Angola’s New Leadership: What to Expect

Change is on the horizon in Angola, as the country elects its first new president in nearly four decades. The question is — how much change?

José Eduardo dos Santos, the outgoing president, ruled Angola for 38 years in one of the longest-ruling administrations in Africa. And though dos Santos had long-planned to step down after the 2017 election, his party, the Popular Movement for the Liberation of Angola (MPLA), maintained power in the results released last week. João Lourenço, dos Santos’s hand-picked successor, won the election with 61 percent of the vote.

And despite the clear presidential win, the country’s opposition party, UNITA, has gained momentum, picking up 70 seats in parliament, compared to the MPLA’s 150. The MPLA also lost the majority in Luanda, and this year’s win is a weaker one than in 2012, when the party won 72 percent of the vote.

Falling from a height

There is little wonder Angolans are eager for change — the rapid fall in oil prices beginning in 2014 has had a dramatic impact on the heavily oil-dependent economy (oil makes up 50 percent of GDP, 70 percent of government revenue and 95 percent of foreign exchange income).

In 2016 inflation reached 40 percent, the kwanza collapsed and GDP growth took a hit, falling to an estimated 0.9 percent in 2016 compared to 8.5 percent in 2012. The outlook for 2017 is similarly dismal.

The discontent certainly puts the pressure on Lourenço to implement changes. Already he has made it clear there will not be “two presidents” in the country, and said he plans to combat corruption while boosting economic diversification.

“Change is very likely, including more focus on diversification of the economy and less presidential dominance in decision-making,” said Dr. Alex Vines, Head of the Africa Program for Chatham House, in an August article.

Lower for even longer

After the oil price crashed Angola’s policymakers expected it to rebound within 18 months. But now the country is coming to grips with a lower-for-longer outlook and prices that have yet to stabilize above $50 per barrel years after the crisis began.

The impacts to the state budget and the national economy have been felt in every corner of society, as jobs disappear, the kwanza loses value and public hospitals fail to stock basic medicinal supplies. The need for diversification is clear, but Vines believes those diversification efforts may need to take a back seat.

“The long-term solution is to diversify the economy away from oil dependence but, for now, the oil and gas industry is the main source of government funds and will need to be nurtured and reformed,” Vines said.

“Angola’s new president will need to quickly focus on the country’s oil and gas future. … On top of the need to attract fresh investment in the oil and gas industry, he will face another pressing, and connected, issue: the reform of the banking sector and a linked corresponding banking crisis for US dollars.”

Many of the political appointments by the former president are likely to stand, such as that of Isabel dos Santos, the former president’s daughter, to lead Sonangol. Her restructuring efforts could lead to a much-needed exploration and production boost, with only eight rigs currently in operation in Angola, compared to 25 in 2014, according to Vines’ article.

With most of Angola’s oil production coming from deepwater projects, low prices present a very real obstacle, with the break-even price for deepwater projects in West Africa averaging $75 per barrel and competition for investment tougher than it has ever been.

Despite the competition from newer entrants like Mozambique and Ghana, with 9.6 billion barrels of proven oil reserves and 11 trillion cubic feet of gas reserves Angola will continue to play a vital role in Africa’s oil and gas sector for years to come. As oil prices recover, which most analysts believe is inevitable, Angola’s economic footing will also stabilize.

In the interim, the country is pushing forward with regulatory reforms aimed at creating a more transparent industry and attracting investment, including Presidential Decree 109/16, enacted in May 2016. Among other things, the Act created the Agency for the Petroleum Sector, tasked with petroleum sector coordination and preparing licensing rounds; and the High Council for Monitoring the Petroleum Sector. Additionally, it maintained Sonangol’s role as a grantor of concessions but limited its involvement in exploration, production and operational activities.

There is no doubt more political change in store for Angola, as Lourenço takes the helm and appoints members of his own inner circle to key positions, and as the opposition gains momentum. For an oil and gas industry built on mega-projects, change will likely come more slowly as the government enacts investment reform and operators wait for a market upturn.