Africa’s second-largest oil producer has set aside an initial $ 5 billion in an upstarting sovereign wealth fund – containing inflows from oil sales - encouraged by the IMF in order to protect the country against commodity price volatility and to preserve its oil wealth for future generations. Angola is dependent on oil for 97% of its export revenues and 80% of government revenues, leaving the country vastly vulnerable as witnessed when 2008 crude prices fell, prompting payment arrears and a $ 1.3 billion IMF loan. The board of the fund declared investments by the fund will include financial securities, stakes in infrastructure projects and other industries with existing growth potential.

Impact on country risk

The fund, established by long-ruling and recently re-elected President Dos Santos, could be used for improving social welfare but might also be used to invest abroad for the benefit of its political leaders. With popular protests against gaping inequalities at unprecedented levels since the run-up to the August elections, misuse of the fund might spark further demonstrations. Over the years the state oil company Sonangol has been operating as a kind of sovereign wealth fund with its quasi fiscal operations (QFO). QFOs are expenditures by Sonangol on behalf of the state which are not recorded in the budget, giving rise to a total lack of transparency and problematic transfers of oil revenues to the actual government budget. The $ 32 billion that went missing from the budget in December 2011 were linked to these QFOs. The new sovereign wealth fund and the phasing out of QFO’s should enhance transparency and develop a proper buffer for times of crisis. Assuming appropriate fund management, greater external resilience will improve Angola’s MLT outlook.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com