Restructuring at state oil firm Sonangol makes IMF financial support more likely in 2016, yet foreign banks will face greater compliance hurdles over charges of nepotism and lack of transparency within the state firm.
On 2 June, President Jose Eduardo dos Santos appointed his daughter Isabel dos Santos as chairwoman of state energy firm Sonangol. Isabel dos Santos already controls business interests in Angola and Portugal, including mobile phone operator Unitel. President dos Santos also dismissed Sonangol’s entire board of directors as part of restructuring of the company into two separate entities: a nominally independent regulator and the state oil firm that holds the business interests. EXX Africa sources with expert knowledge of the Angolan oil sector expressed confidence that Isabel dos Santos would be a capable manager to execute the tough restructuring of Sonangol, which is also likely to cause some political upsets. The decision to appoint Isabel dos Santos therefore makes perfect sense from a managerial perspective and since she benefits from political cover from her father, the president.
The International Monetary Fund (IMF) and World Bank have long called on the Angolan government to break up Sonangol into separate entities. The economic crisis Angola now faces has drawn it closer to the IMF. As oil prices have dropped by 54% over the past two years, Angolan revenues have fallen significantly. Some 90% of state revenues were sourced from the oil sector, before prices collapsed in 2014. Oil sales account for 95% of Angola’s foreign exchange earnings, making Sonangol the biggest source of state funding. Sonangol announced in February that it was facing financial distress, even though leaks in Portuguese media in 2015 already claimed the company was close to bankruptcy. Angolan economic growth is expected to slow to 2.3% from 6.8% in 2013. The rapprochement with the IMF and ongoing negotiations to agree on a financial assistance package have necessitated the restructuring of the state oil company. IMF support is now more likely to be forthcoming later in 2016.
Risk implications: However, the appointment of Isabel dos Santos will trigger questions over transparency and nepotism within the state oil company. Foreign investors and banks will face more complex compliance hurdles to conduct business with Sonangol. High-level corruption is endemic across sectors, due to the widespread participation of politically connected individuals. The pressure to operate with ‘silent’ Angolan minority shareholders — especially in the oil and mining sectors — increases exposure to corruption for foreign companies. The non-transparent nature of transactions indicates rising corruption risks for foreign operators, as there is increasing pressure for foreign operators to form joint ventures with Angolan ‘silent’ minority partners in new exploration concessions. Tighter scrutiny of oil companies’ operations abroad by US and EU regulatory authorities exposes operators to reputational risks and risks of financial penalties in their home countries, if found guilty of violating probity laws by forming joint ventures with Angolan companies owned by politically exposed people.
Moreover, the appointment of Isabel dos Santos indicates that the family is still determined to hold on to power after President dos Santos steps down, possibly in 2018, even as it loses some influence to determine the succession to the ruling Movimento Popular de Libertação de Angola (MPLA). President dos Santos had already appointed his son Zenú as chairman of the Sovereign Wealth Fund of Angola. Such appointments are aimed at protecting the family’s substantial business interests in the oil and gas sector, telecoms, banking, retail, mining, and infrastructure development. The appointments are also aimed at protecting the family from any eventual prosecutions over corruption or mismanagement.
President dos Santos’s decision to step down in 2018 is likely to have been pressured by the MPLA given intensifying economic and political challenges and dos Santos’s growing unpopularity. Falling oil production and revenues have forced the government to curb social spending and subsidies. Protests by disgruntled youths, opposition supporters, and rights activists have also become more common in major cities. However, the MPLA is strongly opposed to any form of dynastic succession. Therefore, President dos Santos is seeking to protect his family and his closest allies as he gradually begins to transfer power to key allies.
Robert Besseling is the founder and executive director of EXX AFRICA, a specialist intelligence company that reports on African political and economic risk to businesses. He holds an MA (Hons.) in History from the University of St. Andrews in Scotland. He also has an MBA and a PhD in African political and economic history.
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