Mounting Economic Challenges Threaten the Basis of MPLA Rule in Angola - Carnegie Endowment for International Peace

2022-08-20 09:40:09 By : Ms. Kitty Ji

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The elections scheduled for August 24 promise to be a watershed moment in Angola’s electoral history, which has been dominated by overwhelming People’s Movement for the Liberation of Angola (MPLA) victories since the country emerged from civil war in 2002. A newly united opposition has emerged from an electoral alliance between the National Union for the Total Independence of Angola (UNITA), the Angolan Renaissance Party–Together for Angola (PRA-JA), and the Bloco Democrático. Dubbed the United Patriotic Front and operating under the charismatic leadership of UNITA’s Adalberto Costa Júnior, this alliance is mounting a powerful electoral challenge to President João Lourenço, who was elected in 2017. With the MPLA’s popularity weakened by the social consequences of five consecutive years of recession (2015–2020) and very real perceptions of pervasive corruption, this might be the election in which the opposition massively breaks into the urban constituencies where it has been making inroads for the past decade.

The problems faced by the MPLA are not new. Elections in 2008, 2012, and 2017 saw the party’s vote share decline from 81 percent to 72 percent and 61 percent, respectively. In the run-up to the 2017 elections, popular frustration with the MPLA was channeled primarily through calls for an end to José Eduardo dos Santos’ thirty-eight years of kleptocratic rule. Duly backed by the party establishment, Lourenço acceded to power with the promise of tackling widespread corruption, putting the state’s finances on a sounder basis, diversifying the oil-dependent economy, and opening up democratic space. An overview of each of these areas shows that although his record is not one of unmitigated failure, all are beset by serious shortcomings. Moreover, his problematic record points to fundamental shortcomings in the techniques of rule developed by the MPLA regime since coming to power in 1975.

Like other movements forged during periods of sustained, violent, and ideologically driven conflict, the MPLA developed institutions and routines over the course of armed struggle that have left a lasting imprint on its methods of peacetime governance. Power in Angola is highly centralized in the presidency, which enjoys access to a “parallel system” bypassing official state institutions and tasked with dealing with strategic areas such as security and financing. Most official state institutions, as well as those of the ruling party, lack real power, and high-ranking government officials are routinely moved around in a game of musical chairs that prevents them from accumulating political power but permits high levels of corruption. This system has in the past allowed the presidency to deal pragmatically with emerging political and economic challenges while staving off threats from within the ruling elite. However, the economy’s recent track record and changes to the country’s sociopolitical fabric increasingly point to the inadequacy of these methods, raising the prospect of an end to the MPLA’s political hegemony.

The highly inefficient nature of economic management in Angola has periodically rendered it vulnerable to macroeconomic crises. In the late 1980s, a balance-of-payments crisis led to the introduction of an economic reform program, spearheading the official transition away from a socialist command economy and toward a market-based system. The accompanying privatizations offloaded many state assets but allowed the MPLA to maintain a tight grip over the economy through links to its beneficiaries.

Efforts to address macroeconomic imbalances while conserving the patronage system have been a mainstay of the MPLA’s governing methods ever since the transition to a market economy. These were manifested in the short-lived reform programs of the 1990s, the more serious efforts at macroeconomic normalization of the early 2000s, and the brief International Monetary Fund (IMF) standby arrangement in the wake of the global financial crisis. Although these brought incremental improvements in economic management, it was oil price increases and expanding volumes of oil production that bore prime responsibility for keeping the country’s finances afloat each time. In the meantime, the government failed to address the structural drivers of over-indebtedness, such as an extremely undiversified economy subject to the vagaries of international oil markets and the presidency’s discretionary power over national oil company Sonangol. This system allowed the presidency to mortgage oil resources to pursue military goals and engage in quasi-fiscal operations while also serving as a conduit for elite enrichment, in complicity with foreign interests.

In December 2018, Angola embarked on a three-year IMF program intended to address the fiscal crisis precipitated by the post-2014 collapse in oil prices, following the boom-era borrowing spree. The IMF’s $3.7 billion Extended Fund Facility (later increased to $4.5 billion due to the coronavirus pandemic), was conditional on reforms to the financial sector, changes to the exchange rate management regime, monetary tightening, fiscal consolidation, and improvements in public sector governance. A new debt management strategy also sought to reduce the weight of oil-backed loans, most of which had been contracted from Chinese entities, in the country’s debt stock. These loans are claimed to represent over 50 percent of external debt-servicing costs.

By 2021, the government’s overall fiscal balance was back in surplus for the first time since 2012, helping contain the growth of external debt (see figure 1). This outcome is owed in part to the effects of reform, judged “satisfactory” by the IMF despite limited progress in areas such as public financial management and the privatization of the larger state-owned entities. A deal with Chinese creditors in January 2021 to defer close to $6 billion in debt repayments until after 2023 was also instrumental in giving the government breathing space at a point when the pandemic-related oil price shock put it dangerously close to default. However, the recovery of oil prices over the course of 2021 was once more primarily responsible for reducing the external debt burden by increasing oil revenues and strengthening the kwanza, Angola’s currency.

