Monthly economic and political developments. June 2016.
– President’s daughter is now chair of the state oil company.
– Oil price rise has been good for the country.
-Allegedly %50 Bn went missing from the state oil company.
The President’s daughter is now head of Sonangol.
Isabel dos Santos has recently been made chairwoman of Sonangol which is the state oil company. Sonangol is by far the most important company in the country. Miss dos Santos is already a billionairess three times over. This has cause much resentment about nepotism. President dos Santos is a former Marxist who claims to care about the poor and not about amassing private wealth. Miss dos Santos (43) is an engineer. She has resigned for his executive directopships in other companies. Some Angloan lawyers are preparing a legal challenge to her appointment. They claim it breaches a 2010 law against conflicts of interest.
This disputed appointment has had a bad effect on Portugal. Miss dos Santos owns 18% a a bank there BCP. She also has other major investments in Portugal in the telecommunications sector.
The media is entirely state controlled. Therefore dissatisfaction is expressed only on the internet. Public protests are not allowed despite the constitutuon saying that they are allowed. UNITA – the main opposition party – has vowed to fight Isbael dos Santos’s appointment.
It is widely believed that the president uses state construction projects to pecculate.
The global oil prices has lately touched $60 per barrel. This pick up in the oil price is very welcome news in a country which relies on oil for 95% of its exports. But it is relief more than joy that has been the reaction. The government is aware that the global price will probably not hit $120 again which is where is was a few years ago.
There were severe budget cuts over the last two years. Angola still spends a lot on its military – even sending them on courses in Cuba where they stay in hotels. Those in comfortable government jobs are well looked after.
A state newspaper Valor Economico announced that $50 Bn went missing from the state oil company. State media tried to blame foreign consultants. Assets were overvalued and the deals agreed were not advantageous to the country. Cui bono? Bizarrely Sonangol denies that any money went amiss.
Angola is near the foot of the World Transparency Index. For years commentators have castigated the state oil company for opacity.
The UN is going to provide more funding to help Angola tackle poaching. Angola is a major centre for bush meat and poached ivory.
The kwanza has rallied only slightly against the dollar after months of decline. Despite the official rate of exchange on the street people will offer you twice the official rate for dollars.
Malnutrition and high infant mortality remain a fact of life. There is a growing awareness of the link between kleptocracy and poverty.
There were worries about the countries stability in recent months but these have subsidied.
Political and economic developments June 2016.
– There is a scandal over the EAMATUM bond.
– The country has over $2 Bn more in debt than it originally admitted.
– The economy is stagnating but there are some positive signs.
The African Growth and Opportunity Act (AGOA) has recently taken effect. This is a trade treaty between the USA and Mozambique. It gives Mozambique greater access to the US market and vice versa. Despite the attractive name of AGOA it is not universally popular in Mozambique. Frozen chicken from the US will drive some local farmers out of business. Chicken is the staple meat in the country.
Violence RENAMO (Mozambiquean Resistance Movement) has resurged in Manica Province. The Government has deployed troops there. So far the number of deaths has been low. It appears that RENAMO can be contained in the province and does not pose a serious threat to the rest of the country.
EAMATUM is the Mozambiquean tuna company. Catching tuna is a surprisingly important part of the economy. There are some doubts that the fishing fleet is compliant with EU regulations which it needs to be in order to sell into the EU. Money lent for the upgrading of the fleet has added $ 2 Bn to the national debt. The 24 fishing boats are French made so the EU is eager for this deal to succeed because they want more sales in future.
Both the US Ambassador and the British High Commissioner have asked for transparency on the national debt. The EU is now publicly expressing doubts about supporting the budget which was suspended in April. If EU aid is not forthcoming then the country will be in serious trouble.
Part of the reason for the public debt looking so bad is that now the debts of companies called Proindicus and MAM are now included in the national debt.
The IMF has withheld a $282 m loan. This is to penalise the country for keeping debts to government owned security and defence companies off the books. What are these loans actually for? Some speculate the money ‘lent’ was simply embezzled. Christine Lagarde said that government was ”clearly concealing corruption.”
The currency has fallen against the Rand. The Rand is perhaps the most important currency for Mozambique and the entire region. Imports from South Africa are vital especiall the importation of foodstuffs. There is a paucity of hard currency in the country.
POSITIVE ECONOMIC INDICATORS.
One of the few bright spots on the horizon is that inflation is falling. It is now – 0.22%. Some staple food prices are also slightly down.
The natural gas find is also a cause for optimism but it will be a few years before this can be exploited. It is at least the third largest natural gas field in the world!
OPEC has give Mozambique money to spend on renewable energy. This will reduce the country’s dependence on costly imported fossil fuels. Again the benefit if renwable energy will not take effect for a few years.
