This month, Angola reduced the number of oil shipments sent to China to pay off its debts, and also said it had asked for G20 debt relief.
Oil-backed loans represent about two-fifths of Angola’s external debt and most of its obligations to China.
Luanda and Beijing ”both have good reasons to move away from the current model“Oil used for debt service,” said Nick Branson, senior analyst for Africa at Verisk Maplecroft in London.
Since entering an IMF program in December 2018, Angola has come under increasing pressure from the fund to pay off its secured debts, Branson said.
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Verisk Maplecroft expects Luanda to offer Beijing an increase in equity stakes in the six oil fields where Angolan and Chinese oil companies are partners under the banner of Sonangol Sinopec International (SSI).
- This would replace ongoing crude shipments and fit into Sinopec’s strategy to invest in high-quality production assets, Branson said.
- Verisk expects Sinopec to acquire part of Sonangol’s stake in Total block 32 or Eni’s 15/06 block.
Branson predicts that the regulator, the Angolan National Petroleum, Natural Gas and Biofuels Agency (ANPG) offer Sinopec preferential treatment in discovered resource opportunities, such as marginal fields, where tax conditions are attractive at lower crude prices, and undeveloped areas owned by dormant indigenous companies.
- “It would be a much more attractive opportunity than the onshore blocks that the ANPG plans to offer as part of its 2020 license cycle,” he said.
Debt negotiations with Beijing have already started and it is “Really essential” for Angola to obtain some form of relief, says Thea Fourie, Senior Economist for Sub-Saharan Africa at IHS Markit in Centurion, South Africa.
- She notes that in 2015-2016, Angola renegotiated bilateral loans from China and Brazil to reduce repayments.
- Despite a partial rebound, oil remains well below the $ 55 per barrel assumed in the original 2020 national budget.
- At current levels, according to Fourie, significant fiscal adjustments, including cuts in government spending and additional funding for a larger budget deficit, will be needed.
Juvelino Domingos, economist in Luanda, expects Angola to get debt relief from China and G20 if necessary.
- “China is still determined to support Angola and ready to absorb some risks with the debt refinancing and, in an extreme scenario, to forgive some of it,” he said.
- “The G20 decision may not be to the extent desired, but it can add value to the body of efforts that the executive has put in.”
- The chances of not getting relief from the G20 are “remote,” he said.
Angola can make necessity a virtue by reduce losses suffered by public enterprises, says Domingos. “This can be achieved by speeding up the privatization process, divesting non-performing assets and limiting the recapitalization of these companies to well-defined restructuring plans.”
At the end of the line : Angola is in a good position to obtain debt relief, but must use it to rationalize its state-owned enterprises.