Its Economy in Crisis, Angola Readies for a New Leader

Maria Antonia Jorge, president of a cooperative of local fisherwomen on Luanda's Ilha peninsula, is struggling to pay university tuition for her two sons. Photo: Gabriele Steinhauser

The ruling party has tapped the current defense minister to succeed José Eduardo dos Santos

TALATONA, Angola—This upmarket new suburb on the edge of Angola’s capital stands as a ghostly monument to the challenges facing one of Africa’s biggest oil producers as it braces for its first political transition in almost four decades.

Dozens of gated communities sit mostly empty, gathering dust. They were built during the first half of this decade for a middle class that never materialized and a foreign elite that largely packed up and left when a dizzying oil-price boom went bust in 2014.

In glitzy shopping malls, stores that haven’t already closed struggle to stock their shelves, as a free-falling local currency and dollar shortages batter imports.

Now, in its worst economic crisis since emerging from civil war in 2002, Angola is gearing up for its first leadership change in 37 years following the announcement in December that José Eduardo dos Santos won’t seek another term as president in elections scheduled for August.

Whether the change will bring fresh remedies to the southern African country’s economic woes is open to question. The ruling Popular Movement for the Liberation of Angola, or MPLA, has tapped João Lourenço, the current defense minister, as Mr. Santos’s successor, and authorities have stepped up pressure on critical journalists and antigovernment activists.

The deep stake that Mr. Dos Santos’s family holds in the economy also is likely to remain undiminished.

Angola’s second-highest court ruled last week that the president had acted legally when he appointed his daughter Isabel chief executive of the state oil company Sonangol, the centerpiece of an economy that derives 96% of its exports from the sale of crude.

The president’s daughter already presides over a business empire ranging from telecommunications to banking, while her brother, Filomeno, heads Angola’s sovereign-wealth fund.

“There is a lot of discontent with dos Santos and above all his family,” said Filomeno Vieira Lopes, an economist and senior member of the Democratic Bloc, a small opposition party.

A closer look at Luanda’s sparkling skyline, with its skeletons of unfinished skyscrapers with no electricity or sewage systems, reveals how sharply the country’s economy has plummeted. In the streets below, ordinary citizens wrestle with 41% inflation and chronic shortages of staples such as sugar, cooking oil and medicine.

The International Monetary Fund expects that Angola’s economy will have zero growth in 2016, marking its worst peacetime performance on record—a disaster for a country whose population of 26 million is growing by 3.2% annually.

Meanwhile, government debt has jumped to 78% of gross domestic product, according to IMF estimates, from just 41% when oil prices plummeted in 2014.

Little is known about where or from whom the government is borrowing—let alone at what rate—so analysts warn about the difficulty of predicting its ability to pay back what it owes. In April, the government entered bailout negotiations with the IMF and then abandoned them three months later. Since then, the central bank has used 18% of its foreign-currency reserves to keep some imports flowing into the country.

If spending continues at this pace, “in about a year’s time you’d probably run out of reserves,” said Stuart Culverhouse, head of fixed-income research at Exotix Partners, an investment firm that focuses on frontier markets.

It is a far cry from the fast-charging economy that enabled Angola to buy huge stakes in Portugal’s banking and energy sectors over the past decade and help its former colonial ruler avoid bankruptcy.

Now, layoffs at oil and construction companies have stopped the beginnings of a middle class that spent its disposable income on imported cars and foreign vacations. Angola’s currency, the kwanza, has dropped to an official rate of 165 to the dollar from around 97 in 2014. On the black market, a dollar fetches about 485 kwanza.

Still, the announcement that Mr. dos Santos won’t run for president again surprised many. In the capital Luanda, banners still celebrate his August re-election as leader of the MPLA, with 99.6% of the vote.

“Comrade President, the people request that you continue to lead the country’s destiny,” the signs proclaim.

For many Angolans, however, Mr. Santos’s rule has taken a turn for the worse in recent years.

Maria Antonia Jorge, president of a cooperative of fisherwomen on the narrow peninsula facing downtown Luanda, has sent two sons to university with her earnings from selling salted sardines and mackerel.

“Sometimes I paid three or four months [of tuition] at a time,” she said proudly, her fish drying on the netted roof of a makeshift beach shack.

Today, the 45-year-old Ms. Jorge worries that her boys may never graduate because the rising cost of salt and declining demand for her fish mean she is straining to pay her sons’ tuition. “There is this fear,” she said.

The reversal of Angola’s fortunes is also starkly visible in Talatona, where many stores have struggled to keep products on their shelves and in their showrooms, even though the central bank has loosened its grip on foreign currency.

José Edson, a salesman in Talatona’s Fiat-Chrysler dealership, often turns away potential buyers because the company can’t obtain enough dollars to bring in new vehicles. The car dealer used to import some 2,000 cars every six weeks. The latest shipment of 70 cars, he said, was three months ago.

“The demand is there, but not the supply,” he said.

Since the dealership is forced to sell its cars in kwanza at the official exchange rate, rather than the much weaker black-market rate, Fiat Pandas and Jeep Cherokees have suddenly become much more affordable for anyone with dollars and access to the unofficial market.

Ms. Jorge, the fisherwoman on Luanda’s Ilha peninsula, said despite the pain and worry, she has drawn one valuable lesson from her country’s economic collapse.

“The only good thing that has come out of this is that we are watching our expenses,” she said.

Source: wsj