The further rise in oil prices linked to the Ukraine war has given additional impetus to the government’s optimism, reflected in the emission of a ten-year, $1.75 billion eurobond in April 2022. Yet the prospects for medium- to long-term debt sustainability look more doubtful. In 2023, the repayment freeze granted by Chinese creditors will come to an end; while the current high oil prices have implied a resumption of debt servicing, the opacity around the terms of Chinese loans and of the agreement with Chinese creditors complicate predictions of the likely impact on Angolan finances.

Beyond the cost of servicing Chinese debt, there are questions around the true sustainability of Angola’s public debt. According to IMF analyses, gross domestic product (GDP) growth rates of around 4 percent will be needed to stabilize debt in the medium term. Although this threshold is predicted to be reached by 2025 (see figure 2), the IMF’s track record suggests that this may well be an overestimate. A secular decline in oil production due to maturing oil fields and a lack of new investment casts doubt on the sector’s ability to act as a growth engine. Instead, the 4 percent growth forecast assumes that structural reforms such as the introduction of a flexible exchange rate regime; banking sector regulation, recapitalization, and privatization (including the divestment of Sonangol’s stakes in the Banco Angolano de Investimentos and the full privatization of the Banco de Comércio e Indústria); improvements in public sector transparency; the creation of a competition authority; and the introduction of an insolvency law will be sufficient to bolster private sector confidence and free up resources to finance economic diversification. If these results do not materialize, an unfavorable medium- to long-term global economic outlook might jeopardize the government’s ability to scrape through as it has so often done in the past.

Checking the Angolan economy’s decline crucially depends on the ability to diversify the economy away from extractives and toward sectors such as industry and agriculture. But despite its presence in the MPLA’s official rhetoric since independence, the drive to diversify has so far proven a resounding failure. Ambitious goals set by the leadership have belied a system where technical prescriptions play a limited role in policymaking, and where the legacy of highly bureaucratic Portuguese colonial rule and a Soviet-type planning system continue to be felt. Resources assigned to industrial policy have often been diverted to the pockets of government officials or used to cultivate the loyalty of the private sector. Unsurprisingly, this resulted in deindustrialization during the war. More recently, the limited evidence available suggests the 2004–2014 oil boom led to the growth of light manufacturing sectors such as food and beverages, as well as some incipient development of manufacturers of materials for reconstruction efforts (though the vast majority of building materials continued to be imported). However, this very limited industrial development was set back by the post-2015 recession, while Angolan agriculture severely underperformed relative to its vast potential throughout the entire period.

The Lourenço government has sought to promote economic diversification through its flagship Programme for National Production Support, Export Diversification, and Import Substitution (PRODESI). PRODESI combines standard measures to improve the business climate, such as removing red tape and strengthening the rule of law, with targeted policies to develop agriculture and manufacturing. Among the latter, the main policy tool has been a series of credit lines assigned to priority sectors.

Like the Angola Invests program preceding them, PRODESI credit lines have done little to advance the diversification agenda. Bilateral credit lines provided by Deutsche Bank ($1 billion) and the African Development Bank ($165 million) were left mostly untouched during the first two years of the program. Being used to extending credit with only very loose conditions, or to making easy profits by lending to the government, banks lacked the capacity to evaluate credit risk. On the recipient side, Angolan entrepreneurs were unaccustomed to complying with the strict project evaluation criteria imposed by international creditors. As a result, few of the expected industrial and agricultural projects materialized.

Faced with the inability to catalyze the expected supply-side response, the government reverted to its tried-and-tested top-down formulae. A National Bank of Angola decree introduced in April 2020 stipulates that banks assign at least 2.5 percent of their net assets to priority sectors, with yearly interest rates capped at 7.5 percent. Similarly, a disappointing response in import-substituting sectors was addressed through the introduction of nontariff restrictions on imported foodstuffs, which backfired as the resulting food shortage had to be filled in by importers reputed to be uncomfortably close to the Angolan government.

The failure to foster economic diversification illustrates well the typical pattern that has so far characterized the Lourenço government: attempts to introduce a new order fail when they collide with the logic of the system developed over decades; faced with this failure, the government reverts to blunt methods of economic policymaking and tries to introduce change by administrative fiat; in the process, interest groups close to power benefit from the discretionary allocation of state largesse. It is thus no coincidence that the run-up to the elections has seen an acceleration in state financing of infrastructure projects without tender, including $150 million to build two provincial football stadiums and an Olympic sports center.

If the failure of economic diversification evinces the difficulty of changing the MPLA’s modus operandi, and if the track record of economic reform shows the limitations of change that does not address the structural sources of indebtedness, the failure of political reform points to the MPLA’s inability to internalize the basic tenets of democracy.

During the war years, the MPLA developed a highly repressive system of government with little by way of even lip service to popular consent. This was made possible by the resources afforded by the offshore oil industry, which allowed the government to essentially neglect the task of ruling its territory. A war-weary population, fearful of losing the tenuous protective mantle provided by the MPLA, could mount little resistance. With the transition away from single-party rule in the 1990s, attempts were made to infiltrate civil society, but the mainstay of the system remained the parallel security apparatus controlled by the presidency.