President Nyusi has announced plans to sell of 20 state owned companies. They are inefficient. Given the dire straits they will be sold cheaply.
OTHER ECONOMIC NEWS.
Norway is considering reducing aid to the country.
Mozambique is trying to agree a loan from VTB Bank PJSC of Russia. Some suspect there were irregularities in the loan for the fishing boats.
The currency – Metical – has sunk 20% so far this year.
Fitch Credit Assessment has lowered Mozambiques’s rating. This is because the country failed to make a $178 m interest payment last month.
Standard and Poor’s says the country has a 90% debt to GDP ratio.
The interest rate has been raised to 14.4% to contain inflation.
Low commodities prices continue to hit the economy. Coking coal is a key export. Chinese economic slowdown has therefore impacted on the country.
Political and economic developments June 2016.
– Rand likely to fall.
– ANC facing a tough election in August but will win.
– Wine export deal with the EU.
Current account deficit.
The current account gap widened to 5% of GDP.
There has been an inflow of $885 m in investments in the last quarter.
Political uncertainty remains. People still lack confidence in the Finance Minister Pravin Gordhan who was appointed two years ago. Gordhan and President Zuma have publicly rowed.
The ANC (ruling political party) is facing local elections in August. They are facing demands by the labour unions to do more for the working class which is traditionally loyal to the ANC. The ANC is squeezed its left by a party named the Economic Freedom Fighters led by Julius Malea. The ANC is also squeezed on the right by the Democratic Alliance (DA). The DA lately elected its first ever black leader. The DA is increasingly attractive to the black middle class. Despite this the ANC is very likely to win albeit with a reduced majority.
The government is mulling legislation to make it harder to go on strike. This will please investors but enrage the workers. The ANC is also considering selling state assets. Tax rises are mooted. The government has suggested further cuts in public spending but refuses to be drawn on what areas of spending it will cut.
Do not expect any major changes before 3 August local elections. The government does not want to queer the pitch before then.
Despite the misgivings South Africa remains the most industrialised and robust economy in the region.
Southern African Customs Union (SACU) has agreed a wine deal with the European Union. SACU consists of South Africa, Lesotho, Swaziland, Namibia and Botswana). South Africa produces far more wine than the other SACU countries combined.
RSA will now be able to export 110 m litres of wine to the EU tax free. The country is the 7th largest producer of wine in the world. 75% of its exports of wine go to the EU.
The taxi firm Uber has existed in RSA for some years. They now have a cash option in South Africa.
OVERALL ECONOMIC HEALTH
The rand has fallen and is likely to fall further. It is even more volatile than the Argentine Peso. The economy contracted by 1.2% in the first quarter. This quarter is likely to show a very small amount of growth.
Stand and Poor’s as well as Fitch Ratings Ltd have kept South Africa at a BBB rating. Any lower and its debt will be declared junk. South Africa’s credit rating will be reassessed in six months. The chief economist of economists.co.za said there was a 75% chance of a downgrade.
If RSA is downgraded then some have forecast recession and capital flight.
Political and economic developments.
President Lungu is in deep trouble. There have been riots. People have attacked Rwandan immigrants. The country is in dire need of an IMF bailout.
Hakainde Hichilema is a major candidate. He is known as HH. His political party is UDNP. HH pledges free education including tertiary level.
Another key figure is Miles Sampa of the UDF. Sampa is calling on his supporters to vote for HH.
Tilyenji Kaunda of UNIP is also standing for election. He is the son of the founding president of the country Kenneth Kaunda. Tilyenji stood previously and performed dismally.
The PF (Patriotic Front) is the ruling party. There is great discontent with governmental corruption.
Polling day is in August. The ballot papers are being printed in Dubai and the electoral commission is not providing much security. People fear the government will rig the poll. Some believe the president will order the army to vote for him as occurs in Zimbabwe.
Copper is one of the major exports. As the world price is down this hurts Zambia badly. The Copper Belt in the north of the country is gravely effected. The city of Ndola is the capital of the Copper Belt Region.
The national debt is unmanageable. The government may be compelled to cut subsidies to electricity, food and fuel.
The Kwacha (Zambian currency) is down.
SMEs are doing surprisingly well.
There is an increasing Chinese presence in Zambia. The Chinese community tends to be insular and they have their own schools. Chinese enterprises rarely employ Zambians other than as interpreters. An increasing number of Zambians will scholarships to Chinese universities.
Low oil prices are always good for Zambia which imports all its fuel and has to send its good a long way to market. Rallying oil prices are bad news for this country.
There has been some talk of scrapping the kwacha and simply using the South African Rand. Some people use the Rand informally anyway.