Angola – Economic Troubles Bring Political Risks

As elsewhere in the region, Angola has initiated the process of easing social-distancing rules imposed to contain the spread of COVID-19, but a resumption of full economic activity is still some way off. The lockdown rules were breached with such frequency that security personnel were deployed as enforcers, but the desired effect has been achieved, with total infections numbering just 27 at the end of April, with only two fatalities.
Although it seems that the country has avoided a health crisis that could have overwhelmed its deficient capacity, the negative impact of the pandemic on Angola’s oil-dependent economy will compound the hardships of average citizens, potentially resulting in lasting damage to the popular standing of President João Lourenço, who since succeeding José Eduardo dos Santos in 2017, has won praise for his efforts to root out corruption, improve government accountability, and create a more hospitable climate for growth-spurring investment.
Operations in the extractive sector have been opened or restarted, and the government recently granted a mining title to Australia’s Persana to develop the Longonjo rare-earth project. Under the agreement, Angola will receive a 2% royalty on revenue, and a 20% national tax, following a two-year holiday. Additionally, Australia’s Lucapa Diamond is ramping up its present operations, but the negative impact of the pandemic on demand in China and the US, the two largest diamond markets globally, will pose challenges.
The economy is forecast to shrink by 3.5%–4% in real terms in 2020, and a sharp reduction in oil income will contribute to large deficits in both the budget and current account balances. A lack of financial resources to pay for food imports points to a high risk of shortages that could easily trigger internal conflict. In that regard, reports that emergency food supplies being distributed along partisan lines in some areas are worrisome. In any case, the setback for fiscal consolidation and delayed progress on structural reforms will weigh on economic potential over the medium term.
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