When President João Lourenço attended the World Economic Forum (WEF) in the Swiss town of Davos last January, he suggested that the winds of change were blowing in Angola. His message to investors was clear: the economic outlook looks bleak, but Angola’s poor record with corruption, its over-reliance on oil and mismanagement of public funds is over and he is the one to steer the ship around.
While in Davos, he met with key stakeholders, including Christine Lagarde – the Managing Director of the International Monetary Fund (IMF); the prime minister of Portugal, Antonio Costa; and Sergey Ivanov – the chief executive officer of Russia’s diamond miner, Alrosa. This year, however, he will not attend. Have the winds stopped blowing or has the ship been hijacked?
The strange cases of Dr. Jekyll and Mr. Hyde
Skepticism about the new president and his policies is growing. Africa Confidential wrote this month that ‘his honeymoon was coming to an end as public focus shifts to the economy’. Economics professor Justino Pinto de Andrade at Universidade Catolica de Angola told The Africa Report in September that he doubts how the culture of patronage has changed given that Lourenço ‘has surrounded himself with the same people as dos Santos’. Even Marcolino Moco, who Lourenço has appointed as non-executive director of state-owned energy company Sonangol, in September 2018 also made headlines when he in an interview to Paris-based Jeune Afrique threatened to resign if Lourenço did not keep his promises.
Lourenço’s positioning as a politician of modest origins and stated determination to eradicate corruption at the highest levels is starting to disappoint. Key figures of the former regime remain as influential as ever in spite of the apparent purge, during which Lourenço sacked the children of the former president, José Eduardo dos Santos, from their positions at Sonangol and the sovereign-wealth fund, FSDEA.
Most concerning so far has been Lourenço’s public protection of Manuel Vicente, who was chief executive officer of Sonangol from 1999 to 2012, and then vice-president of Angola until 2017. In fact, many suspected Vicente – not Lourenço – would succeed dos Santos. But a criminal case in Portugal against the former halted those ambitions. Just before WEF in 2018, Lourenço lambasted Portugal’s attorney-general for charging Vicente on suspicion of bribery and money-laundering and demanded that he be tried in Angola instead.
Specifically, Vicente is suspected of bribing Portuguese prosecutor Orlando Figueira EUR763,500 to drop charges of money-laundering against him in 2011. That investigation was in relation to a purchase of a EUR4 million property in Estoril, Portugal, in 2007. Vicente has always denied wrongdoing. One month after WEF, Portugal agreed to Angola’s demands. Figueira, however, was sentenced to six years and eight months in prison in December 2018. The Portuguese prosecutors said in their ruling that it was ‘evident that Vicente […] was the owner of Portmill Limited and Portmill Limitada’, two companies at the heart of the case and in which Vicente has held stakes. According to Portuguese media, Angola’s attorney-general has said that Vicente will be able to answer to charges five years after his mandate ended, which will be in 2022.
Although Vicente is no longer in the government, he remains a close ally of both Carlos Saturnino, Sonangol’s new chairman, and José de Lima Massano, the governor of the central bank – Banco Nacional de Angola (BNA) – since October 2017, when he was appointed by dos Santos. And according to an article in the Financial Times article from last September, Vicente continues to be Lourenço’s advisor.
What is more, other members of the ‘triumvirate’ – a term commonly used to describe the three most powerful members of the dos Santos regime outside the presidential family which includes Vicente, as well as General Manuel Hélder Vieira Dias Júnior ‘Kopelipa’ and General Leopoldino Fragoso do Nascimento ‘Dino’ – have remained in powerful positions. Despite Angolan law barring public officials from having commercial interests, all three have admitted to holding shares in Cobalt International Energy – a Texas-based oil company that filed for bankruptcy at the U.S. Bankruptcy Court in the city of Houston in December 2017 after a deal to sell concessions to Sonangol fell through a year earlier – according to Mail & Guardian in 2012. They allegedly also played a central role in the downfall of Banco Espirito Santo de Angola in 2014, a subsidiary of Portugal’s Banco Espirito Santo, through toxic debt that had been contracted to Portmill Investimentos e Telecomunicações. But a raft of other investigations and publications by reputable online media outlets also allege that they held stakes in a raft of subsidiaries and offshore companies connected to Sonangol.
