A moderate recovery in global oil prices will support renewed economic growth in Angola in 2017, despite persistent structural weaknesses. There is an elevated risk of protests and civil commotion in the run-up to elections in August 2017 and a managed succession of presidential authority, although commercial diamond mining is unlikely to be directly targeted. Foreign investors in Angolan diamond mining will benefit from a broadly supportive regulatory environment.
A separatist conflict continues to affect oil-rich Cabinda province. The Front for the Liberation of the Enclave of Cabinda (FLEC) remains active, primarily targeting military and police installations using improvised explosive devices (IEDs) and arson attacks. A power struggle in the group led to an uptick in attacks in 2016. In September 2016, the group reportedly killed 12 Angolan soldiers on the border with the Republic of Congo. FLEC claimed responsibility for 40 government fatalities in 2016.
Violent incidents are likely to continue this year, as Angola’s presidential and legislative elections are due in August 2017. However, mining companies are unlikely to be directly affected. FLEC lacks the resources to pose a threat outside of the Cabinda region in the diamond-rich Lunda Norte region.
In the run-up to the August 2017 elections, there will be an elevated risk of protests and civil commotion. Dissatisfaction with the ruling People’s Movement for the Liberation of Angola (MPLA) and the prospect of a managed succession to President dos Santos’ long-time aide João Lourenço will intensify protest activity in the one-year outlook. Demonstrations are mostly peaceful, although security forces have utilised tear gas, batons and ammunition to disperse protesters. In September 2015, agents of the police force in Luanda beat 15 youth activists when they demonstrated in solidarity with political prisoners.
A 2.9% increase in crude oil production in 2017 will support renewed economic growth in Angola in the medium term. Real GDP growth is forecasted to reach 4.9% in 2018, from a weak 0.7% in 2016. Alongside recovering oil prices, increased oil production will also contribute to a marked improvement in Angola’s fiscal position. Amidst suppressed oil prices, the budget deficit reached 9.2% in 2015, but is forecasted to fall to 1.9% in 2017.
This trend will be further supported by government retrenchments, with public investment cut by 53% in 2016. Inflation should also ease in 2017, as improved export revenues reduce pressure on the kwanza. The annual inflation rate was 41.95% in 2016, but is forecasted to fall to around 13% in 2017.
However, structural weaknesses persist in the Angolan economy. Hydrocarbon revenues still account for around 40% of GDP, leaving the economy exposed to a renewed downturn in global prices.
Sovereign credit risks are elevated in Angola. The debt burden stood at over 70% of GDP at the end of 2016, giving Angola one of the most elevated debt burdens in the region. Crucially, the current uptick in global oil prices may deter continued structural reform and support of the non-oil sector, exacerbating underlying economic weaknesses.
Diamond mining is central to the Angolan government’s plans to diversify revenues away from hydrocarbons, and the government has worked to build a supportive regulatory environment for foreign investors. This is unlikely to change under a Lourenço administration. Tax breaks of up to 15 years are available in the sector and the 2012 national mining code allowed foreign investors to take a majority stake in locally owned companies. In October 2016, Angola ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, strengthening investor protections. This supportive regulatory environment will see total diamond output grow by 4.2% y-o-y in 2017.
However, some risks remain for overseas investors. Under the 2012 code, the government has the right to participate in all mining activities and joint ventures must involve state miner Endiama. The judicial system is problematic for foreign investors. Legal rulings are not transparent and may be influenced by political elites. Foreign investors may face arbitrary rulings in commercial disputes, particularly where the other party is well-connected to the MPLA.
In this month's risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iran, Ecuador, Lebanon and Chad, all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 60 international sources of data.
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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email firstname.lastname@example.org