Angola's Terminator Gets Serious on Reforms as Kwanza Falls
(Bloomberg) -- Angola is on a roll. In just three hours on Tuesday, it updated plans for a Eurobond sale, said it will pay back arrears of $5 billion and allowed its currency to plummet, again.
“The signal is quite strong from the Angolans that they’re willing to do the right thing,” said Samantha Singh, a Johannesburg-based strategist at Absa Bank Ltd. “Not many people expected the central bank to be as aggressive as it has been.”
Africa’s second-biggest oil producer has been battling to revive an economy hit by low crude prices, dollar shortages and inflation of more than 25 percent.
In the three months since Joao Lourenco, 63, replaced Jose Eduardo dos Santos as president, he replaced the central bank governor and fired his predecessor’s children as heads of the state oil company and the sovereign wealth fund. He’s been dubbed The Terminator by Angolans on social media after Arnold Schwarzenegger’s movie character.
The government said on Tuesday it would repay arrears of $5 billion to contractors by 2019 and plans to tap the international bond market by the end of June. Lourenco’s new central bank governor, Jose de Lima Massano, also weakened the kwanza another 11 percent against the euro, bringing its total drop to about 25 percent since the nation scrapped a peg last week that was put in place in early 2016. The currency is now down almost 20 percent against the dollar this year to around 205, though its still much stronger than its black-market rate of 450 against the greenback.
“It isn’t clear how far they’re going to go with the devaluation,” Singh said by telephone. “The budget suggested that they’d allow the currency to fall around 30 percent, but it assumes an oil price of $50 a barrel. It’s much higher than that now.”
Brent crude this week closed above $70 per barrel for the first time in three years. Angola had been on a borrowing binge since oil prices collapsed from more than $110 a barrel in 2014, raising its debt-to-GDP ratio to above 60 percent in June from 47 percent three years earlier. Angola will probably have to turn to the International Monetary Fund for financial help, Standard Chartered Plc said in a note last week.
The reforms are making Angola’s assets attractive, according to Aberdeen Standard Investments, the London-based company that manages about $900 billion of funds. The extra yield investors demand to hold Angolan debt over U.S. bonds is 399 basis points, compared with the 347 average for sub-Saharan Africa, according to JPMorgan Chase & Co. indexes.
“You can see it as cheap versus its sub-Saharan African peers,” said Edwin Gutierrez, Aberdeen’s head of emerging-markets sovereign debt. “Other than Zambia, it’s the only other major one still at about 400 basis points. And unlike Zambia, it’s doing a lot of the right things to get an IMF deal. Whether it actually wants an IMF deal remains uncertain.”
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