The postwar period saw a gradual increase in popular protest against the inequities produced by the regime. This was epitomized by the activities of a network of young activists known as revús (revolutionaries), who personally targeted former president dos Santos in a series of high-profile actions. Violent interventions against protesters, several arrests, and a counterpropaganda campaign prevented the escalation of protests, but they also instilled dissatisfaction with the curtailment of civic freedoms, including among privileged classes.

Pent-up demand for an opening of democratic space was partially satisfied upon Lourenço’s accession to power. Increased press freedoms, the invitation of former dissidents to the presidential palace, and especially Lourenço’s “anticorruption” crusade galvanized the population. Most impressively, the new president carried out a series of frontal attacks against members of dos Santos’ family, including by sacking Isabel dos Santos and José Filomeno “Zenu” dos Santos from the heads of Sonangol and the Sovereign Wealth Fund, respectively. These actions led to prosecutions resulting in the confiscation of large parts of Isabel’s economic empire and to Zenu’s arrest. Yet this moment of glasnost also had typical side effects, as frustrations were vented beyond what the regime was willing to tolerate. Critical voices became louder as the inconsistencies of the anticorruption drive and its politicization became clear. The anticorruption drive also sowed divisions among members of the ruling party, who were unsure as to whether the reforms were actually intended to eliminate corruption or whether they could continue with business as usual.

In the meantime, rising popular anger fueled by falling purchasing power (see figure 3) and long-simmering grievances has been met with extreme violence by the state’s repressive apparatus. This coincided with a closing of democratic space and the recasting of state media as a mouthpiece for the government. It was also accompanied by a return to the fold of key regime figures under investigation for corruption, killing off remaining hopes about the sincerity of the government’s fight against corruption. But this has still not been enough to re-assert regime cohesion, as Lourenço’s aborted anticorruption crusade has bred resentment within ruling circles, where there is widespread concern with his perceived lack of skill in political maneuvering. The cause of that concern is vividly demonstrated by Lourenço’s erratic response to José Eduardo dos Santos’ death, as the state media’s silence over the former president’s critical health condition was abruptly reversed once he passed away. The conflict between the government and dos Santos’ family over his burial site also points to the damaging effects of Lourenço’s actions on the cohesion of the MPLA regime, which have so far prevented the regime from reaping the propaganda benefits of a state burial for the towering figure in Angola’s postindependence history.

The president’s attempts to close MPLA ranks are largely motivated by the growing electoral threat mounted by the opposition, rejuvenated by the election of Costa Júnior as UNITA leader in 2019 and the formation of the United Patriotic Front. His youthful and cosmopolitan figure has helped dispel urban voters’ association of UNITA with the rural masses. His mixed-race heritage is also likely to have proved reassuring for urban voters, fearful of the anti-mestiço and anti-creole rhetoric traditionally deployed by late leader Jonas Savimbi. UNITA’s makeover comes at a time when the traumas and divisions of old decreasingly make sense to Angola’s young population, well over half of whom were born after the end of the civil war. In this context, the government’s clumsy attempts to tamper with UNITA’s internal electoral process and to exclude opposition parties from media outlets have only exacerbated popular anger at the MPLA’s inability to reform its authoritarian political instincts.

Across the economic and political spheres, the MPLA regime has repeatedly revealed itself to be unable to engage in any meaningful reform. The contrast between the early, hopeful years of João Lourenço’s tenure and the more recent reversal shows the difficulty of altering a political culture marked by internal repression and widespread corruption. The government met with some success in areas such as fiscal consolidation, where top-down methods and administrative fiat can go a long way. But failures in the more institutionally demanding task of diversifying the economy evidence the limits of this style of governance. The MPLA proved equally unable to reconfigure state-society relations in ways that reconciled greater political freedoms with its continued hegemony, attesting to the growing disconnect between its governance methods and the country’s changing sociopolitical composition and economic needs. Unlike in the past, war is now unavailable as an alibi for poor governance, while declining oil wealth cannot provide a backstop for the distributive pressures to which the government is subjected.

For all the controversy around Lourenço’s mistakes, the decline in MPLA support mirrors the experience of other southern African ruling parties born from armed struggle, such as South Africa’s African National Congress (ANC), Zimbabwe’s Zimbabwe African National Union–Patriotic Front (ZANU-PF), and Namibia’s South West Africa People’s Organisation (SWAPO). Where the MPLA contrasts with the ANC and SWAPO is in its much more extensive record of violent internal repression and extremely high levels of corruption, which make it hard to envisage a seamless transition to multiparty democracy.

Regardless of the outcome of the August elections, a post-MPLA future now appears fathomable for Angola. The more pressing question is how the transition toward more competitive politics will take place. In the near term, contestation of election results from both sides and the risk of a heavy-handed state response could provoke serious political instability. In the longer term, the question is whether the MPLA will be willing to become one political actor among many. In this respect, more promising signs come from the opposition’s capacity to set its differences aside in a joint electoral project. It remains to be seen whether this may be the germ of a political culture of dialogue and compromise, and one that is able to deliver on the significant economic challenges faced by Angola.

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

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