New Study: Angola Country Risk Report Q3 2016

From: Fast Market Research, Inc.
Published: Tue Jul 19 2016

2016 will mark another year of slow growth in the Angolan economy as the legacy of the oil price collapse continues to pose a headwind. The completion of several legacy investments into the hydrocarbon sector will see some uptick in growth in 2017, but the structural vulnerabilities attached to oil dependence will remain a persistent issue for the economy.

A more robust recovery in oil prices and the government's commitment to cutting expenditures will facilitate a smaller fiscal deficit in Angola than previously expected. Nevertheless, the public debt burden will remain dangerously high and government cuts will entail a slowdown in the much needed development of the country's infrastructure network.

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The beginnings of a recovery in the oil price and a strong outlook for production mean the risk posed by Angola's external position will decrease over the next 12 months. However, any narrowing of the country's trade deficit will not portend a structural improvement in economic fundamentals of Angola's external position, which will remain highly dependent on the global oil market.

Inflation will remain high as prolonged food shortages increase the cost of the consumer basket in Angola, prompting the Banco Nacional de Angola to carry out further rate hikes before year-end 2016. However, the decision to implement a more stable trajectory of kwanza devaluations will see inflation slowly fall from its current highs in the second half of 2016.

Although by no means guaranteed, a managed transfer of power to a chosen successor is the most likely outcome of President Jose Eduardo Dos Santos' decision to step down from office in 2018. While ignoring democratic principle in any transition of power would increase resentment towards elites and heighten political risk, policy continuity would more than offset most of the impact on investor sentiment.

Major Forecast Changes

We have revised our forecasts for Angola's budget deficit in 2016 as oil prices trend higher than previously expected, and the government signals its commitment to more austere fiscal policy with a revised budget and negotiations with the IMF. As such, we expect the deficit to equal just 4.3% of GDP, compared to our previous forecast of 8.1%.

Key Risks

The government decides it can no longer dedicate the amount of reserves required to sustain the kwanza's stability, and instead lets the currency free float at the market rate. This would likely lead to significant depreciation and subsequent inflation as import costs rose.

Public opposition to the incumbent government reaches boiling point and President Jose Eduardo dos Santos is forced out of office, leaving a power vacuum in his place. Populist groups rise to the fore in this environment, increasing the risk of industry nationalisation.

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Contact Name: Bill Thompson
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