What is at stake for investors in Angola’s elections?


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LONDON/LUANDA — Angolans will vote on Wednesday for a new president and parliament in what looks set to be the closest election in Africa’s second-biggest oil producer since the country won independence from Portugal in 1975.

WHO ARE THE MAIN PLAYERS?

President João Lourenço of the governing MPLA, who has made reforming the corruption-plagued southern African country his priority since taking office in 2017, faces Adalberto Costa Júnior of the rebel-turned-opposition group, the National Union for the Total Independence of Angola (UNITA).

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A May Afrobarometer poll gave the ruling MPLA, which has governed Angola since independence, a lead of 7% over UNITA. Analysts expect it to win despite growing support for the opposition.

WHAT IS AT STAKE FOR INVESTORS?

Angola is one of Africa’s largest economies. It is the continent’s second-largest oil producer after Nigeria, according to OPEC, while Kimberley Process data ranks it as the world’s seventh-biggest producer of rough diamonds.

Long dominated by state-owned companies, a legacy of its socialist past, Angola has embarked on ambitious privatization programs but progress has been slow. Authorities expect the restructuring of state oil company Sonangol and diamond miner Endiama ahead of partial IPOs to take a further 12 to 18 months.

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Lourenço has also opened anti-corruption probes against the previous MPLA administration.

After five years of recession, Angola’s GDP increased 0.7% in 2021, according to the World Bank, and the finance ministry expects growth of 2.7% for this year. Inflation is falling, but remains above 20%.

A return to growth linked to higher oil prices has, as usual, not benefited most Angolans, around half of whom live in poverty, according to the Angola Multidimensional Poverty Index. Such desperation could easily spill over into violence during the elections, said Risk Advisory Group’s Laura Seara Cabeça.

WHAT ARE MARKETS WATCHING OUT FOR?

Investors in the country’s $9 billion worth of outstanding Eurobonds are pricing in a win and a majority of the 220 parliamentary seats for the MPLA, which would mean the continuation of Lourenço’s market-friendly policies.

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Angola’s Eurobonds currently yield above 10%, Tradeweb data show, the level at which a country is often considered to be locked out from issuing new debt.

The country’s debt burden soared to a record high of 131% of gross domestic product (GDP) in 2020 and then fell to 75% last year, helped by higher oil prices.

A JPMorgan index of Angola’s bonds is down 9.3% in the last six months, compared with a 12.5% fall for the continent as a whole.

WHAT IS THE DIFFERENCE BETWEEN MPLA AND UNITA’s POLICIES?

Not much.

Both have presented similar proposals aimed at diversifying the economy and tax base away from oil, and encouraging investment in sectors such as renewable energy, fisheries and tourism, according to Fernandes Wanda, an economist at University Agostinho Neto in Luanda.

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But Jon Schubert, a political anthropologist at the University of Basel, said he thought the ruling MPLA had yet to demonstrate the political will to end Angola’s continued heavy dependency on oil.

Lourenço told a campaign rally on Saturday that the MPLA had lifted the “taboo” against privatization in a country long dominated by socialist thinking on the economy and he also praised a $3.7 billion deal it reached with the IMF in 2018.

“Above all, we gained the international credibility we needed in international markets,” he said.

UNITA has promised to end the “concentration of the economy in a single political and social group” – a reference to Angola being one of the world’s most stratified societies, whose elite comprises only those with ruling party connections.

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But the party has not criticized the government’s broader macroeconomic reforms because it would most likely pursue the same policies, said South Africa-based independent analyst Marisa Lourenço, not a relative of the president.

UNITA presidential candidate Costa Junior told Reuters on Sunday he would continue to push for implementation of an agreement between his party, the MPLA and others to maintain economic stability regardless of which party took power.

“I have pushed for a stability pact and I will continue to do so indefinitely,” he said.

Whoever wins will still face volatility in the price of oil, which accounts for more than half of Angola’s government revenues and 94% of exports, according to the International Monetary Fund, which said any fall in crude prices could quickly trigger debt problems in the country. (Reporting by Rachel Savage and Catarina Demony; Editing by Tim Cocks, Hugh Lawson and Gareth Jones)

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