Opinion: Dos Santos Departure Means Likely Boost To Angolan Private Sector Investment

Kurt Davis Jr.
Written by Kurt Davis Jr.

Let’s take a moment to celebrate the re-election of the People’s Movement for the Liberation of Angola (MPLA), and a refreshing and brave decision by Jose Eduardo dos Santos.

Victory by the MPLA in the country’s fourth democratic election brings 63-year-old João Lourenço, the former defense minister, to power as the third president of Angola.

This election marks the conclusion of an era and establishes a precedent for a relatively young democracy in Angola.

President dos Santos freely chose to step down from the presidency and open the door to President-elect Lourenço, a trusted leader through almost four decades of dos Santos rule.

The conversation on this election will constantly circle back to how long dos Santos ruled (38 years). But that conversation misses the challenges and opportunities presented by this election and subsequent change of rule.

Voter choice (and apathy)

The stepping down of President dos Santos should not be understated in the context of politics in other sub-Saharan African countries. Some countries struggle to create an atmosphere of peace in order to have elections.

For example, President Joseph Kabila of the Democratic Republic of the Congo negotiated a power-sharing deal with the opposition – ironically at the bidding of President dos Santos – that allows him to stay in office for an additional year while elections are organized.

Critics argue that the Kabila regime is using language and displaying behavior that suggest that this delay may go beyond a year.

Gambian president Adama Barrow originally left the country earlier this year because President Yahya Jammeh refused to step down after he was voted out of office. The willing exit of dos Santos is an appreciated symbol for other countries.

The exit, however, does not necessarily address a growing concern within all parties in Angola. Voter turnout and participation worry democracy advocates at home and abroad. Barely 33 percent of the approximate 28 million population registered to vote in the election.

Only about 79 percent of the 9.3 million registered voters turned out to vote. These types of numbers spell apathy for a country with a very young population. A buy-in from young voters, especially in urban areas across Angola, is necessary for the growth movement to continue in Angola.

Voter choice obviously loses value as a democratic asset (and inspiring force for economic change) in the midst of increased voter apathy. The MPLA is already suggesting an effort to bring those potential young voters back into the fold as they are the economic engine to further Angolan growth.

Oil as a challenge (and opportunity)

Angola is Africa’s second largest crude oil exporter and is still struggling to make ends meet with oil prices hovering around $50 a barrel.

It is such a public struggle that Angola’s petroleum minister Jose Maria Botelho de Vasconcelos publicly stated that oil prices rebounding to $60 a barrel this year would be “extremely important”.

Minister Botelho de Vasconcelos also suggested that his internal team believe that the market is signaling $60 by the end of the year.

The reality from investments banks and economists suggests that oil hitting $60 by end of the year would be an unexpected positive outcome.

Supplies are still high and the Organization of the Petroleum Exporting Countries (OPEC) still struggles to cut production, largely finding its best achievements in unexpected cuts from Nigeria or Libya when technical, social and/or political issues arise in those countries. Yet both countries are undergoing rising oil production, further threatening OPEC’s ability to cut output.

The Libyan national oil company estimates that the country could produce 1.3 million barrels per day by end of 2017 and 1.5 million barrels per day by end of 2018. Such numbers undercut all the optimism for price.

Both Nigeria and Libya are exempt from OPEC’s deal to cut 1.2 million barrels a day. Angola, however, was a party to the OPEC cuts.

Angola consequently cannot bet on $60 and must diversify the economy. President-elect Lourenço recognizes this challenge and has openly acknowledged that Angola cannot solely depend on crude exports, which account for 97 percent of total exports, to address the revenue requirements and spending necessities for economic growth.

Next steps economically after dos Santos

The oil price stagnation is pushing the government towards issuing $2 billion eurobonds. Angolan finance minister Archer Mangueira released a statement that a new Eurobond issuance would help lengthen debt maturities for Angola, as well as create a baseline reference for other national borrowers in the international market.

Early suggestions that Russian bank VTB Bank could lead the issuance has critics riled up after the bank’s involvement in the Mozambican debt scandal.

President-elect Lourenço is also reportedly considering negotiating a deal with the International Monetary Fund (IMF) to help restructure the economy and its debt. Those same reports also come with high caution as Angola has long preferred to avoid the very hands-on approach from technocratic foreigners.

Any further decline in government revenue and any growth in inflation could change that opinion over time. Current sovereign debt levels (and downgrades) and a struggling currency cannot withstand the status quo for a few more years.

Sonangol IPO

It is far-fetched at the moment to imagine a Sonangol initial public offering (IPO). But, with the crafty Isabel do Santos, daughter of current president dos Santos, Sonangol could pull a page from Saudi Aramco and the Saudi government.

With foreign reserves declining in the current price market and a desire to boost capital, Saudi officials are aggressively considering an IPO for Saudi Aramco. The Saudi oil company, under the auspices of the Saudi deputy crown prince Mohammed bin Salman, seeks a $2 trillion valuation.

Other estimates, however, from banks and economists, including the sole independent advisor Moelis & Co, suggests something between $1 trillion and $1.5 trillion. Regardless of the number, this IPO could signal a change in thinking around national oil companies.

Valuation estimates on Sonangol range from $20 billion to $250 billion – a very wide range that regardless the exact number signals an opportunity (or lever) for the Angolan leadership.

Privatization in general

Angola has a local bond and stock exchange, established in 2015, which may be vital to changing the Angolan outlook. International oil players are already present in Angola. Broadening their participation is easier said than done with the significant exposure to the Angolan fields they already possess.

The bigger opportunity may very much be with other large sectors such as agriculture, financial services, mining, and telecommunications that foreigners have generally stayed away from in the past. Boosting investment in the private sector will require some modifications to current laws.

Whether small or large, strategic changes that create a wider opening for capital, but maintain Angolan autonomy, could unleash billions of capital into the country. Partial (and timed) privatization have boosted investment in other countries, such as Ethiopia – a country that lacks Angola’s resources.

The fact that president-elect Lourenço and his team openly recognize the hang-ups in the current economic state of Angola is a big first step. It should not be understated.

He holds a strong view that the current economy is an opportunity (not a challenge) to (1) further diversify the economy, (2) strengthen the economic foundation in other aspects of the economy, through methods such as import substitute and tax base expansion, and (3) invest in infrastructure.

To the credit of President dos Santos, Angola surpassed low public expectations for a country destroyed and downtrodden by a civil war that ended in 2002. The first 15 post-civil war years set the bar for Angola.

It would be, at the same time, wrong to underestimate President Lourenço’s ability (and motivation) to leap that bar, especially as the opposition is making political gains at the polls.


Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.