Angolan oil sector reform will require innovation

Subject

Sonangol priorities.

Significance

Early structural reforms by new President Joao Lourenco and more positive economic projections for 2018 suggest a potential uptick in Angola’s fiscal fortunes. Since assuming power in September, Lourenco has overhauled the leadership of state-owned oil company Sonangol and dismissed several prominent officials associated with his predecessor Jose Eduardo dos Santos. Separately, Lourenco has moved to tackle the overvalued kwanza. While this will raise debt-servicing costs, this will be partly ameliorated by the recent oil price of over 60 dollars per barrel.

Impacts

• Scrapping the dollar currency peg will help ease the foreign exchange crisis and end payment constraints in the aviation and oil sectors.
• A more realistic exchange rate will fuel inflation in the short term but will likely improve medium-term economic prospects.
• Urban support for the People's Movement for the Liberation of Angola (MPLA) could decline further if reforms remain elite-focused.