Kopelipa, the former head of the president’s security cabinet and widely considered one of the country’s wealthiest men, is also married to Welwitschia ‘Tchizé’ dos Santos, another of the former president’s daughters. Portuguese authorities last year confirmed investigating allegations against him relating to money-laundering, specifically in relation to transactions he made between 2006 and 2013 to offshore accounts in the British Virgin Islands. At the time, Kopelipa was head of the national reconstruction office, GRN, which was in charge of improving infrastructure. Many millions of U.S. dollars were spent on Brazilian and Chinese construction projects, and yet, Angola’s transportation network remains derelict in many parts of the country. Similar procedures are yet to be confirmed in Angola, although both Kopelipa and Dino have been removed from their positions in the security apparatus by Lourenço.
French connections and arms deals
While Lourenço has taken a tough stance against Portugal, relations have warmed with another European power: France. Total has already announced a series of new investments in the country, pushing out Swiss commodity trader Trafigura which up until last year had held a near monopolistic position in the country. This came after Lourenço in December 2017, set up a working group to review the oil sector and ‘improve the current conditions of investment in the oil and gas industry’. In January 2018, Sonangol called for new tenders, hinting that Trafigura’s long-running, but opaque, position was likely over.
Although the details of the contracts with Total are scarce, they are likely to be on par with that of Trafigura’s which was worth USD450 million in 2017. Although Total has been present in Angola for a long time, the French oil major is now taking a more active role in the country’s extractive sector, underscored by its decision in May 2018 to launch the Zinia 2 deep offshore development in Block 17 along with several other oil majors, including Anglo-Dutch BP and the U.S.-headquartered ExxonMobil.
But Angola has also made deals with other companies with links to France. One of them is UAE-based Privinvest, which in September 2016 was reported to have signed a deal with Angola worth USD495 million to provide 17 patrol boats and a promise of technology transfers that would enable the construction of naval vessels in Angola. To do this Privinvest would work with Simportex – a state-owned enterprise (SOE) that operates under the direction of the Angolan Ministry of Defence.
An Africa Confidential article noted in February 2017 that the deal bore ‘strong resemblance’ to another deal Privinvest had signed with Mozambique a few years earlier. That deal is currently being tried in U.S. courts after Jean Boustani, a Privinvest executive, along with 12 others was arrested and charged with conspiracy to commit fraud and money-laundering in December 2018 and January this year, respectively. Reportedly this was in co-operation with former senior executives of Swiss bank Credit Suisse and Russian bank VTB, who were also charged, suspected of having facilitated improper payments to Mozambican officials and the country to subscribe to more debt than it could realistically manage.
Allegedly, Privinvest founder Iskandar Safa was at the heart of the Mozambican deal. The Wall Street Journal reported in November 2016 that ‘Credit Suisse became involved in the deals in 2012, when the lender began discussions with defense contractor Iskandar Safa, who negotiated a deal to supply Mozambique with military and surveillance equipment through his company Privinvest’. In the two years following, Credit Suisse along with VTB and French bank BNP raised USD2 billion in bonds and loans for Mozambican SOEs, loans which more than doubled Mozambique’s government-guaranteed debt leading to a series of defaults. Apparently, ‘proceeds from the deals went straight from the banks to Privinvest rather than the state-owned companies that had borrowed the money’, reported WSJ.
The questions around the Angolan deal are now beginning to gain momentum. Firstly, because there is no publicly available business plan, which could outline how the apparently large number of boats will be manned by the 1,000 or so strong Angolan sailors – considered a low number – and the Navy’s inexperience in building ships. Secondly, the deal was signed at a time when Angola’s finances are poor; while they were signed under dos Santos, Lourenço was minister of defence at the time. This means that he was likely privy to the business deals set up by his ministry, although the extent of his involvement is unclear.
