Angola’s Residual Oil Anguish Angles
As Angola completed its IMF standby arrangement centered on better oil revenue management and transparency and again broached the possibility of sovereign bond entry, the US Justice Department circulated findings of a foreign corrupt practices investigation showing both past and sitting officials with hidden joint venture ownership stakes and payments. Election preparation is underway as the ruling party tries to chart succession and allow greater opposition, and to prevent resurgence of state arrears to domestic contractors and suppliers after several rounds of clearance with administrative streamlining and tighter fiscal policy. A formal stabilization fund may be created to handle petroleum export proceeds as Sonangol looks to document the “unexplained residual” of large outflows and murky accounts which may total one-quarter of GDP according to the Fund. Government budget transfers are to proceed in timely and verifiable fashion to prevent another 2009-type liquidity crisis under the provisions of a new fiscal responsibility law. Priorities since then have been to rebuild international reserves and ensure social and infrastructure spending, as banks adapt to construction slowdown and gradual foreign exchange liberalization. Only 40 percent of loans are in kwacha, and institutions face further currency and counterparty risk from relationships with entities in Portugal, itself the recipient of both bilateral and multilateral assistance. With reduced monetary expansion inflation could go to single digits as non-oil GDP growth stays around 7 percent. The T-bill market is active out to one-year and authorities plan to develop the segment alongside a nascent stock exchange. Financial market scope badly lags rival energy powerhouse Nigeria, where foreign investors have poured into high-yield local debt on the back of naira strength and banking sector cleanup. The sovereign wealth fund there will soon be launched and was championed by Finance Minister Okonjo-Iweala, who lost her bid to become World Bank President but has promised to redouble subsidy and power industry reform efforts despite initial setbacks and insertion of the Boko Haram terror threat on the pressing political and economic agenda.
In Zambia, which was also seen as a near-term maiden issuer, the ratings outlook went to negative as the new administration pledged to renegotiate copper mining projects and withdrew opposition party certification. Both gestures may moderate over time, as the president’s team seeks to reinforce democratic credentials in continental and global circles and maintain mainland China partner interest as industrial conditions at home deteriorate under the latest PMI readings and forecasts. A $500 million-range Eurobond is still in the works as the budget deficit has doubled from 2011 and electricity shortages plague both agriculture and metals production which previously sparked direct and portfolio investor excitement.
