent stalled
    existing projects that have been re-packaged
    with additional financing.
  • Ruling MPLA does not face serious electoral
    competition, but wants to avoid opposition
    activists citing examples of abandoned
    construction sites as evidence of financial

Assesssment II
  • Rising inequality and living costs, along with
    corruption concerns are driving protests,
    especially in urban areas
  • Resisting Reform
  • World Bank loans include provisions on improved
    transparence and fiscal management
  • Angola has historically successfully avoided
    governance-related conditionality by turning to
    bilateral lenders such as Brazil, Russia and
  • However its scope to do so appears to be
    weakening under its current budgetary pressures
  • Government will avoid implementing governance
    mechanisms, despite having agreed to do so

Assessment III
  • The MPLA is strongly opposed to measures that
    appear to infringe on Angolas sovereignty or
    expose the business interests of political
  • Even when faced with economic collapse during the
    civil war (1975-2002) it avoided aid linked to
    governance reform
  • This could complicate future funding tranches
    from the Bank.
  • However investor deals and credit from other
    sources are unlikely to be affected.
  • Angola has a fairly good record of paying its
  • Unlikely some regional states it tends to service
    its loans quickly (when funds are available)
    rather than seek prolonged repayment schedules
    which may entail reforms.

Assessment IV
  • The government also may offer private investors
    business facilitation services and relief from
    certain regulatory burdens to offset their
    transparency concens.
  • Future
  • Angloas debt to Chinese entities is likely to
    grow, eroding its ability to enter negotiations
    as an equal partner
  • This may improve Chinas hand in oil supply
    contract negotiations and in secreting state
    construction projects
  • Rumors China taking advantage of Angolas weak
    bargaining position to negotiate some land
  • Deals with non-Chinese creditors and donors are
    sufficiently small and dispersed to ensure that
    none have sufficient leverage to shift government
    intransigence on governance reform.

Assessment V
  • Clearly Angloans dont want to return to the
    post-independence era of violence and war
  • However a danger of increasing protests given the
    countrys fiscal difficulties
  • Revenue shortages have already prompted the
    authorities to
  • Raise fuel prices three times in seven months,
  • Introduce a freeze on public sector hiring
  • Scale back or postpone many large infrastructure
  • Such moves could reinforce perceptions that only
    a small political elite has benefitted from
    Angolas wealth
  • Government likely to continue to crack down
    strongly on anything it perceives is a threat to
    stability or its authority

Assessment VI
  • However crackdowns and pre-emptive arrests could
    backfire on the ruling MPLA as the cumulative
    effect of the growing list of police cruelty
    provokes new tensios
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