Notwithstanding, the Privinvest order replaced another one Simportex had signed with the Brazilian navy to supply seven Macaé class patrol ships for USD170 million. Worth noting is that the Macaé ships are constructed in Brazil but designed by Construction Mécanique de Normandie (CMN), a French subsidiary of Privinvest Shipbuilding Group. CMN was the same company that was to supply naval vessels and build a shipyard in Mozambique. At the time, Simportex was managed by a close associate of Kopelipa: Luís Manuel da Fonseca de Sotto Mayor Pizarro. Further, he was one of scores of other military officers promoted to the rank of Brigadeiro in September 2017.
New money flows in, while debt grows
Meanwhile, money and credit continues to flow in, as Lourenço’s early announcements and actions to sideline the former president’s family likely fueled optimism among international investors. During the first two quarters of 2018, Angola received credit pledges worth over USD1 billion from Western banks, including a USD700 million loan from Credit Suisse. In May, BNA raised over USD2 billion in a two-tranche Eurobond note of 10-year and 30-year maturities. The bonds were oversubscribed, reflecting strong optimism about Angola’s new beginning under Lourenço. In December, the IMF finally signed off on a three-year extended credit facility of USD3.7 billion – the Washington-based financier would immediately disburse USD900 million – to support the government’s budget and massive expenditure programme.
That added to the growing mountain of debt that Angola subscribed to in 2018, a lot of which will eventually be guaranteed by the government and, consequently, the Angolan tax payer. International credit-rating agency Moody’s Investors Service echoed this concern, when it at the end of April downgraded Angola’s investment rating from B2 to B3 with a stable outlook, warning against the country’s growing debt-burden which it said presented high liquidity risks in the medium term. The IMF also noted this in its review in December 2018 which estimated Angola’s debt-to-GDP at 90 per cent; it was just over 62 per cent of GDP one year earlier.
Other macro-economic indicators underscore the growing concerns. The subscription to new debt is mainly a reprofiling of maturing obligations, while the drop in average oil prices in 2014 severely damaged the country’s reserves of U.S. dollars, essential for imports and maintaining the stability of the kwanza, which the BNA floated in January 2018. Furthermore, the country has been struggling to get out of a recession even though oil prices have somewhat rebounded over the past two years. Although the World Bank projects Angola’s economy will grow by 1.8 per cent this year, it will take a lot of discipline on behalf of the finance ministry to maintain a lid on spending, to prevent the deficit from spiraling again. Added to that is that Sonangol – the cash cow of the government – has persistently missed its revenue targets since 2014 while continuing to sign up to new debt which it has struggled to repay. Furthermore, the state budget for this year was calculated on average crude oil prices at USD68 per barrel, according to influential magazine Africa Confidential – an optimistic projection given that average prices of Brent crude were in mid-January just above USD61 per barrel.
Hour of reckoning
That Lourenço is continuing to trade with the same individuals and companies that have been implicated in such a massive corruption investigations places major doubts on his true intentions. More people are beginning to wonder whether the initial corruption investigations against dos Santos were just for show, given that no one has yet been tried, let alone convicted. An amnesty bill introduced last year which allowed wealthy Angolans to repatriate stolen public funds without running the risk of any criminal prosecution has now expired, but there have been no reports of such funds having been repatriated under the amnesty over the past year.
Angola’s engagement with companies that helped Mozambique’s debt spiral, while raising a lot of debt on capital markets is concerning, especially given Angola’s increasingly bleak economic outlook. The economy remains very dependent on China, which accounts for most of its oil exports as part of the country’s debt-repayments to Beijing. Meanwhile, the global economy is showing strong signs of slowing down, with demand declining in China. In addition, the now-record-long U.S. government shutdown will seriously slow growth forecasts for that country – some are saying it will grow by 0 per cent this year – indicating that the prices of oil will not pick up in the one- to two-year outlook. That will have knock-on effects on the Angolan economy and its inability to generate revenue, it may be time to replace your economic adviser, Mr President ?